Private placement rules and law in Luxembourg

Given that there is no specific definition of private placement under Luxembourg law, the legal framework related to the distribution of shares/units or interests in a fund (all together the fund shares) within the territory of Luxembourg is to be found in the combined provisions of the law of 16 July 2019 on prospectuses for securities(the “Prospectus Law”), the law of 17 December 2010 on undertakings for collective investment, as amended (the “UCITS Law”), the law of 12 July 2013 on alternative investment fund managers (the “AIFM Law”), the law of 15 June 2004 relating to the investment company in risk capital, as amended (the “SICAR Law”), the law of 23 July 2016 on reserved alternative investment funds (the “RAIF Law”), the law of 13 February 2007 on specialised investment funds, as amended (the “SIF Law”) and the law of 5 April 1993 on the financial sector, as amended (transposing the so-called MIFID provisions into national law) (the “LFS”). 

A distinction is made between closed-ended and open-ended type funds. This distinction is key to understanding the scope of the Prospectus Law which may overlap with some other specific provisions. The Prospectus Law does not apply to funds other than those of a closed-end type.

The Prospectus Law requires the prior publication of a prospectus (the content of which must be in line with the relevant provisions of the Prospectus Law) when an offer of securities (save for the funds outside the scope) is made within the territory of Luxembourg unless one of the exemptions set forth by said law applies, e.g. when:

1. the offer is addressed solely to qualified investors;
2. the offer is addressed to fewer than 150 natural or legal persons per Member State, other than qualified investors;
3. the offer is addressed to investors who acquire securities for at least EUR 100,000 for each separate offer;
4. the offer of securities whose denomination per unit amounts to at least EUR 100,000.

Another important criterion is the legal and regulatory status of the fund and whether it qualifies as an undertaking for collective investment in transferable securities (“UCITS”) or as an alternative investment fund (“AIF”). If an AIF, further distinctions will need to be made depending on whether the AIF is a Luxembourg AIF governed by a specific product law (such as the RAIF Law, SIF Law or the SICAR Law), whether it is a regulated or an unregulated vehicle, and whether its shares are offered to professional / well-informed investors or to retail investors. Depending on the applicable regulatory status of the fund, specific marketing rules will apply.

The implementation of the AIFMD into Luxembourg legislation has not resulted in an end to the traditional private placement regime. The two regimes therefore co-exist, the marketing passport under the AIFM Law and the private placement regime of AIFs in the Luxembourg territory by a third-country manager.

The Luxembourg regulator of the financial sector (“CSSF”) gave some guidance as to when an offering of securities could be considered as not being made to the public (and hence be within the traditional private placement regime):

1. whether the offer is made to (i) EU professional investors/clients (as defined under Annex II of Directive 2014 / 65 / EU (MiFID));
2. whether the securities have a high nominal amount (equivalent or in excess of EUR 125,000);
3. whether the offer is made to a small circle of persons (the CSSF will consider cases on an individual basis, there is no maximum number of investors to fulfil the criteria);
4. the form of the offer e.g., targeting existing customers, high sales amount, no advertisement;
5. the use of a “wrapper” that is initially offered on a private placement basis but ultimately offered to the public does not benefit from the private placement regime.

However, the CSSF requires to be informed in advance of the marketing of any AIF by non-EU alternative investment fund managers (“AIFM”) within Luxembourg territory. The CSSF has set out the steps to be followed for such notification procedure for marketing either EU or non-EU AIFs managed by a non-EU AIFM. While there is no statutory time-limit for the administrative procedure with the CSSF, the marketing of the AIFs can start from the date of the notification. The non-EU AIFM is subject to certain reporting obligations to the CSSF, publication of an annual report and compliance with the Consumer Code. 

The CSSF specifies that reverse solicitation, contrary to marketing, is providing information in respect of an AIF and enabling a potential investor to subscribe to the fund’s securities (i) on its (or its agent’s) own initiative and (ii) without any solicitation by the AIF or AIFM (or its intermediary). Also, certain activities are excluded by the CSSF from marketing, such as (i) investments in AIFs via a discretionary mandate to manage individual portfolios (instigated by the investment manager), (ii) proposals to invest in an AIF via an investment advisory agreement (instigated by the adviser) or (iii) investments in AIFs via collective portfolio management of an AIF (instigated by such AIF/ AIFM or portfolio manager). Reverse solicitation is only available to professional investors and cannot be used as a placement strategy.

1. Contractual consequences may apply: payment of damages under contractual law (i.e. Article 1147 of the Civil code).
2. Regulatory and other sanctions may also apply: caution, official warning, penalty, ban on operations or activities, professional ban on the directors / managers of the entities supervised by the CSSF.

The following non-fund investments are subject to private placement opportunities outside fund regulation:

a. Securities (i.e. shares, units, bonds, notes, warrants, certificates etc. issued by ordinary companies, holding companies, securitisation companies etc.)

The following types of non-funds are subject to private placement provisions: 

b. Securitisation vehicles;

c. Holdings / Soparfi.

The following types of investors are within the scope of private placement exemptions:

d. Professional investors (as defined in MiFID); and

e. Retail investors.