Luxembourg, 2024-08-27

Given that the previous bankruptcy law in Luxembourg dated back to the 20th century, it was imperative to adapt it to the modern economy. With a new law of August 7, 2023, concerning the preservation of businesses and the modernization of bankruptcy law, while also integrating the European Directive 2019/1023 on preventive restructuring frameworks, Luxembourg has finally taken the long-awaited step to modernize its legal framework for insolvency proceedings.

This reform, which came into force on November 1, 2023, is timely, offering an appropriate response to the economic challenges faced in recent years. Its objective is to expedite procedures while promoting business restructuring and attempting to avoid liquidation. The new law not only aims to protect creditors and preserve jobs but also to support struggling entrepreneurs.

The first notable change in this law is the expansion of its scope, as outlined in Article 2. The law also applies to individuals engaged in professional activities, who are equally affected by economic pressures.

However, the centrepiece of this law is undoubtedly the procedures proposed to ensure the preservation of businesses and to avoid bankruptcy. Thus, it introduces three new procedures:

Conciliation, where, at the debtor's request, the competent ministry may appoint a business conciliator to facilitate the reorganization of all or part of the debtor's assets or activities.

The judicial reorganization procedure aims to preserve the continuity of the business under the supervision of a judge and offers three different options. The first option is to obtain a stay of proceedings to allow the conclusion of an amicable agreement. The second option involves establishing a reorganization plan, which consists of reaching a collective agreement. However, this plan must be approved by the various creditors. It can also be homologated by the court to facilitate its execution. The third option is a court-ordered transfer, which involves selling all or part of the debtor's assets to one or more third parties.

Thirdly, for the establishment of the reorganization by amicable agreement, the debtor may propose an amicable agreement to all creditors to reorganize all or part of the debtor's assets or activities.

In conclusion, this new law represents a significant advancement that allows to identify a struggling company before it finds itself in a situation where no positive outcome is possible. It offers them "a new chance" and gives an honest manager who has gone bankrupt another opportunity to undertake business activities.

Author:  Avocat à la Cour JULIE DENOTTE & ANNE-MARIE SCHMIT, L’ÉTUDE ANNE-MARIE SCHMIT, Luxembourg