New administrative dissolution proceeding without liquidation tackling “zombie” companies
On 18 October 2022, the Luxembourg Parliament passed a law (the “Law”) introducing an administrative proceeding by which a company may be dissolved without liquidation (procédure de dissolution administrative sans liquidation) (the “Administrative Dissolution Proceeding”) at the request of the Public Prosecutor (Procureur d’Etat). The Law is the first part of the largest-ever reform to modernise Luxembourg bankruptcy law.
Following our newsflash posted on 20 October 2022, we would like to inform you that the law of 28 October 2022 on the new administrative dissolution proceeding without liquidation was published in the Luxembourg official journal of 4 November 2022 and will enter into force on 1 February 2023.
The main features of the new law are described below.
Our experts will be delighted to assist you in better understanding the new law and its practical impacts.
Objective of the Administrative Dissolution Proceeding
The Administrative Dissolution Proceeding allows for certain companies to be dissolved through an administrative proceeding without resorting to formal judicial dissolution and liquidation, in cases where the company has breached criminal laws, the Commercial Code or the laws governing commercial companies. In particular, the Administrative Dissolution Proceeding is intended to prevent the prolonged existence of so-called “zombie” companies.
Scope
Luxembourg companies may only be subject to the Administrative Dissolution Proceeding if they meet all three of the following conditions:
- they have no employees,
- they have no assets, and
- they pursue activities that are in breach of criminal law, or that seriously infringe provisions of the Luxembourg Commercial Code or the laws governing commercial companies, including laws on authorisation to do business (for instance, failure to file the annual accounts, absence of registered office, resignation of the entire board of directors without replacement).
Certain companies, such as entities subject to prudential supervision, are outside the scope of the Law.
Process
Under the Law, an Administrative Dissolution Proceeding is opened by the administrator of the Luxembourg Trade and Companies Register (gestionnaire du Registre de commerce et des sociétés) at the request of the Public Prosecutor.
The administrator must notify the concerned company, and the decision to open the Administrative Dissolution Proceeding will be published on the Recueil électronique des sociétés et associations (the central electronic filing platform for businesses in Luxembourg) (the “RESA”).
The administrator then checks whether the above-mentioned conditions are met, requesting information on the company’s financial or administrative status from entities (professionnels) such as banks, insurance companies and government authorities (administrations). Following these verifications, two outcomes are possible:
- If all three of the conditions are met, the Administrative Dissolution Proceeding is closed, the decision to close is published on the RESA and the company is dissolved.
- If any of the conditions are not met, the Administrative Dissolution Proceeding is halted and the decision to do so is published on the RESA.
Remedies
The concerned company or any interested third party who believes that the above-mentioned conditions are not met may contest the decision to open the Administrative Dissolution Proceeding in the district court (tribunal d’arrondissement) in the month after it is published on the RESA.
If the court finds that not all three conditions are met, the Administrative Dissolution Proceeding is halted and the decision to do so is published on the RESA.
If assets appear after an Administrative Dissolution Proceeding has been successfully closed, the district court dealing with commercial matters may, at the request of the Public Prosecutor, revoke the decision to close the Administrative Dissolution Proceeding and order the company’s liquidation, through the formal proceeding of judicial dissolution and liquidation.
What’s next?
The second and most important part of the reform to modernise bankruptcy law is still pending before Parliament. Although the duration of the legislative process is difficult to predict, it is likely that the law will be passed by mid-2023.
How can we help?
Arendt has the largest restructuring and insolvency team in Luxembourg, and can assist with all legal matters arising in this area.
For more information, contact Restructuring@arendt.com