Annex 1-2 National report - European Commission · 5. RIGHTS of the PLEDGOR .....119. Page 4 of 132...
Transcript of Annex 1-2 National report - European Commission · 5. RIGHTS of the PLEDGOR .....119. Page 4 of 132...
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CONTRACT
ETD/2008/IM/H1/53
IMPLEMENTED BY FOR
DBB LAW COMMISSION
EUROPEENNE
Study on the feasibility of reducing obstacles to the transfer of
assets within a cross border banking group during a financial crisis
National Report
LUXEMBOURG
By
Michel Bulach
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1. Part I - National regulation ............................................................................... 5
1. Summary ....................................................................................................... 5
2. Scope ............................................................................................................ 9
3. Conditions and sanctions .................................................................................17
Authorization ....................................................................................................17
Counterpart for the asset transfer .......................................................................23
Compulsory counterparts and guarantees .............................................................25
Financial capacities of the transferor and the transferee .........................................26
Information and transparency .............................................................................27
Sanctions .........................................................................................................29
Third parties .....................................................................................................32
Supervisory authorities .............................................................................32
Minority shareholders ...............................................................................34
Creditors .................................................................................................35
Employees ...............................................................................................36
Deposit holders ........................................................................................37
Member State ..........................................................................................39
Others ....................................................................................................39
Private international law .....................................................................................39
Part II -Evaluation of potential solutions ..................................................................44
1. Transfers from the parent company to the subsidiary or from the subsidiary to the
parent at arm‟s length: .........................................................................................44
Proposal n°1 ............................................................................................44
2. Transfers from the subsidiary to the parent company (in preferential conditions) ...52
a) Prior and overall agreements ........................................................................52
Proposal n°2:...........................................................................................52
b) Strong guarantees covering the risk of outstanding payment ............................59
Proposal n°3 ............................................................................................59
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c) Liability of the parent company for the subsidiary‟s debts .................................62
Proposal 4 ...............................................................................................64
Proposal n° 5 ...........................................................................................69
Proposal n° 6 ...........................................................................................72
d) Other solutions ..............................................................................................73
ANNEX A National regulations relevant in assets transfers between banks part of a same
banking group ......................................................................................................75
ANNEX B Examples of transfer of assets agreements ................................................95
1. DEFINITIONS AND INTERPRETATION ................................................................ 114
1.1. Definitions ............................................................................................. 114
1.2. Construction .......................................................................................... 116
2. PLEDGE ...................................................................................................... 116
2.1. Creation of the Pledge ............................................................................. 116
2.3. Dispossession and opposability ................................................................ 117
3. Restrictions and Further Assurances .............................................................. 118
3.1. Security ................................................................................................ 118
3.2. Disposal ................................................................................................ 118
3.3. Continuing Liability of the Pledgor ............................................................ 118
3.4. Further assurance .................................................................................. 118
3.5. General undertaking ............................................................................... 118
4. REPRESENTATIONS AND WARRANTIES .......................................................... 118
4.1. Ownership of the Pledged Claims .............................................................. 118
4.2. Authority to pledge the Pledged Claims ..................................................... 119
4.3. Validity and perfection of the Pledge ......................................................... 119
4.4. Place of principal management ................................................................. 119
4.5. Legality of Pledge ................................................................................... 119
4.6. Consents and authorisations .................................................................... 119
4.7. Repetition of representations and warranties ............................................. 119
5. RIGHTS of the PLEDGOR .............................................................................. 119
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6. Enforcement ............................................................................................... 120
6.1. Realisation of the Pledge ......................................................................... 120
6.2. Limitation to realisation ........................................................................... 121
7. LIABILITY OF PLEDGEE ................................................................................ 121
8. PLEDGEE‟s Rights ........................................................................................ 121
9. Saving Provisions ........................................................................................ 121
9.1. Continuing Security ................................................................................ 121
9.2. Reinstatement ....................................................................................... 121
9.3. Waiver of defences ................................................................................. 122
9.4. Immediate recourse ............................................................................... 122
10. Discharge of Pledge .................................................................................. 122
11. Expenses ................................................................................................. 123
12. Payments ................................................................................................ 123
12.1. Demands ........................................................................................... 123
12.2. Payments ........................................................................................... 123
13. Waivers ................................................................................................... 123
14. Assignment ............................................................................................. 123
15. Notices .................................................................................................... 123
16. INFORMATION NOTICE OF PLEDGE .............................................................. 124
17. Taxes and Stamp Duty ............................................................................... 125
18. Severability .............................................................................................. 125
19. Counterparts ............................................................................................ 125
20. Headings .................................................................................................. 125
21. Governing Law .......................................................................................... 125
22. Jurisdiction Clause ..................................................................................... 125
4. DEFINITIONS AND INTERPRETATION .............................................................. 130
5. PROCEDURE ................................................................................................ 131
6. Governing law and jurisdiction ....................................................................... 132
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1. Part I - National regulation
Please provide a presentation of your national regulation (law, cases,…) and attach it as
Annex A and B to this document :
the relevant legal texts and cases in English (or summarized in English).
If possible, examples of transfer of assets agreements.
For each question, please first consider:
your national Civil Law, Company Law, and Insolvency Law
and on a second time explain if there are specific regulations for Banking groups
on a third time explain if there are specific regulations for cross-border transfer of
assets.
1. Summary
Generally speaking, is the transfer of assets allowed (could you please precise
briefly under which conditions):
In crisis situation:
- from parent to subsidiary
- from subsidiary to parent
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- from subsidiary to another subsidiary
Similarly as to in going concern situations, the transfer of assets is in
principle allowed in the three above situations provided that the
transferor and the transferee have each a corporate interest in
transferring such assets and provided that the transfer is made on an
arm’s length basis.
The concept of corporate interest is not clearly defined under
Luxembourg law and it can be considered that the abstention of the
Luxembourg legislator to provide a definition of the corporate interest is
due to the fact that corporate interest is by definition a soft law concept
allowing a substantial margin for appreciation case by case.
Depending on each case, a different approach of the corporate interest
concept may be preferred. In a general fashion, it can be said that
Luxembourg law adheres both to the dual patrimonial and to the
entrepreneurial conceptions of the corporate interest. The patrimonial
conception puts the stress on the sole interest of the shareholders,
whereas the entrepreneurial conception favours a more holistic approach
and envisages the company as a whole constituted of the multiple and, to
some extent, diverging interests at stake, i.e. the interests of the
shareholders, managers, employees, creditors, even possibly the
strategic interest of the State where the company is located (e.g.
Luxembourg banks are, for the Luxembourg public authorities, strategic
entities as part of the Luxembourg banking sector which is the
Luxembourg leading economic sector). In a general fashion, it can be said
that the stress shall be put on the patrimonial conception for pure holding
or financial structuring (UCITs, SOPARFI) whereas the entrepreneurial
conception may be favoured in respect of commercial or industrial
structuring.
Most notably, Luxembourg banks/insurance undertakings share features
of both structuring forms: (i) holding/financial structuring: the vast
majority of Luxembourg banks/insurances undertakings are
subsidiaries/branches of non-Luxembourg banks/insurances. All
strategic decisions and policy-making of the groups are directed out of
Luxembourg. The implementation of banks/insurances is mainly due to
attractive Luxembourg regulations (banking secrecy, tax regime); (ii)
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commercial or industrial structuring: Luxembourg banks are major
employers in Luxembourg and the banking/insurance sector represents a
substantial part of the national economy either in terms of employment,
side services, real estate industry, etc.
Due to the afore dual structuring of the Luxembourg banking/insurance
sector, it is difficult to have a clear and rigid view on the approach of the
corporate interest concept which shall be preferred. Ultimately, it is likely
that any decisions shall closely take the political appreciation into
account and that the fundamental interests of the Luxembourg financial
place shall be ultimately considered. In this respect, the sole concept of
corporate interest may not be sufficient to impede a timely transfer of
assets, provided that such transfer does not jeopardize the fundamental
equilibrium between (i) the interest of the transferor and its group of
companies, (ii) the interest of third parties (deposit-holders) and (iii) the
Luxembourg public policy strategy
It should be stressed out that the Luxembourg commercial code foresees
the situation in which transfer of assets may be declared nil and void if it
has been made by a transferor which has been declared bankrupt and
which is not considered as favorable to the transferor. We do not further
develop that specific regime as we understand that the transfer of assets
should occur in favor of the transferee and not the transferor (which by
definition, is not insolvent or bankrupt).
In going concern situations:
- from parent to subsidiary
- from subsidiary to parent
- from subsidiary to another subsidiary
In principle, the transfer of assets is allowed in going concern situations
in the above situations provided that the transferor and the transferee
each demonstrate a corporate interest in transferring such assets and
provided that the transfer is made on an arm’s length basis.
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It is to be noted that, as a general principle, if a transfer of assets is
fraudulent, such transfer could be challenged by any interested party (in
principle creditors).
Are there specific regulations for cross-border transfer of assets?
There are no specific regulations for cross-border transfer of assets under
Luxembourg law.
Are there any specific rules in Banking Law in relation to transfer of assets?
- from parent to subsidiary
- from subsidiary to parent
- from subsidiary to another subsidiary
The Law of 5 April 1993 on the financial sector (hereinafter referred as
the “Law on the financial sector”), which is the general legal frame for
the Luxembourg banking sector, does not provide a distinction whether
transfers are made from the parent to a subsidiary, from a subsidiary to
parent or from subsidiary to subsidiary. Reference is made generally to
intra-group transactions. Intra-group transactions are defined in Article
51-9 (21) Law on the financial sector: “all transactions by which
regulated entities within a financial conglomerate rely either directly or
indirectly upon other undertakings within the same group or upon any
natural or legal person linked to the undertakings within that group by
close links, for the fulfillment of an obligation, whether or not
contractual, and whether or not for payment.”
Each bank supervised by the Luxembourg banking supervisory authority,
namely the Commission de surveillance du secteur financier (the “CSSF”)
within the banking group must comply with the legal requirements on
own funds, large exposures and different risk management.
These issues are more dealt with Section 2 below (specific intra-groups
transactions).
Are there specific regulations for cross-border transfer of assets?
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From a tax point of view, care should be taken that cross-border transfer
of assets are made on an arm’s length basis (please refer to paragraph 2
below for further developments on the “arm’s length” principle).
In general terms, cross-border transfer of assets generate the application
of private international law mechanisms (for more details, please revert
to the specific section devoted to private international law aspects
below).
2. Scope
Does the notion of company groups exist?
- Generally speaking in corporate Law? (If it exists, please give a definition,
conditions and the main applications?)
So far, there is no general and coordinated Luxembourg legislation
regulating the companies’ groups. Such restraint is due to several
reasons, in particular the lack of a coordinated position at the
European level (withdrawal of the draft 9th EC directive). From a
legal point of view, implementing a global company groups’
doctrine would also have a major impact on the core philosophy of
Luxembourg corporate law. Indeed, Luxembourg corporate law is
fundamentally attached to the legal and patrimonial autonomy of
each corporate entity. This is the raison d’être and also the effect
of the corporate legal body doctrine (théorie de la personnalité
morale).
However, several references to company groups can be found in
Luxembourg law:
(i) accounting principles relating to consolidated accounts: a
group of companies constituting a whole from an economic
perspective, it makes sense that accounting law takes such
unity into account. This legislation has transposed the fourth
and seventh EC directives.
(ii) corporate law: Article 49bis of the law of 10th August 1915
on commercial companies (hereinafter the “Companies’
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Law”) which regulates the crossed participations, makes an
indirect reference to the concept of company groups by
providing the criterium of dominant influence: a société
anonyme is deemed to exercise a dominant influence if (i) it
is in position to appoint or revoke the majority of the
management of another company and (ii) it is a shareholder
in the other company and has the majority voting rights
therein.
(iii) Domiciliation of companies: pursuant to the law of 31 May
1999 on the domiciliation of companies, a derogation has
been set forth to the benefit of controlled companies. Parent
companies can domiciliate their Luxembourg subsidiaries at
their registered office without being required to be vested
with a domiciliation authorization.
It can be concluded that the Luxembourg corporate law framework is
still fragmented in respect of the company groups’ concept. This
approach is similar to most other European jurisdictions (with the
exception of Germany) and the influence of European law in national
legislation does not indicate major changes to come in this respect
(reference can be made to the EC insolvency regulation 1346/2000
which does not encompass the specificity of companies’ groups). The
reference to the companies’ groups’ concept is therefore not
coordinated and the concept is used from legislation to legislation,
depending on the specific requirements at stake.
- Is there in your national law a definition of “group interest” that specifically
allows or facilitates intra-group transfer of assets?
Luxembourg law does not isolate a specific group interest and remains
attached to the individual corporate interest of the companies.
First of all, intra-group transfers of assets must also enter in the scope
of the corporate purpose (objet social), which is part of the articles of
association of the Luxembourg companies. In practice, the corporate
purpose (objet social) of the holding companies are generally defined
very broadly, allowing them to make intra-group loans and/or to grant
securities over their assets. However, the corporate purpose (objet
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social) must be examined before-hand in case a transfer of assets is
contemplated.
Secondly, Luxembourg law makes no reference to group interest and,
to the best of our knowledge, there is no published case-law which
has recognized or even dealt with such concept. Legal authors tend to
make explicit references to the French Rozenblum case-law dated
1985 which has recognized, subject to certain conditions, the
legitimacy of the group interest. This issue remains however one of
the most controversial and also one of the key-point issue in
Luxembourg corporate law, given that the vast majority of
Luxembourg companies are holding companies which are part of
larger groups in which the most important effective strategic and
operational decisions are not taken in Luxembourg.
In the light of the above, intra-group transfer of assets are not
specifically allowed or facilitated under Luxembourg law.
- Are there specific tax issues that need to be addressed in intra-group
transfers of assets?
Intra-group transfers of assets in which a Luxembourg company is
involved are subject to Luxembourg transfer pricing rules. Although
there are only two short significant related provisions in the
Luxembourg income tax law (“ITL”), such provisions have quite a
wide application. Broadly speaking, prices applied in intra-group
transactions must be the same as those applied on an arm’s length
basis between unrelated parties. If such “at arm’s length” principle is
not complied with in any type of transactions between a Luxembourg
resident and a directly or indirectly related non-resident party, the
Luxembourg tax authorities may consider that a transfer of profits
took place and may adjust prices with the effect to affect the taxable
basis of the Luxembourg company. In addition, the transaction, as
regarded as a transfer of profit by the tax authorities, may be
requalified as a hidden distribution of dividends or a hidden
contribution of capital.
- Are there specific regulations for banking groups?
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a) Concept of group in banking and financial law
The Law on the financial sector does not provide a definition of
“banking group”. However, the Law on the financial sector defines the
terms of “credit institution” and “group”.
According to Article 1 (12) of the Law on the financial sector, persons
whose business is to receive deposits or other repayable funds from
the public and to grant credits for their own account may be called,
without distinction, “credit institutions” or “banks”. A “credit
institution” shall have the meaning of a credit institution as defined by
Article 4, point (l), of the Directive 2006/48/EC.
According to Article 51-9 (15) of the Law on the financial sector a
“group” shall mean a group of undertakings which consists in a parent
undertaking, its subsidiaries and the entities in which the parent
undertaking or its subsidiaries hold a participation, as well as
undertakings linked to each other by virtue of being managed on a
unified basis pursuant to a contract or provisions of their
memorandum or articles of association, or by virtue of having
administrative, management or supervisory bodies consisting in the
majority of the same persons. Pursuant to the definition of the term
“participation” given by the Directive 2004/39/EC, the Law on the
financial sector defines a participation as “the holding of rights in the
capital of an undertaking, whether or not represented by certificates,
which, by creating a durable link with that undertaking, are intended
to contribute to the company's activities, or the holding, directly or
indirectly, of at least 20% of the voting rights or capital of an
undertaking”.
Although the concept of “banking group” is not defined expressly by
the Law on the financial sector, the concept is implied by the reference
made to the concepts of “parent undertaking” (as defined in Article
1(11) Law on the financial sector) and “subsidiary (as defined in
Article 1(18) Law on the financial sector). However, the term of
“group” is expressly defined by Article 51-9 (15) Law on the financial
sector in respect of the “financial conglomerates”: “"group" shall
mean a group of undertakings which consists of a parent undertaking,
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its subsidiaries and the entities in which the parent undertaking or its
subsidiaries hold a participation, as well as undertakings linked to
each other by virtue of being managed on a unified basis pursuant to a
contract or provisions of their memorandum or articles of association,
or by virtue of having administrative, management or supervisory
bodies consisting in the majority of the same persons“.
In the context of this study, we have assumed that the notion of
“banking group” (the definition of which is not delimited in the Annex
1-1, Introduction) shall include also the concept of “financial
conglomerate” as defined by Article 51-9(5) Law on the financial
sector: "financial conglomerate" shall mean a group which, subject to
Article 51-10, meets all the following conditions: a) the group
comprises at least one regulated entity having its head office in a
Member State which is at the head of the group or is a subsidiary; b)
where the entity at the head of the group is a regulated entity having
its head office in a Member State, it is either a parent undertaking of
an entity in the financial sector, an entity which holds a participation
in an entity in the financial sector, or an entity linked with another
entity in the financial sector by virtue of being managed on a unified
basis pursuant to a contract or provisions of their memorandum or
articles of association, or by virtue of having administrative,
management or supervisory bodies consisting in the majority of the
same persons; c) if the entity at the head of the group is not a
regulated entity having its head office in a Member State, the group's
activities mainly occur in the financial sector within the meaning of
Article 51-10, paragraph 1; d) the group simultaneously comprises at
least one entity within the insurance sector and at least one entity
within the banking sector or the investment services sector; e) the
consolidated and/or aggregated activities of the group within the
insurance sector and the consolidated and/or aggregated activities of
the group within the banking sector and the investment services
sector are both significant within the meaning of Article 51-10,
paragraphs 2 or 3. Any subgroup of a group within the meaning of
subparagraph (15) which meets the criteria in this point shall be
regarded as a financial conglomerate”.
b) Specific regulations for banking groups
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The Law on the financial sector regulates some specific situations
where a reporting of intra-group transactions to the CSSF is required
in order to permit the CSSF to exercise promptly its prudential
supervision. As a result, intra-group transfer of assets may be limited
or restricted in order to comply with the rules on prudential
supervision.
The Law on financial sector does not take into account the terms of
“transfer of assets” but refers to the general concept of “intra-group
transactions”, being defined as all transactions by which regulated
entities within a financial conglomerate rely either directly or
indirectly upon other undertakings within the same group or upon any
natural or legal person linked to the undertakings within that group by
close links, for the fulfillment of an obligation, whether or not
contractual, and whether or not for payment. In this context and for
the purposes of our examination, “intra-group transactions” clearly
include the intra-group “transfers of assets”.
Firstly, as professionals of the financial sector, banks established in
Luxembourg or subject to the CSSF supervision are bound to comply
at all times with the Law on the financial sector on an individual basis.
Therefore, in relation to a transfer of assets, the transferor must
comply with the legal requirements, in particular as regards capital
adequacy, liquidity, solvency, deposit guarantees, limitation of large
exposures, administrative and accounting procedures and internal
control mechanisms.
Secondly, banks submitted to the supervision of the CSSF on a
consolidated basis must comply with own funds’ requirements both on
an individual basis and on a consolidated basis. The CSSF prudential
supervision on a consolidated basis shall apply to the Luxembourg
parent holding company. Any significant intra-group transaction shall
be reported to the CSSF. Where such transactions are regarded as
threatening the financial position of the credit institution established
under Luxembourg law, the CSSF shall order the credit institution
concerned to rectify the situation within such time as it may
determine.
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However, the CSSF may decide not to apply, on a sub-consolidated or
on an individual basis, the rules on prudential supervision on a
consolidated basis to an entity authorized and supervised in
Luxembourg which is the subsidiary of a Luxembourg parent credit
institution if such subsidiary is included within the supervision on a
consolidated basis of the Luxembourg parent credit institution. This
exemption is subject to the fulfillment of all the legal requirements
expressed by the Law on the financial sector, and in particular there is
no current or foreseen material legal or practical impediment to the
prompt transfer of capital or the prompt repayment of liabilities by its
parent undertaking (Article 51-5 (3) Law on the financial sector).
Thirdly, in compliance with rules concerning large exposures, credits
provided by a subsidiary to a group of the parent undertaking shall not
exceed 20% of the own funds (after ponderation, in compliance with
the requirements of the CSSF circular letter 06/273, as amended) of
the relevant subsidiary on an individual basis.
Fourthly, in the context of transfer of assets, there exists no
regulation or restrictions expressed by the CSSF in relation to a re-use
(remploi) of the own funds of a credit institution, excepted the sole
case where a credit institution is refinancing its shareholder which
may be a subsidiary or a parent undertaking. In this case, the CSSF
considers that it shall constitute an artificial creation of the capital of
such bank because the funds will be reverted to the shareholder and it
constitute an inacceptable risk regarding to the prudential supervision
and therefore contravene to the Law on the financial sector.
Fifthly, the supplementary supervision exercised by the CSSF shall
relate to the financial position of the financial conglomerate in general
and to its capital adequacy in particular, to risk concentration and to
intra-group transactions, as well as to the internal control
mechanisms and risk management processes put in place at the level
of the financial conglomerate. This rule may also apply if the CSSF is
acting as coordinator in respect of a financial conglomerate which is
itself a sub-group of another financial conglomerate subject to
supplementary supervision. Therefore, in the context of a financial
conglomerate, the CSSF is entitled to control any form or amount of
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intra-group transfer of assets (for more details, please see below).
Indeed, according to Article 51-15 (4) of the Law on the financial
sector, the CSSF may set forth quantitative limits and qualitative
requirements with regard to intra-group transactions of regulated
entities within a financial conglomerate or take other supervisory
measures designed to control intra-group transactions of regulated
entities within a financial conglomerate.
However, so far (latest CCSF annual report dated 31 December 2007),
the CSSF has not yet identified any financial conglomerate in respect
of which it should be acting as coordinator in respect of the prudential
supplementary supervision.
Please specify any relevant information relating to intra-group transfer of assets
that has not been dealt with in the previous questions and that would be useful
for the study.
Financial assistance: pursuant to Article 49-6 (1) of the law of 10 August
1915 on commercial companies, as amended (the “Companies law”), a
company may not advance funds nor make loans nor provide security
with view to the acquisition of its own shares by a third party. However,
49-6 (1) does not apply to transactions concluded by the companies in
the normal course of their business nor to transactions effected with a
view to the acquisition of shares by or for the staff of the company.
Furthermore, such transactions may not have the effect of reducing the
net assets of the company below aggregate of the capital and the
reserves which may not be distributed under law or the articles of
association.
Article 49-6 (1) Companies’ law being inserted in the chapter of the
Companies’ law devoted to the société anonyme, the question was
whether such limitation applies to other types of companies, in particular
the société à responsabilité limitée. Although the majority of the practice
has inclined to consider that Article 49-6 (1) Companies’ law was specific
to the société anonyme, a pending draft law on the modernization of the
Luxembourg corporate law intends to extend such limitations to the
société à responsabilité limitée.
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3. Conditions and sanctions
Authorization
Do decisions to transfer assets have to follow specific approval procedures such as
the approval of the board of directors or the transferor or transferee or the
approval of shareholders obtained through a special meeting of shareholders?
In principle, only subject to the powers expressly reserved by law or by
the articles of association to the shareholders general meetings, the
board of directors has the widest power to take any action necessary or
useful to realize the corporate object, i.e. to run the business of the
company. Therefore, as a principle, and subject to the specific corporate
governance applicable principles, any agreement and transaction entered
into by a company must be approved by a decision of the board. There is
no “regulated agreements” regime set out by law.
