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Trends and regulatory climate


What is the current state of the lending market in your jurisdiction and have any new trends emerged over the last 12 months?

Luxembourg is the Eurozone’s premier private banking centre and the world’s second largest investment funds domicile. The country’s political, legal and fiscal stability, combined with both its drive for innovation and international orientation, make Luxembourg an ideal financial hub for private and institutional investors from all over the world. Thus, asset managers, private equity firms, banks, insurance companies, payment institutions and many other financial services professionals have chosen Luxembourg to set up their pan-European operations and to get a strong foothold in the Eurozone.

Luxembourg’s flexible and lender-friendly treatment of security interests continues to be very attractive to international banks. There is also a trend for more bank loans to be provided to Luxembourg investments funds, be it for equity bridge or leverage purposes.

Regulatory activity

Is secured lending a regulated activity in your jurisdiction?

Secured lending is a regulated activity in Luxembourg where it entails the provision of financial services on a professional basis (eg, the granting of loans to the public). This requires a company to obtain either a licence as a credit institution (if deposits are received from the public) or an authorisation as a professional of the financial sector carrying on lending activities, in accordance with the Luxembourg Financial Sector Act 1993.

Are there any specific regulatory issues which a prospective borrower should consider when arranging or entering into a secured loan facility?

In principle, where the borrower is not a regulated entity, there are no legal restrictions or limitations on a Luxembourg borrower's use of proceeds under a secured loan facility.

However, any loans advanced to or applied for by a Luxembourg borrower for illegal purposes are prohibited, and the general exception of public order shall also apply.

Are there any specific regulatory issues which a prospective lender should consider when arranging or entering into a secured loan facility?

A prospective lender can freely grant loans or extend money to a Luxembourg borrower as long as these lending activities do not qualify as regulated financial sector activities such as, in particular, the activity of granting loans to the public.

The Luxembourg Financial Sector Authority has provided some guidance on the meaning of ‘public’, indicating that it generally refers to a multitude of non-identifiable persons.

A number of exemptions exist under the law, though. The most common one is the so-called ‘intra-group exception’: financings contracted by Luxembourg entities with other group entities are not subject to a licence. Similarly, one-off or ancillary lending activities are not subject to a licence. Lending operations contracted by regulated Luxembourg investment funds or securitisation vehicles (including the taking/granting of security) are in principle allowed, but restrictions may be contained in the related documentation or in the special laws that govern those funds or vehicles. Moreover, the purchase of loan receivables on the secondary market is not subject to a credit licence, whereas factoring activities with a credit element are subject to a licence (except if a Luxembourg securitisation company is used to purchase the commercial receivables).

EU-based financing institutions that perform lending activities in Luxembourg which qualify as financial sector activities do not require a licence, based on the EU rules of freedom to provide services, freedom of capital and freedom of movement, which will prevail over any country-specific licence requirements in this respect, provided that such services are covered by authorisations that the lenders received in their home countries.

Non-EU credit institutions and other persons from third countries that are not established in Luxembourg but that offer their services in Luxembourg are required to have a licence.

Are there plans or proposals for reform or significant changes to the regulatory landscape in this area?

To our knowledge, there are no specific plans or proposals for reforms or changes in this area.

Structuring a lending transaction


Who are the active providers of secured finance in your jurisdiction (e.g., international banks, local banks or non-bank financial institutions)?

Financial transactions in Luxembourg are carried out by both international and local banks. German, French, UK and the European branches of US banks are the main players. European (including Luxembourg) subsidiaries of Chinese banks are also emerging as noteworthy participants.

The Luxembourg market is very welcoming to a diversity of investors, which is reflected in the types of financing available, ranging from secured and unsecured lending in acquisition, real estate, structured, project, fund or Islamic financing, to high-yield bonds either issued or guaranteed by Luxembourg entities. Financings provided by alternative lenders are also on the rise.

Is well-established market-standard facility documentation used in your jurisdiction for secured lending transactions?

