The capital impairment rules applicable to companies that have sustained significant losses, set out in Article 100 of the Luxembourg Act of 10 August 1915 on commercial companies, were recently amended by the Act of 10 August 2016, modernising Luxembourg company law.
The previous version of Article 100 did not specify the exact requirements for its applicability and merely referred to a loss of the company's statutory share capital.
New Article 100 clarifies that the loss is determined based on the value of the net assets of the company. From now on, the board of directors must call a general meeting of shareholders if, pursuant to losses incurred, the value of the company's net assets falls below half or a quarter of its share capital, without prejudice to stricter provisions in the articles of association.
Further, the board of directors must now prepare a special report to explain the reasons for the company's situation and justify its proposals. If the directors propose continuing the company's activity despite the loss, they must informs shareholders of the measures they intend to adopt in order to remedy the company's financial situation. This report must be specifically mentioned in the notice calling the general meeting, and each shareholder has the right to obtain a copy thereof at the company's registered office at least eight days prior to the meeting. A copy of the report must also be sent along with the notice. Failure to provide this report shall render any resolutions passed at the general meeting invalid, unless all shareholders waive this requirement.
The general meeting shall deliberate on whether to wind up the company and other potential measures on the agenda. The meeting must be held within two months from the time when the losses were first discovered or should have been discovered.
As in the past, resolutions are adopted according to the rules applicable to amend the company's articles of association, unless the value of the net assets falls below a quarter of the company's share capital, in which case a resolution to wind up the company may be adopted with the approval of only a quarter of the votes cast at the general meeting. Furthermore, the directors may still be held personally liable to the company for any increase in losses due to noncompliance with the abovementioned requirements.
Finally, strictly speaking, Article 100 applies only to the following corporate forms: société anonyme, société en commandite par actions, société européenne, société par actions simplifiée and the société coopérative organisée comme une société anonyme. It may however be advisable from a corporate governance standpoint for managers of a société à responsabilité limitée and other types of companies to follow the procedures laid down in Article 100.
The new law entered into force on 23 August 2016.