Various Espirito Santo Group entities have now applied, and been admitted to, “controlled management” (gestion contrôlée) under Luxembourg law (see table below for dates of admission).  These entities include: Espirito Santo Financial Group S.A.,Espirito Santo International S.A.Rio Forte Investments S.A. and Espírito Santo Financière S.A

This alert sets out some of the key issues to be aware of when acquiring debt in these entities (or other Luxembourg companies).


Q.1   What is the recommended process to transfer a debt of a company inGestion ContrôléeWe would recommend using an LMA English law Trade Confirmation (Claims) and Luxembourg law LMA Assignment Agreement (Distressed/Claims) for transactions which settle on or after the date of request forGestion Contrôlée.

Q.2   What risks should be covered in the LMA documentation mentioned in Q.1?The trade documentation should include provisions to cover: (i) the transfer of all claims ancillary to the debt traded (e.g. claims relating to fraud, misselling etc), (ii) claw-back risks, (iii) assistance of the original seller in respect of the filing of the claims, and (iv) fulsome representations and warranties (as these are likely to be requested by any onward purchaser).

Q.3   What are the considerations for bond holders if the Gestion Contrôléeprocess develops into a bankruptcy process? Under a Luxembourg law bankruptcy process there is a requirement for creditors to file claims against the debtor. The "creditor of record" for Luxembourg law purposes will depend on the form and nature of the applicable debt instrument. Noteholders may consider definitising their Notes to ensure that they are the creditor of record for filing purposes.


Click here to view the table.

General Overview

Banking licence requirements: No banking licence required to acquire funded term debt.  However, the granting of loans by a credit institution located in Luxembourg, which receives deposits and other repayable funds from the public and grants credit for its own account, requires a banking licence.

Tax: Generally, no Luxembourg withholding tax will be payable. However, there are two particular exceptions that should be noted:

  1. Payments of interest on a loan may be subject to withholding tax if the structure is in the form of a bond with a profit-contingent coupon (or similar).
  2. 35% withholding tax may apply, unless the beneficiary of the payment (the paying agent) elects to exchange information required under the EU Savings Directive.  From 1 January 2015, Luxembourg will no longer apply such withholding tax and information will be automatically exchanged.

No capital gains tax/stamp duty will be payable on the transfer or amendment of a loan.

Transfers of loans: May be made by assignment or novation. Assignment will only be enforceable against the debtor upon notification to and/or acceptance by the debtor. Novation will require the consent of all parties.

Security: The most common form of security granted over receivables and financial instruments under Luxembourg law is a pledge. However, transfers of ownership for collateral purposes and repurchase agreements may also be used.

Under Luxembourg law, a security interest is viewed as an ‘accessory’ right, which is attached to the secured claim and will automatically pass upon a transfer by assignment of such claim.  When the secured claim is novated, the accessory security interest will not remain effective, unless it is expressly reserved.

Trusts: Trusts are recognised but do not exist under Luxembourg law.  The law chosen by the parties will in principle be recognised as governing law, and the effects of the trust (in particular, the segregation of trust assets) will be recognised, subject to exceptions, including: (i) the non-recognition of the chosen governing law if the situation has a closer link with another jurisdiction which does not recognise trusts, (ii) the application of mandatory laws of Luxembourg and other jurisdictions, and (iii) the general public order exception.

On this basis, we would advise transferring by way of assignment as opposed to novation.

Post Transfer Requirements: There are no mandatory registration requirements.However, the registration of the loan documents with the Administration de l’Enregistrement et des Domaines in Luxembourg may be required in the case of legal proceedings before Luxembourg courts or if the loan documents are required to be produced before an official Luxembourg authority (autorité constituée). In case of such registration, or in case of voluntary registration, a nominal registration duty or an ad valorem duty may be payable.

Financial collateral arrangements are subject to nominal registration duty only.

Equitable subordination: There is no concept of equitable subordination under Luxembourg law.