As a large part of loan financings in Luxembourg originate in foreign jurisdictions such as the United Kingdom, the United States or Germany, the laws of these jurisdictions usually govern the facility agreements. Therefore, even though the facility agreements are mostly based on Loan Market Association (LMA) or Loan Syndication and Trading Association (LSTA) standard loan agreements, they typically contain the terms and conditions that lenders in the relevant jurisdictions are accustomed to see.

The Luxembourg security package covering assets located in Luxembourg is documented in Luxembourg law-governed security agreements containing, to a large extent, market-standard provisions, thereby minimising the need for lengthy negotiations between parties.


Are syndicated secured loan facilities typical in your jurisdiction?

Syndicated secured loan facilities are typically made available to Luxembourg borrowers but, as mentioned above, Luxembourg law rarely governs the relevant facilities agreements.

How are syndicated facilities normally structured? Does the law in your jurisdiction allow a facility agent to be appointed to act on behalf of other banking syndicate members?

Where Luxembourg law governs syndicated facilities, the latter usually follow the standard LMA or LSTA arrangements. The Luxembourg Civil Code recognises the agency concept (mandat) as a contract pursuant to which the agent acts in the name and on behalf of the principal; this is the basis on which a facility agent would be appointed to act on behalf of the other banking syndicate members.

In the context of secured lending, the Luxembourg Collateral Act expressly provides that financial collateral may be held by a person acting on behalf of the beneficiaries of the financial collateral. As such, a security agent/security trustee can act on behalf of other syndicate members and hold qualifying financial collateral under the Luxembourg Collateral Act on behalf of such members, even where the security agent/security trustee is not itself a creditor of the debt secured by the financial collateral. As a result, for security arrangements falling under the Luxembourg Collateral Act, no parallel debt provisions are required.

Does the law in your jurisdiction allow security and guarantees to be held on trust by a security trustee for the benefit of the banking syndicate?

Under Luxembourg law, the legal concepts of ‘trust’, ‘trustee’, ‘security trustee’ and related legal concepts do not exist. However, foreign trusts may be recognised in Luxembourg under the Trust and Fiduciary Contracts Act 2003, as amended (implementing the Hague Convention of July 1 1985 on the law applicable to trusts and their recognition). Accordingly, the governing law as chosen by the parties and the effects of the trust will be recognised in Luxembourg, subject to certain exceptions – including the non-recognition of the chosen governing law in case of a closer connection with another jurisdiction that does not recognise trusts, the application of mandatory provisions and the general exception of public order.

As such, a security trustee can act on behalf of other syndicate members and hold qualifying financial collateral under the Luxembourg Collateral Act on behalf of such members, even where the security trustee is not itself a creditor of the debt secured by the financial collateral.

Special purpose vehicle financing

Is it common in secured finance transactions for special purpose vehicles (SPVs) to be used to hold the assets being financed? Would security generally be given over the shares in the SPV or would lenders require direct asset security?

SPVs are widely used in Luxembourg to hold the assets that are being financed.

The shares of the SPV and of other group companies (including subsidiaries of the SPV) are also customarily pledged. Where appropriate in the structure, direct asset security is taken by the lenders (eg, a pledge over the bank accounts held by the SPV in Luxembourg and over any receivables owed to it).


Is interest most commonly calculated by reference to a bank base rate or a market standard variable reference rate (eg, LIBOR, EURIBOR or HIBOR)? If the latter, which is the most commonly used reference rate in your jurisdiction?

The way in which interest is calculated will depend on the type of loan facilities made available, as well as on established practices of the lenders involved. Rates can be fixed or floating, or linked to reference rates such as LIBOR and EURIBOR. The latter is the most common reference rate in Luxembourg.

Are there any regulatory restrictions on the rate of interest that can be charged on bank loans?

No legal provision prohibits the high remuneration on a loan. However, a competent Luxembourg court may reduce any contractually agreed interest rate to the maximum legal interest rate if the court finds the rate manifestly excessive for a Luxembourg borrower. This may be considered to be a point of international public order under Luxembourg law.

