The recently adopted Luxembourg Act of 10 August 2016, modernising Luxembourg company law, reinforces the rights of minority shareholders. The four major changes in this respect relate to the rights of such shareholders to (i) bring an action against the company's management (action sociale), (ii) request the adjournment of a shareholders' meeting, (iii) request an independent investigation, and (iv) consent to a transfer of shares in an S.à r.l. (société à responsabilité limitée).
The following provisions have been inserted into or amended by the new act to enhance the rights of minority shareholders, i.e. shareholders that do not exercise control over a company:
(i) New Article 63bis - liability action against management
New Article 63bis allows minority shareholders to sue the company's directors and members of its management and supervisory boards. Such an action may be brought by one or more shareholders and/or the holders of founders' shares (parts bénéficiaires) representing 10% or more of the company's voting rights. Previously, such an action could be initiated only by a simple majority of shareholders.
The purpose of this provision appears to be to encourage directors to be more diligent in the performance of their duties, thereby avoiding negligence and mismanagement. It should be noted that this type of action can be brought only by shareholders of an S.A. or S.C.A., not an S.à r.l.
(ii) Amended Article 67(5) - request to adjourn a general meeting of shareholders
Former Article 67(5) allowed the shareholders of an S.A. representing 20% or more of its share capital to request the adjournment of a general meeting. This threshold has now been lowered to 10%. Here again, the legislature wished to strengthen the rights of minority shareholders. This amendment is consistent with Article 70, which provides that a general meeting must be held at the request of shareholders representing at least one-tenth of the company's capital. This article is not applicable to shareholders of an S.à.r.l.
(iii) Amended Article 154 - general right to submit questions to management and request an independent investigation
Minority shareholders representing at least 10% of the share capital and/or voting rights can ask the board of directors or management body questions about the management and operations of the company or one of its affiliates. Previously, this right could be exercised only in the event of "extraordinary circumstances".
If the company's board or management body fails to answer these questions within one month, the shareholder(s) may petition, as in summary proceedings, the president of the district court responsible for commercial matters (président du tribunal d'arrondissement siégeant en matière commerciale et comme en matière de référé) to appoint one or more independent experts to draw up a report on the issues to which the questions relate.
(iv) Amended Article 189 - consent to a transfer of shares in an S.à r.l.
To date, a minority shareholder that wished to transfer its shares in an S.à r.l. to a third party needed to obtain the consent of shareholders representing at least three-quarters of the company’s capital, given at a general meeting. Article 189 has now been amended to introduce more flexible rules in this regard. The threshold can now be lowered in the company's articles of association to half the share capital, and a decision can be taken in writing (in lieu of a general meeting) if the company has fewer than 60 shareholders.
Under the new rules, if the transfer request is not approved, the non-transferring shareholders have the right to acquire the shares or have them acquired from the transferring shareholder, if the latter still wishes to proceed with the transfer. The company may also decide, with the consent of the transferring shareholder, to reduce its share capital and redeem the shares. If the shares are not acquired or redeemed within the period provided for by amended Article 189, the transferring shareholder shall be entitled to proceed with the initially proposed transfer. This new mechanism is designed to avoid a (minority) shareholder being locked up in the absence of specific transfer provisions in the company's articles or a separate shareholders' agreement.