The opening of the JRP was approved by the Court following the filing made on 2 November 2023 by the debtor, a Luxembourg limited liability company (SARL) operating as a holding company (the Company).
During the Court hearing, the Company’s representative emphasised that despite its financial difficulties the Company is expecting to receive sufficient funds to repay all of its debt from real estate construction projects that its subsidiaries are engaged in.
After having been assigned into bankruptcy by a creditor (without the bankruptcy proceedings having been opened due to the decision of the Court to reject the bankruptcy petition), the Company requested the Court, on the basis of articles 12 and following of the New Insolvency Law (i) to open a JRP with the aim of achieving an amicable agreement with its creditor(s), (ii) to grant a four-month stay to facilitate achieving such an amicable agreement and (iii) to appoint an insolvency practitioner (mandataire de justice) to assist it in achieving the aims of the JRP.
The public prosecutor opposed the opening of the JRP on the basis of, and arguing, serious and aggravated misconduct (faits graves et caractérisés) committed by the sole manager of the Company which jeopardised the continuity of the Company and potentially constituted criminal offenses. In support of his position, the public prosecutor invoked the non-publication of annual accounts within the legal deadlines, an outstanding shareholder loan (compte courant d’associé débiteur) and the payment of substantial dividends by the Company.
The Court decision
The Court considered the requirements of the New Insolvency Law met with respect to the opening of the JRP despite the public prosecutor’s statements.
We summarise below the following important legal and factual considerations made by the Court, which shed some light to the application of the respective provisions of the New Insolvency Law:
- The Company was in default on providing the full list of creditors, which under article 13 of the New Insolvency Law has to be provided to the Court not later than two days prior to the hearing opening the JRP (unless detailed reasons are provided for such omission).
- The opening of the JRP is not conditional on the Company’s good faith so long that the conditions set out in article 19 of the New Insolvency Law have been satisfied, and in particular that the Company’s continuity is threatened in the short-term or the long-term.
- The Court reiterates that the Company’s state of bankruptcy does not prevent the opening or continuation of JRP without considering the merits of the creditor’s bankruptcy application. As it was not relevant to the case at hand, it remains an open question whether Article 19 of the New Insolvency Law (which refers to the “state of bankruptcy” (état de faillite)) could be read so as to allow the initiation of JRP despite bankruptcy proceedings having previously been opened.
- The duration of the stay is determined by balancing the need to protect the Company with the rights of its creditors.
- The following factors were cumulatively considered by the Court as significant factors in deciding to appoint a provisional administrator (administrateur provisoire) in replacement of the sole manager of the Company for the period of the stay (which was requested by the public prosecutor):
- the absence of publication of annual accounts within the legal deadlines; and
- the granting of substantial dividends despite the existence of certain indebtedness outstanding.
On the basis of the above, the Court decided, inter alia:
- to open the JRP and set the duration of stay at three months (despite the request by the Company for a four-month stay);
- in line with the request of public prosecutor, to appoint a provisional administrator (administrateur provisoire), replacing the sole manager of the Company in light of the established serious and aggravated faults (fautes graves et caractérisées); and
- in line with the request of the Company, to appoint the same person as insolvency practitioner (mandataire de justice).
To some extent, the first decision opening JRP in Luxembourg provides limited guidance on the interpretation of certain important measures and provisions of the New Insolvency Law. However, various questions (such as the interlink between JRP and bankruptcy proceeding mentioned above) remain outstanding.
As case law continues to develop, both with respect to decisions opening JRP and decisions on the merits of JRP, our understanding of the practical implementation of the various tools of the New Insolvency Law will also progress.