In practice some of the decisions are taken by one or several directors
depending on the powers they have been granted to by the articles of
association of the company. These decisions are generally part of the
daily management decisions and are not major or significant decisions
that may have an influence on the substance of the company. The
approval of the shareholders is therefore not required. However,
reference must be made to a specific case in respect of the société
anonyme which requires such approval where the company, within the
two years following its incorporation, acquires any asset belonging to a
natural or legal person, by whom or on whose behalf the articles of
incorporation were signed, for a consideration of more than 10% of the
subscribed capital (Article 26-2 of the Companies’ law).
Do transfers of assets need to be approved by other third parties or supervisory
authorities?
- General: in principle, transfers of assets do not need to be approved by
third parties. Such approval could however be contractually required
between parties to an agreement. Note a specific case in Luxembourg
private limited liability companies (sociétés à responsabilité limitée
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(“Sàrl”)) where shares may not be transferred to non-shareholders
unless the existing shareholders representing at least three-quarters of
the share capital have agreed thereto in a general meeting (Article 189
Companies Law). In this respect, it is to be noted, that as far as
enforcement of pledges on shares of Sàrls is concerned, the law of 5
August 2005 on financial collateral arrangements (the “Law on financial
collateral arrangements”) put an end to the requirement to such approval
(based on Article 189 Companies law) in case the pledge covers all the
shares of the company. In other cases (i.e. pledge on part of the
company’s shares), the approval of the transfer may be given at any time
(and not at the time of the effective transfer, as set forth in Article 189
Companies Law). Therefore, the Law on financial collateral arrangements
has substantially lightened the conditions of enforcement of the pledge
and has facilitated the implementation of such pledges which are
frequently used in Luxembourg for securing leveraged M&A transactions.
Vis-à-vis third parties, and in particular vis-à-vis the transferred third
party (pledge of shares or receivables) or transferred debtor (assignment
of debts), pursuant to Article 1690 of the Luxembourg civil code (the
“Civil Code”) and Article 190 Companies Law (in respect of the transfer of
shares of a Sàrl), the formal approval of the transfer by such third parties
is one of the enforcement (opposabilité) measures which can be observed
in substitution to notification to such third party (for more details on the
notification option, please see below).
- Banking sector: the Law on the financial sector does not require any
prior approval by the CSSF in case of transfer of assets. However, any
credit institution subject to the supervision of the CSSF which intends to
take a qualifying holding (participation qualifiée) must first obtain the
authorization from the CSSF. Therefore, if the intra-group transfer of
assets consists in a qualifying holding, it shall be approved by the CSSF.
For the purpose of this matter, and in compliance with the Law on the
financial sector, a "qualifying holding" shall mean any direct or indirect
holding of 10% or more of the capital or of the voting rights in an
undertaking, in accordance with Articles 9 and 10 of Directive
2004/109/EC, or any other holding which makes it possible to exercise a
significant influence over the management of that undertaking (i.e. more
than 5% pursuant to the current interpretation of the CSSF).
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Do transfers of assets have to be notified to other third parties or supervisory
bodies or published?
- General:
if the transfer of assets has as effect a change in the beneficiary of an
obligation consisting in the execution of any kind by third parties such as
payment of dividends (or any other financial rights) by a company in case
of a transfer of shares, payment of the principal and/or interest by a
borrower in case of a transfer of a loan, etc., the transfer of the asset
must be notified in accordance with Article 1690 of the Civil Code to the
debtor of the obligation (alternate option of the notification is the formal
approval by the transferred debtor, please see above). Such notification
is essential so that the debtor is validly bound by such transfer. The
obligation of notification should however be considered on a case by case
basis as such obligation could vary depending on the law applicable to
the agreements or generally the law applicable to the execution of the
obligation.
The form of the notification is not strictly framed by law. Notification of
the transfer can be made either by the transferor and/or the transferee.
With respect to the legal form of the notification, Article 1690 Civil Code
expressly refers to the form of a notarial deed or a private deed. Parties
must be cautious as regards the evidence and timing effect of the
notification vis-à-vis the debtor.
- Banking sector:
Two situations must be distinguished: (i) CSSF supervision of the banking
undertakings on a consolidated basis; and (ii) supplementary CSSF
supervision of the financial conglomerates.
(i) The banking undertakings under the CSSF supervision on a
consolidated basis
In this case, the Law on the financial sector makes a distinction between
the situation of a “financial holding company” and a “mixed-activity
holding company”. A “financial holding company” means a financial
institution the subsidiary undertakings of which are either exclusively or
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mainly credit institutions or financial institutions, with at least one of
such subsidiaries being a credit institution, and which is not a mixed
financial holding company. A “mixed-activity holding company” means a
parent undertaking, other than a financial holding company or a credit
institution or a mixed financial holding company.
With respect to financial holding companies, no specific regulations
govern transactions and the transfer of assets either in case of financial
crisis or not from a parent to its subsidiary, from a subsidiary to its
parent or between subsidiaries.
With respect to mixed-activity holding companies, Article 51 of the Law
on the financial sector provides that the CSSF shall exercise general
supervision over transactions between credit institutions established
under Luxembourg law and their parent undertakings, where the parent
undertaking is a mixed-activity holding company, and between such
credit institutions and subsidiaries of that parent undertaking.
In such case, credits institutions must report to the CSSF any significant
transaction previously carried out with those entities, otherwise than in
the context of the rules concerning large exposures. Such significant
transactions shall be subject to control by the CSSF. Therefore, the
control by the CSSF is ex-post and not ex-ante.
(ii) the financial conglomerates under the CSSF supplementary
supervision
The entity at the head of a financial conglomerate, or if necessary any
other relevant entity in the financial conglomerate, shall report to the
CSSF on a regular basis, and at least annually, any significant intra-group
transaction of regulated entities within the financial conglomerate.
The Law on the financial sector provides that in the absence of any
definition of notification thresholds, an intra-group transaction shall be
deemed to be significant if its amount exceeds at least 5% of the total
amount of the capital adequacy requirements at the level of the financial
conglomerate.
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Pursuant to Article 51-15 of the Law on the financial sector and to the
CSSF Circular Letter 06/268, the CSSF shall determine for each financial
conglomerate, after consultation with the other relevant competent
authorities and the financial conglomerate, the categories of risks to be
notified, the notification thresholds and the detailed rules, including
those relating to frequency, for notification of significant intra-group
transactions in respect of a given financial conglomerate. For that
purpose, it shall take into account the specific group and risk
management structure of the financial conglomerate. However, due to
the lack of identified financial conglomerate in respect of which it should
be acting as coordinator in respect of the prudential supplementary
supervision the CSSF has not yet been in position to determine such
detailed rules.
Would a specific agreement incorporating the terms and conditions of the transfer
between transferor and transferee and executed by their authorized
representative be required?
Although according to Luxembourg law an agreement incorporating the
terms and conditions of the transfer between the transferor and the
transferee is not required in terms of validity (ad validatem) of the
transaction (however, evidence requirements are subject to strict formal
requirements set out in the Luxembourg Civil Code (formality of the
double copy, written agreement beyond a certain amount at stake)), in
practice, such a formal agreement shall be implemented for any such
transactions having a significant financial and economic impact. Such
agreement is in particular relevant for evidence purposes (ad validatem)
between the parties to the agreement but also toward third parties.
Those formal requirements may have as effect to delay the contemplated
transfers of assets. However, in case of urgency, it is possible to have the
transfer of assets formally ratified ex post, provided that the
management justifies ex post the practical impossibility to comply with
those requirements at the time of transfer.
From a tax and accounting point of view, such agreement would also be
considered as an accounting document which would be taken into
account for establishing the company’s accounts. This is of importance as
the tax accounts are based on the commercial accounts of a company.
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The absence of an agreement could lead to some misinterpretation of the
reality of the commercial relation between the parties. Such agreement
could also be used as evidence toward interested third parties and in
particular the tax authorities, in case such authorities challenge a
transaction or some of its aspects. Tax authorities have the right to
request to be remitted transaction documents (including agreements) as
supporting documents.
Banking sector: banks must comply with the large exposures
concentration requirements concerning a quarterly reporting on a
individual basis as well as on consolidated basis. On the basis of those
reports, the CSSF shall be in position to exert a control on the intra-group
transfers of assets. The reporting mainly consists in the communication
of tables to the CSSF. Where the CSSF notes that a transaction is
suspicious or raise a specific issue, it shall require to be provided with the
related transaction’s contractual, accounting and commercial
documentation for examination and review purposes.
Are there differences between transfers in going concern situations / transfers in
crisis situations?
- Tax comment: according to the Luxembourg accounting principles,
valuation of the assets of a company are made on a “going concern”
basis. Transfers made in crisis situation could have an impact on the
valuation of the transferred assets at the level of the transferor and the
transferee, depending on the chances to receive the assets back, the
winding up risks, etc. The tax treatment of a waiver of debt in crisis
situation and provided certain conditions are met, could also be more
favorable if the beneficiary of the waiver of debt is in a crisis situation
(note also that this favorable tax treatment is usually not granted when
the waiver is made by a subsidiary in favor of its parent company): at the
level of the beneficiary, it should not be considered as a hidden
contribution and at the level of the transferor, it should be considered as
a deductible charge.
- Banking sector : the Law on the financial sector makes no difference
between transfers in going concern situations and transfers in crisis
situations. However, if the transferor or a transferee is in a crisis
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situation, as appreciated by the CSSF, the prudential supervision of the
CSSF will exert a more in-depth examination.
Counterpart for the asset transfer
Is the transfer of assets treated differently by your national Law :
- if it respects the arm‟s length principle/normal market conditions dealing
(please explain what is considered as arm‟s length)
As indicated above, for Luxembourg tax purposes, inter-company transfer
pricing rules must be made on an arm’s length basis. In such a case the
transfer of assets is not treated differently by Luxembourg.
Luxembourg law does not contain specific provisions dealing with the
determination of what arm’s length transaction between affiliated
companies should be. One see in practice that Luxembourg tax
authorities do in principle accept all transfer pricing methods based on
the transfer pricing rules referred to by the OECD transfer pricing
guidelines.
Articles 56 and 164(3) ITL deal with the measures that can be used by
the tax authorities should transfer pricing not be considered as at arm’s
length: according to Article 56 ITL, the tax authorities can determine the
operating income on a lump-sum basis in a situation where a transfer of
result occurred due to direct or indirect particular relationships existing
between the Luxembourg entity and a non-resident person. Article
164(3) ITL provides that hidden distributions, being defined as direct or
indirect advantages granted by a Luxembourg company to the
shareholder (direct or indirect) which would otherwise not have been
granted absent the shareholding relationship, are non deductible from
the taxable basis of the company and may, to some extent, be subject to
dividend withholding tax. Direct or indirect advantages granted by the
shareholder (direct or indirect) to a Luxembourg company which would
otherwise not have been granted absent the shareholding relationship
may be re-characterized as hidden (or informal) capital contribution.
Although no established rules submit such informal capital contribution
to capital duty (0.5% of the contributed value), such a taxation may be
applied in practice.
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- if it is agreed under preferential conditions or disadvantageous to the
transferee but advantageous to transferor and the group as a whole
From a general corporate law perspective, the counterpart that should be
provided by the transferee to the transferor should be analyzed from the
transferor’s perspective and in particular from the corporate interest of
the transferor. Indeed, the transfer of assets to the transferee per
definition is made in favor of the transferee, i.e. an advantage is granted
to the transferee. The transferee has therefore a corporate interest in
that transaction. The approach is different from the transferor’s
perspective as it provides an advantage to the transferee. The question at
stake is whether a corporate interest from the transferor’s perspective
can be isolated. As indicated above, intra-group transfer of assets are not
specifically allowed or facilitated under Luxembourg law. As a result, the
transfer of assets shall be made also in the best interest of the transferor.
Although Luxembourg law does not define the concept of corporate
interest, such concept is usually defined as being the seeking of a profit
by a company. Therefore, all decisions or actions made by the
shareholders or the directors of a company shall be made in the view of a
realization of a profit. Should this not be the case, either the decisions or
the shareholders could be declared nil and void or the directors could be
declared liable (should these directors have acted in favor of their own
interest). As a direct consequences of that approach, any transaction in
which a company is involved must be governed by the corporate interest
concern, i.e. realizing a profit. As a direct consequence of that approach,
a donation is in principle not considered in the corporate interest of the
company as by definition there is no direct profitable counterpart.
However, these general principles must be considered with a flexible
approach. Indeed, it is usually considered by the Luxembourg
practitioners and authors (in the absence of a published case-law on the
topic) that even if a company is involved in a transaction is not awarded
directly by an income or a return of any kind, such transaction may not be
considered as against its corporate interest if that transaction has for a
consequence to provide an advantage, direct or indirect, to the company,
at least in the long term. A transaction should therefore not be made
obviously in violation of the corporate interest of a company and a
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minimum of return would be expected at least in the long term.
Therefore, a general long-term balance must be complied with: a
company must not sacrifice its best corporate interests at all times to the
benefit of other companies of the group and must expect that a
temporary effort from its part shall benefit the company directly or
indirectly, even in a long-term perspective.
From a tax perspective and in respect of cross-border transfers, in the
absence of published regulations, and subject to case-by-case analysis,
the aforementioned general principles may be considered. In particular,
based on the above mentioned Articles 56 and 164 ITL, Luxembourg tax
authorities may re-characterize all or part of the possible exorbitant
advantages (interest-free loans, donations, etc.) that may be provided by
a Luxembourg company to a group company.
- if there is no counterpart/compensation for the transfer
Same comments as above.
- if the transfer is included in a loan or credit agreement between transferor
and transferee.
Same comments as above.
Are there differences between transfers in going concern situations / transfers in
crisis situations?
There are no differences made under Luxembourg law between in going
concern situations and transfers in crisis situations, which would
primarily require to define the concept of crisis situation (independently
of the regime of insolvency situations).
Compulsory counterparts and guarantees
Is there any compulsory counterpart or guarantee that transferee should provide
to transferor?
Please refer to the section above.
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Please specify any other relevant information relating to the conditions to be met
for a transfer of asset to be authorized that has not been dealt with in the
previous question and that would be useful for the study
N.a.
Financial capacities of the transferor and the transferee
Does the decision to transfer have to comply with conditions relating to the
financial capacities/health of the transferor/transferee?
Notwithstanding the specific ratio limitations to which banks are subject,
transfers of assets should not have for a consequence to jeopardize the
financial health of the transferor and lead the transferor to bankruptcy.
No conditions are required at the transferee level.
What are the consequences when the transfer has occurred but those conditions
have not been respected?
If the above conditions are not met and if the transfer is considered as
not being made based on the interest of the transferor, the liability of
directors may be triggered.
Are there any conditions relating to the consequences of the transfer on the
financial situation of the group?
Tax comment: In case of a waiver of debt, if the parent company is the
creditor and the subsidiary the beneficiary, if such waiver is unconditional
(e.g. no repayment is foreseen, even in case of a return to better fortune
condition) and no additional shares are issued to the creditor, such
waiver may be considered as a hidden capital contribution eventually
subject to the Luxembourg capital duty (present rate of 0.5%).
There are no conditions relating to the consequences of the transfer on
the financial situation of the group.
What is the rank of claim of the transferor in case of insolvency proceedings of the
transferee ?Please specify any other relevant information relating to Financial
capacities of the transferor and the transferee that has not been dealt with in the
previous question and that would be useful for the study
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The rank of claim of the transferor in case of insolvency proceedings of
the transferee will depend on whether or not the transferor has secured
the transfer or not. If the transferor is an unsecured creditor, its
payment/reimbursement will be subordinated to all other secured
creditors or considered as such by the law (e.g. employees are considered
as having a “super privilege” regarding some of their unpaid salaries; the
Luxembourg State is also considered as secured creditor for the unpaid
taxes or certain social security claims). Once all secured creditors are
disinterested, the unsecured creditors (créanciers chirographaires) are
paid on a pro rata basis depending on the amount of their claims.
If the transferor benefits from a right in rem first ranking such as
mortgage, pledge, transfer with ownership’s right reservation (transfert
avec réserve de propriété) or claim (revendication), it may enforce such
security and will therefore not compete with the other creditors and will
therefore rank prior to the unsecured creditors.
Are there differences between transfers in going concern situations / transfers in
crisis situations?
No legal differences apply, only specific economic and financial
considerations should be closely taken into account.
Information and transparency
Does specific information have to be communicated on the transfer to :
- Supervisors
General: n.a.
Banking sector: please refer to Section 3 a) above
- Shareholders
Subject to specific provisions in the articles of association or
contractual arrangements ( shareholders’ agreements), there is no
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legal requirement of information vis-à-vis the shareholders. Transfers
of assets are part of the management’s empowerment.
- Employees
Subject to specific requirements under collective agreements
(conventions collectives), there are no general requirements of ex
ante or ex post information to the employees in relation to transfers of
assets, to the extent that such transfers of assets do not substantially
affect the undertaking’s economic situation or does not fall into the
scope of specific protection of employees’ rules in the event of a
transfer of undertaking (transfert d’entreprise).
It should however be noted that Article L. 414-4 (1) of the
Luxembourg labour code (the “Labour Code”) foresees a general duty
of the employer to communicate on a regular basis to staff
representatives all relevant information with regard to the
undertaking’s current and future economic situation and employment
prospects. Furthermore, pursuant to Article L. 414-4 (4) Labour Code,
the employer shall inform and consult the staff representatives on any
decision which may trigger substantial changes in the work
organization or contractual relations, including, but not limited to,
collective redundancies and transfers of undertaking (i.e. transfer of
an undertaking, business, or part of an undertaking or a business as a
result of a legal transfer or merger).
- Third parties (specify who can have an access to this information and how)
With the exception of the notification requirements as detailed above
(See section above “Do transfers of assets have to be notified to other
third parties or supervisory bodies or published?”), there are no other
requirements of information to third parties.
If yes should this information be communicated before the transfer or after it :
- supervisors
Before/After
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General: N.A.
Banking sector: please refer to Section 3 a) above
- Shareholders
Please refer to general comments above.
- Employees
Please refer to general comments above.
- third parties (specify who can have an access to this information and how)
Please refer to general comments above.
Please specify any other relevant information relating to Information and
transparency that has not been dealt with in the previous question and that would
be useful for the study
N.a.
Sanctions
When a transfer of assets has occurred what at are the sanctions (civil liability of
the managers or the supervisory authorities, nullity, criminal penalty, etc.) that
may be incurred :
- under Insolvency Law
Under Insolvency law the liability of the directors can be incurred as
follows:
a) Ordinary liability
This liability is detailed in the below section “Company law”.
b) Extension of the bankruptcy to the directors
According to Article 495 of the Luxembourg commercial code, in case
of fraudulent bankruptcy of a company, the directors may be
personally put into bankruptcy if they:
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- either effectuated commercial acts in their personal interest; or
- used the corporate goods as their own; or
- went on intentionally with a deficit administration of the
company.
If a Director is convinced of having performed any such
aforementioned acts, his personal assets could be merged with the
assets of the liquidated company.
c) Action in « comblement de passif »
According to Article 495-1 of the Luxembourg commercial code, where
a company declared in bankruptcy has no sufficient assets to cover its
debts, the court may decide that the debts should be paid, in whole or
in part, by the directors of the company, when it appears that such
directors are guilty of misconducts by having contributed to the
bankruptcy.
This action may be intended by the liquidator of the Company and is
justified only when the misconduct is serious.
- under Civil Law
Subject to a possible contractual liability basis (violation by the
directors of their obligations as mandates of the company), the
directors can be declared liable based on the general tort liability
principles as set out by Article 1382 of the Luxembourg civil code The
Directors’ liability is subject to the evidence of three criteria of (i) the
existence of a fault; (ii) a damage suffered and (iii) a link of causality
between the fault and the damage.
- under Company Law
According to Articles 59 and 192 Companies Law, the directors shall
be liable towards the company, in accordance with general law for the
execution of the mandate given to them and for any misconduct in the
management of the company's affairs.
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The Law furthermore provides that the Directors shall be jointly and
severally liable both towards the Company and any third parties for
damages resulting from the violation of the Company Law or the
articles of association of the company and shall be discharged from
such liability in the case of a violation to which they were not a party
provided that no misconduct is attributable to them and they have
reported such violation to the first general meeting of shareholders
after they had knowledge thereof.
- Under Banking Law
The CSSF is empowered to require the credit institution to put an end
to the irregular situation. The CSSF is vested with injunction powers.
If, despite the measures taken by the CSSF, the credit institution
persists in infringing provisions of the Law on the financial sector, the
CSSF may take appropriate measures to prevent or curb further
irregularities and, in so far as may be necessary, to withdraw the
authorization or, as the case may be, to prevent that credit institution
from operating any further transactions in Luxembourg.
- under Criminal Law
Luxembourg law does not consider the criminal liability of a legal
entity (irresponsabilité pénale des personnes morales). Therefore, if a
criminal infraction is committed by the management of a corporate
entity, the natural persons (director(s), manager(s)) shall be held
personally liable, in the proportion of their commitment as regards
criminal law provisions (Tribunal d’Arrondissement de Luxembourg,
14 December 2000).
Articles 162 to 173 Companies’ law provide for financial and criminal
penalties in some specific cases against directors who acted in breach
of some specific requirements of the Companies Law (preparation and
submission of the annual accounts within the legal timing, prohibited
financial assistance). In particular, directors may incur criminal
penalties where they performed fraudulent acts in their personal
interest (misuse of corporate assets).
The Tribunal d’Arrondissement (District Court) may also, at the
application of the Procureur d’Etat (public prosecutor), order the
dissolution and the liquidation of any company governed by
Luxembourg law which pursues activities contrary to criminal law
(Article 203) and order the close-down of any establishment of a
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foreign company which pursues activities contrary to criminal law
(Article 203-1).
- Other
Under tax law, as indicated above, main sanctions could result in a
new assessment of the taxable basis of the involved companies, the
non-deduction of certain charges and the re-characterization of
certain advantages considered as “undue” as hidden distribution of
dividend (possibly subject to a withholding tax) or hidden contribution
(eventually possibly subject to capital contribution).
Third parties
Supervisory authorities
What is the role of the supervisory authorities in case of a transfer
of assets (right to be informed, have to give an authorization,
etc.)? Please distinguish the home/host supervisory authorities.
The CSSF is competent to supervise credit institutions and investment
firms carrying on business in more than one European Union Member
State.
Acting as the competent authority of the “home Member State”, the
CSSF shall exercise the prudential supervision of credit institutions
established under Luxembourg Law and such supervision extends to
the business carried on by any such institution in another Member
State, whether by means of the setting up of a branch or pursuant to
the freedom to provide services.
Therefore, the CSSF may require information relating to the
management, running and ownership of the credit institution
concerned as may require the supervision thereof and examination of
the conditions attaching to its authorization, together with all such
information as may require the monitoring of that credit institution,
especially as regards capital adequacy, liquidity, solvency, deposit
guarantees, limitation of large exposures, administrative and
accounting procedures and internal control mechanisms. Such power
allows the CSSF to supervise the intra-group transfer of assets.
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Acting in its capacity as “host Member State”, the CSSF is responsible,
in collaboration with the competent authorities of the home Member
State, for the supervision of the liquidity of Luxembourg branches of
credit institutions authorized in another Member State.
Therefore, if such branch does not fulfill the legal requirement of
liquidity due to an excessive transfer of assets to the parent
undertaking, the CSSF, after informing the competent authority of the
home Member State, may take appropriate measures to prevent or
curb further irregularities and, in so far as may be necessary, to
prevent that credit institution or investment firm from initiating any
further transactions in Luxembourg. In this respect, the CSSF may
supervise the transfer of assets from a Luxembourg subsidiary to the
parent undertaking.
Are there any conditions or consequences relating to solvency ratios
(implementation of Bale I et II notably)?
