New bill of law on the creation of a procedure of administrative dissolution without liquidation
On 9 February 2022, the Luxembourg legislature published the latest draft of a new bill of law on the creation of a procedure for administrative dissolution without liquidation.
The new bill of law no. 6539B (the Bill of Law), which establishes a new procedure for administrative dissolution without liquidation under certain circumstances (the Administrative Dissolution Procedure), originates from the split of the original bill of law no. 6539 on the preservation of businesses and modernisation of bankruptcy law in Luxembourg, currently under discussion at the Chamber of Deputies.
As pointed out by the Council of State (Conseil d’État) in its first opinion, dated 1 December 2015, on the original bill of law no. 6539, the Administrative Dissolution Procedure is a blend of judicial and administrative proceedings, where both the public prosecutor and the Luxembourg administration (ie, the Luxembourg Trade and Companies Register (the RCS)), play equally important roles, aimed at introducing an efficient procedure to strike off empty shell companies.
The Administrative Dissolution Procedure will apply to any commercial company that falls in scope of the provisions of article 1200-1 (1) of the Luxembourg law of 10 August 1915 on commercial companies, as amended (the Company Law). These provisions provide that the public prosecutor may request the district court to launch the dissolution and liquidation (the Judicial Liquidation Procedure) of any Luxembourg-law governed company, which: (i) either pursues activities that are contrary to the provisions of the criminal law, or (ii) has committed serious breaches of the provisions of the Luxembourg Commercial Code or the legislation governing commercial companies, including legislation relating to business licences.
Currently, if the district court decides that the conditions to open a Judicial Liquidation Procedure are met, it will proceed to appoint a supervisory judge and one or more liquidators, and determine the method of liquidation. If the liquidators find that there are no, or insufficient, realisable assets and this is confirmed by the supervisory judge, the expenses and fees of the liquidators, as ordered by the court, are borne by Luxembourg state and paid as legal expenses.
The purpose of the proposed Administrative Dissolution Procedure is to address the issue of the considerable costs incurred, when dealing with dormant companies, with no assets, as well as the administrative burden on the district court during the Judicial Liquidation Procedure and the draft introduces an alternative procedure, which will make it possible to dissolve inactive and empty companies in a quick and cost-efficient way.
Apart from the exceptions set out in the Bill of Law, the Administrative Dissolution Procedure can be used for almost all Luxembourg companies. The exceptions include credit institutions and investment firms, certain financial institutions, insurance and re-insurance companies, collective investment vehicles, specialised investment funds, venture capital investment companies, certain securitisation vehicles, payment and electronic money institutions, as well as reserved alternative investment funds.
The Bill of Law, in its current draft, sets out the following steps for the Administrative Dissolution Procedure:
- The public prosecutor identifies which companies may be subject to the Administrative Dissolution Procedure, based on information and documents collected from various sources (eg, the RCS, the Luxembourg National Institute of Statistics, Luxembourg public administration, such as the tax authorities).
- The public prosecutor requests the RCS to place the company/ies concerned into administrative dissolution without liquidation: the procedure must be opened within three days from the date of the request.
- The opening of the procedure is notified to the company/ies by registered mail with acknowledgement of receipt, and extracts of the relevant decision are published within three days in two newspapers, published in Luxembourg and on the Recueil électronique des sociétés et associations (RESA).
- The company/ies concerned may launch an appeal against the decision within one month of the date of publication in the RESA.
- Once the procedure is opened, the RCS is required to verify that the company concerned has no assets and/or employees and, for these purposes, the RCS may request information from, among others sources, banks, non-life insurance businesses, mortgage and land registries, and the social security administration.
- Once the RCS has collected all necessary information, it informs the public prosecutor of the results of its audit and, if the conditions for the Administrative Dissolution Procedure are met, the public prosecutor requests the RCS to continue and conclude the dissolution without liquidation.
- The RCS finalises the procedure no later than six months after it was opened and publishes the relevant closing decision on the RESA: the company is considered dissolved.
The current draft Bill of Law also contains proposed provisions dealing with the situation where assets are found after the closing of the Administrative Dissolution Procedure. In such circumstances, following a request from the public prosecutor, the district court may order the liquidation of the company concerned and postpones the closing of the dissolution procedure, but only under the condition that the estimated value of available assets exceeds the estimated liquidation costs. The company is considered to exist only for the purpose of its liquidation.