This country-specific Q&A provides an overview of Acquisition Finance laws and regulations applicable in Luxembourg.
What are the trends impacting acquisition finance in your jurisdiction and what have been the effects of those trends? Please consider the impact of recent economic cycles, Covid-19, developments relating to sanctions, and any environmental, social, and governance (“ESG”) issues.
One of the major trends, initiated a few years ago, is the growing competition traditional commercial banks face from “alternative lenders”, enabling borrowers to rely on other sources of financing. The alternative lending industry is well developed in Luxembourg and is made possible through a wide variety of possible lending structures. In parallel, international groups tend to set up dedicated borrowing vehicles in a context of strong growth of private equity structures based in Luxembourg.
Depending on the location of the lender/sponsor of the project, it is quite common for the main finance documents to be governed by foreign law even if the lender and/or the borrower is a Luxembourg structure.
While ESG is a growing topic requiring some add-ons and dedicated language, this trend has not fundamentally changed the financing structures used in Luxembourg. In the same way, neither COVID 19 nor international sanctions have had major consequences on the Luxembourg acquisition finance industry to date.
It remains to be seen how the rise of inflation and interest rates will impact the acquisition finance sector in Luxembourg, which is inherently heavily dependent on developments in the rest of the European Union and the United States.
Please advise of any recent legal, tax, regulatory or other developments (including any reforms) that will impact foreign or domestic lenders (both bank and non-bank lenders) in the acquisition finance market in your jurisdiction.
Lending activities in Luxembourg are mainly governed by the Luxembourg law of 5 April 1993 on the financial sector (the “LFS”) as described in more detail under Question 4 below. The framework for lending activities and licensing requirements was clarified by the Luxembourg financial regulator (“CSSF”) in June 2021, and generally the rules and market practices governing financing transactions remain very stable over the years, following trends and developments at European level.
A long-awaited reform of the insolvency procedures should finally be implemented in 2023. The reform aims at modernising the tools currently available in case of financial distress and insolvency, and in particular goes to enhance the restructuring measures which are not easy to implement within the current framework.
Please highlight any specific high level issues or concerns in your jurisdiction that should be considered in respect of structuring or documenting a typical acquisition financing.
It is common for transaction documents involving Luxembourg borrowers to be governed by foreign law depending on where the acquired assets and/or lenders are located. In such a context, Luxembourg corporate and financial laws are very flexible and do not raise any specific issues. As for points of attention, we will mention the capitalisation of interest, which is, under certain circumstances, limited and the description of specific insolvency rules applicable to Luxembourg parties, which may both be sensible. Financial assistance concerns should also be assessed – see Question 13 in this respect.
What are the legal and regulatory requirements for banks and non-banks to be authorised to provide financing to, and to benefit from security provided by, entities established in your jurisdiction?
The LFS sets the rules applicable to entities authorised to grant loans. In addition to credit institutions, a specific regulated status exists for professionals carrying out lending activities. Both of these main categories of regulated lenders share common obligations and principles regarding (i) central administration and infrastructure, (ii) prior approbation of shareholders, (iii) competences and experience of their management teams, (iv) minimum amount of own funds, and (v) external auditing of financial statements.
In addition to the “traditional” types of lenders, “alternative” lenders may, subject to conditions, also be authorised to grant credit following their own governing rules. Indeed, the specific laws and regulations applicable to securitisation undertakings, undertakings for collective investment (UCIs), specialised investment funds (SIFs), pension funds or investment companies in risk capital (SICARs) describe the parameters within which those entities may actually provide funding and loans.
It is worth mentioning that the LFS, and especially its Article 28-4, lists the exceptions where Luxembourg unregulated entities may grant loans without any licence or preliminary authorisation. This is of course subject to meeting certain specific conditions and the typical exemptions that can be relied upon include situations when loans are (a) granted on a “one-off” basis, or (b) granted to intra-group borrowers only, or (c) granted to professional borrowers only to the extent that the nominal value of the loan is in excess of EUR 3,000,000.
