Introduction of a procedure of administrative dissolution without liquidation

Luxembourg

Bill n°6539B creating a procedure for administrative dissolution without liquidation, was adopted on October 18, 2022 by the Luxembourg Parliament. The dispense with the second vote was approved by the State Council on October 25, 2022.

The Law introduces a new mechanism of dissolution in addition to the formal procedure of judicial liquidation set forth under article 1200-1 of the law of 10 August 1915, on commercial companies, as amended (the Company Law).

So far, the public prosecutor could only request the district court to order the dissolution and liquidation of any Luxembourg company that (i) pursues activities that contravene criminal law or (ii) seriously contravenes the provisions of the commercial code, the laws on commercial companies (e.g., absence of registered office or management, or failure to approve and file annual accounts) or the provisions governing business licences.

If the offences are considered sufficiently serious, the court appoints one or more liquidators and decides on the method of liquidation. The liquidator's task is to identify all the company's assets and liabilities, to pay the liabilities by realizing the assets and to distribute the liquidation surplus, if any, to the shareholders.

This procedure imposes a significant administrative burden on the courts as well as important costs that are considered disproportionate when the procedure involves inactive companies with no assets.

The administrative dissolution procedure without liquidation, as alternative method to judicial liquidation, will allow the elimination of "empty shells" in a short period of time and at a limited cost.

Who is concerned?

To fall within the scope of the administrative dissolution procedure, three cumulative conditions must be met:

  • The company is a commercial company falling under the provisions of article 1200-1 paragraph 1 of the Company Law, i.e., a company whose activities breach criminal law or that seriously contravenes the provisions of the commercial code or the laws governing commercial companies and business licences;
  • The company has no employees; and
  • The company has no assets.

The procedure of administrative dissolution without liquidation shall not apply to certain entities that are subject to prudential supervision and do not fall within the scope of the regulations applicable to bankruptcies, including:

  • credit institutions and investment firms subject to Part II of the amended law of 18 December 2015 on the failure of credit institutions and certain investment firms;
  • other financial institutions and entities listed in Article 2, paragraph 1, of the amended law of 18 December 2015;
  • insurance and reinsurance undertakings subject to the amended law of 7 December 2015 on the insurance sector;
  • specialized investment funds subject to the amended law of 13 February 2007 relating to specialized investment funds;
  • payment institutions and electronic money institutions subject to the amended law of 10 November 2009 on payment services; and
  • reserved alternative investment funds subject to the amended law of 23 July 2016 on reserved alternative investment funds.

How it works?

The procedure will consist of the following steps:

  • Identification by the public prosecutor of the companies that may be subject to administrative dissolution based on information and documents obtained from the Luxembourg Trade and Companies Register (RCS), the National Institute of Statistics and public administrations.
  • Request by the public prosecutor to the RCS to open the procedure of administrative dissolution without liquidation.
  • Opening by the RCS of the procedure within three days of the request made by the public prosecutor.
  • Notification by the RCS of the decision to open the procedure by registered letter with acknowledgement of receipt sent to the registered office of the company.
  • Publication of the above decision by extracts within three days in two newspapers in Luxembourg and in the Recueil Electronique des Sociétés et Associations (RESA). As from the publication, the Company is divested by operation of law of the administration of all its property.
  • Option for the company subject to the decision to open the administrative dissolution procedure, as well as any interested third party, to lodge an appeal against such decision within one month of its publication in the RESA.
  • Audit by the RCS to confirm the absence of assets and employees in the company. For this, the RCS will request information from banks, non-life insurance companies, the mortgage offices, the land registry, the National Society of Automotive Traffic (Société nationale de circulation automobile) and the Joint Social Security Centre (Centre commun de la sécurité sociale).
  • On completing its task, the RCS will inform the public prosecutor of its findings. If the conditions for the dissolution are met, the public prosecutor will ask the RCS to continue the procedure. Otherwise, the procedure is stopped.
  • Decision of the RCS to close the procedure (to be taken no later than six months after the publication of the decision to open the procedure). This decision entails the dissolution of the company.
  • Publication in the RESA of the decision to close the administrative dissolution procedure.
  • If assets are found after the administrative dissolution procedure has closed, the district court sitting in commercial matters may order the liquidation of the company at the request of the public prosecutor. The company is deemed to exist for the purpose of its liquidation.

The Law will enter into force on the first day of the third month following its publication in the Official Journal. Assuming the publication will occur in November, the Law would enter into force on February 1st, 2023.

For additional information in this respect, please contact our specialists.