In any case, each credit institution must comply with the solvency
ratios as required by the Law on the financial sector and as calculated
in accordance with the CSSF circular 06/273, as amended (for
reference minimum 8%). Under Basle 2, the trigger point is the
requirements on minimum capital. Indeed, the CSSF circular letter
06/273 provides that credit institutions shall at any time comply with
the capital requirements (8% after ponderation). In case of default,
credit institution shall inform immediately the CSSF which may provide
the credit institution with a delay to comply with this requirements.
However, pursuant to a Luxembourg discretionary rule and according
to the CSSF circular 06/273, intra-group exposures are exempted from
large exposure limitations. As a result, Luxembourg subsidiaries may
transfer to the parent or the pooling entity of the group any or all of
their cash excess.
Are there differences between transfers in going concern situations /
transfers in crisis situations?
Concerning financial conglomerates for which the CSSF acts as
coordinator, its supplementary supervision tasks shall cover planning
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and coordination of supervisory activities in going concern as well as in
emergency situations, in cooperation with the other member states’
relevant supervisory authorities involved.
Article 51-19 of the Law on the financial sector provides a system of
cooperation and exchange of information between the competent
authorities. In the context of cross border assets transfers, such
cooperation shall include the gathering and the exchange of
information concerning in particular, without limitation, the financial
conglomerate's strategic policies; the financial situation of the financial
conglomerate, in particular as regards capital adequacy, intra-group
transactions, risk concentration and profitability and the financial
conglomerate's major shareholders and management.
According to article 51-23 of the Law on the financial sector, where the
CSSF, in the exercise of its functions as coordinator, estimates that the
intra-group transactions or the risk concentrations are a threat to the
financial situation of the regulated entities in the financial
conglomerate, it shall require the parent undertaking and its banking
subsidiaries established under Luxembourg law which form part of the
financial conglomerate to rectify the situation within such time-limit as
it may specify. The CSSF has to inform the other competent authorities
concerned of its findings.
Please specify any relevant information relating to the supervisory
authorities that has not been dealt with in the previous questions and that
would be useful for the study
N.a.
Minority shareholders
Does a minority shareholder of the transferor have any right concerning
the transfer :
- before the transfer or the decision to transfer (eg. right of
opposition, right of approval, right to be informed…)
Page 35 of 132
Subject to specific provisions in the articles of association or
contractual arrangements ( shareholders’ agreements), minority
shareholders have in principle no specific right concerning the transfer
before the transfer or the decision to transfer.
- after the transfer (e. g. right to have the transfer annulled
when transfer disadvantageous to transferor, request for an
audit…)
According to Article 154 Companies Law, judicial courts may, in
exceptional circumstances, upon application by shareholders
representing 20% of the share capital, appoint one or more auditors
with the duty to examine the books and accounts of the company. This
procedure is not often used in practice and it is unlikely that it could
lead to the cancellation of the transfer even when disadvantageous to
the transferor.
Shareholders have also a personal right to trigger the directors’
liability based on Article 1382 of the Luxembourg civil code as
indicated above under Section “Civil law liability”. It is however
unlikely that this legal action would lead to the cancellation of the
transfer, unless the transferee was aware or should have been aware,
at the time of transfer, of the fraudulent character of the transfer.
Creditors
Do Creditors of the transferor have any rights concerning the transfer :
- before the transfer or the decision to transfer (eg. Right of
opposition, acceleration rights, or right of approval, right to
be informed…)
Before the transfer, there are no such rights to the creditors.
- after the transfer (right to have the transfer annulled for
fraud when transfer disadvantageous to transferor and
aimed at fleecing creditors…)
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After the transfer, the following legal actions are available to the
creditors in case the transferor has operated a transfer to the
detriment of its creditors:
actio pauliana (action paulienne): this right of action is set forth
in Article 1167 of the Luxembourg Civil code and allows a
creditor to judicially apply for the annulment of acts committed
by the debtor fraudulently to the prejudice of the rights of the
creditor. The actio pauliana is subject to the evidence of (i) an
impoverishment of the transferor, (ii) a fraud of the transferor,
(iii) a complicity of the transferee and (iv) the creditor suffered
a damage resulting from such impoverishment. ;
action oblique ou subrogatoire: this right of action is set forth
in Article 1166 of the Luxembourg Civil code and allows a
creditor to be substituted to the debtor in case the debtor is in
negligence to exert its rights and actions against third parties.
Only rights and actions exclusively attached to the person of the
debtor are outside the scope of action of the creditor. The
action oblique ou subrogatoire is subject to the evidence of (i) a
debt owed vis-à-vis the creditor and (ii) a negligence of the
transferor for recovering the debt having as effect to
impoverish the transferor (e.g. a term for repayment was
contractually set forth between the transferor and the
transferee and after the expiration of such term, the transferor
makes no best efforts to enforce its rights to repayment).
Employees
Do Employees of the transferor have any right concerning the transfer :
- before the transfer or the decision to transfer (eg. Right of
opposition, acceleration rights, or right of approval, right to
be informed…)
Subject to specific requirements under collective agreements
(conventions collectives), employees of the transferor do not
have any right in relation to transfers of assets, to the extent
that transfers of asset do not substantially affect the
undertaking’s economic situation or does not fall into the scope
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of specific protection of employees rules in the event of a
transfer of undertaking.
It should indeed be noted that article L. 414-4 (1) Labour Code
foresees a general duty of the employer to communicate on a
regular basis to staff representatives all relevant information
with regard to the undertaking’s current and future economic
situation and employment prospects. Furthermore, under article
L. 414-4 (4) Labour Code, the employer shall inform and consult
the staff representatives on any decision which may trigger
substantial change in the work organization or contractual
relations, including, but not limited to, collective redundancies
and transfers of undertaking (i.e. transfer of an undertaking,
business, or part of an undertaking or a business as a result of a
legal transfer or merger)
- after the transfer (right to have the transfer annulled when
transfer disadvantageous to transferor and likely to result in
redundancies…)
The above comments apply after the transfer.
Deposit holders
Regarding the directive 94/19 : Who provides the deposit guarantee (the
government, national bank, insurers…)? For which amount?
According to Luxembourg Law (, the deposit guarantee is provided by
the Deposit Guarantee Association Luxembourg (AGDL). The AGDL is
set up under the form of a non-profit association. The purpose is to set
up a mutual guarantee system covering deposits in cash (deposit
guarantee) and also claims resulting from investments’ transactions
(investors’ compensation).
In the event of insolvency of a member establishment, the AGDL
protects all cash depositors by guaranteeing the reimbursement of
their deposits up to the amount of 20,000 euros.
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Is there a specific regulation concerning the deposit guarantee in case of a
transfer of assets in another Member State?
No specific regulation concerning the deposit guarantee exists in case
of a transfer of assets in another Member State. However, the
transferor, in case it is subject to the Law on the financial sector, is
bound by the provisions of this legislation, in particular by the
requirements in relation to adequacy of capital to cover credit risk,
market risks, operational risk and adequacy of internal capital. In any
case, if the banking transferee is a branch established in another
Member State by a credit institution governed by Luxembourg law,
such branch may voluntarily join one of the official deposit-guarantee
schemes set up in the Member State in which the branch is established,
in order to supplement the cover which their depositors enjoy.
If a transfer of assets including deposited funds occurs, does the deposit
insurer or guarantor have to be notified?
No specific provisions of the Law on the financial sector or of the
Articles of Association of the AGDL require any notification to the CSSF.
Do Deposit holders of the transferor have any right concerning the transfer
:
- before the transfer or the decision to transfer (e.g. right of
opposition or right of prior approval)
Pursuant to a Luxembourg case-law dated 1998 (Cour de cassation, 30
April 1998, Pas. 31, 1.), a funds’ deposit agreement between a banker
and its client imply for the bank the right to dispose freely of the
deposited funds and its liability is therefore limited to the obligation to
restitute the funds. Banks are only liable for the ultimate restitution of
the deposited funds and clients have therefore no right to control the
use of the deposited funds and are not vested with any right of prior
approval or control on intra-group transfers of assets.
- after the transfer (e.g. right to have the transfer annulled as
deposited funds not part of transferor‟s assets but belong to
deposit holders, etc.)
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In the light of the aforementioned case-law, the deposit holders are not
in principle entitled to claim for the annulment ex post of the transfers
of assets. Banks are only liable for funds restitution vis-à-vis the clients.
In case the funds are not ultimately restituted, civil law mechanisms
may apply in case the transfers of assets may be regarded as fraudulent
(fraus omnia corrumpit), yet the evidence of the fraud would be
required on both sides of the transferor and the transferee (it should be
evidenced that, at the time of the transfer, the transferee was aware or
should have been aware of the fraudulent character of the transfer).
Member State
In case of transfer of assets to/from a transferee/transferor located in
another Member State, has the host/home Member State any right or
obligation?
Please refer to Section 3 e) above.
Others
Please specify any other relevant information relating to third parties that
has not been dealt with in the previous question and that would be useful
for the study
Private international law
Luxembourg private international law system is mainly regulated by two
major European regulations: (i) in respect of the conflicts of laws, the
Rome convention of 19 June 1980 on the law applicable to contractual
obligations (the “Rome Convention”), and (ii) in respect of jurisdiction
and recognition/enforcement of judicial decisions in civil and commercial
matters, by the EC Regulation 44/2001 (the “Brussels I Regulation”).
Outside the scope of application of those two regulations, Luxembourg
private international law applies mechanisms which have been mainly set
forth by the case-law and the French system of private international law
also exerts a prominent influence.
Transfer of assets generally involving contractual obligations, it can be
said that the freedom of the choice of governing law by the parties is the
core applicable principle. Between professionals (company groups are
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professional entities and are generally advised by expert lawyers),
choices of law clauses are most often inserted in transfers’ agreements
and raise no notable issues.
In the contractual matter, public policy rules are in a limited number so
that the designation of a non-Luxembourg governing law scarcely raises
serious legal issues. However, reference must be made to capitalization
of interest, which is commonly applied in common law jurisdictions.
Pursuant to Article 1154 of the Luxembourg civil Code, capitalization of
interest is subject to two cumulative conditions of (i) annual basis
minimum compounding and (ii) approval of the compounding effect by
the debtor after the minimum annual basis minimum compounding is
effective. Although it is debatable whether this provision is to be
interpreted as an international public policy rule applicable to fully-aware
professionals, the absence of Luxembourg case-law on this issue is a
concern;
In respect of rights in rem transfers, in particular in respect of securities
such as pledges, the governing law is the lex rei sitae for legal issues
relating to the transferability of the asset, the opposability of the transfer
to third parties and the enforcement. It is indeed considered that those
issues must necessarily and objectively be governed by the law of the
jurisdiction where the asset is located: third parties being not parties to
the transfer, the choice of the governing law by the parties is deemed to
be unenforceable (inopposable) towards them. Therefore, rights in
personam and inter partes are governed by the law freely chosen by the
parties (e.g. pledgor and pledge) whereas the rights in rem are governed
by the lex rei sitae. This dual applicable regime regime is a source for
confusion and in practice, require the parties to apply the lex rei sitae to
all the legal aspects of the contract. An additional difficulty may be to
determine the situs in respect of dematerialized assets (receivables).
What is the applicable law in case of transfer of assets:
If the transferor is located in your member state and the transferee in
another member state?
The applicable law depends on the type of transfer of assets and also
depends on the competent jurisdiction. Indeed, conflicts of laws are
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national legal rules and the competent courts (for) apply their own
jurisdiction’s conflicts of laws’ rules. For the sake of clarity, it must
be supposed that either Luxembourg courts or other courts in the EC
area are competent :
- Loans: the applicable law must be determined pursuant to
the general mechanisms of the Rome Convention. The
lender and the borrower are free to choose the applicable
law. In case no choice of law was made, according to case-
law, the applicable law is the law of the jurisdiction where
the lender, as the party who delivers the characteristic
obligation, is domiciled or has its registered office.
- Assignment of debt (cession de créances): according to
Article 12 Rome Convention relating to the applicable law
to assignment of debts, the assignor and the assignee are
free to choose the governing law for inter partes effects. In
case no choice of law has been made, according to case-
law, the applicable law is the law of the jurisdiction where
the assignor, as the party who delivers the characteristic
obligation, is domiciled or has its registered office.
However, in respect of rights in rem and opposability of the
transfer vis-à-vis the assigned debtor, the applicable law is
the law governing the debt transferred (loi de la créance
cédée). In this respect too, either the governing law of the
transferred debt has been chosen by the transferred debtor
and the assignor (loi d’autonomie) or no choice had been
made and therefore, the determination of the law
governing the debt transferred (loi de la créance cédée)
must be made according to the applicable conflict of laws’
rule (e.g. in case the debt transferred originated in a loan,
the governing law of the loan is in principle, where no
choice was made, the law of the jurisdiction where the
lender, as the party who delivers the characteristic
obligation, is domiciled or has its registered office.
- Collateral securities (cautionnement)/guarantee on first
demand: the applicable law must be determined pursuant
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to the Rome Convention general mechanisms. The parties
are free to choose the applicable law. In case no choice of
law was made, the applicable law is the law of the
jurisdiction where the grantor of the collateral engagement
(caution) / guarantor, as the party who delivers the
characteristic obligation, is domiciled or has its registered
office.
- Asset-backed securities: in respect of mortgages
(hypothèque), the applicable law is fully the law of the
jurisdiction where the immovable asset is located (lex rei
sitae). This exclusivity is based on the attractiveness of the
situs in respect of immovable assets. In respect of pledges,
the distinction between rights in personam and rights in
rem must be made. In respect of the rights in personam
affecting the relations between the pledgor and the
pledgee, the parties are free to choose the applicable law
according to the general mechanisms of the Rome
Convention. In case no choice of law has been made, it
makes sense that the applicable law is the law of the
jurisdiction where the pledgor, as the party who delivers
the characteristic obligation, is domiciled or has its
registered office. In respect of rights in rem aspects (i.e.
right to pledge the asset, dispossession regime (if any),
enforceability of the pledge) and also in respect of the
opposability regime (notification regime) of the pledge vis-
à-vis the third pledged party (bank in case of pledge on
receivables, issuing company in case of pledge on shares),
the applicable law is the law of the jurisdiction where the
asset is located. As a result, in case It is most
recommended, for obvious practical reasons, to have the
pledge governed by the same law, i.e. the lex rei sitae, for
both rights in personam and rights in rem. Therefore, the
situs must be primarily located which will determine the lex
rei sitae and, by extension, the governing law of the
pledge, including in respect of the rights in personam
aspects. As mentioned, the determination of the situs may
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raise difficulties, in particular in respect of intangible or
dematerialized assets
- Equity: participations/capital injections are fully governed
by the lex societatis. Therefore, in case the taking of
participations/injection of capital is made by a Luxembourg
company in the share capital of another state member’s
company, the transaction shall be governed by the law of
the other state member’s company. In case the other state
member’s rule of conflicts of laws refuses to govern the
case (which is unlikely) and considers that the Luxembourg
law is applicable, the theory of renvoi (renvoi au premier
degré) shall apply in principle and Luxembourg law should
accept its competence (French case-law Banque ottomane,
1966). The doctrine of renvoi au second degré (designation
of the law of a third jurisdiction) may also theoretically
apply. The doctrine of renvoi is applicable in the field of
corporate law whereas in the contractual matter, the Rome
Convention (and in general all private international law
systems) expressly excludes the renvoi mechanism.
If the transferor is located in another member state and the transferee in
your member state?
The analysis above is valid whether the transferor or the transferee is
located in Luxembourg or not. Indeed, the private international law
mechanisms detailed above being coordinated at the EC level (Rome
Convention), in principle the chore mechanisms will apply mutatis
mutandis. However, the complexity of private international law rules
require from the parties and their counsels an accurate analysis. In
particular, the autonomous character of the rights in rem require that the
assets be located with precision and in this respect, the criteria of
location may vary from member state to member state.
Please specify any other relevant information relating to Private international law
that has not been dealt with in the previous question and that would be useful for
the study
N.a.
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Part II -Evaluation of potential solutions
WILDGEN note: for ease, all WILDGEN answers are in bold.
The purpose of this second part is to analyze potential solutions to remove obstacles to
asset transferability. Different categories of solutions will be proposed.
We first would like to know which parts of your legislation would need to be amended in
order to implement the solution.
Second, we would like to have your personal opinion about the feasibility of the solutions
regarding the legislation in your Member State.
After that, we would like know if you consider that this solution is satisfactory and we
would like you to explain why.
Lastly, we would like to know what legal obstacles still remain in your Member State.
Regarding those proposals, please consider that a transfer of assets from the subsidiary
to the parent company in a crisis situation should not be considered as a transfer at
arm‟s length.
1. Transfers from the parent company to the subsidiary or from the
subsidiary to the parent at arm‟s length:
Proposal n°1
Community legislation allows:
- any kind of transfer from the parent company to the subsidiary and
- transfers from the subsidiary to the parent at arm‟s length.
Possible consequences or conditions:
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- Any restriction to those transfers have to be removed by Members States
- After the transfer, specific information about the transfer have to be
communicated to supervisors and shareholders
Questions
i) Please provide a summary of the national measures that should be revised in
order to reach this result.
A distinction must be drawn up between the Companies Law and the Law
on the financial sector.
1. Companies Law
1.1. The choice of (i) implicit non-prohibition of (intra-group) transfers or
(ii) express legal provision allowing such transfers
With respect to the Companies Law and general Luxembourg law, no
express allowance of intra-group transfers is dealt with so far and also,
most importantly, the concept and regime of company group is not
regulated. So the question at hand is whether transfers at arms’ length
should be expressly declared permitted by law or whether legal
abstention is preferable. First of all, it is to be noted that the traditional
trend of Luxembourg law is to regulate those matters at minimum. The
underlying philosophy of such conception is (i) positively, to favour the
freedom of action of the economic actors1 and, (ii) negatively, to avoid to
the possible extent any interpretation issues inherent to rigid legal
provisions.
Subject to the above considerations, and given the high level of urgency
raised by crisis situations, it may be advisable, for avoiding any
1 Article 1 LSC sets forth that “(commercial companies) are ruled out by the agreement of the parties, by the laws
and the practices specific to trade and by the Civil Code”. According to an authoritative author, “by giving priority
to the agreements between the parties, the LSC makes clear that the contractual character is the prominent legal
background of the Luxembourg company law” (J. Delvaux, La société anonyme, Cours du centre universitaire de
Luxembourg, page 29). See also A. Steichen, Précis de droit des sociétés, Luxembourg, 2006, n° 679: “It must
not be forgotten that Luxembourg corporate law grants a great deal of space to contractual freedom”.
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paralysing risk due to legal uncertainty, to foresee a general affirmative
principle of permission of transfer of assets in crisis situations. This
provision may be worded broadly as a general principle, allowing the
actors to have a margin for action.
1.2. The legal recognition of the concept of group interest
Given that such transfers would be mainly intra-group, it may also be
considered to implement in law the concept of group interest, conceived
as a specific interest sided to the individual corporate interest and which
would justify, to some extent, that a company of the group grants specific
efforts to the benefit of other group’s company in jeopardy. However,
such concept of group interest should be strictly framed, so as to avoid
any undesirable excess of the group interest’s use. In this respect, the
limitations set forth by the French Rozenblum case-law2 may serve as
helpful guidelines: (i) ratione personae limitation: as a principle, the
efforts must be on a reciprocal basis, which means that a company of the
group must not be systematically sacrificed to the benefit of the others;
(ii) ratione quota limitation: the financial support must not be
disproportionate to the financial capacities of the grantor; and (iii)
ratione temporis limitation: although the effectiveness of the
counterparties to the financial support may be delayed in time, they must
be returned ultimately to the grantor of the support, either by the
beneficiary or by other group’s entities (e.g. the mother company in case
of a financial support granted by a sister company to another sister
company).
It may also be required that any transfer made in the group’s interest be
justified in details by the management and that all specifically detailed
economic and financial motives (not only general yet specific reasons in
the case at hand) which justify the transfer be detailed in the resolutions
of the management.
1.3. The definition of the group
2 Cass. Crim., 4 février 1985, Rozenblum et Allouche. In respect of a possible transposition of the Rozenblum
criteria into Luxembourg law, see Stef Oostvogels and Daniel Boone, De l’intérêt social à l’intérêt de groupe en
droit des sociétés: perspectives luxembourgeoises, in Droit bancaire et financier au Luxembourg, Bruxelles, 2004,
spéc. pp. 1063 s.
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A specific issue relates to the definition of groups. In the Rozenblum
case, the French Cour de cassation estimated that a group interest is
legitimate only if there is a structured group of companies sharing a
common global purpose, either economically, socially or financially.
Adversely, a group of companies which would be composed of companies
having no such links or synergy would not be entitled to claim the benefit
of a group interest, even though from a pure legal point of view, the
control criterium would be fulfilled. Therefore, the question is whether, in
case the concept of group interest would be introduced by law, such
group interest would apply on the ground of the legal concept of control
(as defined in the Companies Law) or on the ground of more economic
criteria.
1.4. Information to shareholders
As detailed in the part I of this Questionnaire, the management (board of
directors or managers) is legally vested with the right to enter into, in the
name and on behalf of the company, any transaction not reserved by law
or the articles of association to the shareholders. In this respect, pre or
post information on transfers of assets is not a legal prerequisite. Also, in
respect of transfers of assets in crisis situations, it can be wondered
whether a pre-information to or approval by the shareholders would be
suitable, given that such decisions should be taken on the ground of
extreme urgency (possibly to be operated within one day or so).
The question whether information should be given to or ratification
should be sought from the shareholders relates to two different concerns:
(i) corporate governance concerns, and/or (ii) protection of the
management.
Corporate governance concerns differ from each company/group’s inner
policy and a general legal provision may not be quite relevant in that
context.
Protection of the management may justify more attention. Transfers of
assets being decided in urgency and possibly relating to substantial
amounts/assets, it may be noted that the management may be reluctant
to take such decisions without having the further guarantee of being
comforted by the shareholders. The question is how to legally frame such
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a protection, which should not be automatic (at the risk of giving a free
hand (blanc-seing) given to the management). Reference to the
mechanism of the quitus given to the management in the context of the
approval of the annual accounts may be considered in this respect. The
management may be in charge of preparing a report on the transfers of
assets detailing the raison d’être, the conditions and counterparts of the
transfer of assets. On the ground of such report transmitted in advance to
the shareholders, the shareholders may be requested to opine on the
transfer of assets. In order to reduce the risk of a refusal by the
shareholders, such refusal may only be pronounced subject to the
evidence by the shareholders of wilful misconduct or gross negligence of
the management in transferring the assets.
1.5. Supervision
Except for professionals already subject to supervision (banks, insurance
and reinsurance undertakings, financial conglomerates), an additional
supervision applicable to any company entering into transfers of assets
may be regarded as a burdensome and time-consuming formality which
may have the undesirable effect of delaying transfers of assets which, in
crisis situations, needs to be completed within a short timeframe.
II. Law on the financial sector
As detailed in Part I of this Questionnaire, the Law on the financial sector
does not provide a distinction whether transfers are made from the
parent to a subsidiary, from a subsidiary to parent or from subsidiary to
subsidiary. Reference is made generally to allowed intra-group
transactions. Intra-group transactions are defined in Article 51-9 (21)
Law on the financial sector: “all transactions by which regulated entities
within a financial conglomerate rely either directly or indirectly upon
other undertakings within the same group or upon any natural or legal
person linked to the undertakings within that group by close links, for the
fulfillment of an obligation, whether or not contractual, and whether or
not for payment.”
When entering in intra-group transactions, each bank supervised by the
CSSF within the banking group must at any times comply with the legal
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requirements on own funds, large exposures and different risk
management.
Such intra-group transactions are implicitly made at arms’ length. Any
non-arms’ length transactions may be regarded by the CSSF (at the
occasion of the quarterly legal reporting to be made by banks to the
CSSF) as jeopardizing the legal own funds, large exposures and different
risk management’s requirements.
