Clarity on financial assistance rules

On 16 March 2021, a Bill of Law No. 7791 was submitted to the Luxembourg Parliament (Bill of Law) to delete the reference to “corporate units” (parts sociales) in article 1500-7, paragraph 2°, of the Luxembourg law on commercial companies dated 10 August 1915, as amended and reinstated (Companies Law). This article relates to the criminal liabilities for the directors of a société anonyme (SA) in the event of prohibited financial assistance.

In Luxembourg, an SA or a société en commandite par actions is deemed to have financially assisted another person when it directly or indirectly advances funds or make loans or provide security with a view to the acquisition of its shares by a third party. Directors who have approved such an assistance may commit a criminal offense under certain circumstances.

Since the 2016 reform of the Companies Law, some uncertainty arose as to whether this offense would apply to the managers of sociétés à responsabilité limitée (SARLs). It was argued that article 1500-7 of the Companies Law – which currently refers to corporate units (parts sociales) of a Luxembourg company, a term typically used for SARLs – would also cover SARLs.

The Bill of Law has been expected by practitioners for long time. It rectifies (what we consider to be) a clerical error and makes it clear that the restrictions on financial assistance do not apply to SARLs. It puts an end to an unnecessary controversy, and definitely enhances the Luxembourg legal toolkit, and the attractiveness of Luxembourg for cross-border transactions, especially in the LBO and restructuring markets.