Further, under agreements governed by Luxembourg law, interest may not accrue where it is overdue on capital, unless such interest has been due for at least one year, and the parties have specifically provided in an agreement (to be made after that interest has become due for at least one year) that such interest may be compounded (or, absent such agreement, the competent court has granted compound interest on motion of the creditor) – all in accordance with Article 1154 of the Luxembourg Civil Code. Article 1154 could still be considered to be a point of international public order under Luxembourg law and could override the relevant foreign governing law.

Use and creation of guarantees

Are guarantees used in your jurisdiction?

Guarantees are often used in Luxembourg; in large cross-border financings, these guarantees are often governed by foreign law (ie, by the law governing the facility agreement). Where Luxembourg law is chosen, the most common forms of personal guarantees are suretyship and autonomous (or ‘first-demand’) guarantee. Suretyship is ancillary to the principal secured obligation and is subject to all the defences that apply to the principal secured obligation under the relevant reference agreement(s). As a result, the guarantor may invoke all remedies that are available to the principal debtor in respect of the execution of its obligation, unless previously waived, which may threaten its efficiency.

An autonomous/first-demand guarantee is a type of guarantee created by international commercial practice and not by law, contrary to suretyship. It is a stronger commitment, characterised by its autonomous nature. The obligations of the guarantor constitute an autonomous guarantee that is not an accessory to the principal secured obligations and the guarantor engages itself irrevocably to pay a specific amount, either at first demand or following the presentation of specific documents. With regard to group financings, particularly in respect of guarantees granted in favour of a parent or sister company, certain corporate benefit and guarantee limitation considerations apply, as further set out below.

What is the procedure for their creation?

Typically, guarantees granted by a Luxembourg company take the form of a written agreement between the parties, with no further formalities. By contrast, suretyship granted by a natural person is subject to specific formalities.

Do any laws affect or restrict the granting or enforceability of guarantees in your jurisdiction (e.g., upstream guarantees)?

A Luxembourg company must act within the limits of its corporate object specified in its articles of association, as well as its corporate interest. Therefore, the granting of guarantees must fall within the scope of the corporate object and be in the corporate interest of such guarantee provider (the latter is a factual matter and is left at the appreciation of the guarantor's board/management).

If the guarantee was granted outside the scope of the corporate object and corporate interest of the guarantor, the physical persons who signed the guarantee will have exceeded their mandate. As a result, a Luxembourg court may consider that the person acting in excess of his or her power had acted in his or her own name and not in the name and on behalf of the company. The guarantee may be declared null and void if its beneficiary was aware that the granting of the guarantee fell outside the scope of the corporate object of the guarantor and/or was not in the corporate interest of the guarantor. In addition, the directors may incur criminal penalties for misappropriation of corporate assets if they derive a personal benefit from the granting of such guarantee.

These risks are even higher where such guarantee is found to endanger the credit of the company or is deemed disproportionate to the financial capacity of the guarantor.

That is why in practice limitations may apply in the case of upstream or cross-stream guarantees. There is no rule of thumb in this respect, but it is a well-accepted market practice in Luxembourg to limit the guarantee to a certain percentage of the Luxembourg guarantor's net assets and, in some instances, for the borrower to pay a guarantee fee to the relevant Luxembourg guarantor.

Financial assistance considerations shall also be taken into account. A guarantee may be declared void and the directors of the company may be held criminally liable if the guarantee has been granted with a view to facilitate the acquisition of the company's shares by a third party. For public limited liability companies, a whitewash procedure exists under which such companies are, under certain conditions, allowed to provide financial assistance.

Subordination and priority

Describe the most common methods of structuring the priority of debts and security.

Except as between securitisation companies and its creditors and investors, Luxembourg law does not regulate contractual subordination. There exists very limited local case law in relation to the recognition of contractual subordination provisions. However, the Luxembourg Court of Appeal confirmed on January 9 2013 the main principles applicable to the validity and enforceability of subordination clauses.

