On 13 July 2016, the Luxembourg parliament adopted the long expected bill of law 5730 (the Bill 5730) which radically modernises and streamlines the country’s legal environment. This confirms and reinforces the “business friendly” climate for which Luxembourg is well- known to investors around the globe. These are the most substantial amendments for decades to the legal rules applying to Luxembourg companies.
It will in particular impact any holding company or any client with a holding in Luxembourg and is a positive step to bring flexibility by being very investor friendly. However, the changes are complex and it is important to check that shareholder rights are not affected. In some cases, a back to basics approach to company structures will need to be taken. Due to be published during August 2016, the Bill 5730 will come into effect three days after its publication. Any new company to be incorporated following the effectiveness of the new law will need to comply with this new legal framework. The important changes will however require careful analysis and precise guidance. We are actively preparing to navigate our clients through the new system over the transitional period and thereafter; to ensure that new opportunities are capitalised upon and any challenges addressed.
Companies in existence before the Bill 5730 comes into effect will benefit from a transitional period of 24 months to amend their articles of association or other constitutive documents. These companies otherwise remain subject to the Luxembourg law on commercial companies of 10 August 1915 (the 1915 Law).
However, the Bill 5730 will be applicable to all matters not explicitly regulated in the articles of association of existing and new companies, and we recommend that the relationships among shareholders are checked as they could potentially be adversely affected.
The Bill 5730 affects a number of technical amendments to the Luxembourg company law. Below is a summary of these key points.
The Bill 5730 amends:
- The 1915 Law
- the section of the Luxembourg Civil Code concerning companies
- the Luxembourg Law of 19 December 2002 concerning the register of commerce and companies as well as bookkeeping and annual accounts of companies.
Amendments relevant to all corporate forms of companies
- The voting arrangements between shareholders are formally recognized and regulated. The shareholders may further voluntarily waive part or all of their voting rights, or their voting rights might be suspended by the management body if they default under their obligations arising out of the articles of association or a shareholders’ agreement.
- The Civil Code now expressly recognises the granting of usufruct over shares and the 1915 Law now regulates the rights that shall be recognised to the bare owner and usufruct owner of shares in private and public limited liability companies.
- The mechanics of tracking shares is confirmed in the Civil Code.
- The 1915 Law now confirms the possibility for the sole shareholder of a company, under certain conditions, to dissolve it in a one-step liquidation.
- Changing the nationality of a company no longer requires a unanimous vote of the shareholders and can now be resolved by the shareholders’ meeting in the same conditions of quorum and majority as are required for the amendment of its articles of association.
Amendments relevant to public limited companies (SA) and partnerships limited by shares (SCA)
- Subject to certain conditions, the articles of association can now provide effective share transfer restrictions, lock up periods, prior consent and pre-emption clauses. Any transfer that will be made in breach of such provisions will be null and void.
- The 1915 Law now authorises that non-voting shares represent more than 50% of the share capital of the company. Non-voting shares no longer need to be granted a preferential dividend.
- SA and SCA can under certain conditions issue shares below par value or free shares.
- The management body can henceforth create special dedicated committees for daily management or specific tasks in a legally defined environment.
- Shareholders holding 10% or more of the voting rights are now empowered to bring an action against the board of directors and/or the supervisory board for mismanagement or breach of the law / the articles of association on behalf of the company.
- The minimum share capital has been rounded down to EUR 30,000.
Amendments relevant to private limited liability companies (SARL)
- The maximum number of shareholders has been increased from 40 to 100.
- The majority rule required for the amendments of the articles of association is now set at 75% of the share capital. The majority in number of shareholders has been abolished.
- A SARL can now issue voting or non-voting beneficiary units (shares non-representative of the share capital).
- A SARL can now issue bonds to the public.
- The majority rule for the approval of the shareholders’ meeting prior to a transfer of shares to non-shareholders can be decreased from 75 to 50% in the articles of association. If a transfer of shares to a third party does not obtain the approval of the shareholders’ meeting, a shareholder willing to sell its shares in the company shall be offered alternative solutions, or will otherwise be entitled to sell its shares to a third party despite the disagreement of the shareholders’ meeting.
- The mechanism of authorised capital is now available to SARL and the board of managers can issue convertible debt instruments through the authorised capital.
- The minimum share capital has been rounded down to EUR 12,000.
Creation of a new corporate form, the simplified public limited company (SAS)
- The Bill 5730 introduces in the Luxembourg company law the “société par actions simplifiée“.
- The SAS is essentially governed by the rules applicable to the SA.
- The SAS substantially leaves the corporate governance rules at the discretion of the shareholders.
- The SAS cannot be listed on a regulated market.
Our view on this change is that it is very good news in terms of the greater flexibility it brings and is a masterpiece of law by enabling the limiting of voting rights. However, it could lead to some complex necessary changes.