As described in more detail under Question 7 below, the law of 5 August 2005 on financial collateral arrangements, as amended (the Collateral Law), shapes a very favourable and protective framework for secured parties. Security interests created thereunder can generally be granted to any type of secured party.
Are there any laws or regulations which govern the advance of loan proceeds into, or the repayment of principal, interest or fees from, your jurisdiction in a foreign currency?
No limitation exists under Luxembourg law regarding the use of foreign currency in financing transactions, the choice and contractual freedom amongst parties would prevail and apply. However, it is worth noting that in case of litigation the courts of Luxembourg may render judgments for a monetary amount in foreign currencies, yet any obligation to pay a sum or money in any currency other than Euro will be enforceable in Luxembourg in terms of Euro only.
Are there any laws or regulations which limit the ability of foreign entities to acquire assets in your jurisdiction or for lenders to finance the acquisition of assets in your jurisdiction? Please include any restrictions on the use of proceeds.
No, there are basically no specific restrictions for foreign investments or lending in Luxembourg with respect to acquisition financing that require mentioning, with the exception of matters reserved to the State such as defence or highly strategical activities, like in any other country of the European Union.
Acquisition of licensed entities of the financial sector or the insurance sector may be subject to prior approval from the CSSF or the Commissariat aux Assurances, respectively, depending on the target and size of shareholding acquired.
What does the security package typically consist of in acquisition financing transactions in your jurisdiction and are there any additional security assets available to lenders?
In acquisition financing transactions, the typical security package governed by Luxembourg law is composed of (i) a pledge on the shares of the holding company, (ii) a pledge on the intercompany receivables and (iii) a pledge on the Luxembourg bank accounts held by the holding company with a Luxembourg based bank. These pledges are subject to the Collateral Law which provides the lender with a very efficient tool as these pledges are bankruptcy proof and can be easily and swiftly enforced through out-of-court enforcement procedures.
The Collateral Law also provides for other financial collateral instruments such as the transfer of ownership by way of security interest (transfert de propriété à titre de garantie) and the repurchase agreement (mise en pension), which are less used in practice.
The law of 10 July 2020 on professional payment guarantees (the Law on Professional Payment Guarantees) has introduced into the Luxembourg legal environment a specific, robust and innovative regime for personal guarantees (sûretés personnelles) granted in a professional framework. A professional payment guarantee consists of an undertaking by a guarantor to pay a beneficiary, at the request of such beneficiary or an agreed third party, an amount determined on the basis of agreed terms, in relation to one or more claims or associated risks. Professional payment guarantees complement the two existing regimes of personal guarantees: (i) cautionnements (suretyships – i.e. broadly guarantees directly linked to an underlying obligation) provided for in the Luxembourg Civil Code and (ii) garanties autonomes (stand-alone guarantees – i.e. broadly guarantees independent from an underlying obligation) resulting from the practical construction recognised by Luxembourg courts for over three decades.
Personal guarantees that will be explicitly subject to the Law on Professional Payment Guarantees will benefit from interesting protections and features, such as the fact that the guarantee can be called upon in all contractually agreed cases, including in absence of default or acceleration of the underlying claims and that the guarantee can be granted to a security agent or equivalent body acting on behalf of the secured parties.
The Law on Professional Payment Guarantees provides parties with a wide scope of contractual flexibility, making it easy to tailor the features of the guarantee to their specific needs, only limited by rules of public policy and general principles of contract law.
A lender is also usually secured by collateral arrangements governed by foreign law over the assets held abroad by the Luxembourg entities involved in the transaction.
In a transaction involving real estate properties, mortgages will be also granted to the lender. If the real estate property is located in Luxembourg, the mortgage will take the form of a notarial deed and shall be registered with the Administration de l’Enregistrement et des Domaines and with the Bureau de la Conservation des Hypothèques. The registration of the mortgage is subject to a registration fee and the mortgage must be renewed every ten years to remain enforceable towards third parties.