Subject to any statutory claims of preferential rights, subordinated creditors rank in accordance with the priority agreed in the relevant subordination agreement. Subordination clauses can be specific (eg, limited to a defined operation) or general. In general subordination clauses, the subordinated creditor accepts that if the debtor becomes insolvent or is liquidated, its claim is paid after all other creditors have been paid. Such a clause does not prevent the creditor from being paid when the debt becomes due and payable.

Inter-creditor agreements establishing the order of priority of the creditors and the security available to them are common in Luxembourg. They are usually governed by foreign law (ie, the law applicable to the main financing arrangements).

Documentary taxes and stamp duty

Are any taxes, stamp duty or other fees payable on the granting of a loan, guarantee or security interest, or on its enforcement?

Under Luxembourg law, it is not necessary, as a matter of principle, to file, record or enrol with any court or other authority in Luxembourg or to pay any stamp duty, transfer, capital, registration, issue or similar duties or taxes or governmental fees and charges in relation to the execution, performance and enforcement by the relevant parties of Luxembourg law or foreign law loan agreements or security agreements, except for the following: mortgages, pledges over a going concern and security rights over aircrafts, inland ships or international vessels must be registered with the relevant public authorities in Luxembourg.

Furthermore, registration is required if such agreements are appended to a deed that is mandatorily subject to registration, or are lodged with the notary for his or her records. Lastly, registration may be made on a voluntary basis or pursuant to a contractual obligation in the relevant agreements. A fixed duty or ad valorem duty will be applied depending on the nature of the obligations.

Cross-border lending

Governing law

Is it more common for local law to govern the terms of the facility documentation or is the law of another jurisdiction often elected by the parties (eg, English law or New York law)?

Luxembourg law rarely governs the facility documentation itself. The parties usually elect English, New York or German law.

However, the security documents over assets located in Luxembourg are governed by Luxembourg law.


Are there any restrictions on the making of loans by foreign lenders or the granting of security or guarantees to foreign lenders?

There are no restrictions on the granting of security or guarantees to foreign lenders, except to lenders from countries that are blacklisted under international sanctions regimes. However, a pledge over a going concern/business universality may be granted only to authorised credit institutions, notaries or breweries.

The making of loans by foreign lenders is subject to licence restrictions.

Are there any exchange controls that restrict payments to a foreign lender under a security document, guarantee or loan agreement?

No specific exchange control provisions exist under Luxembourg law. However, foreign exchange control provisions should be respected when performing the relevant agreements.

Security – general

Security agreements

Is it possible to create a security interest over all assets of an entity? If so, would a single security agreement suffice or is a separate agreement required for each type of asset?

‘All asset’ security and ‘floating charge’ concepts are not known or recognised under Luxembourg law. Assets located in Luxembourg shall be pledged under separate Luxembourg law-governed security agreements. In cross-border financings, however, a Luxembourg obligor occasionally grants a foreign law-governed floating charge or debenture.

Under the Luxembourg Collateral Act, as amended, a collateral provider may pledge all present and future financial instruments and claims that it holds, without the need to designate them specifically. However, different perfection requirements apply depending on the type of financial instruments/claims pledged and it is thus more common to pledge each type of financial instrument/claim under separate agreements.

Release of security

What are the formalities for releasing security over the most common forms of assets?

The release of a Luxembourg security interest is generally documented by either individual agreements per category of released assets or by a global release agreement.

The release formalities depend on the nature of the pledged assets. The most common forms of asset pledged are financial instruments and claims pledged pursuant to the provisions of the Luxembourg Collateral Act. The release formalities are as follows:

  • Release of a pledge over shares: recording of the release in the share register of the company whose shares are pledged (similar formalities apply for warrants, registered bonds/notes, equity certificates and any other instrument for which a register exists);
  • Release of a pledge over bank accounts: notification to the account bank; and
  • Release of a pledge over claims: notification to the relevant debtor(s).

Asset classes used as collateral for security

Real estate

Can security be granted over real estate? If so, what are the most common forms of security granted over real estate and what is the procedure?

