The Luxembourg Companies Act of 10 August 1915, as amended inter alia by the Act of 10 August 2016 (the "Act"), introduces several new grounds to invalidate shareholder decisions. In this regard, a distinction should be made between grounds generally applicable to shareholder decisions in all types of companies and those applicable to a particular type of corporate form, such as an S.A. (société anonyme), S.C.A. (société en commandite par actions), S.À R.L. (société à responsabilité limitée) and/or S.A.S. (société par actions simplifiée). The new rules provide useful clarification and greater legal certainty for shareholders.
1. General grounds to invalidate shareholder decisions
Article 12septies of the Act specifies five grounds on the basis of which decisions taken by the general meeting of shareholders can be invalidated: (i) a procedural irregularity that influenced or could have influenced the outcome of the decision, (ii) a violation with fraudulent intent of the rules governing general meetings , (iii) an ultra vires act or abuse of power affecting the decision, (iv) the exercise at a general meeting of voting rights that have been suspended by legislation other than the Act, provided the quorum or majority required to adopt the decision would not have been met but for the unlawful exercise of these voting rights, and (v) any other cause provided for by the Act. Shareholders can expressly or implicitly waive their right to raise any of these grounds, unless the invalidity arises from a rule of public policy.
Invalidation of the decision must be confirmed by a court. The company is named as defendant in the petition submitted to the court. The decision shall be deemed invalid as from the date of the court's judgment or, with respect to third parties, as from the publication date of the judgment, as prescribed by the Act. If invalidation of the shareholder decision affects rights vis-à-vis the company acquired in good faith by third parties, the court may declare that these rights shall not be affected by the judgment, without prejudice to the claimant's right to seek damages, where appropriate.
2. Specific grounds to invalidate shareholder decisions
In addition to the abovementioned grounds, the Act provides grounds to invalidate shareholder decisions which are only applicable to a particular type of corporate form, under specific circumstances. Thus, failure to provide the following reports shall render the decision taken by the general meeting null and void, unless the shareholders have unanimously waived this requirement:
- when shares of an S.A. or S.C.A. are to be issued without nominal value, below the par value of existing shares, a report by an independent auditor (réviseur d'entreprises) stating that the financial and accounting information laid down in management's report on the transaction (in particular, the issue price and the financial impact of the transaction) is accurate and sufficient to inform the general meeting called to vote on the matter (Article 32(6) of the Act);
- when the preferential right of shareholders of an S.A. or S.C.A. to subscribe to shares issued within the limits of the authorised capital is restricted by the management body, a detailed management report justifying, in particular, the proposed issue price (Article 32-3(5) of the Act);
- when the net asset value falls to less than half or a quarter of the share capital, a special management report explaining the causes and management's proposals and measures to redress the company's financial situation (revised Article 100 of the Act); strictly speaking, these rules are applicable only to the S.A. or S.C.A., but it may be prudent to extend them to the S.À R.L. as well;
- when certain types of companies are converted into an S.A. or S.C.A., a report by an independent auditor (réviseur d'entreprises) on the financial statements prepared prior to the conversion, notably identifying any overvaluation of the assets; it should be noted that the shareholders cannot waive their right to receive this report (new Articles 308bis-17 and 308bis-20 of the Act); and
- for the conversion of certain types of companies into an S.A. or S.C.A., a management report justifying and accompanying the conversion proposal (new Articles 308bis-18 and 308bis-20 of the Act).
Pursuant to new Articles 67bis and 195bis of the Act, shareholders of an S.A., S.C.A. or S.À R.L. may conclude arrangements concerning the exercise of their voting rights. However, voting arrangements that violate the provisions of the Act or are contrary to the corporate interest shall be deemed invalid. If votes are cast at a general meeting of shareholders pursuant to an invalid voting arrangement, the votes shall be considered null and void along with any resolutions taken, unless the votes did not affect the final outcome.
Finally, pursuant to new Article 141(2) of the Act, three certificates must be issued by admin-istrative bodies in order for the sole shareholder to wind up the company without liquidation (so-called "simplified winding-up"), failing which the decision to wind up the company shall be deemed void. These certificates are required in order to ascertain that the company has fulfilled its obligations regarding the payment of taxes and social security contributions.
3. Statute of limitations
The statute of limitations for legal action expires six months:
- after the vote, for the grounds of invalidity mentioned in new Articles 67bis and 195bis of the Act; and
- from the date on which the shareholder decision became enforceable against the person seeking to invalidate it or the date on which the decision became known or should have become known to that person in view of the circumstances, for the other grounds of invalidity.