III. Tax issues
LIR (and in particular Articles 164 and 56) and the law of 29 December
1971 on capital duty as amended (the “Law on Capital Duty”) are the
concerned national legal rules.
ii) In order to determine the feasibility of this solution, please explain precisely
whether those modifications would entail
frictions or even a disruption of your legal system or
entail substantial modifications but no major frictions with established legal
principles or
merely minor changes.
I. Corporate law
In respect of general corporate law, amendments to be made to the law
actually depend on the possible options chosen and whether express
legal provisions relating to permitted transfers of assets are regarded as
desirable (see our analysis above). If such express provisions are
inserted, substantial modifications would be entailed, in particular in case
group companies are recognized as entities vested with a specific legal
regime and an autonomous group corporate interest.
II. Tax law
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In respect of tax issues, the possible transfer of assets from a subsidiary
to its parent company should be subject to a modification of LIR and in
particular of Articles 164 and 56 to avoid any re-characterisation into
hidden distribution of dividends. In particular, a case that may create
frictions could exist in case assistance is granted by a subsidiary to a
parent company without counterparts such as a
repayment/reimbursement obligation by the parent company (in case of
return to better fortune for example).
The Law on Capital Duty should be amended in order to avoid the hidden
contribution re-characterization risk when the transfer is made by the
mother company in favour of a Luxembourg subsidiary. A recent draft law
has been released abolishing capital duty as from 1st January 2009. As a
consequence, the transfer of assets from the mother company to its
subsidiary should not create major frictions under Luxembourg law.
III. Labour law
To the extent that the purported solution does not intervene with the
current definition of a transfer of undertaking and that no transfer of
employees should arise, no specific provision of Luxembourg labour law
appears to be in conflict with such solution.
iii) Please precise if this solution does satisfactorily take into account interests of
parent companies, subsidiaries, minority shareholders, creditors, deposit holders,
employees, supervisory authorities or Member States as a whole.
I. Corporate law
In respect of transfers made at arm’s length, all rights are in principle
preserved, subject that the counterpart is effectively solvent or that the
object of the counterpart is valuable.
II. Banking law
This proposal does not affect the prudential supervision principles under
Luxembourg Law. Therefore, in so far as there exists a counterpart in the
intra-group transfer of assets, this proposal would not affect interests of
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deposit holders. Moreover, this proposal should not reduce the current
powers of the CSSF in relation to the prudential supervision.
This proposal would not breach interests of deposit holders because the
transfer of assets will be done at arm’s length. However, in case of
significant intra-group transactions or of transfer of assets in favour of a
bank which is in a financial crisis situation, it should be preferably to
inform the AGDL.
III. Tax law
An important issue would be to avoid tax evasion or tax mitigation
unfairly based on what is actually not assistance granted to a company,
member of the group being in a financial crisis. Therefore the crisis
situation must be clearly defined and a counter-part should exist in
favour of the transferee or, as the case may be, a possible
repayment/reimbursement in the future.
IV. Labour law
This proposal does not imply to provide any additional information to the
employees with regard to the financial situation of their employer.
iv) Please precise whether legal obstacles remain and how they could be removed in
banking, insolvency and company law
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2. Transfers from the subsidiary to the parent company (in preferential
conditions)
a) Prior and overall agreements
Proposal n°2:
Similar EU instrument:
Art. 234 - Solvency II: Amended Proposal for a Directive on the taking-up and
pursuit of the business of Insurance and Reinsurance http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2008:0119:FIN:EN:PDF
Proposal:
For this proposal, please consider that an EU instrument has been adopted, which
provides that a group agreement under which the parent company and some of
the entities of the group can mutually commit themselves to transfer assets in a
crisis situation has to be allowed by the Member States. This agreement is
endorsed by each legal entity being a party to the agreement. This agreement
guarantees financial support from the parent to the subsidiary and from the
subsidiary to the parent. This agreement could only be voluntary because of the
freedom of contracts, the limited liabilities of companies and minority shareholder
rights.
This agreement is submitted to the supervisory authorities. A group-wide view of
solvency and liquidity would be a useful part of the supervisory assessment of an
intra-group transfer. This group-wide approach will be required as part of the
review of the CRD on 'colleges'.
The agreement may already be submitted when the subsidiary asks for
authorization to take up and pursuit the business of credit institutions. This
agreement may also be submitted when the subsidiary asks for authorization and
will be considered as a modification to the conditions of the authorization to take
up and pursuit the business of credit institutions.
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Possible consequences or conditions:
-The capital adequacy rules is still respected after the transfer
-The transfer does not endanger the transferor‟s solvency
-The amount of the transfer is to be reimbursed by the transferee to the
transferor. In case of insolvency, the creditors of the transferee will be reimbursed
before the creditors of the transferor up to the amount of transfers that occurred
-After each transfer, the transferor informs supervisors and the shareholders
during the ordinary General Assembly meeting following the transfer
- If the good faith, competence and prudence of the transferor's management is
not in question and if the transfer fulfils all the conditions specified above, then
the transfer cannot be challenged under Insolvency Law.
Questions
i) Please provide a summary of the national measures that should be revised in
order to reach this result.
I. Corporate law
As previously mentioned, the management (board of directors or
managers) is legally vested with the right to enter into, in the name and
on behalf of the company, any transaction not expressly reserved by law
or the articles of association to the shareholders. In this respect, pre- or
post information on transfers of assets is not a legal prerequisite. Also, in
respect of transfers of assets in crisis situations, it can be wondered
whether a pre-information to or approval by the shareholders would be
suitable, given that such decisions should be taken on the ground of
extreme urgency (possibly within one day or so).
However, management decisions of the transferor having as effect to
create unfavourable (known as such at the time of transfer) conditions
for the transferor obviously raise difficult issues in terms of information
to shareholders and liability of the management.
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Liability of the management: pursuant to Article 59 and 192 Companies’
law, directors/managers are liable to the company, in accordance with
general law, for the execution of the mandate given to them and for any
misconduct in the management of the company’s affairs. Directors must
act in the company’s best interest. They must execute their fiduciary
duties vis-à-vis the company as a bonus pater familias, i.e with full
diligence, care and honesty. As a result directors are liable vis-à-vis the
company for management faults, notwithstanding that they did not act
ultra vires or that no legal decisions were infringed. Wrong decisions may
be justified if they would have been taken by a reasonable prudent
person, put in the same circumstances of place and time3. Good faith will,
in most cases, be taken into account for appreciating the directors’
liability. Nevertheless, good faith does not apply as a general cause for
excluding liability4.
By deciding transfers at preferential conditions, directors may incur the
risk to have such decisions challenged by the company or the
shareholders later on if it appears that such decision, although justified at
the time, ultimately put the company in jeopardy. As a result, at the risk
of having the management reluctant to enter into such transactions
without guarantees that its decisions shall have an ultimate positive or
neutral effect for the company, safety-nets should be granted to the
management in this respect.
Towards third parties, the directors may incur a general liability based on
Articles 1382 sq. of the Luxembourg Civil Code. Given that such liability
may not be escaped, such liability may be covered by a guarantee granted
by the company/shareholders to the directors against any potential
liability risks incurred vis-à-vis third parties.
First of all, a general safety-net may be achieved pursuant to the
recognition by law of the group interest (see our analysis above). In case
the management is in position to back its decision to transfer upon the
group interest and if it can make clear that the survival of the group (or
3 J. Delvaux, op. cit., p. 233
4 P. Thielen & J. Delvaux, La responsabilité civile des administrateurs de sociétés anonymes en droit
luxembourgeois, situation actuelle et tendances futures, Bulletin droit et banque, 1984, Luxembourg, n° 4, p. 9.
Page 55 of 132
entity(ies)) of the group) depends on the contemplated transfer, the
company’s sole interest would not be the ultimate criterium any longer.
In this respect, the obligation that may be borne by the management to
back up in detail the transfer’s decision on the group interest may serve
as a further safety-net.
Secondly, the question whether information should be given to or
ratification should be sought from the shareholders is clearly more acute
than in arm’s length transfers’ situations. Given the high-intensity risk of
such management’s decisions, it can be considered that, in broad terms,
information to and backing support from the shareholders may be
welcome. The main issue relates to the practicalities of such
information/support, which must balance conflicting concerns: quickness
to react versus complete information and awareness, protection of the
management versus right of effective control by the shareholders.
With respect to rights of information of the shareholders, urgency
motives justify that such rights should not have as effect to delay unduly
the urgent transfer. Alternatively, either (i) a reference to the mechanism
of the quitus given to the management in the context of the approval of
the annual accounts or (ii) a ratification sought at the occasion of the
next ordinary general meeting may be considered in this respect. The
management may be in charge of preparing a report on the transfers of
assets detailing the raison d’être as well as the conditions and
counterparts of the transfer of assets. As an additional requirement, it
may be required that the management justifies the granted preferential
conditions. On the ground of such report transmitted in advance to the
shareholders, the shareholders may be requested to opine on the transfer
of assets. In order to reduce the risk of a refusal by the shareholders,
such refusal may only be pronounced subject to the evidence by the
shareholders of a wilful misconduct or gross negligence of the
management in transferring the assets.
II. Insolvency law
According to Article 445 Luxembourg Code of commerce, any acts of
transfer on movable or immovable assets are declared nil and void if the
value of the assets transferred notably exceeds the counterpart. Such
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nullity is incurred for such transactions concluded during the clawback
period, which can be extended retroactively up to six months and ten
days from the bankruptcy judicial order (jugement déclaratif de faillite).
Although some recent legislations have made exceptions to that
nullification risk (exempli gratia, law of 5th August 2005 on financial
collateral arrangements), Article 445 Luxembourg Code of commerce
clearly raises a general obstacle to preferential conditions’ transfers
made by the transferor.
III. Banking law
The Law on the financial sector provides that a credit institution shall
have effective processes to identify, manage, monitor and report the risks
it is or might be exposed to, and adequate internal control mechanisms,
including sound administrative and accounting procedures. Same rules
apply in the context of banking groups in order to identify, manage,
control and report intra-group transactions, otherwise than in the context
of the rules concerning large exposures. Therefore, the target of such
rules is to define global risks taken by a banking group and to supervise
the own funds of the group in relation risks taken. Concerning
Luxembourg Banks, the procedure of risks identification and management
must be submitted to the CSSF for approval before exerting any banking
activities and in case of modification of such procedure, banks shall also
obtain the CSSF approval. In this context, the Law on the financial sector
which require the approval of the CSSF in relation to the procedure and
mechanism of risks management needs not be revised.
However, in case of a transfer of assets from a subsidiary to the parent in
preferential conditions in connection with a financial crisis situation, the
Law on the financial sector should be amended in order to define the
concepts of “preferential conditions” and “financial crisis situation “ and
to determine restrictions or limitations of such transfers. In practice, the
CSSF does not prevent in principle intra-group transfer of assets if it is
necessary to rescue the financial situation of the parent undertaking in so
far as the own funds ratio of the transferor is fulfilled and such transfer
does not endanger the transferor’s solvency. This situation should be
expressly taken into account in the Law on the financial sector, and
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generally in the Companies Law (for example, by inserting a section on
intra-group financial assistance).
IV. Labour law
To the extent that the purported solution does not interfere with the
current definition of a transfer of undertaking and that no transfer of
employees should arise, no specific provision of Luxembourg labour law
appears to be in conflict with such solution.
ii) In order to determine the feasibility of this solution, please explain precisely
whether those modifications would entail
frictions or even a disruption of your legal system or
entail substantial modifications but no major frictions with established legal
principles or
merely minor changes.
I. Corporate law
Substantial modifications would be entailed:
- recognition of the concept of group interest (would entail a friction
with the current Luxembourg corporate law concepts);
- redefinition of the liability possibly incurred by the management;
- express authorization granted to the CSSF to release the capital
ratio requirements in case a group entity is in momentary crisis
situation
II. Insolvency law
- Substantial amendment of Article 445 Commercial Code (transactions
made during the claw-back period);
III. Banking law
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The modifications would entail substantial modifications but no major
frictions with established legal principles because the Law on the
financial sector does not provide expressly that a subsidiary may transfer
assets to his parent in preferential conditions even if all the conditions
above will be fulfilled. From a prudential supervision point of view, it will
aggravate the risk of insolvency and the CSSF should not authorise such
transfers without counterparts. Indeed, it will constitute a special risk for
the deposit holders and for the national financial stability. For example, if
many of Luxembourg subsidiaries transfer a part of its assets to their
relative parents, in case of insolvency of one or several members of the
AGDL, the premium which will be paid ex post by members could not to
be sufficient in Luxembourg, significant funds being transferred to the
parent having its office in another member State, i.e. it will constitute a
risk for the guarantee for the deposit holders in case of insolvency of
several members of the AGDL in the same time.
Moreover, the Law on the financial sector should create some provisions
in relation to an intermediary financial crisis situation. Such situation
should be identified before opening the procedure of suspension of
payment or of the winding up as provided by the Law on the financial
sector. In particular, in case of emergency, a special procedure may be
expressed in the law concerning notification/approval of the transfer of
assets/project to assets transfer, and the law should require a decision
from the CSSF in the day or at the earliest.
IV. Tax law:
As further described above, in order to avoid re-assessments of the
taxable basis of the Luxembourg entity or re-characterisations as hidden
distributions or hidden capital contributions, Luxembourg law should
avoid sanctions should the transfers not be made at arm’s length. If the
amount is to be reimbursed by the transferee to the transferor and if, in
case of insolvency, the creditors of the transferor will be reimbursed
before the creditors of the transferee up to the amount of transfers that
occurred, the Luxembourg tax authorities should not consider such
transfer as hidden distributions or hidden capital contributions.
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iii) Please precise if this solution does satisfactorily take into account interests of
parent companies, subsidiaries, minority shareholders, creditors, deposit holders,
employees, supervisory authorities or Member States as a whole
This solution takes satisfactorily into account the interests of the
supervisory authorities insofar as this proposal provides that the banks
must submit for approval to the authority the intra-group transfer of
assets agreement. Moreover, the CSSF shall at any time control if
requirements on own funds are still fulfilled. This proposal shall not also
prevent the existing system of the reporting on regular basis.
In principle, this proposal should not affect the interests of deposit
holders because, as said above (please refer to the Part I, Section e)
“Deposit holders”), deposit holders have no right other than the
obligation for the banker to the restitution of the deposited funds.
If the transfer of assets is substantial (a level to be determined by the
law or regulation or circular letter), the current Law may be removed in
order to provide a mechanism of notification to the AGDL.
Labour law: this proposal does not provide any information to the
employees with regard to the financial situation of their employer.
iv) Please precise whether legal obstacles remain and how they could be removed in
banking, insolvency and company law ).
As mentioned above, the major obstacle consist in the delimitation of the
concepts of “banking group”, “transfer of assets”, “preferential
conditions” and “financial crisis situation”. Those terms shall be subject
to common definitions in all member States, in particular, which entity
may/shall determine a crisis situation (parent or subsidiary unilaterally,
notification ex ante or ex post or approval ex ante of supervision
authority…).
b) Strong guarantees covering the risk of outstanding payment
Proposal n°3
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Similar EU instrument:
Directive 2002/47/EC of the European Parliament and of the Council of 6 June
2002 on financial collateral arrangements (http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32002L0047:EN:HTML )
Proposal:
For this proposal, please consider that an EU instrument has been adopted, which
provides that a group agreement under which the parent company and some of
the entities of the group can mutually commit themselves to transfer assets in a
crisis situation has to be allowed by the Member States. This agreement is
endorsed by each legal entity being a party to the agreement. This agreement
guarantees financial support from the parent to the subsidiary and from the
subsidiary to the parent. This agreement could only be voluntary because of the
freedom of contracts, the limited liabilities of companies and minority shareholder
rights.
This agreement is submitted to the supervisory authorities. A group-wide view of
solvency and liquidity would be a useful part of the supervisory assessment of an
intra-group transfer. This group-wide approach will be required as part of the
review of the CRD on 'colleges'.
The agreement may already be submitted when the subsidiary asks for
authorization to take up and pursuit the business of credit institutions. This
agreement may also be submitted when the subsidiary asks for authorization and
will be considered as a modification to the conditions of the authorization to take
up and pursuit the business of credit institutions.
Possible consequences or conditions:
-The capital adequacy rules is still respected after the transfer
-The transfer does not endanger the transferor‟s solvency
-The amount of the transfer is to be reimbursed by the transferee to the
transferor. In case of insolvency, the creditors of the transferor will be reimbursed
before the creditors of the transferor up to the amount of transfers that occurred
-After each transfer, the transferor informs supervisors and the shareholders
during the ordinary General Assembly meeting following the transfer
- If the good faith, competence and prudence of the transferor's management is
not in question and if the transfer fulfils all the conditions specified above, then
the transfer cannot be challenged under Insolvency Law.
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Questions
i) Please provide a summary of the national measures that should be revised in
order to reach this result.
The Directive 2002/47/EC of the European Parliament and of the Council
of 6 June 2002 on financial collateral arrangements has been transposed
in Luxembourg law by the law of 5 August 2005 on financial collateral
arrangements. This law takes into account in general terms such
proposals and no provisions of the law exclude the application of the
rules on financial collateral arrangements to a banking group.
Moreover, the proposals provide that requirements provided by the law
on the financial sector, such as conditions in relation to own funds and
solvency ratios, shall be fulfilled.
Therefore, Luxembourg law need not be amended.
From a tax perspective no national measures do really exist. In practice
however, the fact to provide a guarantee could have tax consequences at
the level of the collateral provider: if a subsidiary has secured or shall
secure the debt of its parent company it can not be excluded that the
Luxembourg tax authorities will take the position that such subsidiary
needs to earn an arm's length guarantee fee for such guarantee.
However, such guarantee fee would be due if the subsidiary has no
underlying reasons for granting such a security, according to transfer
pricing rules.
If such underlying reasons do not exist, the tax authorities could correct
the subsidiary taxable basis (subject to approx. 30% Corporate Income
Tax) and levy a 15% dividend withholding tax on a constructive dividend.
Such withholding tax risk would however be mitigated if the subsidiary
has a corporate interest in providing such security. This could be the case
in a crisis situation and/or if the funds are reimbursed to the subsidiary
at a later stage.
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From a labour law perspective, to the extent that the purported solution
does not intervene with the current definition of a transfer of undertaking
and that no transfer of employees should arise, no specific provision of
Luxembourg employment law appears to be in conflict with such
proposal.
ii) In order to determine the feasibility of this solution, please explain precisely
whether those modifications would entail
frictions or even a disruption of your legal system or
entail substantial modifications but no major frictions with established legal
principles or
merely minor changes.
From a tax perspective, in order to avoid the tax risks described above,
given that the above is only based on an administrative practice, it would
only be necessary to include a statement in the LIR (Luxembourg tax
law) that would consider that granting security in crisis time is
considered as being made at arm’s length.
iii) Please precise if this solution does satisfactorily take into account interests of
parent companies, subsidiaries, minority shareholders, creditors, deposit holders,
employees, supervisory authorities or Member States as a whole
From a labour law perspective, this solution does not provide any
information to the employees with regard to the financial situation of the
employer.
iv) Please precise whether legal obstacles remain and how they could be removed in
banking, insolvency and company law )
c) Liability of the parent company for the subsidiary‟s debts
Prior question
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Firstly, please indicate if in your Member State, the parent company can be held jointly
and severally liable for the subsidiary‟s debts and why:
-due to the specific legal form of the subsidiary where the shareholders are
systematically liable for all decisions
-due to preferred shares under which the shareholder is systematically liable for
some or all decisions of the company
The liability of the parent undertaking as shareholder of the subsidiary is
different depending on the legal company form
If the subsidiary is set up under the form of a public limited company/
Joint stock company (Société anonyme) or of a private limited liability
company (Société à responsabilité limitée), the liability of the parent
shall be in principle limited to their contribution.
If the subsidiary is set up under the form of a general partnership
(Société en nom collectif), the liability of the parent as shareholder shall
be unlimited, i.e. it will be personally, jointly, severally and indefinitely
liable;
If the subsidiary is set up under the form of a limited partnership
(Société en commandite simple) or of a partnership limited by shares
(Société en commandite par actions), the liability of the parent as
shareholder shall be as follows: general partners will be jointly, severally,
and unlimitedly liable and the liability limited partners will have their
liability limited to their contribution.
Reference must be made to Article 153 Companies’ law which provides
that creditors may, in all types of companies, obtain from a court an order
demanding the payments provided for in the articles of association and
which are necessary for safeguarding their rights. The company may
cause the action to be dismissed by paying the amounts owed to the
creditors, after deduction of a discount. Creditors may exercize a direct
action against the shareholders as regards any outstanding payments
which are due by virtue of the articles, corporate resolutions or court
orders.
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The application of the above principles of limited liability may however be
challenged in specific situations. It cannot be completely ruled out that a
shareholder may face further liability, that the corporate veil is pierced or
that a shareholder is held to be a de facto director. These exceptions are
applied with caution as it contradicts the legal body doctrine
(personnalité morale). De facto director theory may more particularly be
taken into account in case it appears that subsidiaries have no power of
autonomous decisions, that their corporate interest is utterly sacrificed in
the sole interest of the parent, and that the creditors of the subsidiary
have obviously no recourse against the subsidiary given that all assets
and profit of the subsidiary are returned to the parent. In this respect,
any implementation of the group interest (see detailed analysis above)
would possibly mitigate the application of the de facto director doctrine,
although, as mentioned, the group interest criterium should balance the
reciprocal interests of the companies’ group.
Proposal 4
Then, for this proposal, please consider that an EU instrument has been adopted and
creates an automatic liability:
- by means of a specific type of company where the shareholders are systematically
liable for all decisions that are disadvantageous for the company
- or by means of a preferred shares under which the shareholder is systematically
liable for some or all decisions of the company
Questions
i) Please provide a summary of the national measures that should be revised in
order to reach this result.
The Companies Law should be revised in order to take into account the
principle of systematic liability of shareholders for all disadvantageous
decisions of the company. Indeed, in principle, the Companies Law
provides the liability of managers/ directors for decisions which are
incompatible with the company’s interests. The shareholders are in
principle liable up to the amount of their contribution in the company. The
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Law on the financial sector should also be revised in order to consider
such issues.
The Companies Law does not acknowledge the principle of preferred
shares under which the shareholder is systematically liable for some or
all decisions of the company. In general, the managers or directors of the
company are liable for decisions they have taken. The Law on the
financial sector should also be revised in order to consider such issues.
From a labour law perspective, to the extent that the purported solution
does not intervene with the current definition of a transfer of undertaking
and that no transfer of employees should arise, no specific provision of
Luxembourg employment law appears to be in conflict with such solution.
ii) In order to determine the feasibility of this solution, please explain precisely
whether those modifications would entail
frictions or even a disruption of your legal system or
entail substantial modifications but no major frictions with established legal
principles or
merely minor changes.
The modifications would entail a fundamental disruption of the
Luxembourg legal system because such proposal consists in the transfer
of liabilities currently borne by the management to the shareholders.
Numerous provisions of the Companies’ Law would need to be amended
and it may be considered that such change would deeply modify the
architecture of the Companies’ Law.
It is to be noted that major changes would also affect insolvency law
mechanisms, in particular under Regulation 1346/2000 on international
bankruptcies. Regulation 1346/2000 applies the criterium of the center of
main interests and, pursuant to the ECJ case-law (Eurofood case), the
center of main interests applies to each group company and is not to be
found at the level of the parent. In case the liability of the
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shareholder/parent would apply at all times, then the creditors of the
subsidiaries should be entitled to claim directly against the
shareholder/parent.
iii) Please precise if this solution does satisfactorily take into account interests of
parent companies, subsidiaries, minority shareholders, creditors, deposit holders,
employees, supervisory authorities or Member States as a whole
The situation of the parent company would be clearly at disadvantage
since it could not hide any longer behind the corporate veil of its
subsidiaries.
At first glance, the situation of the subsidiaries would be comforted.