Does the law of your jurisdiction permit (i) floating charges or any other universal security interest and (ii) security over future assets or for future obligations?
Under Luxembourg law, the concept of floating charges does not exist as such, the closest instrument is the pledge on inventories (gage sur fonds de commerce), which is rarely used in practice as the pledgee must hold an authorisation and the pledges are subject to certain restrictions.
It is indeed possible that the Luxembourg security package described under Question 7 above encompasses future assets and secure future obligations.
Do security documents have to (by law) include a cap on liabilities? If so, how is this usually calculated/agreed?
No, the Collateral Law does not provide for a cap on liabilities.
What are the formalities for taking and perfecting security in your jurisdiction and the associated costs and timing? If these requirements are different for different asset classes, please outline the main points to note for each of these briefly.
The perfection requirements depend on the type of asset and also on the type of collateral instrument.
Concerning pledges on shares and other type of securities, the perfection of the pledge is made through the recording of the pledge in the relevant register of shares (or securities) held at the registered office of the company or kept by the depositary in case of securities in bearer form. The company the shares of which are pledged is usually party to the share pledge agreement for acknowledgment purpose, if not the pledge is notified to it.
Concerning pledges on bank accounts, the pledge is notified to the account bank which is requested to sign and return to the pledgee an acknowledgment notice whereby the account bank waives its prior lien on the account in order to permit a first ranking pledge.
Concerning pledges on receivables, these pledges are perfected by the mere signature of the pledge by the pledgor and the pledgee (and also by the notification of the pledge or by making the debtor party to the pledge agreement).
Usually, the pledge agreements cover additional and future collateral entering into the possession of the pledgor, triggering additional recording of the pledge on these assets.
Are there any limitations, restrictions or prohibitions on downstream, upstream and cross-stream guarantees in your jurisdiction? Please also provide a brief description of any potential mitigants or solutions to these limitations, restrictions or prohibitions.
A guarantee can be provided by a Luxembourg company if authorised in its corporate objects and to the extent that providing this guarantee is within the company’s corporate benefit (which must be assessed by the board of the Luxembourg company).
Assuming that these conditions are met, the Luxembourg company can grant upstream, downstream, cross-stream guarantees, although upstream and cross-stream guarantees are subject to certain limitations. Indeed, upstream and cross-stream guarantees are limited to a certain percentage of the net assets of the Luxembourg companies (usually between 80 and 95%) increased by the intra-group financing granted to the Luxembourg company (if any).
Are there any other notable costs, consents or restrictions associated with providing security for, or guaranteeing, acquisition financing in your jurisdiction?
With the exception of the mortgage over real estate property which is subject to registration (see Question 7 above) and the payment of fees, the instruments subject to the Financial Collateral Law are not subject to mandatory registration; therefore, no fees are due (except in the event of voluntary registration with the Luxembourg Administration de l’Enregistrement et des Domaines, in which case a fixed registration tax of EUR 12 is applicable).
Is it possible for a company to give financial assistance (by entering into a guarantee, providing security in respect of acquisition debt or providing any other form of financial assistance) to another company within the group for the purpose of acquiring shares in (i) itself, (ii) a sister company and/or (iii) a parent company? If there are restrictions on granting financial assistance, please specify the extent to which such restrictions will affect the amount that can be guaranteed and/or secured.
The Luxembourg rules on financial assistance are applicable in the context of the purchase of shares of a société anonyme, a société anonyme simplifiée and a société en commandite par actions. These companies can only provide direct or indirect financial assistance (i.e. advance funds, make loans or provide security) for the purpose of the acquisition by a third party of their shares subject to the completion of what is known as the “whitewash procedure”. As for financial assistance to a sister company and/or parent company provided by a Luxembourg company under the form of a guarantee, we refer you to Question 11 detailing the applicable limitations.