Yes, security can be granted over real estate in Luxembourg.

The customary form of security over real estate is a contractual mortgage. A pledge over real estate may also be taken, but this form of security is rarely used in practice as it requires a transfer of possession of the real estate to the secured creditor.

Procedure A contractual mortgage must be in writing and passed before a Luxembourg notary (except for mortgages granted in favour of Luxembourg’s Banque et Caisse d'Épargne de l'État) and two witnesses. The notarial deed shall clearly identify the mortgaged property and the amount that the mortgage secures.

A contractual mortgage that is not established by a notarial deed is invalid and can be declared void by a Luxembourg court at any time.

The contractual mortgage becomes enforceable against third parties upon registration with the mortgage register of the judicial district where the mortgaged property is located. The secured obligations must be certain and liquid, otherwise no registration of the mortgage will be accepted.

Such registration is valid for a period of 10 years and can be renewed for subsequent 10-year periods, provided that neither the underlying debt for which the mortgage was created nor the 10-year term itself is extinguished.

In the absence of renewal, the mortgage will remain valid but will no longer be enforceable against third parties, and the secured creditor will lose its preferential rank over the mortgaged property.

Machinery and equipment

Can security be granted over machinery and equipment? If so, what are the most common forms of security granted over this kind of property and what is the procedure?

Yes, security can be granted over machinery and equipment.

Such security shall take the form of a civil law pledge governed by the Luxembourg Civil Code and be executed by way of a notarial deed or under private seal. The perfection of such pledge requires the transfer of physical possession of the relevant collateral to the secured party. No security is created as long as the security provider has possession of the relevant machinery or equipment, making it impossible to grant security over equipment and inventory while leaving the pledgor in a position to make use of such assets. Pledges over machinery and equipment are thus uncommon in practice.

Machinery and equipment may, however, also be pledged under a pledge over a going concern/business universality (gage sur fonds de commerce).

A pledge over a going concern/business universality usually includes all the assets of the pledgor (in a broad meaning, but excluding real estate) such as customers, trademarks, patents, tools, equipment and up to 50% of the stock.

A pledge over a going concern/business universality is subject to specific requirements set out in a Grand-Ducal Decree of May 27 1937, as amended, and can be granted only to authorised credit institutions, notaries or breweries. In particular, a valid pledge over business universality requires that the beneficiary of such pledge be a Luxembourg or foreign credit institution specifically authorised by the government (sitting in council) to enter into a pledge over a going concern/business universality. In addition, a written agreement is required, enforceable against third parties after registration at the mortgage register of the judicial district in which the relevant business is run, or where the stock or goods are located (valid for a renewable 10-year period).

In light of the latter and given that an authorisation has to be obtained from the government, the perfection of a pledge over a going concern/business universality is a costly and lengthy process (unless the relevant credit institution is already authorised). Pledges over going concern/business universality are thus rarely used in practice.


Can security be granted over receivables? If so, what are the most common forms of security granted over this kind of property and what is the procedure?

Yes, security can be granted over receivables by two means:

  • a pledge over receivables; or
  • a transfer of ownership by way of security (rarely used in practice).

Pledges over receivables are governed by the Luxembourg Collateral Act and can be created under private seal.

In principle, a receivables pledge takes effect between the parties, and is automatically perfected as against the relevant debtor and against third parties as of the date of execution of the pledge agreement.

However, the debtor of the receivables may validly discharge the relevant claim if payment thereof is made to the pledgor, as long as such debtor did not have knowledge of the creation of the pledge.

A notice of pledge is thus a common step to ensure that the debtor is properly instructed as to whom any payments may be directed prior to and following the relevant enforcement event. It is also advisable to obtain an acknowledgement of such notice by the debtor under which the latter waives its rights of set-off, as well as any other defences that it may have against the creditor of the relevant receivable. The same result may be achieved by having the debtor become a party to the receivables pledge agreement.

Debtors of trade receivables are usually notified of the existence of the receivables pledge only upon the occurrence of an enforcement event or of another contractually agreed trigger event. This implies that the security is not perfected (and the creditor not protected) until such notification has been made.