The situation of the minority shareholders would be affected since that
their liability could be incurred whereas they did not necessarily vote in
favour of the decisions which led to the crisis situation.
This solution may satisfactorily take into account interests of creditors or
deposit holders because the liability of managers or directors of the
subsidiaries will be extended to the parent undertaking. The solvability of
the subsidiaries would be accrued.
From a prudential supervision perspective, the main issue relates to the
necessary coordination which should be organized between the
supervisor in charge the parent and the supervisor in charge of the
subsidiary.
From the employees’ perspective, a general distinction must be drawn up
between the employees of the mother and the employees of the
subsidiary. In respect of the employees of the mother, their position is at
disadvantage given that the liability incurred by the parent may
jeopardize the parents’ assets and financial health. In respect of the
employees of the subsidiary, their position is a priori favored by the
comfort provided by the parent.
iv) Please precise whether legal obstacles remain and how they could be removed in
banking, insolvency and company law
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Given the current architecture of Luxembourg law, there are considerable
obstacles before the proposal’s outlines can be achieved. The whole
conception of legal personality should be reconsidered and numerous
issues would be raised:
- would the liability apply to the shareholder(s) in general or to the parent
only? In complex group structures, intermediary shareholders are
subsidiaries which are themselves controlled by the ultimate parent;
- coordination of the liability held by the management of the subsidiary and
the liability of the shareholder(s)/ parent?
- Liability principles being based upon a personal action or omission, how
to attribute a liability to the shareholder/parent who did not necessarily
take part directly to the management of the subsidiaries?
- The rights of the minority shareholders would be endangered, in
particular in the context of a listed parent company;
- Listed companies: listing prospectus will need to include investors’
information on the potential liability incurred by the parent vis-à-vis the
subsidiaries. If so, will it not bear the risk of frighten the investors?
- Would the criminal liability be incurred at the level of the parent. By
definition, criminal law is strictly attached to the person who committed
the offence. Also, difficult international criminal law (droit pénal
international) issues will be at stake (what about if the criminal law of
the jurisdiction where the subsidiary is located does not recognize the
criminal liability of the legal bodies and the law of the parent does and
vice-versa? Equivalence of criminal laws and qualifications?)
- Intricate private international law issues would also be raised given that,
in most cases, the subsidiary and the parent shall be governed by distinct
laws;.
- Supervision at the national level should reconsidered and added
supervisory scope of action should be granted to the supervisor of the
parent extended to the subsidiaries. Tight coordination measures
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between the supervisor of the parent and the supervisors of the
subsidiary should be considered.
Conclusion on Proposal n° 4
Considering the major (non exhaustive) legal issues listed above, it can be
doubtful whether Proposal n°4 would be compatible with the general
principles governing Luxembourg law.
In case the parent is ultimately responsible for its subsidiaries, it can be
wondered whether the distinction between subsidiaries and branches would
still make sense and whether the universal concept of legal body/personal
liability would still be viable.
From a practical point of view, the question is whether such proposal would
not entail considerable law changes which could not obviously be finalized
before long, not excluding the ultimate risk of having systemic
contradictions. However, an intermediary solution may be possibly
considered: in case transfers of assets have been made by the subsidiaries
to the parent, having as effect to dry the subsidiaries’ assets and therefore
jeopardize the deposit-holders/creditors of the subsidiaries, it makes sense
that the deposit-holders/creditors should be in position to claim directly
against the parent, in particular depositing their claims in bankruptcy
proceedings and be at par in terms of rank vis-à-vis the direct deposit-
holders/creditors of the parent.
Another option may be the obligation for the deposit-holders/creditors to
claim first against the subsidiary with which the deposit-holders/creditors
had legal relations and a subsequent right of action against the parent in
case of assets’ evasion to the parent. In such case, for avoiding time
limitations and downgrade rankings/deposit-holders and creditors of the
parent, the rights of the subsidiaries’ deposit-holders/creditors may be
preserved by keeping the benefit of the initial time of action/claims’ lodging
against the subsidiary (e.g. a deposit of claims against the subsidiary was
judicially registered on 1st January. Due to the assets’ evasion to the parent
acknowledged on 1st March, the deposit-holder/creditor may lodge its claim
against the parent with the benefit of its 1st January initial lodging).
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Proposal n° 5
Similar EU instrument:
Draft of the Ninth Company Law Directive for the conduct of groups containing a
public limited company as a subsidiary
“Company Law Action Plan” dated May 2003 : “framework agreement” for group
companies
Under the "Company Law Action Plan" dated May 2003, the European Commission
recommended specific rules on the enforcement of the group policy, for which
Member States are required to draft a "frame agreement" for group companies
that allows them to adopt a coordinated group company policy, as long as the
interests of the companies' creditors are protected. This initiative has not been
pursued. There might be merit in further investigating whether the definition of
banking groups might remove obstacles in terms of banking law.
In that respect, a draft Ninth Company Law Directive on the conduct of groups
containing a public limited company as a subsidiary was presented in December
1984 for consultation. The Commission did not pursue this work. The Directive
was intended to provide a framework in which groups are managed on a sound
basis whilst ensuring that interests affected by group operations are adequately
protected. Particular reference was made to the possibility to transfer assets while
protecting the interests of different parties. Under the 9th Directive project, the
legal recognition of the 'group' went hand in hand with specific steps to protect
minority shareholders and creditors. It must be noted that a banking group would
be a contract freely entered into. As contemplated in 1984 under the 9th Directive
on company law, if a banking group does not wish to submit to a group regime, it
will have to respect the economic interests of the subsidiary.
Proposal:
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For this proposal, please consider that the idea of “group company” has been
adopted by an EU instrument.
The managers of the subsidiaries will be obliged to follow instructions even if the
subsidiaries will thereby incur financial losses. These managers must therefore not
be held liable vis-à-vis their own companies. This power of management is
accompanied by the right to use the financial resources of the subsidiary, since
the economic advantage of the group can be maximized only where there is a
complete integration of the two entities.
Once the agreement is concluded, transfers of assets are allowed between the
members of the group.
Possible consequences or conditions:
- The constitution of the group is submitted to the supervisory authorities.
- In case of insolvency, there is a possibility for creditors to file their claims with
any of the companies of the group
- In case of Insolvency, the creditors of the transferor will be reimbursed before
creditors of the transferee up to the amount of transfers that occurred and the
possibility for creditors to file their claims to any of the companies concerned by
the transfer
Questions
i) Please provide a summary of the national measures that should be revised in
order to reach this result.
The Companies Law and in general the Luxembourg corporate law
structure should be revised in order to reach this result. Indeed, as said
above in the first Part of this Questionnaire, the Luxembourg Law is
based on the principle of the corporate interest of each corporation.
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The Law on the financial sector should also be revised in order to take
into account this proposal. Under this Law, a subsidiary constitutes a
legal entity which has an own existence, own funds and own interests.
Moreover, the Law on the financial sector should be amended in order to
take into account the system of information of deposit holders in case of
transfer of assets and to provide a system of privileged claim in favour of
creditors of the transferor with any of the member of the group in case of
insolvency.
Employment position: The event of insolvency is regulated under
Luxembourg employment law and employees’ rights are duly protected.
Any solution which would imply insolvency procedures shall be treated
carefully and protection of employees’ rights shall be ensured.
ii) In order to determine the feasibility of this solution, please explain precisely
whether those modifications would entail
frictions or even a disruption of your legal system or
entail substantial modifications but no major frictions with established legal
principles or
merely minor changes.
Such modifications would entail a disruption of Luxembourg legal system
which is attached to the concept of “corporate interest”.
Concerning the proposal in relation to the obligation for the managers of
the subsidiaries to follow instructions even if the subsidiaries will thereby
incur financial losses shall not be compatible with the current legal
system.
It will constitute a major risk for the prudential supervision which aim to
supervise that the transfer of assets will not endanger the subsidiary. As
mentioned in connection with proposal 4, major changes would need to
be implemented in terms of supervision. Given that the group would
constitute a global entity, it makes sense that a global supervision of the
group be also organized.
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Employment position: Such solution would require revision of general
rules of Commercial law and legal proceedings relating to insolvency
matters.
iii) Please precise if this solution does satisfactorily take into account interests of
parent companies, subsidiaries, minority shareholders, creditors, deposit holders,
employees, supervisory authorities or Member States as a whole
This solution takes into account the group interest and the interest of the
parent company. It should not satisfactorily consider the corporate
interest of subsidiaries. The subsidiaries may not follow its economic
policies in independence. Those would constitute only a group
instrument. However, interests of subsidiaries should be preserved if
such proposal is accompanied of the whole liability from the subsidiaries
to the parent undertaking. Concerning supervisory authority, all the
group being under the supervision of the supervisors authority, its
interest could be considered as satisfactorily taken into account.
Employment position: Such solution does not satisfactorily take into
account employees’ interests and does not contain any information
procedure.
iv) Please precise whether legal obstacles remain and how they could be removed in
banking, insolvency and company law )
The major obstacle is to make a political choice. Do we prefer group
interest instead of corporate interest? In the first case, intra-group
transfer of assets in preferential conditions or without counterpart for the
transferor will be done in the group interest. In the second case, such
transfer will not be compatible with the corporate interest. The solution
shall be done by the legislator. For the result of this proposal, the concept
of group interest should be introduced in the Companies Law and govern
all the philosophy of such Law. The same comments apply to the Law on
the financial sector and to the insolvency Law.
Proposal n° 6
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Supervisors of the transferor and the transferee can jointly authorize transfers of assets
without any counterpart if:
- The transferee is facing difficulties but no insolvency proceeding has been opened;
- The transfer does not jeopardize the solvency of the transferor.
Possible consequences or conditions:
- Transfer cannot be challenged by the national company Law, criminal Law or
insolvency law because of the special resolution regime for banks/early interventions;
- The legislation ensures the entity providing a transfer a priority right in case of
insolvency proceeding of the transferee.
d) Other solutions
Please feel free to suggest other solutions here.
National level
Rules concerning large exposures require that credits provided by a
subsidiary to a group of the parent undertaking shall not exceed 20% of
its own funds. This level could be exceeded on a singular case basis
appreciated by the CSSF in order to rescue a member of a banking group
in a financial crisis situation.
The CSSF does not accept the refinancing of its shareholder which may be
a subsidiary or a parent undertaking. This rule resulting from the
practice, should be softened in order to take account the financial crisis
situation of the banking shareholder. Indeed, in case of financial crisis
situation of a banking shareholder, the Law or a CSSF circular letter
should permit the possibility of refinancing of the shareholder, even if it
may only done in arm’s length.
In order to supervise all of the financial sector, Luxembourg law could be
amended in order to unify the prudential supervision of banking sector
and insurance sector (in order to simplify the regime of financial
conglomerates). The single supervision authority could be in charge of all
of the financial sector.
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At the EU level, several issues may be considered:
Firstly, a single European supervision authority of financial sector could
be constituted in order to supervise in fine all the financial entities
(including insurance and reinsurance sector) which would be competent
to control intra-group transactions from a member State or another
member States and from a member State to a Third-Country. The
implementation of a single supervisor could simplify
bureaucracy/formalism which are sometimes directed towards
centralized EU administrations. The working language issue is not the
least one in this respect. This could be given to EU Commission or to an
independent European authority.
Secondly, a special supervisor could be constituted in order to supervise
some major groups.
Thirdly, home supervision could be reinforced in favour of a prominent
competence to the national supervisor of the parent company acting in
tight cooperation with the national supervisors competent for
subsidiaries.
This approach is currently favoured in the context of the pending
Solvency II negotiations: in case of disagreements between supervisors,
and after consultation between supervisors, the parent’s supervisor is
entitled to take final decisions. Also, technique of delegation by parent’s
supervisor to subsidiaries’ supervisors may be considered.
The practical issue within this approach is relating to crisis situations:
decisions must be taken on a quick pace and the collegial system may be
critical in this respect.
The trend is therefore to have a limited number of supervisors located in
a few major financial European centres with broad expertise and
competence outside their national boarders, mixed with delegation
granted to local supervisors.
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ANNEX A National regulations relevant in assets transfers between banks part of a same banking group
Disclaimer: French, German and Luxembourgish are the official legal languages
admitted in Luxembourg. Therefore, all the English translations below are informal
and no guaranty may be given on their legal accuracy.
Part I - Relevant provisions of the Law of 10 August 1915 on commercial
companies (as amended)
Article 26-2: “(1) The acquisition by a company, within the tvvo years following
its incorporation, of any asset belonging to a natural or legal person, by whom or
on whose behalf the constitutive instrument was signed, for a consideration of not
less than one tenth of the subscribed capital, shall be subject to a verification and
publication in the manner provided by Article 26-1 and shall be subject to
approval by the general meeting of shareholders. The réviseur d'entreprises is
appointed by the board of directors or by the management board, as the case
may be”.
“(2) Paragraph (1) shall not apply to acquisitions made in the normal course of
the company's business nor to acquisitions made at the instance or under the
supervision of an administrative or judicial authority or to stock exchange
acquisitions”.
Article 49-6 :
“(1) of the companies‟ Law, a company may not advance funds nor make loans
nor provide security with view to the acquisition of its shares by a third party.
(2) Paragraph (1) shall not apply to transactions concluded by banks and other
financial institutions in the normal course of business nor to transactions effected
with a view to the acquisition of shares by or for the staff of the company.
However, such transactions may not have the effect of reducing the net assets of
the company below aggregate of the capital and the reserves which may not be
distributed under law or the articles”.
Article 49 bis:
(1) a) The subscription, acquisition or holding of shares in a société anonyme by
another company within the meaning of article 1 of Directive 68/151/EEC in which
the société anonyme directly or indirectly holds a majority of the voting rights or
on which it can directly or indirectly exercise a dominant influence shall be
regarded as having been effected by the société anonyme itself.
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b) Subparagraph a) shall also apply where the other company is governed by the
law of a third country and has a legal form comparable to those listed in article 1
of Directive 68/151/EEC.
(2) However, where the société anonyme holds a majority of the voting rights
only indirectly or can exercise a dominant influence only indirectly, paragraph (1)
does not apply, but in such case the voting rights attached to the shares in the
société anonyme held by the other company are suspended.
(3) For the purpose of this Article:
a) a société anonyme is deemed to be able to exercise a dominant influence
if it:
- has the right to appoint or dismiss a majority of the members of the
administrative organ, of the management organ or of the supervisory organ,
and is at the same time a shareholder or member of the other company or
- is a shareholder or member of the other company and has sole control of
the majority of the voting rights of the other company's
shareholders or members under an agreement concluded with other
shareholders or members of that company.
b) - a société anonyme is deemed to indirectly hold voting rights where such
voting rights are held by a company having one of the legal forms referred
to in paragraph (1) in which the société anonyme directly holds a majority of
the voting rights
- a société anonyme is deemed to be able to indirecdy exercise a dominant
influence on an other company where the société anonyme directly holds the
majority of the voting rights in a company having one of the legal forms
referred to in paragraph (1) which
- has the right to appoint or dismiss the majority of the members of the
administrative organ, of the management organ or of the supervisory organ
and is, at the same time, a shareholder or member of the other company or
- is a shareholder or member of the other company and has sole control of
the majority of the voting rights of the other company's shareholders or
members under an agreement concluded with other shareholders or
members of that company.
c) a société anonyme is deemed to hold voting rights where, in application of
the articles, the law or an agreement, it is entitled to exercise the voting
rights attached to the shares of the company and can in fact exercise them.
(4) Paragraph (1) shall not apply where
a) a subscription, acquisition or holding is effected on behalf of a person
other than the person subscribing, acquiring or holding the shares and who
is neither the société anonyme referred to in paragraph (1) nor another
company in which the société anonyme directly or indirectly holds a majority
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of the voting rights or on which it can directly or indirectly exercise a
dominant influence;
b) the subscription, acquisition or holding is effected by the other company
referred to in paragraph (1) in its capacity and in the context of its activities
as a professional dealer in securities, provided that it is a member of a stock
exchange situated or operating within a Member State of the European
Community, or is authorised or supervised by an authority of a Member
State of the European Community competent to supervise professional
dealers in securities which, within the meaning of this article, may include
credit institutions.
(5) Paragraph (1) does not apply where the holding of shares in the société
anonyme by the other company results from an acquisition made before the
relationship between the two companies corresponded to the criteria laid down in
paragraph (1)
However, the voting rights attached to those shares shall be suspended and those
shares shall be taken into account in order to determine whether the condition laid
down in Article 49-2, paragraph (1) 2° is fulfilled.
(6) Paragraphs (2) and (3) of Article 49-3 and Article 49-4 shall not apply where
shares in a société anonyme are acquired by the other company referred to in
paragraph (1) provided:
a) the voting rights attached to the shares in the société anonyme held by
the other company are suspended;
b) the members of the management body of the société anonyme are
obliged to buy back from the other company the shares referred to in
paragraphs (2) and (3) of Article 49-3 and in Article 49-4 at the price at
which the other company acquired them; this sanction shall be inapplicable
only where such members prove that the société anonyme played no part
whatsoever in the subscription for or acquisition of the shares in question”.
Article 59: “The directors shall be liable to the company in accordance with
general law for the execution of the mandate given to them and for any
misconduct in the management of the company's affairs.
They shall be jointly and severally liable both towards the company and any third
parties for damages resulting from the violation of this law or the articles of the
company. They shall be discharged from such liability in the case of a violation to
which they were not a party provided no misconduct is attributable to them and
they have reported such violation to the first general meeting after they had
acquired knowledge thereof”.
Article 154: The “Tribunal d'Arrondissement dealing with commercial matters”
may, in exceptional circumstances, upon application by shareholders or society
members representing one-fifth of the corporate interests, notified by court
process server upon the company in the form of a writ, appoint one or more
auditors with the duty to examine the books and accounts of the undertaking.
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The court shall hear the parties in chambers and shall give its decision in open
court.
The order shall specify the matters to be investigated and shall determine the
amount to be paid in escrow in advance to cover the payment of expenses; the
said expenses may be included in those of the proceedings which may result from
such findings”.
The report shall be lodged at the registry.
Article 162: “Any person who, purporting to be the owner of shares or bonds
which do not belong to it, participates, in a company constituted under the
present law, in any vote in a general meeting of shareholders or bondholders and
any person who has delivered shares or bonds so that they may be used for the
purpose described above are punishable by a fine of« 500 to 25,000 euros”.
Article 163: “The same penalty shall be imposed upon:
1° the persons who fail to include the information required by Articles 26, 27, 29
and 31 in the instruments, draft instru¬ments or notices published in the
Mémorial or lodged in accordance with Article 9, in subscription forms,
prospectuses, circulars addressed to the public, announcements and notices
published in newspapers;
2° the managers and directors who have failed to submit to the general meeting
within six months after the end of the financial year, the annual accounts, the
consolidated accounts, the management report, the certificate of the person
entrusted with the audit as well as the managers and directors who have failed to
publish such documents in violation of the requirements of Articles 75, 132, 197,
252 and 341 of this law and article 79 of the law of 19th December, 2002 on the
register of commerce and companies and the accounting and annual accounts of
undertakings.
3° the directors, statutory auditors or liquidators who have failed to
convene, within three weeks of being requested to do so, the general meeting
provided for in Article 70, second paragraph;
4° the persons who contravene the regulations adopted in implementation of
Article 137, first paragraph concerning the audit of sociétés coopératives;
5° the managers of sociétés à responsabilité limitée and of civil companies and, in
the latter, in the absence of managers, the members, who have failed to publish
changes of membership in accordance with Article llbis, §2, 3);
6° the managers who, directly or through intermediaries have opened a public
subscription for corporate units or bonds of a société à responsabilité limitée.
7° the directors of sociétés anonymes who fail to lodge the report referred to in
Article 49-5, paragraph (2), or who present a report not containing the minimum
information prescribed thereby;
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8° the persons referred to in Article 160-9 who have failed to carry out the
publications provided for by Articles 160-2 to 160-4, 160-6, 160-7”.
Article 164: “Shall be regarded as guilt)' of escroquerie (fraud) and be subject to
the penalties laid downin the Code Pénal (Criminal Code) any person who shall
have caused any subscriptions or payments to be made, or shares, bonds or other
securities of companies to be purchased:
by simulating subscriptions or payments to a company;
by publishing subscriptions or payments which they know not to exist;
by publishing the names of persons described as being now or in the future
associated with the company on any basis whatsoever, when they know that such
description is untruthful;
by publishing any other facts which they know to be false”.
Article 165: “Shall be subject to a jail term of one month to two years and a fine
of 5,000 to 125,000 euros, any person who, by any fraudulent means, caused or
attempted to cause the price of company shares, bonds or other securities to rise
or fall”.
Article 166: “The following shall be subject to a jail term of one month to two
years and a fine of 5,000 to 125,000 euros or to either one such penalties:
1° the managers or directors who have fraudulently given incorrect
information in the statement of bonds outstanding referred to in Article 94-1.
2° the managers or directors who, with fraudulent intent, have failed to publish
the annual accounts, the consolidated accounts, the management report and the
certificate of the person entrusted with the audit, as provided for by Articles 75,
132 and 341 and Article 79 of the law of 12th December 2002 on the register of
commerce and companies and the accounting and annual accounts of
undertakings.»
«3° (abrogated)
4° any director contravening Article 26-4”.
Article 167: “Any manager or director who, in the absence of inventories, or
notwithstanding inventories, or by means of fraudulent inventories, have caused
dividends or interest to be distributed to shareholders which was not taken from
the actual profits and any director who contravenes Article 72-2, shall be subject
to the same penalty”.
Article 168: “The same penalties shall apply to any person who, in his capacity
as director, statutory auditor, manager or member of the supervisory committee,
knowingly:
- repurchased shares by decreasing the corporate capital or the legal reserve,
contrary to the provisions of Article 49-2 in the case of sociétés anonymes;
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- made loans or advances using company funds on shares or other interests in the
company, contrary to Articles 49-6 and 49-7 in the case of sociétés anonymes;
- ordered, authorised or accepted that another company, as defined in Article
49bis, paragraph (1), sub-paragraphs a) and b), subscribes, acquires or
holds shares in the conditions referred to in the provisions of sub-paragraphs a)
and b) of paragraph (1) of Article 49bis and in violation of Article 49-2;
- made by any means whatsoever, at the expense of the company, payments on
shares or corporate units or acknowledged payments to have been made which
have not in fact been made in the prescribed manner and at the prescribed
times”.
Article 169: Shall be subject to réclusion (criminal jail term of five to ten years)
and a fine of 5,000 to 250,000 euros any person who has committed forgery with
fraudulent intent or the intent to cause damage, in the balance sheets or the profit
and loss accounts of companies prescribed by law or by the articles thereof,
either by means of false signatures,
or by forgery or alteration of records or signatures,
or by fabrication of agreements, provisions, obligations or discharges or by
insertion thereof in the balance sheets or profit and loss accounts after the event,
or
by the addition or alteration of clauses, declarations or facts which these
documents are intended to include and record”.
Article 170: “Any person making use of such false instrument shall be punished
as if he had done the forgery”.
Article 171: “The balance sheet shall exist, for the purpose of application of the
foregoing Articles, as from the time it is submitted for inspection to the
shareholders or members”.
Article 171-1: “Shall be subject to a jail term of one to five years and a fine of
“500 to 25,000 euros” or either one of these penalties, the legally appointed or de
facto directors, who, in bad faith,
- will have made a use of the assets or the credit of the company which they knew
was contrary to its interests, for personal purposes or for the benefit of an other
company or undertaking in which they were direcdy or indirectly interested in;
- will have made a use of the power they had or the votes they could cast, in that
capacity, which they knew was contrary to its interests, for personal purposes or
for the benefit of an other company or undertaking in which they were directly or
indirectly interested in”.