If there are any financial assistance issues in your jurisdiction, is there a procedure available that will have the effect of making the proposed financial assistance possible (and if so, please briefly describe the procedure and how long it will take)?
Yes, Article 430-19 of the law on commercial companies dated 10 August 1915, as amended (the Company Law), sets out the conditions to complete the “whitewash procedure”. The financial assistance takes place under the responsibility of the board of directors, which must ensure that the following conditions are met:
fair market conditions (especially with regard to interest received by the company and with regard to security provided to the company for the loans and advances);
the interest of the company;
an investigation of the credit standing of the third party or in case of multiparty transactions, of each counterparty thereto;
submission of a report to the shareholders’ general meeting indicating the reasons for the transaction, the interest of the company in entering into the transaction, the conditions on which the transaction is entered into, the risks involved in the transaction for the liquidity and solvency of the company and the price at which the third party is to acquire the shares.
This report of the board of directors of the company must be deposited at the Luxembourg register of commerce and companies and published in the Luxembourg official gazette (i.e. the Recueil électronique des sociétés et associations).
The transactions concluded by banks and other financial institutions in the normal course of business or transactions effected with a view to the acquisition of shares by or for the staff of the company or a company related to the latter by a controlling relationship are not subject to the above conditions. One exception applies, which is that such transactions must not have the effect of reducing the net assets of the company below the aggregate of the capital and the reserves which may not be distributed under the Company Law or the articles of the company.
If there are financial assistance issues in your jurisdiction, is it possible to give guarantees and/or security for debt that is not pure acquisition debt (e.g. refinancing debt) and if so it is necessary or strongly desirable that the different types of debt be clearly identifiable and/or segregated (e.g. by tranching)?
It is indeed possible to give guarantees and/or security for debt that is not pure acquisition debt without specific identification or segregation of the different types of debt.
Does your jurisdiction recognise the concept of a security trustee or security agent for the purposes of holding security, enforcing the rights of the lenders and applying the proceeds of enforcement? If not, is there any other way in which the lenders can claim and share security without each lender individually enforcing its rights (e.g. the concept of parallel debt)?
The Collateral Law expressly recognises that the collateral can be provided to a security agent, fiduciary or trustee to secure the claims of third-party beneficiaries present or future, provided that they are determined or determinable. The creation of a parallel debt is not required to provide collateral to a security agent, fiduciary or trustee. In case of enforcement, the security agent is entitled to enforce the rights of the lenders and to apply the proceeds of the enforcement.
Does your jurisdiction have significant restrictions on the role of a security agent (e.g. if the security agent in respect of local security or assets is a foreign entity)?
The Collateral Law expressly recognises the possibility to have a security agent representing and acting on behalf of the security’s beneficiaries and does not provide for restrictions on the role of a security agent.
Describe the loan transfer mechanisms that exist in your jurisdiction and how the benefit of the associated security package can be transferred.
The transfer of a loan under Luxembourg law is governed by the provisions of the Luxembourg Civil Code and can be made by way of (i) an assignment of claims (art. 1689 of the Luxembourg Civil Code) or (ii) a novation (art. 1271 of the Luxembourg Civil Code).
In the event of assignment of the loan, the security package that is an accessory to the loan will be transferred to the assignee. However, in the event of novation of the loan, the security package will not be transferred to the new lender unless the security documents expressly state that the benefit of the collateral is reserved for the benefit of the new lender (in application of Art. 1278 of the Luxembourg Civil Code). In practice, such statement is systematically included in the Luxembourg security documents when the loan is transferred by way of novation.
What are the rules governing the priority of competing security interests in your jurisdiction? What methods of subordination are used in your jurisdiction and can the priority be contractually varied? Will contractual subordination provisions survive the insolvency of a borrower incorporated in your jurisdiction?
In practice, security interests over Luxembourg assets tend to be governed by the Collateral Law. If this is the case, the ranking of the security interests will be determined depending on the type of security (shares security, receivable security, bank account security), and the ranking of the security interest will be determined based on the date of granting of the security interest or the satisfaction of the perfection formalities, as applicable.
