Corporate Legal Updates 2023

Mobility of companies: Cross-border conversions, mergers and divisions

On 27 July 2022, bill of law n°8053 was filed with the Luxembourg Parliament with the aim of implementing into national law Directive (EU) 2019/2121 of the European Parliament and the Council of 27 November 2019 amending Directive (EU) 2017/1132 relating to cross-border conversions, mergers and divisions. 

The bill intends to amend the merger process through the rectifications of imperfections in the existing legal framework (including but not only in respect to the scrutiny of the legality of a cross-border operation and to the protection of creditors and employees …).
It also introduces a procedure for cross-border conversions and cross-border divisions (both inspired by the cross-border merger procedure).
The official transposition deadline as provided in the Directive was 31 January 2023. The Luxembourg legal process for adopting the bill is still at an early stage - changes to the draft bill may still occur

Bill of law 8007 – amendments to the law of 10 August 1915 on commercial companies 

The law of 10 August 1915 on commercial companies, as amended (the “1915 Law”) was the subject of a major reform completed by the adoption of the law of 10 August 2016 (the "2016 Law").

Bill of law n°8007 intends to address certain errors, inconsistencies, or uncertainties of the 2016 Law without making substantial modifications to the 1915 Law. It provides welcome changes and clarifications to certain innovations resulting from the 2016 Law (waiver of voting rights …).

The bill was filed with the Parliament in May 2022 and has not yet been adopted.

Draft bill implementing a national screening mechanism for foreign direct investments (FDI)

Currently, no prior approval is required when foreign investors invest in Luxembourg. 

However, because of the potential risks that certain investments in sensitive industries could cause to national security, the Minister of Foreign Affairs filed in 2021 a bill of law, aimed at setting up a national screening mechanism for FDI. 

The bill envisages a screening mechanism based on a prior notification obligation and pre-evaluation procedure for certain FDI that may affect national security or public order made by a foreign investor (i.e., from a non-EU or EEA country) in a Luxembourg entity, conducting activities in a critical sector on Luxembourg territory, such as energy, transport, water, health, telecoms, data processing and storage, space, defence, media and certain financial activities.

Bill of law modernising the Luxembourg bankruptcy law

Luxembourg insolvency regime is subject to a significant ongoing reform. The Luxembourg Parliament is discussing bill of law n°6539A on business preservation and the modernisation of bankruptcy law. The bill provides for a legal framework that gives priority to the preservation and/or reorganisation of a debtor’s business as opposed to its liquidation. 

Additional changes were incorporated to the bill in order to transpose Directive (EU) 2019/1023 on preventive restructuring frameworks.

Reform of the right of establishment in Luxembourg: what to expect?

On 8 April 2022, the Minister of Middle Classes submitted draft bill n°7989 amending the law dated 2 September 2011 regulating access to the professions of craftsman, trader, manufacturer and certain liberal professions. The reform aims to modernize the right of establishment in order to create a modern legal framework that will stimulate entrepreneurship.

The key proposals to achieve this objective are:

• Principle of second chance after bankruptcy: The right to start a business a second time with a new business license following bankruptcy due to misfortune (e.g., loss of a prominent client, illness, pandemic) or mismanagement (e.g., mistake in the  strategic choices) is facilitated. 
• Simplification of the requirements relating to the holder of the business license: It would no longer be necessary for the holder of the license to be a partner, shareholder or employee of the company. He should have a real link with the enterprise by (i) being the owner of the business if he carries out his activity in his own name or (ii) being registered with the Luxembourg Trade and Companies Register as representative if the enterprise is operated as a company. It is also clarified that the holder of the license may reside anywhere in the European Economic Area provided that he can demonstrate a regular presence in the establishment in Luxembourg.
• Enhanced protection of any new director taking over the business following a previous malicious director who concealed the financial situation of the company in order to avoid any responsibility for the payment of public debts.

Merger Control

Luxembourg is currently the only EU member state without prior merger control, but this could change soon.

On 20 January 2022, the Ministry of Economy initiated a public consultation on the potential introduction of a merger control regime in Luxembourg. On 13 July 2022, the Ministry of Economy presented an intermediary report on the public consultation. 

The report provides the outlines of a future national legal framework, with a view to submitting a bill of law to the parliament in spring 2023.

Green light to Corporate Sustainability Reporting Directive

The directive as regards corporate sustainability reporting (CSRD) of 14 December 2022 was published on 16 December 2022 in the Official Journal of the European Union. Large companies and listed SME will soon be required to publish detailed information on sustainability matters, such as environmental rights, social rights, human rights and governance factors.

The CSRD will strengthen the existing rules on non-financial reporting introduced by the non-financial reporting directive and will significantly increase the number of companies subject to sustainability reporting.

The application of CSRD will take place in four stages from 2025 to 2029. Member states will have 18 months to transpose the CSRD into national law after its entry into force.