Article 172: “The provisions of the first livre (book) of the Code Pénal (Criminal
Code) and “the provisions of Articles 130-1 to 132-1 of the Code d'Instruction
Criminelle (Criminal Procedure Code)” shall apply to the offences provided for in
this law”
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Article 173: “Evidence of the accusations made against managers , directors and
statuatory auditors of sociétés en commandité par actions, sociétés anonymes and
sociétés coopératives, by reason of acts relating to their management or
supervision, shall be admitted, either against such persons or against the
company, by all ordinary methods of proof unless the opposite is proven by the
same methods, all in accordance with the law of 8th June 2004 on the freedom of
expression in the media”.
Article 173bis: “The sanctions prescribed by articles 162 to 173 are applicable,
depending on their respective duties, to the members of the management board
and to the members of the supervisory board of sociétés anonymes governed by
articles 60bis-1 to 60bis-19”.
Article 189: “Corporate units may not be transferred inter vims to non-members
unless members representing at least three-quarters of the corporate capital shall
have agreed thereto in a general meeting.
Corporate units may not be transmitted by reason of death to non-members
except with the approval of owners of corporate units representing three-quarters
of the rights owned by the survivors.
In the case referred to in paragraph 2, no consent shall be required where the
corporate units are transferred either to heirs compulsorily entitled to a portion of
the estate or to the surviving spouse or, insofar as the articles so provide, to other
legal heirs.
Heirs or beneficiaries of last will provisions or contractual instruments affecting
the estate who have not been approved and who have not found a transferee
fulfilling the requisite conditions may cause the company to be prematurely
dissolved, three months after giving formal notice, served on the manager by
process-server and notified to the members by registered mail.
However, during the said period of three months, the corporate units of the
deceased may be acquired either by the members, subject to the requirements of
the last sentence of Article 199, or by a third party approved by them, or by the
company itself if it fulfils the conditions required for the acquisition by a company
of its own shares.
The repurchase price of the corporate units shall be calculated on the basis of the
average balance sheet for the last three years and, if the company has not been
operating for three financial years, on the basis of the balance sheet of the last
year or of the last two years.
If no profit has been distributed, or if no agreement is reached as to the
application of the basis for repurchase referred to in the foregoing paragraph, the
price shall, in the event of disagreement, be determined by the courts.
The exercise of the rights attached to the corporate units of the deceased shall be
suspended until the transfer of such rights is valid vis-à-vis the company”.
Article 190: “Transfers of corporate units must be recorded by a notarial
instrument or by a private document.
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Transfers shall not be valid vis-à-vis the company or third parties until they shall
have been notified to the company or accepted by it in accordance with the
provisions of article 1690 of the Civil Code”.
Article 192: “The managers shall be liable in accordance with Article 59”
Article 203: “(1) The Tribunal d'Arrondissement dealing with commercial
matters, may, at the application of the Procureur d'Etat (public prosecutor), order
the dissolution and the liquidation of any company governed by Luxembourg law
which pursues activities contrary to criminal law or which seriously contravenes
the provisions of the commercial code or the laws governing commercial
companies including those laws governing authorisations to do business.
(2) The application and the procedural deeds shall be served through the greffe. If
the company can not be contacted at its legal domicile in the Grand-Duchy of
Luxembourg, the application is published by way of extract in two newspapers
printed in Luxembourg.
(3) Upon ordering the liquidation, the court shall appoint a supervisor}' judge and
one or more liquidators. It shall determine the method of liquidation. It may
render applicable to such extent as it may determine, the rules governing the
liquidation of a bankruptcy. The method of liquidation may be changed by
subsequent decision, either of the court's own motion or at the request of the
liquidator or liquidators.
(4) Court decisions ordering dissolution and liquidation of a company shall be
published by extract in the Mémorial. The court, may, in addition, and regardless
of the publications to be made in newspapers printed in Luxembourg, order
publication thereof, by extract, in such foreign newspapers as it may designate.
The publications shall be arranged by the liquidator or liquidators.
(5) The court may decide that the judgement ordering dissolution and liquidation
shall be enforceable on a provisional basis.
(6) In case the absence or an insufficiency of assets is ascertained by the
supervisory judge, the expenses and fees of the liquidators, which shall be ruled
upon by the court, shall be borne by the State and be paid as legal expenses.
(7) Actions against liquidators shall prescribe five years after publication of the
completion of the liquidation.
Article 203-1: “(1) The Tribunal d'Arrondissement dealing with commercial
matters, may, at the application of the Procureur d'Etat (public prosecutor), order
the close-down of any establishment of a foreign company which pursues
activities contrary to criminal law or which seriously contravenes the provisions of
the commercial code or the laws governing commercial companies including those
laws governing authorizations to do business.
(2) The application and the procedural deeds shall be served through the greffe. If
the company can not be contacted at its legal domicile in the Grand-Duchy of
Luxembourg, the application is published by way of extract in two newspapers
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printed in Luxembourg. The court may in addition order publication thereof, by
extract, in such foreign newspapers as it may designate.
(3) Court decisions ordering the close-down of the establishment of a foreign
company shall be published by extract in the Memorial. The court, may, in
addition, and regardless of the publications to be made in newspapers printed in
Luxembourg, order publication thereof, by extract, in such foreign newspapers as
it may designate. The publications shall be arranged by the Procureur d'Etat.
(4) The court may decide that the judgment ordering the close-down of the
establishment of a foreign company shall be enforceable on a provisional basis.
(5) Shall be subject to a jail term of eight days to five years and a fine of “1,250
to 125,000 euros" or to one of those penalties, any person who shall be in breach
of a judgment ordering a close-down pursuant to this article”.
Part II - Relevant provisions of the Law of 5 April 1993 on the financial
sector, as amended
Article 1 (11): “"parent undertaking" shall mean an undertaking which:
a) has a majority of the shareholders' or members' voting rights in another
undertaking; or
b) has the right to appoint or remove a majority of the members of the
administrative, management or supervisory body of another undertaking and is at
the same time a shareholder in or member of that undertaking; or
c) has the right to exercise a dominant influence over an undertaking of which it is
a shareholder or member, pursuant to a contract entered into with that
undertaking or by virtue of a provision in its memorandum or articles of
association, where the law governing that other undertaking permits its being
subject to such contracts or provisions; or
d) is a shareholder in or member of an undertaking and controls alone, pursuant
to an agreement with other shareholders in or members of that undertaking, a
majority of the shareholders' or members' voting rights in that undertaking; or
e) is able to exercise, or effectively exercises, a dominant influence over another
undertaking or
f) is placed with another undertaking under a single management”.
Article 1 (12): “"credit institution" shall mean a credit institution within the
meaning of Article 4, point (l) of Directive 2006/48/EC. In Luxembourg, this shall
mean any legal person whose business is to receive deposits or other repayable
funds from the public and to grant credits for its own account, as well as any other
person categorized as a credit institution in Chapter 1 of Part I of this Law.
Persons whose business is to receive deposits or other repayable funds from the
public and to grant credits for their own account may be called, without
distinction, credit institutions or banks”.
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Article 1 (18): “"subsidiary" shall mean an undertaking in respect of which the
rights listed in point (11) are held. A subsidiary of a subsidiary shall likewise be
regarded as a subsidiary of the parent undertaking which is at the head of those
undertakings”.
Article 51: (1)“Supervision on a consolidated basis shall include at least the
following:
a) supervision of the adequacy of capital to cover credit risk, market risks,
operational risk and of the control of major exposures;
b) the internal process used to assess the adequacy of internal capital;
c) compliance with Article 5, paragraph 1 bis.
If appropriate, the CSSF shall adopt the measures required to include parent
financial holding companies within the scope of supervision on a consolidated
basis, in accordance with Article 49, paragraph 2.
Compliance with the limits set for holdings shall be supervised and controlled on
the basis of the credit institution‟s consolidated or sub-consolidated financial
position.”
(1 bis) “Without prejudice to the rules concerning the control of large exposures,
the CSSF shall exercise general supervision over transactions between credit
institutions established under Luxembourg law and their parent undertakings,
where the parent undertaking is a mixed-activity holding company, and between
such credit institutions and subsidiaries of that parent undertaking.
Credit institutions shall be required to have in place adequate risk management
processes and internal control mechanisms, including sound accounting and
reporting procedures, in order appropriately to identify, measure, monitor and
control transactions with the mixed-activity holding company and its subsidiaries.
Credit institutions shall report to the CSSF any significant transaction carried out
with those entities, otherwise than in the context of the rules concerning large
exposures. Such procedures and significant transactions shall be subject to
overview by the CSSF.
Where such transactions are a threat to the financial position of a credit institution
established under Luxembourg law, the CSSF shall, by registered letter, order the
credit institution concerned to rectify the situation found to exist within such time
as it may fix.”
(2) Prudential supervision on a consolidated basis shall not affect supervision on a
nonconsolidated basis.
(3) “When a credit institution that is a subsidiary of an EU parent credit institution
is authorized in Luxembourg, the CSSF shall apply to such institution the rules laid
down in paragraph 1 on an individual basis or, as the case may be, on a sub-
consolidated basis.
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The CSSF may choose not to apply, on a sub-consolidated or individual basis, the
rules laid down in paragraph 1 to an entity authorized and supervised in
Luxembourg that is the subsidiary of a Luxembourg parent credit institution if
such subsidiary is included within the supervision on a consolidated basis of the
Luxembourg parent credit institution pursuant to Article 49. Moreover, all of the
following conditions must be fulfilled in order to ensure that own funds are
distributed adequately among the parent undertaking and its subsidiary:
a) there is no current or foreseen material legal or practical impediment to the
prompt transfer of capital or the prompt repayment of liabilities by its parent
undertaking;
b) either the parent undertaking satisfies the CSSF with all necessary assurances
regarding the prudent management of the subsidiary and, with the CSSF‟s
consent, agrees to guarantee the subsidiary‟s contractual obligations, or the risks
in the subsidiary are of negligible interest;
c) the risk evaluation, measurement and control procedures of the parent
undertaking cover the subsidiary;
d) the parent undertaking holds more than 50% of the voting rights attached to
shares held in the subsidiary‟s capital and/or has the right to appoint or remove a
majority of the members of the management body of the subsidiary.”
(4) “The persons who effectively direct the business of a financial holding
company must be able to provide evidence of their professional standing. Such
standing shall be assessed on the basis of police records and of any evidence
tending to show that the persons concerned are of good repute and offering every
guarantee of irreproachable conduct on the part of those persons. In addition,
such persons must possess adequate professional experience to perform those
functions, by virtue of their having previously carried on similar activities at a high
level of responsibility and autonomy.
Any change in the persons in question must be authorized in advance by the
CSSF. To that end, the CSSF may request all such information as may be
necessary regarding those persons. An appeal against the decision of the CSSF
may be lodged within one month before the “Tribunal administratif”
[administrative court], which shall determine the matter as a court adjudicating
on the substance. The appeal shall be barred if it is not lodged within such
period.”
(5) “The CSSF may exercise the discretion laid down in paragraph 3 if the parent
undertaking is a Luxembourg parent financial holding company, provided that it is
subject to the same supervision as that exercised with respect to credit
institutions pursuant to paragraph 1.”
(6) “The CSSF may choose not to apply, on an individual basis, the rules laid
down in paragraph 1 to a Luxembourg parent credit institution if such credit
institution is subject to the CSSF‟s supervision and is included within supervision
on a consolidated basis pursuant to Article 49. Moreover, all of the following
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conditions must be satisfied in order to ensure that own funds are distributed
adequately among the parent undertaking and the subsidiaries;
a) there is no current or foreseen material practical or legal impediment to the
prompt transfer of own funds or repayment of liabilities to the parent credit
institution;
b) the risk evaluation, measurement and control procedures relevant for
consolidated supervision cover the parent credit institution.
In the event the CSSF uses the provisions of this paragraph, it shall inform the
competent authorities of all other Member States.”
(7) “Where the CSSF exercises the discretion laid down in paragraph 6, it shall
make public:
a) the criteria it applies to determine that there is no current or foreseen material
legal or practical impediment to the prompt transfer of own funds or the
repayment of liabilities;
b) the number of parent credit institutions which benefit from the use of the
provisions of paragraph 6 and, among them, the number of institutions that have
subsidiaries located in a third country;
c) on an aggregate basis for Luxembourg:
i) the total amount of own funds on a consolidated basis of the Luxembourg
parent credit institution which benefit from the provisions of paragraph 6 which
held in subsidiaries located in a third country;
ii) the percentage of total own funds on a consolidated basis of Luxembourg
parent credit institutions benefiting from the provisions of paragraph 6 that is
represented by capital held in subsidiaries located in a third country;
iii) the percentage of total minimum capital required under capital adequacy rules
to cover credit risk, market risks and operational risk on a consolidated basis of
Luxembourg parent credit institutions benefiting from the provisions of paragraph
6 that is represented by capital held in subsidiaries located in a third country.”
(8) “Where a Luxembourg parent credit institution has a subsidiary in a third
country that is a credit institution, financial institution or asset management
company within the meaning of Article 2(5) of Directive 2002/87/EC, or holds a
participation in such undertakings, and if the credit institution in question is the
subsidiary of a parent credit institution authorized in the EU, the CSSF shall apply
to such institution the rules laid down in paragraph 1 on a sub-consolidated basis.
The foregoing shall also apply in the event the parent undertaking of a credit
institution authorized in Luxembourg is an EU parent financial holding company
which has a subsidiary that is a credit institution, financial institution or an asset
management company within the meaning of Article 2(5) of Directive 2002/87/EC,
or holds a participation in such an undertaking.”
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(9) “Subject to the provisions laid down in subparagraphs (a) to (c), the CSSF
may, on a case by case basis, authorized Luxembourg parent credit institutions to
incorporate their subsidiaries in the calculation of their own funds requirements on
an individual basis, provided such subsidiaries meet the conditions laid down in
paragraph 3(c) and (d), and that their material exposures or material liabilities
are to that parent credit institutions.
a) The treatment provided for in this paragraph shall be allowed only if the parent
credit undertaking demonstrates fully to the CSSF the circumstances and
arrangements, including legal arrangements, by virtue of which there is no current
or foreseen material legal or practical impediment to the prompt transfer of own
funds or the repayment of liabilities when due by the subsidiary to its parent
undertaking.
b) Where the CSSF exercises the discretion laid down in this paragraph, it shall
inform the competent authorities of all other Member States of the use made of
paragraph 1 and of the circumstances and arrangements referred to in
subparagraph (a) on a regular basis, and not less than once a year. Where the
subsidiary is in a third country, the CSSF shall provide the same information to
the competent authorities of that third country as well.
c) In the event the CSSF uses the provisions of this paragraph, it shall publicly
disclose:
i) criteria it applies to determine that there is no current or foreseen material
practical or legal impediment to the prompt transfer of own funds or repayment of
liabilities;
ii) the number of parent credit institutions which benefit from the provisions of
this paragraph and, among them, the number of institutions that have subsidiaries
located in a third country;
iii) on an aggregate basis for Luxembourg:
- the total amount of own funds of parent credit institutions benefiting from the
provisions of this paragraph that is held in subsidiaries located in a third country;
- the percentage of total own funds of parent credit institutions benefiting from
the provisions of this paragraph that is represented by capital held in subsidiaries
located in a third country;
- the percentage of total minimum own funds required under own funds rules to
cover credit risk, market risks and operational risk of parent credit institutions,
which benefit from the provisions of this paragraph represented by own funds
which are held in subsidiaries in a third country”.
Article 51-5 (3): “When an investment firm that is a subsidiary of an EU parent
investment firm is authorised in Luxembourg, the CSSF shall apply to such firm
the rules laid down in paragraph 1 on an individual basis or, as the case may be,
on a sub-consolidated basis.
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The CSSF may choose not to apply, on a sub-consolidated or individual basis, the
rules laid down in paragraph 1 to an entity authorised and supervised in
Luxembourg that is the subsidiary of a Luxembourg parent investment firm if such
subsidiary is included within the supervision of the Luxembourg parent investment
firm on a consolidated basis pursuant to Article 51-3. Moreover, all of the
following conditions must be fulfilled in order to ensure an adequate allocation of
capital between the parent undertaking and its subsidiary:
a) there is no current or foreseen material practical or legal impediment to the
prompt transfer of capital or repayment of liabilities by its parent undertaking;
b) either the parent undertaking satisfies the CSSF regarding the prudent
management of the subsidiary and has declared, with the consent of the CSSF,
that it guarantees the commitments entered into by the subsidiary, or the risks in
the subsidiary are of negligible interest;
c) the risk evaluation, measurement and control procedures of the parent
undertaking cover the subsidiary; and
d) the parent undertaking holds more than 50% of the voting rights attaching to
shares capital and/or has the right to appoint or remove a majority of the
members of the management body of the subsidiary”.
Article 51-9 (5): “"financial conglomerate" shall mean a group which, subject to
Article 51-10, meets all the following conditions:
a) the group comprises at least one regulated entity having its head office in a
Member State which is at the head of the group or is a subsidiary;
b) where the entity at the head of the group is a regulated entity having its head
office in a Member State, it is either a parent undertaking of an entity in the
financial sector, an entity which holds a participation in an entity in the financial
sector, or an entity linked with another entity in the financial sector by virtue of
being managed on a unified basis pursuant to a contract or provisions of their
memorandum or articles of association, or by virtue of having administrative,
management or supervisory bodies consisting in the majority of the same
persons;
c) if the entity at the head of the group is not a regulated entity having its head
office in a Member State, the group's activities mainly occur in the financial sector
within the meaning of Article 51-10, paragraph 1;
d) the group simultaneously comprises at least one entity within the insurance
sector and at least one entity within the banking sector or the investment services
sector;
e) the consolidated and/or aggregated activities of the group within the insurance
sector and the consolidated and/or aggregated activities of the group within the
banking sector and the investment services sector are both significant within the
meaning of Article 51-10, paragraphs 2 or 3.
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Any subgroup of a group within the meaning of subparagraph (15) which meets
the criteria in this point shall be regarded as a financial conglomerate”.
Article 51-9 (15): “"group" shall mean a group of undertakings which consists of
a parent undertaking, its subsidiaries and the entities in which the parent
undertaking or its subsidiaries hold a participation, as well as undertakings linked
to each other by virtue of being managed on a unified basis pursuant to a contract
or provisions of their memorandum or articles of association, or by virtue of
having administrative, management or supervisory bodies consisting in the
majority of the same persons”
Article 51-9 (21): "intra-group transactions" shall mean all transactions by
which regulated entities within a financial conglomerate rely either directly or
indirectly upon other undertakings within the same group or upon any natural or
legal person linked to the undertakings within that group by close links, for the
fulfillment of an obligation, whether or not contractual, and whether or not for
payment”.
Article 51-15 : “Intra-group transactions”
“(1) Without prejudice to the sectoral rules, the CSSF shall exercise, in relation to
credit institutions and investment firms established under Luxembourg law which
form part of a financial conglomerate in respect of which it is acting as
coordinator, supplementary supervision of the intra-group transactions of
regulated entities in the financial conglomerate concerned, in accordance with this
Article, Article 51-16 and Section 4 of this Chapter.
The CSSF shall carry out a supervisory overview of intra-group transactions in
accordance with Section 4 of this Chapter. It shall pay particular attention to the
risk of contagion within the financial conglomerate, the existence of conflicts of
interests, circumvention of the sectoral rules and the level and size of the intra-
group transactions.
(2) The entity at the head of a financial conglomerate in respect of which the
CSSF is acting as coordinator shall report to the CSSF on a regular basis, and at
least annually, any significant intra-group transaction of regulated entities within
the financial conglomerate, in accordance with the provisions of paragraph (3).
The CSSF, after consultation with the other relevant competent authorities and
with the financial conglomerate, may authorise another regulated entity in the
financial conglomerate to communicate the information in question to it.
(3) The CSSF, acting in its capacity as coordinator, by agreement with the other
relevant competent authorities and after consultation with the financial
conglomerate, shall determine, pursuant to Article 56, the categories of risks to be
notified, the notification thresholds and the detailed rules, including those relating
to frequency, for notification of significant intra-group transactions in respect of a
given financial conglomerate. For that purpose, it shall take into account the
specific group and risk management structure of the financial conglomerate. The
notification thresholds shall be defined on the basis of regulatory own funds
and/or technical provisions. In the absence of any definition of notification
thresholds, an intra-group transaction shall be presumed to be significant if its
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amount exceeds at least 5% of the total amount of capital adequacy requirements
at the level of a financial conglomerate.
(4) The CSSF may set quantitative limits and qualitative requirements with regard
to intra-group transactions of regulated entities within a financial conglomerate or
take other supervisory measures designed to control intra-group transactions of
regulated entities within a financial conglomerate. In order to prevent any
circumvention of the sectoral rules, the CSSF may prescribe the application of the
sectoral rules concerning intra-group transactions of regulated entities within a
financial conglomerate.
(5) Where a financial conglomerate is headed by a mixed financial holding
company, the sectoral rules regarding intra-group transactions of the most
important financial sector in the financial conglomerate, if any, shall apply to that
sector as a whole, including the mixed financial holding company.
(6) Credit institutions and investment firms established under Luxembourg law
which form part of a financial conglomerate in respect of which a competent
authority other than the CSSF is acting as coordinator shall make information
relating to significant intra-group transactions available to the entity at the head
of the financial conglomerate or, as the case may be, to another regulated entity
of the financial conglomerate charged by the coordinator to communicate to it the
information needed in order to enable the coordinator to perform its task of
supervisory overview of intra-group transactions of regulated entities within a
financial conglomerate”.
Article 51-19: “Cooperation and exchange of information between
competent authorities”
“(1) The CSSF shall cooperate closely with the other competent authorities
responsible for the supervision of regulated entities in a financial conglomerate
and, where it is not acting as coordinator, with the authority performing that role.
Without prejudice to its responsibilities as defined by this Law, the CSSF shall
exchange with those authorities any information which is essential or relevant for
the exercise of their respective supervisory tasks under the sectoral rules and for
supplementary supervision. To that end, the CSSF shall, on request, communicate
to the other competent authorities and, where it is not performing that role, to the
coordinator, all relevant information and, on its own initiative, all essential
information.
Such cooperation shall include the gathering and the exchange of information
concerning the following matters:
a) identification of the group structure of all major entities belonging to the
financial conglomerate, as well as of the competent authorities responsible for
prudential supervision of the regulated entities in the group;
b) the financial conglomerate's strategic policies;
c) the financial situation of the financial conglomerate, in particular as regards
capital adequacy, intra-group transactions, risk concentration and profitability;
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d) the financial conglomerate's major shareholders and management;
e) the organization, risk management and internal control systems at financial
conglomerate level;
f) procedures for the collection of information from the entities in a financial
conglomerate, and the verification of that information;
g) adverse developments in regulated entities or in other entities of the financial
conglomerate which could seriously affect the regulated entities;
h) major sanctions and exceptional measures taken by competent authorities in
accordance with sectoral rules or this Chapter.
The CSSF may also exchange with the central banks of the Member States, the
European System of Central Banks and the European Central Bank such
information as may be needed for the performance of their respective tasks
regarding regulated entities in a financial conglomerate in accordance with this
Law.
(2) Without prejudice to its responsibilities under the sectoral rules as defined by
this Law, the CSSF shall, before taking any decision which is of importance for the
supervisory tasks of the other competent authorities concerned, consult those
other authorities with regard to the following matters:
a) changes in the shareholder, organizational or management structure of the
regulated entities in a financial conglomerate which require the approval or
authorization of those competent authorities;
b) major sanctions or exceptional measures taken by the CSSF.
The CSSF may decide not to consult the other competent authorities concerned in
cases of urgency or where such consultation may jeopardize the effectiveness of
the decisions. In such cases, the CSSF shall, without delay, inform the other
competent authorities.
(3) Where the CSSF is acting as coordinator, it may invite the competent
authorities of the Member State in which a parent undertaking has its head office
to ask the parent undertaking for any information which would be relevant for the
exercise of its coordination tasks, as defined in Article 51-18, and to transmit that
information to it.
