Transposition of the EU Mobility Directive: Amendments to Luxembourg’s Company Law

In Luxembourg, European Directive 2019/2121 of November 27, 2019, on cross-border conversions, mergers and divisions (the “Mobility Directive”) is currently being transposed via draft law 8053 of July 27, 2022 (the “Draft Law”).

The Mobility Directive should be implemented not later than 31 January 2023 but delay has been incurred.

The Draft Law intends to amend the law of 10 August 1915 on commercial companies (the “1915 Law”) as well as the amended law of 19 December 2002 on the Register of Commerce and Companies and the accounting and annual accounts of undertakings.

The Mobility Directive provides a harmonized legal framework for companies to convert,  merge and divide across borders, and provides adequate protection for stakeholders such as members, employees and creditors.

The amendment of the 1915 Law intends to provide a general section applying to internal and cross border restructurings other than restructurings that fall within the scope of the European Union (“General Section”) and a special section dedicated to the rules imposed by the Mobility Directive (“Special Section”).

I. General Section

For mergers and divisions, the General Section reflects the current provisions set out in the 1915 Law with certain modifications aimed at rendering the legal rules more flexible and clarifying the procedures.

The definition of mergers by absorption will be extended to also apply to upstream mergers (whereby a company transfers by way of dissolution without liquidation the whole of its assets and liabilities to its parent company) and side-step or side-stream mergers (whereby a company transfers by way of dissolution without liquidation the whole of its assets and liabilities to an existing company without issue of new shares by such existing company under the condition that one person is the direct or indirect shareholder of all shares in the merging companies or that the shareholders of the merging companies hold their shares in the same proportion in all of the merging companies).

Mergers other than cross-border mergers will only take effect against third parties on publication of the extraordinary general meeting minutes of the absorbing company that approves the merger or, if no such general meeting takes place, of the publication of a certificate by a notary attesting to the satisfaction of all merger requirements.

The date of the effectiveness of a cross-border merger will now be determined by reference to the legislation of the country governing the company that results from the merger.

In addition, the mains modification of the 1915 Law can be summarized as follows:

• the General Section but not the Special Section will now apply to special limited partnerships (sociétés en commandite spéciale);
• simplification of certain provisions regarding the terms of restructuring plans and the publication requirements by deletion of those provisions which apply to cross-border restructurings;
• the general meetings may decide to modify the restructuring plan and make the effectiveness of the restructuring subject to certain conditions or time limits;
• companies that only have one shareholder are exempted from the requirement to obtain an expert report on the restructuring plan;
• companies involved in the restructuring shall apply their respective rules governing publications of the implementation of the restructuring, in public registers.

II. Special Section

Through the implementation of the Mobility Directive, the procedures regarding mergers, divisions and cross-border conversions within the scope of the Special Section are harmonized and can be summarized as follows:

• Applicability

Only the Luxembourg companies incorporated as Public company limited by shares,  Private limited liability company and Corporate partnership limited by shares can participate in the restructurings covered by the Special Section.

• Restructuring Plan

The companies involved need to agree on a common restructuring plan (the “Restructuring Plan”) explained the intended transaction.

Any aspects of the restructuring that are not expressly regulated by the Special Section are regulated by the dispositions of the General Section.

• Publication formalities

In addition to the Restructuring Plan, the companies that are required to hold general meetings approving the restructuring also need to publish at least one month before such general meetings a notice addressed to the shareholders, creditors and representatives of employees (or if none, the employees) informing them of their right to provide comments on the Restructuring Plan at least five  days before the relevant general meeting.

• Board report(s)

A  joint report or two separate reports need to be drafted which are addressed to the shareholders and the employees on the other hand containing certain specific information.

The board report is not obligatory for companies having a sole shareholder or if all shareholders have waived the requirement.

The board report or reports are made available in electronic form to the shareholders and representatives of employees (or if none, the employees) at least six  weeks before the relevant general meeting.

Any comments received from representatives of employees or employees need to be transmitted to shareholders and attached to the board report.

• Expert report

The expert report needs to be made available to shareholders at least one month before the relevant general meeting.

An expert report can be dispensed if all shareholders of each company participating in the restructuring have so decided or if a company has a sole shareholder.

• Approval of the restructuring

The general meetings may either approve, reject or modify the Restructuring Plan.

• Protection of shareholders

Shareholders may vote against the restructuring and declare that they wish to transfer their entire shareholding (or part of shareholding if provided for in the Restructuring Plan) in exchange for the compensation described in the Restructuring Plan.

They will then be entitled to compensation within two months of the restructuring taking effect.

Shareholders that did not exercise the right to transfer their shares can challenge  the exchange ratio and apply to the courts for an additional cash payment within one month of the relevant general meeting approving the restructuring.

It is specified that the restructuring will not be suspended.

• Protection of creditors

The right of creditors, whose claims came into existence before publication of the Restructuring Plan, to ask for additional sureties must be exercised within three months of the publication of the Restructuring Plan.

It is specified that the restructuring will not be suspended.

• Reinforcement Role of the Luxembourg Notary

The Luxembourg notary will verify whether all the procedures and formalities required by Luxembourg law for the implementation of the restructuring have been complied with and issue a preliminary certificate.

Such preliminary certificate is filed with the Luxembourg trade register and transmitted by the register to the register(s) of the companies that participate in the restructuring operations.

If the company that results from the restructuring is subject to Luxembourg law, the notary is additionally charged with verifying and confirming that all steps (Luxembourg and foreign) relating to the restructuring have been carried out in accordance with all legal requirements.

The notary can rely on preliminary certificates concluding that all required procedures and formalities have been carried out in the other member states of the EU to which one or more of the restructuring companies are subject.