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Overview of restructuring and insolvency activity

Situated at the crossroads between Belgium, France and Germany, Luxembourg is a highly stable country and has registered relatively consistent growth rates in recent years, with gross domestic product (GDP) growth of 7 per cent in 2021 (compared with 3.1 per cent in 2020).2 However, the impact of the covid-19 pandemic on GDP growth in 2020 to 2021 was smaller than experts had initially predicted. Among the countries of the eurozone and the European Union, Luxembourg is considered to be one of the countries to have best managed the crisis.3

In Luxembourg, bankruptcy proceedings are currently the most common insolvency proceedings, whereas reorganisation proceedings remain rarely used in practice or are often used too late to avoid bankruptcy. However, a substantial reform of Luxembourg insolvency law is under way (see Section VI.ii).

Despite the crisis, the number of bankruptcy proceedings in 2021 remained relatively stable, with a total of 1,181 judgments (compared with 1,158 in 2020).4 This means that 2021, despite the covid-19 pandemic, counted a similar number of bankruptcies as in 2020.5 Nonetheless, in Luxembourg, any commercial company that is in cessation of payments (i.e., unpaid debts of the debtor are certain, liquid, due and payable) must make a bankruptcy filing within one month.6 However, this one-month period was suspended until 30 June 2022. As a consequence, many potential bankruptcy cases have not been filed and the above figures may in fact be inaccurate and providing a misleading picture of the current situation.7 It is also worth noting that an extensive range of support measures has been put in place for Luxembourg businesses.

During the first two months of 2022, approximately 100 bankruptcy proceedings per month were opened by the Luxembourg District Court.8 In that respect, it appears that the main economic sectors affected were trade, specialised activities, hotel accommodation and catering.9 Over the past few years, the sector most affected by the high bankruptcy ratio remains the services sector.10 These figures reflect the structure of Luxembourg's economy, which is still led by the banking and financial sector. Around 150 credit institutions are established in Luxembourg. Some multinational companies, such as ArcelorMittal, Goodyear, DuPont, SES and Ferrero, have chosen to successfully establish their European headquarters in Luxembourg. In recent years, multinational companies active in the high-tech and e-commerce industries have also decided to set up their European or international headquarters in Luxembourg.

Regarding Luxembourg reorganisation proceedings, few were opened in 2019. Only three controlled management proceedings were opened in 2019, and two were followed by a bankruptcy proceeding.11 No controlled management proceedings were opened in 2020.

After the 2007 to 2008 financial crisis, proceedings were opened against several credit institutions with established holding companies, subsidiaries or branches in Luxembourg, including, among others, some Icelandic banks (Kaupthing, Glitnir Bank and Landsbanki), as well as Lehman Brothers, Espírito Santo and ABLV.

Recent legal developments

The amended law of 18 December 2015 on the resolution, reorganisation and winding-up measures of credit institutions and certain investment firms and on deposit guarantee and investor compensation schemes implements into Luxembourg law Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms and Directive 2014/49/EU of the European Parliament and of the Council of 16 April 2014 on deposit guarantee schemes.

The law provides for measures for early intervention and the resolution of credit institutions and some investment firms, on either an individual or a group basis, and designates the Luxembourg financial regulator (i.e., CSSF) as the resolution authority for Luxembourg. The main resolution tools granted to the resolution council are (1) the sale of businesses by competent authorities without shareholder consent, (2) the creation of a bridge institution, (3) an asset segregation allowing for a transfer of toxic assets to a 'bad institution' and (4) a bail-in.

The law also provides for the reorganisation and winding up of credit institutions, investment firms and other professionals of the financial sector.

Significant transactions, key developments and most active industries

As is set out in Section I, 2020 did not see an increase in the number of bankruptcies in comparison with 2019, although this observation must be linked to the aforementioned postponement of certain time periods in relation to the covid-19 pandemic. The main economic sectors affected by bankruptcies in the past year were trade, specialised activities, hotel accommodation and catering.39 In September 2016, Telecom Luxembourg Private Operator was placed under controlled management and avoided bankruptcy through its acquisition by the French NomoTech Group via its Luxembourg subsidiary LuxNetwork SA.40 In May 2020, Luxembourg-based company Intelsat SA, listed with the New York Stock Exchange, filed a Chapter 11 application with the US Bankruptcy Court for the Eastern District of Virginia.41 In February 2021, Intelsat SA announced that it had obtained 'the support of key creditor constituencies on the terms of a comprehensive financial restructuring that would reduce the company's debt by more than half – from nearly $15 billion to $7 billion'.42 Although, in February 2021, Intelsat announced that it had obtained the support of creditors holding approximately US$3.8 billion of the company's funded debt,43 a year after its bankruptcy filing it is still struggling to obtain the support of a group of creditors claiming that Intelsat's proposed restructuring strategy improperly benefits other stakeholders at the group's expense.44 We understand that Intelsat intends to ask the competent US bankruptcy court for additional time to file a Chapter 11 plan.45

In December 2020, Swissport completed a comprehensive financial restructuring as the ownership of the company has been transferred from HNA Group to a group of global financial investors.46 In August 2020, the committee of senior secured creditors of Swissport agreed to provide €300 million of bridge financing to give Swissport sufficient and immediate liquidity to trade through the covid-19 market crisis and to facilitate the agreed financial restructuring.47 Luxembourg law has played an essential role in the Swissport transaction, as Swissport has significantly strengthened its balance sheet and liquidity position with a total debt reduction of approximately €1.9 billion and a new term loan secured by Luxembourg law-governed financial collateral arrangements granting the senior creditors considerable protection in case of reorganisation or liquidation procedures.