Insolvency In Luxembourg

The following options are available in Luxembourg to companies in financial distress:

bankruptcy (faillite/banqueroute) (Articles 437 to 592 of the Commercial Code); controlled management (gestion contrle) (Grand Ducal Regulation of 24 May 1934); a moratorium or suspension of payments (sursis de paiement) (Articles 593 to 614 of the Commercial Code); and a company voluntary arrangement (concordat) (Articles 508 to 527 of the Commercial Code). In addition, the possibility of involuntary (court-ordered) windingup and liquidation (dissolution et liquidation) (Articles 1200-1 and 1200-2 of the Act of 10 August 1915 on commercial companies) is also worth mentioning.

Of the above options, the most commonly used procedure in Luxembourg is bankruptcy. Controlled management, suspension of payments and the company voluntary arrangement are rarely used in practice.

Bankruptcy

A company can be declared bankrupt if the following cumulative criteria are met: the company is:

unable to pay its debts as they fall due; and unable to obtain credit. Under Luxembourg law, bankruptcy is thus a liquidity rather than a solvency issue.

A company can be placed in bankruptcy:

at the initiative of the company's directors; as a result of proceedings brought by an unpaid creditor; or by the court after having received information about the company's financial situation. The district court of the place where the company's registered office is located when it becomes insolvent has jurisdiction to declare the company bankrupt.

The debtor is prevented from administering its assets as from the date of the adjudication in bankruptcy by the competent district court. All payments, transactions and acts made by the insolvent debtor as from the date of the adjudication in bankruptcy shall be deemed null and void.

In addition, certain acts and transactions carried out prior to the adjudication in bankruptcy, during the hardening period and within ten days prior to the start of this period, can be voided (such as transactions transferring property without reasonable consideration, payments by whatsoever means of debts that are not yet due, payments of debts by non-cash means and the granting of security for debts incurred prior of the start of the hardening period). The hardening period cannot be set more than six months prior to the date of the adjudication in bankruptcy.

In accordance with the Act of 5 August 2005 on financial collateral, secured creditors with qualifying...