The Luxembourg Act of 10 August 1915 on commercial companies (the "Act"), as amended by the Act of 10 August 2016, now provides that the debt-to-equity swap rules set out in Article 94-2 et seq. can be applied to any issuance of securities by a Luxembourg or foreign issuer.
1. Opt-in mechanism
The rules laid down in Articles 84 to 94-8 of the Act mainly relate to the organization and powers of bondholders' meetings and representatives.
Luxembourg and foreign issuers can now opt to apply some or all of these rules to any issuance of securities (valeurs mobilières).
2. Debt-to-equity swaps in a nutshell
It is now possible for the general meeting of securities holders to agree to shares in the issuer being substituted for bonds or other securities or to shares or bonds of other companies being substituted for bonds or other securities of the issuer. In order for such a decision to be validly adopted, the following conditions must be met:
(i) The general meeting must be presented with a statement of the company's assets and liabilities prepared by the statutory auditor and dated within two months prior to the meeting. A report by the board of directors justifying the proposed measures must also be presented.
(ii) The issuer's share capital must be paid up in full.
(iii) A quorum of at least half the outstanding securities must be present or represented at the meeting. If this condition is not met, a new meeting must be called which can validly deliberate regardless of the percentage of securities represented.
(iv) The decision must be approved by a two-thirds majority of the votes cast, excluding abstentions and invalid ballots.
Where the decision to substitute shares for bonds results in an increase in the issuer’s share capital, this increase must be approved by the general meeting of shareholders within three months' time.
Extracts from such decisions shall be published in accordance with the Act.
The debt-to-equity swap rules are particularly useful for issuers facing financial difficulties as they present an interesting alternative to the more stringent, court-based pre-insolvency procedures. Any issuer can now decide in its issue documentation to apply these rules to an issuance of securities.
This newsflash forms part of a series which aims to provide insight into certain changes introduced by the Act of 10 August 2016. For further information and a general overview of the amendments please refer to our earlier newsflash "Modernisation of Luxembourg Company Law - What's new?".