Where the information referred to in Article 51-21(2) has already been given to a
competent authority in accordance with sectoral rules, the CSSF, if it is acting as
coordinator, may apply to such authority to obtain the information.
(4) Where necessary for the exercise of supplementary supervision, the CSSF may
exchange the information referred to in paragraphs (1), (2) and (3) with the
Commissariat aux assurances [Insurance Commission], the other competent
authorities concerned and the authorities referred to in the last subparagraph of
paragraph (1). The collection or possession of information with regard to an entity
within a financial conglomerate which is not a regulated entity shall not in any way
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imply that the CSSF is playing a supervisory role, in relation to that entity on a
stand-alone basis.
Information received in the context of supplementary supervision, and in
particular any exchange of information between the CSSF and other competent
authorities concerned or the authorities referred to in the last subparagraph of
paragraph (1) in accordance with this Chapter, shall be subject to the provisions
of Article 44”.
Article 51-23: “Enforcement measures”
“Where the CSSF, in the exercise of its functions as coordinator, finds that the
requirements of Articles 51-13 to 51-16 are no longer being complied with at the
level of the financial conglomerate or that those requirements are met but the
solvency of the financial conglomerate may nevertheless be jeopardized, or where
the intra-group transactions or the risk concentrations are a threat to the financial
situation of the regulated entities in the financial conglomerate, it shall, by
registered letter, call upon the mixed financial holding company at the head of the
financial conglomerate and the credit institutions and investment firms established
under Luxembourg law which form part of the financial conglomerate to rectify the
situation found to exist within such time-limit as it may specify. Article 63 shall
apply to the persons responsible for the administration or management of the
mixed financial holding company. Where a credit institution or investment firm
established under Luxembourg law is at the head of the financial conglomerate,
the CSSF shall, by registered letter, call upon it to rectify the situation found to
exist within such time-limit as it may specify. In addition, the CSSF shall inform
the other competent authorities concerned of its findings.
Where the CSSF is informed of such findings by another competent authority
acting as coordinator, it shall, in so far as may be necessary, call by registered
letter upon the credit institutions and investment firms established under
Luxembourg law which form part of the financial conglomerate to rectify the
situation found to exist within such time-limit as it may specify.
The CSSF and the other competent authorities involved shall, where appropriate,
coordinate the supervisory measures which they take
Part III - Relevant provisions of the Civil Code
Capitalization of interest
Article 1154: “The interest falling due can produce interest, either pursuant to a
judiciary claim, or pursuant to a special agreement, insofar as, either in the claim
or in the agreement, the claimed interest apply on interest falling due for a whole
year at least”.
Action oblique
Article 1166: “However creditors can exert any rights and actions belonging to
their debtor, with the exception of those exclusively attached to the person”.
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Actio pauliana
Article 1167 (law 4th February 1974) : “They may also, in their own name,
challenge the acts made by their debtor in fraud of their rights”.
Tort liability
Article 1382: “Any action of man which causes a damage to someone else
requires the one in guilt of having committed this damage to compensate it”.
Assignment of debt
Article 1690 (law 21 December 1994): “The transferee is vested vis-à-vis
third parties subject to the notification of the transfer to the debtor.
However, the transferee may also be vested pursuant to the acceptance of the
transfer made by the debtor.
The notification and the acceptance of the transfer are effected either pursuant to
a public deed or a private deed. In the latter case, if a third party challenges the
date of notification or acceptance of the transfer, the evidence of such date can be
brought by any means”.
Part IV - Relevant provisions of the Labour Code
Article L. 414-4 (1): “The employer shall provide to employees‟ representatives
all information which may enlighten them about the functioning and the running of
the company, including recent and probable development of the undertaking‟s
activities and economic situation. Such information shall be done on a monthly
basis for companies where the employees are represented by a work council. In
the other companies, the information is provided during meetings [of staff
delegates] with the directors of the company [..].”
Article L. 414-4 (4): “The employer shall inform and consult employees‟
representatives on any decision likely to lead to substantial changes in work
organization or contractual relations, including the provisions relating to collective
dismissals and protection of employees‟ right in the event of a transfer of
undertaking.”
Part V - Relevant provisions of the Commercial Code
Article 495 (law of 21 July 1992): “in case of bankruptcy of a company, either
any legally appointed or de facto manager, either apparent or hidden, either
remunerated or not, either a natural person or a legal body, may be personally
declared bankrupt, if he/she/it has:
- undercover of the company, committed commercial acts in a personal
interest;
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- disposed of the corporate assets as his/her/its own assets; or
- continued abusively, in his/her/its personal interest, a deficit exploitation
which was necessarily leading to the cessation of payments of the
corporate body.
The liabilities of the manager‟s bankruptcy comprises, in addition to his/her/its
own liabilities, the liabilities of the company.
The date of cessation of payments is the same date as determined by the
judgment which declares the company‟s bankruptcy.
Article 495-1: “Where the bankruptcy of a company reveals an insufficiency of
assets, the court may order, to the request of the liquidator, that the debts shall
be borne, in part or in full, jointly or not, by the managers of the company, either
legally appointed or de facto managers, either apparent or hidden, either
remunerated or not, against whom evidence of gross and characterized faults
having contributed to the bankruptcy has been demonstrated.
Part VI - Relevant provisions of the Income Tax Law
Article 56 (shortened): The tax authorities may determine the operation income
on a lump-sum basis, in a situation where a transfer of result occurred due to
direct or indirect particular economic relationships existing between the taxpayer
and a non-resident person
Art 164 (3): “Hidden distribution of dividends shall be included in the taxable
basis. Among others, hidden distributions do exist if direct or indirect advantages
are granted by a company to a shareholder, which would otherwise not have been
granted absent the shareholding relationship”.
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ANNEX B Examples of transfer of assets agreements
Disclaimer: all examples of transfer of assets’ agreements below are given for
information purposes only and, subject to the exclusive use in relation to this
questionnaire, cannot be disclosed, used or transmitted in part or in full without
the prior express written agreement of Wildgen.
Annex B-1: Interest-free shareholder loan agreement
Annex B-2: Loan assignment agreement
Annex B-3: Receivables pledge agreement
Annex B-4: Guaranty on first demand
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Dated as of [***]
INTEREST-FREE LOAN AGREEMENT
Between
[AAA] Sàrl
as the Borrower
and
[AAA] L.P.
as the Lender
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This Interest-free Loan Agreement (the “Agreement”) is dated on the date stated at the
beginning of this Agreement and is made
BETWEEN THE FOLLOWING PARTIES (the “Parties”) :
[AAA] Sàrl, a company organised under the laws of Luxembourg and having its
registered office at [***], registered with the Luxembourg trade register under number
[***], acting as the borrower (the “Borrower”);
AND
[AAA] L.P., a limited partnership formed under the laws of [jurisdiction], acting as the
lender (the “Lender”), acting by its general partner [AAA] Limited, a company
incorporated in [jurisdiction], having its registered office at [***].
RECITALS:
A. The Borrower is firmly engaged in the process of acquiring (the “Transaction”),
together with other investors, the [***] company and its subsidiaries (the
“Target”).
B. Pursuant to the Bid Instructions for the Transaction, the preferred bidder is
required to make payment of a deposit equal to 5% of the bid price, calculated
according to its pro rata share, as a performance deposit into the account of the
target.
C. In order to allow the Borrower to meet its performance deposit‟s requirements,
the Lender hereby intends to lend to the Borrower an interest-free aggregate
amount of USD [***], in the terms and conditions set forth herein (the “Loan”).
NOW IT IS HEREBY AGREED AS FOLLOWS:
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1. DEFINITIONS
1.1 In this Agreement the following words and expressions shall have the following
meanings:
“Business Day” means any day on which commercial banks
are open for business in [foreign jurisdiction]
and Luxembourg, excluding Saturdays and
Sundays.
“USD” means United States Dollars, the lawful
currency of the United States of America.
1.2 In this Agreement, any reference to a particular agreement or other document
shall be construed as a reference to the version of such documents which is
binding and enforceable on the date hereof, as such document may be novated,
assigned, amended and supplemented from time to time hereafter.
2. THE LOAN
2.1 The Lender agrees to lend to the Borrower, and the Borrower agrees to borrow
from the Lender a loan (the “Loan) in the principal amount of the USD amount
set forth in the second column of Schedule A hereto (the “Principal Amount”),
subject to the terms and conditions of this Agreement.
2.2 The Parties may determine to extend further loans denominated in USD principal
amount, in which case the Principal Amount of the Loan shall be deemed to
include the principal amounts of such further loans provided by the Lender to the
Borrower.
3. INTEREST
No interest shall accrue on the Principal Amount of the Loan.
4. TERM / REPAYMENT
4.1 The term for the repayment of the Loan is the tenth anniversary date of this
Agreement (the “Term”).
4.2 Notwithstanding Section 4.1 above, the Parties can mutually agree to make
partial, in one or more occasions, or full prepayments of the Loan.
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4.3 Notwithstanding Sections 4.1 and 4.2 above, the Parties can mutually agree to
extend the Term.
5. PAYMENTS
5.1 All payments to be made by the Borrower to the Lender hereunder shall be made
to the account and at the time specified by the Lender, in immediately available,
freely transferable funds. All such payments shall be made in USD. For
accounting purposes, all such payments shall also be converted in euro amount
according to the USD/EURO exchange rate as shown on Bloomberg page FXC at or
about 9:00 a.m. Luxembourg time prior to (i) the relevant repayment date or (ii)
any other Business Day on which a payment takes place.
5.2 If a date on which any amount under this Agreement is due and payable is not a
Business Day, the date for payment of such amount shall be deferred to the next
succeeding Business Day.
5.3 All sums payable to the Lender hereunder shall be paid in full without set-off or
counterclaim, and free and clear of and without any deduction or withholding on
account of any present or future taxes, levies, imposts, duties or other charges
whatsoever, except such deductions or withholdings as are required by applicable
law. The Borrower shall obtain and provide to the Lender any such receipts as the
Lender may reasonably request for taxes paid by the Borrower in connection with
any such deductions or withholdings.
6. EVENTS OF DEFAULT
The full outstanding amount of the Loan shall become immediately due and
payable upon written notice from the Lender to the Borrower, upon the
occurrence of any of the following events:
(a) the Borrower failing to repay all or any of the Loan when required to do so
in accordance with the terms of this Agreement; or
(b) the Borrower having committed or caused an event of default under any
other loan or financing arrangements the Borrower has entered or will
enter into; or
(c) the Borrower having applied for a suspension of payment (sursis de
paiements) or a judicial composition (concordat), being declared bankrupt
(déclaration en faillite), being dissolved (dissolution), liquidated
(liquidation), ceasing to exist or taking any steps which may result in the
Borrower ceasing to exist.
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7. NOTICES
All notices, requests, claims, demands and other communications hereunder shall
be delivered in person, or by registered letter, postage prepaid and return receipt
requested, or by facsimile, to the following:
if to the Lender:
to: [AAA] L.P.
address: [***]
facsimile: [***]
attn.: [***]
if to the Borrower:
to: [AAA] Sàrl
address: [***]
facsimile: [***]
attn.: [***]
8. MISCELLANEOUS
8.1 This Agreement shall be binding upon and inure to the benefit of the Parties and
their respective successors and permitted assigns. Neither Party may assign any
of its rights or obligations hereunder without the prior written consent of the other
Party.
8.2 This Agreement shall be governed by and shall be construed in accordance with
the laws of Luxembourg.
8.3 Any dispute arising under or in connection with this Agreement shall be settled by
the competent courts in Luxembourg.
8.4 This Agreement is written in the English language and will be executed in as many
counterparts as there are parties hereto, each of which shall be deemed an
original when executed, but all counterparts together shall constitute the same
document.
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IN WITNESS WHEREOF this Agreement has been executed by the parties hereto on the
date first above written,
The Lender:
[AAA] L.P.
By:
Capacity: Director
The Borrower
[AAA] Sàrl
By:
Capacity:
Director
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THIS AGREEMENT is entered into on the date stated on the front page thereof and is
made
BETWEEN
[AAA] (“AAA”), a company formed under the laws of [jurisdiction], having its registered
office at [***],
on the first part, hereinafter referred to as the " Assignor 1”;
[AAA 2] (“AAA 2”), a company formed under the laws of [jurisdiction], having its
registered office at [***],
on the first part, hereinafter referred to as the " Assignor 2” (and together with Assignor
1, the “Assignors”);
AND
[BBB] (“BBB”), a company formed under the laws of [jurisdiction], having its registered
office at [***],
on the second part, hereinafter referred to as the "Assignee";
AND
[CCC] Sàrl, a company organised under the laws of Luxembourg and having its
registered office at [***], registered within the Luxembourg trade register under number
[***],
acting as the borrower and/or the Assigned Debtor (the “Borrower” and/or the
“Assigned Debtor”);
The Assignors, the Assignee and the Assigned Debtor are hereinafter referred to together
as the "Parties" and each individually as a “Party”
WITNESSETH:
(A) On or about the same date hereof, the Assignee has purchased from the Assignors
[***] shares of the share capital of the Assigned Debtor;
(B) In addition to and in proportion with the aforementioned transfer of shares, the
Assignee is willing to acquire from the Assignors, which accept, debt rights held by
the Assignors against the Assigned Debtor;
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(C) The [EUR***] shareholder loan dated [***] (the “Shareholder Loan”), being part
of the aforementioned debt rights, the Assignors are willing to transfer and assign to
the Assignee their Shareholder Loan‟s rights of a principal amount of [EUR***] (the
“Transfer”), in the proportions per Assignor and per Assignee as set forth in
Schedule 1 (the “Transferred Shareholder Loan Amounts”);
(D) In full compliance with Article 1690 of the Luxembourg Civil Code, the Assigned
Debtor wishes to formally and expressly accept the Transfer of the Transferred Loans
made between the Assignors and the Assignees and therefore wishes to be a party to
this Agreement.
NOW THEREFORE, IN CONSIDERATION OF THE PREMISES AND THE MUTUAL
COVENANTS CONTAINED HEREIN, IT IS AGREED BY AND BETWEEN THE
PARTIES HERETO AS FOLLOWS:
1. PREMISES
The above recitals constitute an integral and essential part of this Agreement.
2. DEFINITIONS
In addition to the other terms defined in other clauses and premises of this
Agreement, the following words and terms shall have the following meanings if
and when written with capital letters (the terms defined in singular to have the
same meaning when used in plural and vice versa):
“Agreement” means this loan assignment agreement and its schedule and
includes any instrument supplemental to this Agreement;
“Business Day" means any calendar day (other than a Saturday or a Sunday) on
which banks are open for business in Luxembourg;
“EMU Legislation" means legislative measures of the European Council for the
introduction of, changeover to, or operation of, a single or unified European
currency;
“Euro" or "Euros” or “EUR” means the single currency introduced pursuant to
the EMU Legislation;
3. TRANSFER
Subject to the terms of this Agreement, the Assignors hereby assign to the
Assignees, who hereby accept, the Shareholder Loan together with all rights and
obligations attached thereto, with effect as of the date hereof, in the principal
amount of the [EUR***] amount, and in the proportions per Assignor and per
Assignee as set forth in Schedule 1 (the “Shareholder Loan Transferred
Amount(s)”).
Further to the Transfer, the Funds shall remain holders of the Shareholder Loan in
the principal amounts as set forth in Schedule 2 (the “Funds’ Shareholder Loan
Remaining Principal Amount(s)”).
4. DECLARATIONS
The Assignors certify, represent and warrant:
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that they are the sole and legal owner of the Shareholder Loan and the
attached rights;
that there are no other limitations on the transferability of the Shareholder
Loan than those resulting from the assigned Debtor‟s articles of
association and the Shareholder Loan; and
that the Shareholder Loan and the attached rights are free of any charge
or encumbrance whatsoever.
In compliance with Article 1690 of the Luxembourg Civil Code, the Assigned
Debtor (i) expressly declares to consent to the partial assignment of the
Shareholder Loan, in the conditions set forth by this Agreement, and (ii)
acknowledges the transfer of the debt incurred under this Agreement.
5. TRANSFER PRICE
The assignment of the Shareholder Loan is irrevocably made for an aggregate
total consideration of [EUR***].
The Assignors hereby declare that the Transfer Price has been entirely satisfied on
or before the date hereof.
6. INTEREST ACCRUED UNTIL TRANSFER
The Parties agree that any and all interest accrued on the Shareholder Loan
before and until the Transfer shall be due to and kept exclusively by the
Assignors. The Assignees expressly waive any rights thereon, and if any related
sums are or will be paid by the Assigned Debtor to the Assignees, the Assignees
undertake to transfer immediately, without prior notice, any and all these sums to
the Assignors.
7. WARRANTIES
The Assignees warrant that they have full and complete knowledge of the
Shareholder Loan Agreement, the articles of incorporation and the financial
condition of the Company at the date of this Agreement.
8. FEES AND EXPENSES
The Parties agree that the Assigned Debtor shall pay all fees and expenses in
relation with this Agreement and the related transactions.
9. PARTIAL INVALIDITY - AMENDMENTS
Should any provisions of this Agreement be declared invalid, illegal or unenforceable,
such invalidity, illegality or unenforceability shall not affect the validity, legality or
enforceability of the remaining provisions of this Agreement, which shall remain in full
force and effect.
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This Agreement may only be amended by a written instrument executed by all the
Parties hereto. Therefore the tolerance also reiterated of any defaults or delayed
performance of this Agreement shall not be interpreted as a tacit revocation of the
provisions hereto.
10. APPLICABLE LAW AND JURISDICTION
This Agreement shall be exclusively governed by and construed in accordance
with Luxembourg law.
Exclusive jurisdiction is given to the Courts of Luxembourg-City and any claims
arising under this Agreement must be submitted to the Courts of Luxembourg-City.
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IN WITNESS WHEREOF the Parties to this Agreement have caused this Agreement to
be duly executed and signed on the date first written above.
The Assignors
[AAA 1]
By: [***]
Capacity: [***]
[AAA 2]
By: [***]
Capacity: [***]
The Assignee
[BBB]
By: [***]
Capacity: [***]
The Assigned Debtor
[CCC] Sàrl
By: [***]
Capacity: [***]
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Schedule 1
Transferred Shareholder Loan Amounts
Assignee
Transferred
Shareholder Loan
Amounts from
Assignor 1
(EUR)
Transferred
Shareholder Loan
Amounts from
Assignor 2
(EUR)
Total
Shareholder Loan
Amounts
(EUR)
[BBB] [***] [***] [***]
TOTAL [***] [***] [***]
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Schedule 2
Funds’ Shareholder Loan Remaining Principal Amount(s)
FUNDS Shareholder Loan Remaining Principal
Amount(s)
EUR
Assignor 1 [***]
Assignor 2 [***]
Total [***]
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[Date]
RECEIVABLES PLEDGE AGREEMENT
BETWEEN
[AAA]
as the Pledgor
AND
[BBB]
as the Pledgee
IN PRESENCE OF
[CCC]
as the Pledged Third Party
Page 114 of 132
This Agreement is entered into on the date stated on the front page thereof and is made
BETWEEN
(1) [AAA], a Luxembourg société anonyme, having its registered office at [***],
registered within the Luxembourg trade register under number [***]
Hereinafter referred to as “[AAA]” and/or the “Pledgor”
AND
(2) [BBB], a company organized and registered under the laws of [***], registered
within the trade register of [***] under number [***]
Hereinafter referred to as “[BBB]” and/or the “Pledgee”
AND IN THE PRESENCE OF
(3) [CCC], a Luxembourg société anonyme, having its registered office at [***],
registered within the Luxembourg trade register under number [***]
Hereinafter referred to as the “[CCC]” and/or the “Pledged Third Party”
RECITALS:
(A) WHEREAS, [***];
(B) WHEREAS, pursuant to this Agreement, the Pledgor unconditionally agrees to
pledge, for the sole benefit of the Pledgee, ALL AND THE ENTIRETY OF the Pledged
Claims.
NOW THEREFORE, IN CONSIDERATION OF THE PREMISES AND THE MUTUAL
COVENANTS CONTAINED HEREIN, IT IS AGREED BY AND BETWEEN THE
PARTIES HERETO AS FOLLOWS:
1. DEFINITIONS AND INTERPRETATION
1.1. Definitions
In this agreement and the Recitals, the following words and expressions shall (unless the
context requires otherwise) have the following meanings:
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“Agreement” means this pledge agreement.
“Business Day” means a day, other than a Saturday or Sunday, on
which banks are open to the public in Luxembourg-
City, Paris and London.
“Enforcement Event” means an event of default committed by the Pledgor
under the [*** Agreement] in respect of its
obligations owed to the Pledgee where the Pledgor is
in default to pay to the Pledgee in respect of any
claims or loss payable pursuant to the [***
Agreement], including any such default due to or
under circumstances of any insolvency or similar
situation (moratorium, gestion contrôlée, etc.)
possibly incurred by the Pledgor.
“Information Notice of
Pledge”
means the information notice of pledge in the form
enclosed hereto as Schedule A.
“Law on Financial
Collateral
Arrangements”
means the Luxembourg law of 5 August 2005 on
financial collateral arrangements.
“Parties” means the parties to this Agreement, namely the
Pledgor and the Pledgee.
“Pledge” means the first priority continuing security interest
granted by the Pledgor to the Pledgee on the Pledged
Claims and created pursuant to Article 2 of this
Agreement.
“Pledged Claims” means all the present and future claims for money
due, or any other claim receivables regardless of the
nature thereof (including all principal payments,
interest payments, default interest, commissions,
expenses, costs, indemnities, fees and any other
amounts due thereunder), whether actual, future or
contingent, whether owed jointly or severally, and
whether subordinated or not, owed by the Pledged
Third Party to the Pledgor under the [***
Agreement], together with, to the largest extent
permitted by law, any accessory rights or actions,
including any such security interest or rights, under
whatever law, attaching to such claims or granted to
the Pledgor as security for such claims as well as all
substitutions and replacements thereof wherever
located, all attachments, accessions and additions
thereto, whether now owned or hereafter acquired,
together with any and all proceeds and products of
the foregoing.
“Security” means a mortgage, charge, pledge, lien or other
security interest or preferential arrangement of any
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kind securing any obligation of any person or legal
entity (including any promise, mandate, undertaking
or similar arrangement to create such security
interest in the future) or any other agreement,
arrangement or right arising by operation of law
having a similar effect
“Security Assets” means the Pledged Claims.
“Secured Obligations” means any and all present and future obligations,
liabilities and indebtedness of any nature of the
Pledgor, from time to time owing to the Pledgee
under or in connection with the [*** Agreement].
“Security Period” means the period beginning on the effective date of
the [*** Agreement] and ending on the date upon
which any and all Secured Obligations which have
arisen have been unconditionally and irrevocably
discharged in accordance with the terms and
conditions set forth in the [*** Agreement] and to
the full satisfaction of the Pledgee.
1.2. Construction
Unless a contrary indication appears, any reference in this Agreement to the
“Pledgor”, the “Pledgee” or the “Pledged Third Party” shall be construed so as
to include its successors in title, permitted assigns and permitted transferees.
Words denoting the singular shall include the plural and vice versa, words
denoting one gender shall include all other genders and words denoting persons
shall include firms and corporations and vice versa.
Any reference in this Agreement to any statutory provisions shall be construed as
a reference to the statutory provisions as the same may from time to time be
changed by any statutory modification or re-enactment thereof or any statutory
instrument, order or regulation made thereunder or under any such re-enactment.
References to any document or agreement shall be construed as a reference to
that document or agreement as the same may from time to time be amended,
modified, barred, supplemented or novated.
2. PLEDGE
2.1. Creation of the Pledge
As first priority continuing security for the full payment, discharge and
performance of the Secured Obligations as they fall due (whether at stated
maturity, by acceleration, by liquidation or otherwise), the Pledgor agrees to
pledge and hereby pledges to the Pledgee all of the Pledgor‟s title and interest in
the Pledged Claims and hereby grants to the Pledgee a first priority security
(gage) over such Pledged Claims.