Financial instruments and cash

Can security be granted over financial instruments? If so, what are the most common forms of security granted over this kind of property and what is the procedure?

Yes, security can be granted over financial instruments.

The most common forms of security granted over financial instruments are pledges governed by the Luxembourg Collateral Act.

The act contains a broad definition of ‘financial instruments’ that encompasses, among other things, all transferable securities and other securities (including shares in companies, units in collective investment undertakings, bonds and other forms of debt instrument, loan notes), convertible instruments and claims relating to financial instruments.

These financial instruments may be in physical form, paperless, transferable by book entry or by delivery, in bearer or registered form.

Pledges over financial instruments can be created under private seal and are perfected by delivery of the pledged assets from the pledgor to the pledgee or to a third party designated by the pledgor and the pledgee.

Such delivery takes different forms, including:

  • for pledges over registered shares/securities/notes: by registration of the pledge in the relevant register (eg, for a share pledge in the shareholders' register) of the company whose shares/securities/notes are pledged;
  • for pledges over bearer shares: by registration of the pledge in the register of bearer shares held by the depositary of the relevant bearer shares in Luxembourg; and
  • for book entry securities
  • by the execution of the pledge agreement by the pledgor and the pledgee if the latter is also the depositary of the securities  pledged (automatic perfection);
  • by the execution of a pledge agreement (or control agreement) between the pledgor, the pledgee and the depositary of the securities, or between the pledgor and the pledgee and notified to the depositary, and under which, in both cases, the depositary shall accept to act upon instructions of the pledgee without further consent from the pledgor;
  • by registration of the securities in an account opened in the name of the pledgee; or
  • by registration of the securities in an account opened with a depositary in the name of the pledgor or that of an agreed third party, the securities being designated in the books of the depositary as being pledged by reference to the relevant account in which they are registered (‘earmarking perfection’).

Can security be granted over cash deposits? If so, what are the most common forms of security granted over this kind of property and what is the procedure?

Yes, security can be granted over cash deposits and usually takes the form of a pledge over the relevant cash account.

Such pledge is governed by the Luxembourg Collateral Act and can be created under private seal. It is perfected towards third parties by the execution of an account pledge agreement between the pledgor and the pledgee, and towards the account bank by the sending of a notice and the confirmation by the account bank, in an acknowledgement, that it waives all its rights over the relevant account (including the first ranking pledge that the Luxembourg account banks usually hold over the cash accounts as per their general terms and conditions).

It is not necessary to block the account to have a valid pledge. The cash deposited from time to time into the account may stay freely available to the pledgor until the pledgee decides to block the relevant account following the occurrence of a contractually agreed trigger event by sending a blocking notice to the account bank.

It is common practice to attach the relevant notice of pledges, acknowledgement notice and blocking notice to the account pledge agreement, and to agree their content between the parties and the account bank before executing the account pledge agreement itself.

Luxembourg banks benefit from a general security interest over all the securities/cash deposits of their customers pursuant to their general business terms and conditions. It is standard practice to obtain, upon request, a waiver by the account bank of any present and future security interest or right of retention or set-off existing over or in relation to (securities) accounts created in favour of such Luxembourg banks when a security interest over any or all the securities/cash deposits credited to the (securities) accounts held by them is created in favour of a creditor.

Intellectual property

Can security be granted over intellectual property? If so, what are the most common forms of security granted over this kind of property and what is the procedure?

Yes, security can be provided over IP rights in Luxembourg.

IP rights, which include trademarks, designs, patents and copyrights, are considered intangible assets and the most common form of security over such rights is pledges. However, since IP rights do not fall within the definition of collateral contained in the Luxembourg Collateral Act, pledges over IP rights do not benefit from the lender-friendly provisions of the act and are pledged under civil law pledge agreements.

A pledge over IP rights is concluded under private seal and cannot cover future rights.

In case only unregistered IP rights are pledged (eg, copyrights), such pledge will be perfected by way of a notification of the pledge against the debtor.

