On May 12 2011 Parliament passed Bill 6164, which implements the EU E-Money Directive (2009/110/EC) and Directive 2009/44/EC amending the Settlement Finality Directive and the Collateral Directive. The new law:
- revises the legislation on e-money institutions and aims to create a more innovative and balanced framework for the creation of new related services; and
- amends the 2005 Collateral Act.
Most of the amendments regarding the 2005 Collateral Act reflect the provision of common practices in existing collateral arrangements, where they currently apply on a strictly contractual basis. Like the 2005 Collateral Act, the new law is very creditor friendly; it seeks to enhance the legal security of the creditor's position when taking collateral, and to ensure that such collateral is effective and bankruptcy remote.
The law's innovations include a provision that the signature of a financial collateral agreement and a written list of claims transmitted to the collateral taker are sufficient to ensure perfection of the collateral arrangement over claims. Separate notification to individual debtors is no longer required in order to enforce the arrangement, including towards the debtor or a third party. The perfection of pledge agreements over claims is also simplified - the signature of a pledge agreement is as of now sufficient to effect dispossession without further notification to the debtor.
The law confirms the validity and enforceability of contractual waiver rights between parties and against third parties. It covers:
- a written waiver by a debtor under a collateral arrangement of netting or similar rights in favour of the collateral taker; and
- a waiver by the collateral provider of recourse against the debtor in the event of enforcement of the collateral arrangement.
In both cases the law confirms that the contractual waiver is valid and enforceable between parties and against third parties, even in the event of bankruptcy or a similar procedure. Confirmation of the enforceability of contractually agreed waivers will give creditors full control of the value that the collateral effectively represents on enforcement.
On the issue of perfecting pledges over financial assets, the law introduces two new means of perfection into Luxembourg law (in addition to the traditional means of effecting perfection, which included dispossession of the pledged assets):
- A control arrangement applies in the case of a pledge taken by a custodian on assets under its custody; and
- A change of control which applies by the conclusion of either a tripartite agreement that includes the custodian or a bipartite agreement which does not include the custodian, but requires a subsequent notification to the custodian with instructions to the latter to act on the pledgee's instructions.
Moreover, the law introduces the assumption that dispossession (unless otherwise agreed) - or notification to the custodian if a control arrangement has been signed - amounts to a waiver of the custodian's pledge ranking, with no need to make a corresponding request to the custodian unless the latter raises an objection.
The law confirms that as of the date of enforcement of a pledge agreement, appropriation by the pledgee or by a third party for a determined price can be effected immediately on an enforcement event, regardless of whether an appropriation price for the pledged assets has been determined by such date. Accordingly, the price of the pledged assets can be determined either before or after appropriation by the pledgee or the third party in accordance with the contractual provisions agreed between the parties, but will no longer constitute an obstacle to effective enforcement.
The above-mentioned amendments to the 2005 Collateral Act will enter into force on June 30 2011, once the law has been published in the Official Gazette. It will apply to collateral agreements that were signed before its entry into force.
For further information on this topic please contact Josée Weydert or Isabelle Lux at NautaDutilh Avocats Luxembourg by telephone (+352 26 12 29 1), fax (+352 26 68 43 31) or email ([email protected] or [email protected]).