Restructuring & Insolvency Q&A: cross-border / groups
The restructuring & insolvency Q&A series provides a comprehensive overview of some of the key points of law and practice of the regulatory environment in Luxembourg. Today's chapter focuses on cross-border / groups.
Can foreign debtors avail of the restructuring and insolvency regime in your jurisdiction?
Luxembourg courts generally hold that courts in the jurisdiction of the principal establishment of a company (outside the scope of the EU Insolvency Regulation, for which the centre of main interest is the criterion on which the insolvency court’s jurisdiction is based) have jurisdiction to decide on matters of insolvency regarding that company. In Luxembourg, there is no recognition of jurisdiction based on the location of a company’s assets or any other connection with another jurisdiction. As per the EU Insolvency Regulation, a foreign debtor whose centre of main interest is located in Luxembourg may enter into restructuring or bankruptcy proceedings in Luxembourg.
Under what conditions will the courts in your jurisdiction recognise and/or give effect to foreign insolvency or restructuring proceedings or otherwise grant assistance in the context of such proceedings?
Insolvency proceedings that fall within the scope of the EU Insolvency Regulation will be automatically recognised and enforced in Luxembourg without further review of the substantive matters adjudicated thereby or re-examination of the merits of the case. However, save for cooperation duties in the context of European insolvency proceedings, there is no duty for the commercial court or the appointed receiver to cooperate or consult with foreign courts and officers in case of cross-border insolvency proceedings. In practice, however, Luxembourg insolvency practitioners and courts are usually constructive and communicate well with foreign courts and professionals in a cross-border context.
Luxembourg private international law recognises the principle of universality and unicity of insolvency proceedings. Luxembourg courts therefore often do recognise foreign insolvency proceedings. Recognition will be granted without the need for any further orders of enforcement of the award if the foreign proceedings do not conflict with any domestic proceedings and the following conditions are met:
- a judgment by a competent court;
- observation of due process;
- application of the appropriate Luxembourg conflict of law rules by the foreign court;
- a judgment that does not contravene Luxembourg public policy; and
- the extraterritorial scope of the foreign insolvency law.
Furthermore, Luxembourg courts generally hold that the courts at the location of the principal establishment of the company have jurisdiction to decide on matters of insolvency regarding that company.
Luxembourg case law generally states that there can only be one single insolvency proceeding; however, under the EU Insolvency Regulation, secondary proceedings can be opened in any member state.
What are the effects of the commencement of insolvency proceedings, both for the debtor and for creditors?
The debtor loses control over the proceedings, as its directors/managers are removed and a bankruptcy receiver is appointed by the court to manage the bankruptcy estate on the opening of bankruptcy proceedings. Likewise, the creditors have no control or influence over the proceedings following the appointment of the receiver, or over the receiver’s actions. The receiver may or may not consult the creditors or shareholders as part of the liquidation; it has very extensive powers in deciding how to best conduct the liquidation. There is no credit bidding or similar procedure under Luxembourg law and there is no obligation to conduct public auctions or similar.
The receiver, who effectively takes control of the debtor, does so under the supervision of a supervisory judge and in practice will often seek the judge’s authorisation before divesting any assets, contracting loans or similar. It is difficult for creditors or any third parties to challenge such decisions.
To what extent will the courts cooperate with their counterparts in other jurisdictions in the case of cross-border insolvency or restructuring proceedings?
The commercial court or the receiver has no obligations to coordinate or work together with foreign courts or officers, other than those under the EU Insolvency Regulation. In practice, however, Luxembourg insolvency practitioners and courts are usually constructive and communicate well with foreign courts and professionals in a cross-border context.
How are corporate groups treated in the context of restructuring and insolvency proceedings? If there is no concept of a group proceeding (or consolidation), is there any regime through which insolvency officeholders must / may cooperate?
Luxembourg generally does not recognise the concept of a corporate group for purposes of insolvency proceedings and treats each company as a separate legal entity distinct from its parent and subsidiaries. Therefore, a debtor can be put into bankruptcy or become insolvent without necessarily affecting any of its affiliates. In practice, however, there will often be some form of cooperation between the receiver appointed in Luxembourg and any foreign insolvency officers appointed for other group companies.
In exceptional circumstances, the corporate veil may be pierced by a Luxembourg court where the managers/directors or shareholders disregarded the separate legal personality of the company; in such case the court may disregard the individual legal personality of such company in order to sanction the shareholders or managers/directors at fault.
How is the debtor’s centre of main interests determined in your jurisdiction?
Luxembourg courts apply the EU Insolvency Regulation’s presumption that the centre of main interest of a debtor corresponds to its registered office (as well as any rebuttals under the regulation), and will apply the factual criteria specified therein.
What is the process for filing claims in the insolvency proceedings?
Once bankruptcy proceedings have commenced, any individual legal actions against the debtor – whether initiated by secured or unsecured creditors – are suspended and the creditors must file proof of claim with the court. That said, ‘bankruptcy proof’ secured creditors (eg, pledgees under the Collateral Law and/or mortgagees) are not affected by the bankruptcy filing, and may act freely in relation to their security/mortgage and take any enforcement action irrespective of the bankruptcy proceedings.
How are foreign creditors treated in restructuring and insolvency proceedings in your jurisdiction?
No distinction is made in Luxembourg restructuring and insolvency proceedings between domestic and foreign creditors. However, it is unclear whether super-privileged creditor status will extend to a foreign equivalent.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
First published in Mondaq
Anne-Marie NicolasPartner Attorney at Law / Avocat à la Cour
Anne-Marie Nicolas, partner, is a member of the Banking & Finance Practice Group in our Luxembourg office. She co-heads the Luxembourg Restructuring Team. Anne-Marie focuses on secured lending, including acquisition finance and real estate finance, as well as debt restructuring.T: +352 466 230 314 E: email@example.com
Richard SteichenAssociate Attorney at law
Richard Steichen, associate, is a member of the Banking & Finance Practice Group in our Luxembourg office and a member of the Restructuring Team. He focuses on secured lending and financial restructurings.T: +352 466 230 492 E: firstname.lastname@example.org