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18 March 2021 / article

One month to file for bankruptcy - when does it start?

Considering that both criminal and civil sanctions apply to the board of directors or managers of a Luxembourg commercial company for failure to declare bankruptcy in proper time, it is essential to determine exactly when the requirements for bankruptcy are met.

Lux bankruptcy article - coins, graphs and magnifying glass

This question is of particular importance considering further that the provisions of the Luxembourg Commercial Code may seem confusing when read literally and in isolation as to whether the period commences from the date of cessation of payments (cessation des paiements) alone, or the date of both the cessation of payments (cessation des paiements) and loss of creditworthiness (ébranlement du crédit) (i.e., the cumulative criteria for bankruptcy).

As a company may be in cessation of payments by missing any single payment, but may still be in a state of creditworthiness where it is negotiating with its creditors for financing to remedy its financial position, it is crucial to understand (1) the criteria for bankruptcy and their interpretation, (2) the effect of the determination of cessation of payments, and (3) the impact of continued creditworthiness when determining the cessation of payments.

In conclusion, it is the view of the authors that the provisions of article 440 of the Luxembourg Commercial Code (being the commencement of the one-month period for declaring bankruptcy from the date of cessation of payments), must not be read restrictively and in isolation but should be read in conjunction with article 437 of the Luxembourg Commercial Code (being the cumulative test for bankruptcy). This means the cessation of payments for the sake of calculating the one-month period for declaration of bankruptcy (subject to criminal sanction) can only occur once a company has lost its creditworthiness and does not occur on missing a payment or series of payments alone.

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