The Pledgee accepts and acknowledges the Pledge.
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It is expressly agreed between the Parties that this Agreement is governed by and
is made in accordance with the Law on Financial Collateral Arrangements.
2.2. Perfection of the Pledge
For the perfection of the Pledge, the Pledgor undertakes at its own expense, to promptly
after the execution of this Agreement and in any event within any applicable time limit,
do any and all lawful acts, take any all lawful steps and whatever action necessary or
desirable, in respect of the perfection and of the establishment of the present Pledge,
according to any applicable law and especially the Law on Financial Collateral
Arrangements, and thus ensure that this Pledge is, and will continue to be, a validly
created and enforceable first priority pledge over the Pledged Claims.
The Pledgor further undertakes to reiterate at its own expense, promptly any formalities
and/or other lawful acts, steps and actions referred to in sub-clause 2.2.1. to preserve or
otherwise protect the priority of the Pledge granted by it pursuant to clause 2.1.
The Pledgor shall immediately upon fulfilment of such formalities send a copy of any
relevant documents thereof by fax and by registered letter to the Pledgee.
Without prejudice to the above provisions in sub-clauses 2.2.1. and 2.2.2., if the Pledgor
fails to do so, the Pledgee may notify this Pledge to such relevant persons to render the
Pledge valid and enforceable and it shall have specific mandate to carry out all formalities
necessary to render this Pledge valid and enforceable with respect to third parties
(opposabilité aux tiers). The Pledgor further irrevocably authorises and empowers the
Pledgee, and any of its successors, transferees or assigns or any nominee or agent
designated by the Pledgee or its successors, transferees or assigns, without notice to or
assent by the Pledgor, to act in its own name or in the name of the Pledgor, and on
behalf of the Pledgor, to do all lawful acts and take any lawful steps it deems necessary
or appropriate in respect of (i) the Pledge created hereby or otherwise and (ii) the
perfection of the present Pledge according to any applicable law, and the reasonable
expenses of the Pledgee incurred in connection therewith, shall be payable by the Pledgor
and shall be part of the Secured Obligations. To the extent permissible by law, the power
of attorney set out herein is irrevocable and shall be valid for as long as this Agreement
remains in force.
The Pledge created hereby shall not be affected in any way by any variation, extension,
waiver, compromise or release of any or all of the Secured Obligations or of any security
from time to time therefore. To the extent it can be avoided by any action of the Pledgor
or otherwise, the Pledge created herein shall not be affected by any change in the laws,
rules or regulations of any jurisdiction or by any present or future action of any
governmental authority or court.
2.3. Dispossession and opposability
In compliance with Article 5(3) of the Law on Financial Collateral Arrangements,
the Parties agree that (i) the dispossession of the Security Assets by the Pledged
Third Party, as debtor of the pledged Receivables and (ii) the opposability of this
Pledge to the Pledged Third Party are realized by the acceptance by the Pledged
Third Party of this Agreement.
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3. Restrictions and Further Assurances
3.1. Security
Except with the Pledgee„s prior written consent, the Pledgor shall at no time
create, permit or suffer to exist any other Security over the Pledged Claims.
3.2. Disposal
The Pledgor shall not, nor shall the Pledgor agree to, enter into a single
transaction or a series of transactions (whether related or not and whether
voluntary or involuntary) to sell, lease, transfer, assign, deliver or otherwise
dispose of the Pledged Claims.
3.3. Continuing Liability of the Pledgor
The Pledgor shall remain liable under the Retrocessional Agreement to observe
and perform all the conditions and obligations to be observed and performed
thereunder, all in accordance with and pursuant to the terms and provisions
thereof, and shall do nothing to impair this Pledge.
3.4. Further assurance
The Pledgor shall promptly do whatever the Pledgee requires:
- to perfect or protect the Pledge or the priority of the Pledge; or
- to facilitate the realisation of the Pledged Claims or the exercise of any
rights vested in the Pledgee,
including executing any transfer, charge, assignment or assurance of the Pledged
Claims (whether to the Pledgee or its nominees or otherwise), making any
registration and giving any notice, order or direction.
3.5. General undertaking
The Pledgor shall not do, or permit to be done, anything which could prejudice the
Pledge.
4. REPRESENTATIONS AND WARRANTIES
The Pledgor makes the following representations and warranties set out in this
Article to the Pledgee
4.1. Ownership of the Pledged Claims
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The Pledgor is the sole legal owner of, and has good and marketable title to the
Pledged Claims and has not otherwise disposed of or created any encumbrance or
interest (otherwise than pursuant to this Agreement) over any of the Pledged
Claims or any of its rights, title or benefits to or under the Pledged Claims and will
not do so if not previously approved in writing by the Pledgee.
4.2. Authority to pledge the Pledged Claims
The Pledgor has full power, authority and legal right to execute and deliver this
Agreement and to pledge all its Pledged Claims pursuant to this Agreement.
4.3. Validity and perfection of the Pledge
The Pledge creates a valid first priority security (gage) over the Pledged Claims
and the proceeds thereof in favour of the Pledgee in respect of all Secured
Obligations, subject to no prior encumbrance and to no prior agreement
purporting to grant to any third party an encumbrance on the property or assets
of the Pledgor that would include the Pledged Claims, without prejudice to
statutorily liens mandatory preferred by law.
The Pledgor undertakes to timely pay any debts potentially secured by statutory
liens mandatory preferred by law.
4.4. Place of principal management
It has its place of principal management and its center of main interests in
Luxembourg, in each case as such terms are defined in Council Regulation (EC) n°
1346/2000 of 29 May 2000 on insolvency proceedings or domestic Luxembourg
law.
4.5. Legality of Pledge
The Pledge pursuant to this Agreement is not contrary to any law or court order
applicable to the Pledgor and is not in breach of its constitutional documents or of
any agreement to which the Pledgor is a party.
4.6. Consents and authorisations
All necessary consents and authorisations for the execution of this Agreement
have been obtained by the Pledgor and are in full force and effect.
4.7. Repetition of representations and warranties
These representations and warranties shall be deemed repeated from time to time
as and when any property is added to the Pledged Claims.
5. RIGHTS of the PLEDGOR
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Until the occurrence of an Enforcement Event, the Parties hereto agree that any
payments permitted under the Retrocessional Agreement shall be distributed to
the Pledgor and not to the Pledgee.
Prior to the occurrence of an Enforcement Event the Pledgor will be entitled to
exercise the rights attached to the Receivables, provided that it shall not exercise
those rights in contravention of any term of the Reinsurance Agreement and the
Retrocessional Agreement or in any manner which could reasonably be regarded
to be in breach of the rights of the Pledgee.
After the occurrence of an Enforcement Event all payments permitted under the
Retrocessional Agreement with respect to the Receivables shall be distributed to
the Pledgee.
6. Enforcement
6.1. Realisation of the Pledge
Following the occurrence of an Enforcement Event, which shall be notified by the
Pledgee to the Pledged Third Party without the right for the Pledged Third Party to
challenge such declared Event of Default, the Pledgee shall be entitled, without
prior notice (mise en demeure), to enforce the Pledge in the most favourable
manner provided for by Luxembourg law, in particular pursuant to Article 11 (3),
second sentence, of the Law on Financial Collateral Arrangements, namely to
require direct payment to the Pledgee by the Pledged Third Party of the Pledged
Claims. The Pledgee shall have the right to request enforcement of the Pledge
over all or part of the Security Assets in its absolute discretion. No action, choice
or absence of action in this respect, or partial enforcement, shall in any manner
affect the pledge created hereunder over the Security Assets, as it then shall be.
The Pledge shall continue to remain in full and valid existence until full
enforcement, discharge or termination hereof, as the case may be.
All moneys received from time to time by the Pledgee shall, after an Enforcement
Event, be applied as follows:
(i) in the payment of all costs, charges, losses, liabilities and expenses of and
incidental to the enforcement and the exercise of the Pledgee‟s rights,
including all outgoings properly paid by the Pledgee and liabilities incurred by
the Pledgee as a result of such exercise;
(ii) in or towards discharge of the Secured Obligations in accordance with the
Reinsurance Agreement; and
(iii) in payment of any surplus to the Pledgor or other person entitled thereto.
The Pledgor shall indemnify the Pledgee and every attorney appointed pursuant
hereto in respect of all liabilities and reasonable expenses incurred by the
Pledgee, any such attorney, in the execution of any rights, powers or discretions
vested in the Pledgee or any such attorney pursuant hereto, save for liabilities and
expenses arising from the gross negligence or wilful misconduct of the Pledgee or
any such attorney.
The Pledgee shall not be liable for any losses arising in connection with the
exercise of any of its rights, powers or discretions hereunder save for liabilities
Page 121 of 132
and expenses arising from the gross negligence or wilful misconduct of the
Pledgee.
6.2. Limitation to realisation
The Security Agent shall realise the Pledged Claims only to the extent necessary
to recover the Secured Obligations that are due and owing. To the extent that,
notwithstanding the reasonable efforts of the Pledgee to comply with the
provisions of the first sentence of this paragraph, the cash proceeds received by
the Pledgee in respect of any realisation of all or any part of the Pledged Claims
exceed the amount of the Secured Obligations due and owing at that time, such
excess proceeds shall be held by the Pledgee (acting reasonably) as collateral for
the Secured Obligations that would become due in the future, if any.
7. LIABILITY OF PLEDGEE
The Pledgee shall not be liable to the Pledgor or any other person for any costs,
losses, liabilities or expenses relating to the realisation of any Pledged Claims or
from any act, default, omission or misconduct of the Pledgee or its officers,
employees or agents in relation to the Pledged Claims, except to the extent
caused by its or his own gross negligence or wilful misconduct.
For the avoidance of doubt, the Pledgee shall not be liable vis-à-vis the Pledgor for
any loss, mis-delivery or damage attributable to any third party.
8. PLEDGEE’s Rights
The Pledgee shall have (either in its own name or in the name of the Pledgor or
otherwise and in such manner and on such terms and conditions as the Pledgee
thinks fit, and either alone or jointly with any other person) the rights set out in
this Agreement and, generally, the right to do anything else it may think fit for the
protection and enforcement of the Pledged Claims.
9. Saving Provisions
9.1. Continuing Security
Subject to Clause 10 (Discharge of Pledge) of this Agreement, the Pledge is a
continuing security and will extend to the ultimate balance of the Secured
Obligations, regardless of any intermediate payment or discharge in whole or in
part. No change or amendment whatsoever in and to the Secured Obligations and
to any document related to the Secured Obligations shall affect the validity and
the scope of this Agreement.
9.2. Reinstatement
If any payment by the Pledgor or any discharge given by the Pledgee (whether in
respect of the obligations of the Pledgor or any security for those obligations or
otherwise) is voided or reduced as a result of insolvency or any similar event:
Page 122 of 132
(i) the liability of the Pledgor and the Pledge shall continue as if the
payment, discharge or reduction had not occurred; and
(ii) the Security Agent shall be entitled to recover the value or amount of
that security or payment from the Pledgor, as if the payment, discharge
or reduction had not occurred,
it being understood that the Pledgor shall promptly do whatever the Pledgee
requires for such purpose, without prejudice to the Pledgor‟s other obligations
under this Agreement.
9.3. Waiver of defences
Neither the obligations of the Pledgor under this Agreement nor the Pledge will be
affected by an act, omission, matter or thing which, but for this clause, would
reduce, release or prejudice any of its obligations under the Retrocessional
Agreement or the Pledge (without limitation and whether or not known to it),
including:
(i) any time, waiver or consent granted to, or composition with, the Pledgor
or other person;
(ii) the release of any other person under the terms of any composition or
arrangement with any creditor of any member of the group to which the
Pledgor belongs;
(iii) the taking, variation, compromise, exchange, renewal or release of, or
refusal or neglect to perfect, take up or enforce any rights against, or
security over assets of, the Pledgor or other person or any non-
presentation or non-observance of any formality or other requirement in
respect of any instrument or any failure to realise the full value of any
security;
(iv) any incapacity or lack of power, authority or legal personality of or
dissolution or change in the members or status of the Pledgor or any
other person; or
(v) any insolvency or similar proceedings.
9.4. Immediate recourse
The Pledgor waives any right it may have of first requiring the Pledgee to proceed
against or enforce any other rights or security or claim payment from any person
before claiming from that Pledgor under this Agreement. This waiver applies
irrespective of any law or any provision of the Reinsurance Agreement or the
Retrocessional Agreement to the contrary.
10. Discharge of Pledge
Subject to Clause 9.2. (Reinstatement) of this Agreement, if the Pledgee is
satisfied that all the Secured Obligations have been irrevocably paid in full and
that all facilities which might give rise to Secured Obligations have terminated, the
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Pledgee shall promptly at the request and cost of the Pledgor release and
discharge (as appropriate) the Pledged Claims from the Pledge.
11. Expenses
The Pledgor shall, within five (5) Business Days of demand, pay to the Pledgee the
amount of all costs, losses, liabilities and expenses (including legal fees) incurred
by the Pledgee in relation to this Agreement (including the administration,
protection, realisation, enforcement or preservation of any rights under or in
connection with this Agreement, or any consideration by the Pledgee as to
whether to realise or enforce the same, and/or any amendment, waiver, consent
or release of this Agreement and/or any other document referred to in this
Agreement).
12. Payments
12.1. Demands
Any demand for payment made by the Pledgee shall be valid and effective (but
only to the extent of any amount then due and payable) except in case of
manifest error.
12.2. Payments
All payments by the Pledgor under this Agreement (including damages for its
breach) shall be made to such account, with such financial institution and in such
other manner as the Pledgee may direct.
13. Waivers
None of the terms or provisions of this Agreement may be waived, altered,
modified or amended, except by an instrument in writing, duly executed by or on
behalf of the Pledgee and the Pledgor. This Agreement and all obligations of the
Pledgor hereunder shall be binding upon the successors and assigns of the
Pledgor, and shall, together with the rights and remedies of the Pledgee
hereunder, inure to the benefit of the Pledgee.
14. Assignment
The Pledgor may not assign or transfer all or any part of its rights or obligations
hereunder. The Security Agent and the Investors may assign all or any of their
respective rights hereunder. Any successor to or assignee of the Security Agent
and the Investors shall be entitled to the full benefits hereof.
15. Notices
All notices or other communications under or in connection with this Pledge
Agreement shall be given in writing, by fax or by registered letter. In case of
notices by fax, the transmission report shall constitute conclusive evidence of
receipt of the notification and of the contents of such notification.
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All notices from the Pledgee to the Pledgor shall be validly made to the last known
address of the Pledgor.
A notice given in accordance with the above but received on a day that is not a
Business Day or after business hours in the place of receipt will only be deemed to
be received on the next Business Day.
The addresses of each party to this Pledge Agreement (including the Pledged
Third Party for the needs of this clause) for all notices under or in connection with
this Pledge Agreement are:
In relation to the Pledgor:: [AAA]
Attn.: [***]
Address
:
[***]
Fax:
[***]
In relation to the Pledgee: [BBB]
Attn.: [***]
Address
:
[***]
Fax: [***]
In relation to the Pledged Third
Party:
[CCC]
Attn.: [***]
Address
:
[***]
Fax: [***]
or any other address or fax number notified by a party to this Pledge Agreement
for this purpose to the other parties to this Pledge Agreement by not less than five
Business Days‟ notice.
The notice periods mentioned in this Pledge Agreement start to run up from the
receipt of the notification.
16. INFORMATION NOTICE OF PLEDGE
Within five (5) Business days following the date of this Agreement, the Pledgor
undertakes to serve the Information Notice of Pledge, duly executed by an authorized
signatory of the Pledgor, to the Commissariat aux Assurances.
The Pledgor shall promptly give evidence to the Pledgee that the Information Notice
of Pledge has been addressed to the Commissariat aux Assurances and, upon receipt
Page 125 of 132
of the acknowledgement of receipt requested from the Commissariat aux Assurances,
the Pledgor shall promptly address a copy of such acknowledgement receipt to the
Pledgee.
17. Taxes and Stamp Duty
The Pledgor shall indemnify and keep indemnified the Pledgee against any and all
stamp, registration, VAT (Value Added Tax) and similar taxes or charges which may
be payable in connection with the entry into, performance or enforcement of this
Agreement.
18. Severability
Any provision in this Agreement that is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability, without invalidating the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
19. Counterparts
This Agreement may be executed in any number of counterparts, and this has the
same effect as if the signatures on the counterparts were on a single copy of this
Agreement.
20. Headings
The Clause headings used in this Agreement are for convenience of reference only
and shall not affect the construction of this Agreement.
21. Governing Law
This Agreement shall be governed by, and construed in accordance with the laws of
Luxembourg, including in particular the Law on financial collateral arrangements.
22. Jurisdiction Clause
The Parties hereby irrevocably submit to the exclusive jurisdiction of the courts of the
City of Exclusive jurisdiction is granted to the Courts of Luxembourg City (Grand
Duchy of Luxembourg) and any claims arising under this Agreement must be
submitted to the Courts of Luxembourg City.
This Pledge Agreement has been entered into on the date stated at the beginning of
this Pledge Agreement and has been duly executed in as many original counterparts
as there are parties hereto
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The Pledgor
The Pledgee
[AAA] [BBB]
By: By:
Capacity: Capacity:
By signing hereunder for acceptance, the Pledged Third Party acknowledges and
accepts the existence of this Pledge Agreement and the security interest created
hereunder over the Receivables for the purposes of Article 5(3) of the Luxembourg
law of 5th August 2005 on financial collateral arrangements (loi du 5 août 2005 sur les
garanties financières), takes notice of the terms thereof, and undertakes to do any
actions necessary or useful so as to give full effect to this Agreement.
The Pledged Third Party
[CCC]
By:
Capacity:
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Schedule A. INFORMATION Notice of Pledge
To: Commissariat aux Assurances
Attn. [***]
[***] LUXEMBOURG
Luxembourg, on [date]
Dear Sirs,
In our capacity as a Luxembourg corporation subject to the supervision of the
Commissariat aux Assurances, we are pleased to inform you that pursuant to a pledge
agreement attached dated [date] (the “Pledge Agreement”), we have pledged the
Receivables (as defined in the Pledge Agreement) owed or to be owed to the Pledgor (as
defined in the Pledge Agreement) by the Pledged Third Party (as defined in the Pledge
Agreement) in favour of [BBB], acting for and on behalf of [BBB], as Pledgee for the
payment of the Secured Obligations.
This notice is addressed to the Commissariat aux Assurances for information purposes
pursuant to Article 5 of the Pledge Agreement.
All capitalized terms in this Notice have the meaning given to them in the Pledge
Agreement.
We hereby kindly request you to acknowledge receipt of this Notice of Pledge by
addressing us in return a copy (by email attachment, fax or courier to the address below)
of this Notice of Pledge duly filled with the handwritten word “Acknowledged”, together
with the signature of an authorized signatory of the Commissariat aux Assurances:
We, Commissariat aux Assurances, hereby acknowledge
receipt of this Notice of Pledge:
To: [AAA]
Attn.: [***]
Address [***]
Fax [***]
Email address [***]
We thank you in advance for your kind cooperation.
Yours truly,
[AAA]
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[Date]
GUARANTEE ON FIRST DEMAND
BETWEEN
[AAA]
as the Guarantor
AND
[BBB]
as the Guarantee Beneficiary
IN PRESENCE OF
[CCC]
as the Guaranteed Third Party
Page 130 of 132
This agreement is entered into on the date stated on the front page hereof and is made
BETWEEN
(4) [AAA], a Luxembourg société anonyme, having its registered office at [***],
registered within the Luxembourg trade register under number [***]
Hereinafter referred to as “[AAA]” or the “Guarantor”
AND
(5) [BBB], a company organized and registered under the laws of [***], registered
within the trade register of [***] under number [***]
Hereinafter referred to as “[BBB]” or the “Beneficiary”
AND IN THE PRESENCE OF
(6) [CCC], a Luxembourg société anonyme, having its registered office at [***],
registered within the Luxembourg trade register under number [***],
Hereinafter referred to as “[CCC]” or the “Guaranteed Third Party”
RECITALS:
(A) WHEREAS, pursuant to [***];
(B) WHEREAS, [BBB] wishes to be provided with a guarantee for the debt held
against [CCC] under the [***] Agreement;
(C) WHEREAS, [AAA] intends to provide this guarantee to [BBB] pursuant to this
Agreement.
NOW THEREFORE, IN CONSIDERATION OF THE PREMISES AND THE MUTUAL
COVENANTS CONTAINED HEREIN, IT IS AGREED BY AND BETWEEN THE
PARTIES HERETO AS FOLLOWS:
4. DEFINITIONS AND INTERPRETATION
In this agreement and the Recitals, the following words and expressions shall (unless the
context requires otherwise) have the following meanings:
“Agreement” means this agreement
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“Guarantee” means the guarantee on first demand created by this
Agreement
GUARANTEE
This Guarantee is a personal, unconditional and irrevocable commitment of the
Guarantor to the sole benefit of the Beneficiary, pursuant to which the Guarantor
hereby guaranties the obligations borne by [CCC] vis-à-vis [BBB] under the [***]
Agreement, in the event of a default of payment committed by [CCC].
This Guarantee is fully autonomous and independent from the [***] Agreement. In
this respect, the Guarantee shall remain effective notwithstanding any claim that
may be brought by [CCC] and/or [AAA] in respect of the application, validity or
otherwise of the [***] Agreement.
GUARANTEE PERIOD
This Guarantee becomes effective on the effective date of the [***] Agreement and
shall end on the date upon which any and all obligations owed by [CCC] vis-à-vis
[BBB] which have arisen have been unconditionally and irrevocably discharged in
accordance with the terms and conditions set forth in the [***] Agreement. For the
release of this Guarantee, the full discharge of any payment due under the [***]
Agreement shall be confirmed by the Beneficiary to the Guarantor, such
confirmation not to be unreasonably withheld by the Beneficiary upon termination of
the [***] Agreement.
LIMITATIONS
With respect to the scope of this Guarantee, it is expressly agreed that the
Guarantor shall not be required to pay to the Beneficiary amounts exceeding its total
financial commitment under the [***] Agreement. However, in any case, this
limitation shall not be construed as implying the right for the Guarantor to raise any
other direct or indirect defences or exceptions whatsoever in relation to the [***]
Reinsurance Agreement.
5. PROCEDURE
The Beneficiary shall invoke this Guarantee by notifying the Guarantor stating that
the Guaranteed Third Party is in default of its contractual obligations vis-à-vis the
Beneficiary, specifying the amount claimed. The notice to the Guarantor shall be
sent by way of registered letter to:
Addressee: [AAA]
Attn.: [***]
Address [***]
In the event of a change of address of the Guarantor, the Guarantor is required to
promptly notify the Beneficiary of such change.
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6. Governing law and jurisdiction
This Guarantee is governed exclusively by Luxembourg law. It is expressly agreed
that this guarantee on first demand is not a collateral guarantee (cautionnement) in
the meaning of Articles 2011 sq. of the Luxembourg Civil Code.
Exclusive jurisdiction is granted to the Courts of Luxembourg City (Grand Duchy of
Luxembourg) and any claims arising under this Agreement must be submitted to the
Courts of Luxembourg City.
This Agreement has been entered into on the date stated at the beginning of this
Agreement.
The Guarantor
The Beneficiary
[AAA] [BBB]
By: By:
Capacity: Capacity:
By signing hereunder for acknowledgement purposes, the Guaranteed Third Party
acknowledges the existence of this Agreement and the Guarantee created hereunder,
takes note of the terms thereof, and undertakes not to do any actions which would
have as effect to detriment the full effectiveness of this Agreement
The Guaranteeed Third Party
[CCC]
By:
Capacity: