The forthcoming visit to Luxembourg of the Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog, is certainly not unrelated to the recent adoption of the law creating a new procedure of out-of-court dissolution without liquidation for certain commercial companies (“Administrative Dissolution Procedure”).
That law is the first part of the more ambitious reform aiming at preserving businesses and modernizing bankruptcy law, currently pending before the Luxembourg Parliament (“Reform”).
Its objective is to remove, in a quick and cost-efficient way, dormant and empty shell companies without economic reality and in breach of applicable laws to prevent them from being used for criminal purposes.
The Luxembourg Business Registers (LBR) will be in charge of conducting such Administrative Dissolution Procedure at the request of the public prosecutor.
The law will soon be published and will enter into force three months after its publication.
For further information on the Administrative Dissolution Procedure or how to challenge it and/or the impact of the Reform for your business, please get in touch with your usual Baker McKenzie contact.
Overview of the main features
In-scope companies and applicable conditions
Commercial companies are within the scope of the law. Without this list being exhaustive, the following entities are however excluded:
- Credit institutions and financial institutions
- Insurance and reinsurance undertakings
- Collective investment funds (OPCs)
- Specialized investment funds (SIFs)
- Investment companies in risk capital (SICARs)
- Reserved alternative investment funds (RAIFs)
- Pension funds
The following three conditions (“Conditions”) must be cumulatively met by the in-scope company for an Administrative Dissolution Procedure to start:
- Pursing activities contrary to criminal law or that seriously contravenes the provisions of the Commercial Code or the laws governing commercial companies, including those laws governing authorizations to do business (as per Article 1200-1 of the amended Luxembourg law dated 10 August 1915).
- Having no employees
- Having no assets
Identification of eligible companies
To identify eligible companies, the public prosecutor will check data issued from the following:
- List of commercial companies for which the LBR finds that they seriously contravene the laws governing companies
- Documents archived and kept by the National Institute of Statistics (STATEC) (i.e., annual accounts and the balance of the accounts featured in the standard chart of accounts for capital companies and common limited partnerships as well as the financial report for the special limited partnerships)
- Documents provided by public administrations such as tax and social authorities
Based on its own assessment of the existence of precise and consistent indications that a commercial company fulfills the Conditions, the public prosecutor will require the LBR to open an Administrative Dissolution Procedure.
- Opening of the procedure
Within three days of the requisition, the LBR will open the Administrative Dissolution Procedure and inform the company accordingly by registered mail sent to its registered office. The LBR will also publish the decision of opening of the Administrative Dissolution Procedure with the Recueil Electronique des Sociétés et Associations (RESA). Such publication must contain information on: (i) the identification of the company; (ii) the date of opening of the procedure; (iii) the reasons why the procedure was opened; and (iv) the possibility to lodge an appeal against that decision within one month of its publication with the RESA.
- Role of the LBR
The LBR will be in charge of verifying that the company has no assets or employees.
To perform these checks, the LBR will require the communication of information on the financial and administrative situation of the company from the following institutions:
- Banks in which the company has one or more accounts
- Non-life insurance companies approved under Luxembourg law
- Luxembourg and Diekirch mortgage offices
- The administration of the cadastre and topography
- The national automobile traffic company
- The joint social security center
Upon completion of these verifications, the LBR will inform the public prosecutor of the result of its searches.
- Closing or ending of the procedure
Should it be confirmed that the Conditions are met, the public prosecutor will ask the LBR to continue and close the procedure. Within six months of publication of the opening of the procedure, the decision to close the procedure must be published on the RESA and the concerned company will be automatically dissolved.
Otherwise, should any asset and/or employee be identified, the public prosecutor will ask the LBR to end the procedure. Such a decision will be published on the RESA.
Appearance of assets after completion of the Administrative Dissolution Procedure
Should any asset appear after the Administrative Dissolution Procedure has been closed, the district court sitting in commercial matters may, at the request of the public prosecutor, revoke the closing decision and order the liquidation of the company. In that case, the normal judicial liquidation procedure will apply and the company will be deemed to exist for its liquidation.