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Background
On 8 June 2026, the Luxembourg government approved and authorised the filing with the Chambre des Députés of the bill of law No. 8761 amending the amended law of 22 March 2004 on securitisation (the Securitisation Law) (the Bill of Law). The government decision also requested the opinion of the Conseil d’État. The explanatory statement presents the initiative as a set of targeted amendments designed to further modernise the Luxembourg securitisation framework, enhance competitiveness and provide greater legal certainty whilst preserving investor protection.
The Bill of Law builds on Luxembourg’s recent securitisation reforms and, in several areas, revisits provisions that were already amended in 2022 in order to reflect how market practice has evolved since then. As described in the explanatory materials, the proposed changes focus in particular on financing methods, collective proceedings, active management of securitised risk portfolios, compartment-to-compartment investments, guarantees and security interests, and statutory subordination.
Key amendments
- Broader financing options and stronger insolvency protections
A first key amendment concerns the financing toolbox available to securitisation vehicles (the “SV”). Article 1 would broaden the statutory wording by adding references to “financing” (financement) and “other financial commitments” (autres engagements financiers) alongside traditional borrowings and issuances of financial instruments. According to the article-by-article commentary, this change is intended to respond to market demand for structures that do not fit neatly within conventional loan or securities concepts, including in segments such as Islamic finance. At the same time, the text preserves a clear distinction for public offerings by specifying that issuances offered to the public may only be financed through the issuance of financial instruments.
The Bill of Law also intends to reinforce bankruptcy remoteness at the securitisation fund level. More specifically, a new sentence would be added to Article 17 to clarify that, if a securitisation fund’s management company becomes bankrupt, the assets of the securitisation fund it manages do not form part of the management company’s insolvency estate, and the management company’s creditors would have no recourse to the assets of the securitisation fund. This provision is inspired by similar protections under Luxembourg investment fund legislation, notably Article 101(5) of the amended law of 17 December 2010 on undertakings for collective investment. In parallel, Articles 18 and 61 would be updated so that the Securitisation Law aligns with Luxembourg’s more recent insolvency frameworks, replacing outdated references such as concordat (concordat) and controlled management (gestion contrôlée) with newer procedures such as judicial reorganisation (réorganisation judiciaire), amicable reorganisation (réorganisation par accord amiable) and administrative dissolution without liquidation (dissolution administrative sans liquidation).
- Compartment investments and wider security package flexibility
The Bill of Law also introduces a new Article 59-1 allowing one compartment of an SV to invest directly or indirectly in one or more other compartments of the same vehicle, provided the constitutional documents, management regulations and issuance documents permit it. Such intra-vehicle compartment investment would be subject to an anti-circularity rule: a compartment may not invest in another compartment that already has an existing investment in the first compartment. Where the inter-compartment investment is made through debt-type instruments (i.e. instruments other than units of securitisation funds, shares, membership interests, profit-sharing interests or beneficiary parts), the investing compartment would retain creditor rights, including voting rights and rights to financial proceeds, and the Bill of Law expressly disapplies Article 1300 of the Civil Code (the confusion rules) to those operations.
The Bill of Law also rewrites Article 61(3) to clarify when an SVmay grant guarantees or security over its assets. Under the proposed wording, an SV could do so in the following cases: (i) to cover its own obligations; (ii) to secure obligations of a third party that are directly or indirectly linked to the securitisation transaction; or (iii) to secure third-party obligations arising in connection with a direct or indirect investment in the transaction. This represents a meaningful extension of structuring flexibility and, as the commentary makes clear, is intended to accompany the financing arrangements made possible by the 2022 reform.
- Active management: broader scope, but clearer boundaries
One of the most closely watched changes concerns active management. Article 61-1 is recast so that the restriction is no longer limited to baskets composed of debt claims, debt instruments or receivables (titres de créance, instruments financiers de dette ou créances), but instead applies more generally to any basket of risks, meaning that actively managed structures may also accommodate equity positions. The Bill of Law confirms that an SV may securitise an actively managed basket of risks only where the instruments issued to finance that basket are not offered to the public, which the commentary says is intended to confine that possibility to professional or sophisticated investors rather than retail distribution.
The Bill of Law also specifies that certain portfolio operations would not count as “active management”: (i) replacing defaulted or at-risk assets; (ii) replacing assets that no longer meet eligibility criteria defined by the management regulations or issuance contract; (iii) replacing assets that do not conform to representations or warranties provided by the assignor (i.e. correcting breaches of representations and warranties); (iv) building the initial portfolio within limits, provided this phase does not exceed one third of the total duration of the securitisation transaction; (v) adding assets in the context of continuous issuances; (vi) replacing matured or prepaid assets; and (vii) making marginal portfolio adjustments to composition, asset allocation, risk exposure or investment duration. The overall approach recognises the practical reality, expressly noted in the commentary, that even passively managed securitised portfolios cannot remain entirely static throughout the life of a transaction.
- Subordination rules refined
Finally, the Bill of Law would refine the statutory subordination rules under Article 64 so that debt instruments with a non-fixed return (rendement non-fixe) are subordinated both to fixed-rate debt and to debt bearing interest based on a reference rate plus a margin (for example, Euribor plus a fixed spread), while those latter two categories rank equally with each other (pari passu) because their remuneration is determined or determinable independently of the residual performance of the SV’s assets. At the same time, the coordinated text continues to state that the constitutional documents and contracts may provide for a different ranking arrangement, thereby preserving contractual flexibility alongside the statutory rule set.
What’s next?
The Bill of Law has now entered the Luxembourg legislative process. If enacted in its current form, the reform would further strengthen Luxembourg’s position as a flexible securitisation jurisdiction by addressing a number of practical structuring questions that market participants have encountered since the 2022 reform.
For sponsors, arrangers and investors, the main points to watch will be the broader financing concept, the express permission for intra-vehicle compartment investments, the widened guarantee and security package rules, the recast active management provision with its enumerated carve-outs, and the refined subordination framework.
If you have any questions related to this topic, feel free to reach out to our Capital Markets experts Aurélien Hollard, José Ocaña, Stamatina Stylianopoulou, or Michel Btechs.
