Article Post on 17 May 2021

Upcoming Confirmation - Rules Restricting Financial Assistance do not Apply to Luxembourg Private Limited Liability Companies

_Bill of law number 7791 was submitted to the Luxembourg Parliament on 16 March 2021. This bill intends to amend Article 1500-7, 2° of the Luxembourg company law of 10 August 1915, as amended, (the “Company Law”) to clarify the exclusion of private limited liability companies in Luxembourg (Société à responsabilité limitée) from the scope of the rules restricting financial assistance.

Under Luxembourg law, financial assistance can be defined as a company directly or indirectly advancing funds, making loans or providing security with a view to the acquisition of its own shares by a third party. 

For public limited liability companies (“SA”), simplified joint stock companies (Société en commandite par actions) and European companies (Sociétés européennes), financial assistance is strictly circumscribed by the Company Law.

In short, such transactions shall be made under fair market conditions (Article 430-19, 1°); the general meeting shall approve them under the same conditions as the amendment of the articles of the company; the management body will have to present a report to the general meeting, deposited at the Register of Commerce and Companies and published on the Registre électronique des sociétés et association (Article 430-19, 2°); the transaction shall not at any time result in the reduction of the net assets of the company; the company shall include a reserve unavailable for distribution in the amount of the financial assistance (Article 430-19, 3°); and the third party shall acquire or subscribe to the shares at fair price (Article 430-19, 4°). 

Providing financial assistance in breach of the rules laid down by the Company Law can lead to criminal liability of up to two years of imprisonment and/or a fine of up to 125 000 euros according to Article 1500-7, 2° of the Company Law.

The new bill explains that a clerical error was made during the parliamentary proceedings in relation to the law of 10 August 2016 amending the Company Law. It was initially intended to include two new articles of the Company Law, which would provide rules regulating financial assistance specifically for Luxembourg private limited liability company (“Sàrl). Consequently, Article 1500-7, 2°, which sets the penalties for breach of the financial assistance rules, included a reference to the Sàrl’s “corporate units”. However, the two articles were not included in the finalized version of the law of 10 August 2016. The reference to corporate units in article 1500-7, 2° should have been erased as well, but the correction was omitted, leading to potential misinterpretation. Given the penalties of criminal nature, the clarification regarding the applicability of the financial assistance rules to the Sàrl was necessary.

Bill of law number 7791 will erase the mention of “corporate units” under Article 1500-7, 2°, clarifying the intention of the legislator: the rules of the Company Law in relation to financial assistance do not apply to the Sàrl.

On 23 March 2021, the Chamber of Commerce expressed its approval of Bill 7791 and did not deliver any further comments. Given that this bill only corrects a clerical error, its adoption by the Parliament can be anticipated.

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