New Luxembourg law on creation of procedure for administrative dissolution without liquidation

Scope - an effective and cost-reducing tool to remove shell companies

On 4 November 2022, the law relating to the introduction of a new procedure of administrative dissolution without liquidation (Administrative Dissolution) was published in the Official Gazette of the Grand Duchy of Luxembourg (Law). In addition to the Administrative Dissolution, the Law has also introduced a new register of insolvency (Registre de l’insolvabilité - REGINSOL) which will allow direct verification of the filing of bankruptcy and related procedures (including those introduced by the Law) with the Luxembourg Trade and Companies Register (Registre de commerce et des sociétés, Luxembourg - RCS) against Luxembourg commercial companies. 

The rationale for the introduction of the Administrative Dissolution was to reduce the costs (most of which are paid by the Luxembourg state) for the liquidation of empty shell companies, simplify the overall process of liquidation and reduce the administrative burden for Luxembourg courts.

Conditions and exclusions 

The Administrative Dissolution is initiated upon the request of the public prosecutor provided that three cumulative conditions are met: 

• "standard" (ie not subject to a regulatory supervision) Luxembourg commercial companies which are in breach of article 1200-1 of the Luxembourg law on commercial companies, as amended (ie criminal law offences or serious breaches of Luxembourg law, such as lack of a registered office, resignation of the entire board of directors/managers without replacement, failure to file annual accounts with the RCS);

• absence of any employees; and

• absence of any assets.

The following regulated entities are excluded from the application of the Administrative Dissolution:

• credit institutions and investment firms

• certain financial institutions

• insurance and reinsurance companies

• collective investment schemes

• specialised investment funds

• risk capital investment companies

• central counterparties

• pension funds

• central securities depositories

• securitisation vehicles

• payment institutions and electronic money institutions

• alternative investment funds

• companies practicing as lawyers

Procedure - initiated by the public prosecutor and managed by the RCS 

The procedure can be initiated exclusively by the public prosecutor, who requests a manager of the RCS (RCS Manager) to verify the absence of employees and assets. If these elements are confirmed, the public prosecutor requests the RCS Manager to open the Administrative Dissolution within three days. The opening of the procedure is notified to the company and is also published in two newspapers in the Grand-Duchy of Luxembourg and in the Electronic Compendium of Companies and Associations (Recueil électronique des sociétés et associations - RESA). The opening has the same legal effect as the opening of bankruptcy proceedings and results, among other things, in the management of the company being no longer entitled to represent it and manage and dispose of its assets.

Following the publication of the decision to open the Administrative Dissolution, the RCS Manager must carry out a more extensive verification to confirm the absence of assets and employees. If confirmed, the public prosecutor will request the RCS Manager to continue the Administrative Dissolution. The Administrative Dissolution is closed at the latest six months after the publication of the decision to open it. The decision acknowledging the end of the Administrative Dissolution entails the dissolution of the company and will be subject to publication in the RESA.

The company, and any interested third party, may appeal against the decision of opening the Administrative Dissolution before the judge presiding the chamber of the district court (tribunal d'arrondissement) dealing with commercial matters, within one month following the publication of the decision in the RESA. If the judge considers that the cumulative conditions for the opening of the Administrative Dissolution are not met, they will revoke the decision to open the proceedings and, if applicable, decide the opening of judicial liquidation. If assets appear after the closure of the Administrative Dissolution, the judge may, at the request of the public prosecutor, revoke the decision to close the Administrative Dissolution of the company, order its liquidation, and appoint a delegated judge (juge-commissaire) and one or more liquidators.

Next Steps - entry into force 

All companies whose bankruptcy proceedings have been closed before the entry into force of the Law (with the exception of companies which have updated their entries in the RESA in accordance with their legal obligations as regards entries and filings with the RCS after the judgment closing the bankruptcy) will be dissolved ipso jure and removed from the RCS two years after the entry into force of the Law.

This Law will come into force on 1 February 2023.

Conclusion 

By adopting the Law, the Luxembourg Government is providing a simplified administrative procedure which focuses on dissolving empty shell companies, and preventing them from being misused for illegal purposes, thus contributing to the fight against money laundering. 

DLA Piper’s Restructuring and Corporate teams in Luxembourg are happy to assist with any queries you may have.