Where registered IP rights are pledged, the pledge agreement will need to be registered with the relevant IP registers to be enforceable against third parties (eg, a pledge over Benelux trademarks or designs shall be registered with the Benelux Office for Intellectual Property, a pledge over a Luxembourg patent shall be registered with the Office of Intellectual Property of the Luxembourg Ministry of Economy and a pledge over a European patent shall be registered with the European Patent Office). Given the various IP rights that may be pledged under an IP rights pledge agreement, such registration process may prove to be cumbersome and sometimes costly; pledges over IP rights are therefore rarely used in practice. It is, however, common to pledge the receivables linked to the IP rights under a receivables pledge agreement under the Luxembourg Collateral Act.

Lastly, IP rights are part of a going business concern and may also be pledged under a general pledge over a going business concern.


Criteria for enforcement

What are the common enforcement triggers for loans, guarantees and security documents?

The parties may generally freely determine the enforcement triggers. In line with international practice, the most typical enforcement triggers for loans and underlying security documents would be non-payment, commencement of insolvency proceedings and material breach of contract.

Assuming that the enforcement takes place outside of an insolvency scenario, civil law security rights or mortgages may be enforced only in case of a payment default of the relevant debtor, while pledges over financial instruments and claims governed by the Luxembourg Collateral Act may be enforced by the pledgee upon the occurrence of the contractually agreed enforcement event.

First-demand guarantees are independent of the existence and validity of the secured obligations. Hence, it is sufficient that the conditions for enforcement set out in the guarantee agreement be fulfilled, which often entails merely that the beneficiary of the guarantee states that a default has occurred, and demands payment.

Process for enforcement

What are the most common procedures for enforcement? Are there any specific requirements with which lenders must comply?

Depending on the terms of the relevant agreement, loans and guarantees may be accelerated or enforced by a simple notice/demand to the borrower or guarantor.

As regards security, the procedures vary depending on the type of security being enforced.

Commercial pledges or mortgages may be enforced only after a prior summons to pay has been served on the debtor of the secured obligation (in case of a mortgage, served by a bailiff). The pledgee must then apply for an authorisation from the president of the district court to sell the collateral. The sale must be made through an official appointed by the president of the district court. The president of the district court may authorise the secured creditor (or its security representative) as pledgee to sell the collateral either in whole or in part.

As regards security agreements over financial instruments and claims, the Luxembourg Collateral Act provides for a number of enforcement remedies. The pledgee may, unless otherwise agreed between the parties, without prior notice:

  • appropriate the collateral or cause the appropriation of the collateral by a third party at a price determined prior to or after its appropriation in accordance with an agreed valuation method (to avoid any challenge, it is usually recommended to appropriate the collateral at its fair market value);
  • sell the collateral in a private sale at arm's length conditions, in a sale organised by a stock exchange (this option is not used in practice) or in a public auction;
  • request a judicial decision attributing the collateral to the pledgee in discharge of the secured liabilities following a valuation of the collateral made by a court appointed expert ;
  • to the extent possible, proceed with a set-off between the secured obligations and the collateral; or
  • in the case of financial instruments, appropriate the pledged assets at their market price (if the financial instruments are admitted to the official list of a stock exchange located in Luxembourg or abroad, or if they are traded on a regulated market functioning regularly, recognised and open to the public) or to the extent applicable, at their net asset value.

Ranking in insolvency

In what order do creditors rank in case of the insolvency of a borrower?

In principle, the ranking of different creditors in case of the insolvency of the borrower is as follows:

  • The insolvency officer fees and all other insolvency expenses;
  • Employees (claims for the last six months, capped to six times the minimum salary);
  • Social security (employee's contributions);
  • Luxembourg tax authorities;
  • Social security (employer's contribution);
  • Creditors whose claims are secured by mortgages and pledges;
  • Unsecured creditors; and
  • Shareholders.

Law stated date

Correct as of

Please state the date as of which the law stated here is accurate.

November 10 2017.