Managing The Luxembourg Voluntary Liquidation Process

• Published date: 17 December 2020
• Subject Matter: Corporate/Commercial Law, M&A/Private Equity, Corporate and Company Law, Shareholders
• Law Firm: Ocorian
• Author: Mr Rémy Cornet and Shaun Lee

Head of Corporate Services, Rémy Cornet and Business Development Director, Shaun Lee,explain how whilst the liquidation process in the principality is well-structured, it needs to be followed carefully.

According to the Luxembourg's Trade and Companies register, there are currently around 120,000 entities registered in the principality¹. It's not too hard to see why.

For a small country, Luxembourg punches above its weight and has more than '4.6 trillion in net assets under management², this makes it the largest fund centre in the EU, and the second-largest in the world behind the US.

Funds in Luxembourg own and invest in companies in a vast range of sectors, from property to finance and IP rights, and the attraction of the jurisdiction as a place to domicile their assets is understandable, especially given its favourable operating environment - with a multilingual workforce, overtly business-oriented government, and cross-border financial expertise.

Luxembourg also offers compelling structures. Its special purpose vehicles (SPVs), for example, have proven hugely popular with multinational private equity and real estate groups, offering huge potential for tax optimisation when they come to sell their assets for capital gains.

One interesting side-effect of its magnetic pull to Luxembourg is that these structures also require servicing at the end of their lives, so Luxembourg also boasts a large number of voluntary liquidations - these are deliberate dissolutions on the part of the shareholders of the company in question.

At Ocorian, we act on close to 100 separate mandates a year, either as liquidator or liquidation auditor, for multinational clients looking for a service provider on voluntary liquidations. In our experience, a high proportion of entities incorporated in Luxembourg are intermediate holding companies for the jurisdiction's private equity and real estate businesses, for which voluntary liquidation is typically the natural conclusion of the life cycle.

Companies tend to be incorporated, expanded and, within just a few years, sold - at which point the company can effectively become an empty shell, with no further reason to exist. Liquidation is simply the inevitable final step, to avoid triggering any additional fees for accountancy or other services.

Every liquidation is different

How this process plays out will depend on the entity. For those with a small amount of cash on the balance sheet, a voluntary liquidation can be a simple...