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A Luxembourg borrower can grant a new pledge over claims or financial instruments in favour of a lender to secure a loan granted in the past to that borrower.

The provisions governing insolvency proceedings (which include the prohibition to grant a pledge for a pre-existing debt, e.g. a loan) and the provisions governing Luxembourg reorganisation measures and winding-up proceedings would not apply to a Luxembourg law governed pledge agreement in respect of claims (e.g. cash in a bank account) or financial instruments (e.g. registered shares).

Your contacts for more details: Grégory Minne (gregory.minne@arendt.com) and Matthieu Taillandier (matthieu.taillandier@arendt.com)
(01/04/20)

The exercise of voting rights attached to registered shares is governed by the share pledge agreement, which usually provides under which conditions the voting rights may be exercised without the pledge being enforced by the collateral taker.

Usually, a share pledge agreement provides that (i) until the occurrence of an enforcement event defined in the share pledge agreement, the collateral provider would be entitled to exercise the voting rights attached to the pledged shares provided that the exercise of those rights does not negatively affect the pledge or the rights of the collateral taker, and (ii) upon the occurrence of an enforcement event defined in the share pledge agreement (e.g. breach of financial ratios), the collateral taker would be entitled to instruct the collateral provider to cast the votes attached to the shares in accordance with the collateral taker’s instructions or to exercise the voting rights itself.

Your contacts for more details: Grégory Minne (gregory.minne@arendt.com) and Matthieu Taillandier (matthieu.taillandier@arendt.com)
(01/04/20)

The collateral taker and the collateral provider are free to choose the enforcement events to be defined in their pledge agreement.

An enforcement event could be a default (e.g. non-payment of secured obligations) or any other event as agreed between the parties (e.g. cross-default; change of control) on the occurrence of which, under the terms of their pledge agreement or the agreement that has created the secured obligations (e.g. a facility agreement) or by operation of law, the collateral taker is entitled to enforce the pledge created in its favour.

Your contacts for more details: Grégory Minne (gregory.minne@arendt.com) and Matthieu Taillandier (matthieu.taillandier@arendt.com)
(01/04/20)

The collateral taker may choose among different methods of enforcement, which are generally set out in the pledge agreement.

Upon the occurrence of an enforcement event defined in the pledge agreement, the collateral taker would be entitled to (i) appropriate, or have appropriated by any third party, the pledged assets at a value determined by the collateral taker or by an independent expert appointed by the collateral taker, (ii) sell the pledged assets or have the pledged assets sold in a private transaction within normal commercial conditions (conditions commerciales normales), (iii) sell the pledged assets or have the pledged assets sold by public auction, and/or (iv) request a court that title to the pledged assets be assigned and/or transferred to the collateral taker or such other person as the collateral taker may designate.

Unless the parties agree otherwise in the pledge agreement, the collateral taker would be entitled to use different methods of enforcement, not only one.

The methods that Arendt & Medernach has used most with clients in the context of the enforcement of their pledges are the appropriation (by the collateral takers themselves or through special purpose vehicles) and the sale within normal commercial conditions (including accelerated book building offers).

Your contacts for more details: Grégory Minne (gregory.minne@arendt.com) and Matthieu Taillandier (matthieu.taillandier@arendt.com)
(01/04/20)

In principle, the collateral taker has no obligation to notify the collateral provider and wait for a certain period of time before being able to enforce a Luxembourg law governed pledge.

However, the parties may provide for notification and a waiting period in their pledge agreement.

Your contacts for more details: Grégory Minne (gregory.minne@arendt.com) and Matthieu Taillandier (matthieu.taillandier@arendt.com)
(01/04/20)

Upon the occurrence of an enforcement event defined in the share pledge agreement (e.g. commencement of reorganisation or bankruptcy proceedings), the collateral taker would be entitled to enforce the pledge over shares created in its favour.

In that context, the collateral taker would become the legal owner of the shares (i.e. the new shareholder of the company whose shares have been pledged) on the date of appropriation and not on the date of valuation of the shares. Valuation can happen (and usually happens) post enforcement.

Your contacts for more details: Grégory Minne (gregory.minne@arendt.com) and Matthieu Taillandier (matthieu.taillandier@arendt.com)
(01/04/20)