Contractual subordination mechanisms will be present in virtually all acquisition financings. As a rule, the parties are free to determine the contractual rules whereby certain claims will rank senior to others. This can be implemented through a straightforward subordination agreement, often in larger deals complemented by an intercreditor agreement.
Contractual subordination is a legal construction not explicitly recognised by Luxembourg law, but it is largely used in practice and advocated by legal practitioners. There is nowadays broad consensus that subordination provisions are legal and binding among parties. It has also been validated by Luxembourg courts, although not explicitly in insolvency scenarios.
Is there a concept of “equitable subordination” in your jurisdiction whereby loans provided by a shareholder (as a creditor) to a company incorporated in your jurisdiction are subordinated by law upon insolvency of that company in your jurisdiction?
No, Luxembourg law does not recognise the concept of “equitable subordination”.
Does your jurisdiction generally (i) recognise and enforce clauses regarding choice of a foreign law as the governing law of the contract, the submission to a foreign jurisdiction and a waiver of immunity and (ii) enforce foreign judgments?
Luxembourg courts would generally recognise and enforce clauses regarding choice of law and jurisdiction, except to the extent that the result of such application would be manifestly incompatible with fundamental principles of public policy in Luxembourg or would be overriding provisions of mandatory law in Luxembourg. The rules and limitations set forth in Regulation (EC) No. 593/2008 on the law applicable to contractual obligations (Rome I) will apply to choice of law clauses.
Regarding the enforcement of foreign judgements, decisions of courts from EU Member States will be generally enforced in accordance with Regulation (EU) No. 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Brussels I bis), and subject to the exceptions provided therein, whilst decisions from non-EU courts would generally be subject to an exequatur procedure in Luxembourg to make the decision enforceable in Luxembourg, unless a specific international convention were to apply (such as the Lugano Convention, which provides for a specific framework).
What are the requirements, procedures, methods and restrictions relating to the enforcement of collateral by secured lenders in your jurisdiction?
The Collateral Law creates creditor-friendly security interests over assets governed or deemed to be governed by Luxembourg law. Security interests created thereunder can notably be enforced out-of-court proceedings notwithstanding the start of insolvency proceedings and will remain valid even if entered into during the hardening period (see Question 27).
The Collateral Law offers a wide range of (cumulative) enforcement options, proven to be particularly time and cost efficient:
the pledgee (or any person designated thereby) may appropriate the pledged assets at a value to be determined (before or after appropriation) in accordance with the valuation method agreed between the parties or at market price to the extent such assets consist of listed financial instruments;
the pledged assets may be assigned through an arm’s length private sale, auction or stock exchange sale;
the pledgee may request a court to order the pledged assets to be retained by the pledgee until due and full payment of its claim; or
in respect of pledged assets consisting of cash or monetary claims, the pledgee may set off such amounts against any sums owed by the pledgor.
In parallel, soft enforcement methods may also be determined on a contractual basis. Modalities will vary depending on the nature of the security, and will typically provide that upon the occurrence of an enforcement event, the pledgee will be entitled to:
in the case of a share pledge, take control of the company the shares of which are pledged through the exercise of all voting rights of the pledgor (including with a view to replacing the management in place) and receive any distributions to be paid out by such company to the pledgor; and
in the case of an account or receivable pledge, request the account bank or the debtor to pay out any amount standing to the credit of the pledged accounts or any amount due by the debtor to the pledgor directly to the pledgee.
What are the insolvency or other rescue/reorganisation procedures in your jurisdiction?
The most commonly seen and used procedure would be bankruptcy proceedings (faillite). Under Luxembourg law, a company is bankrupt when it is unable to meet its current liabilities and when its creditworthiness is impaired. Other insolvency proceedings include composition with creditors (concordat préventif de la faillite), controlled management (gestion contrôlée), suspension of payments (sursis de paiement), court-ordered liquidation/dissolution (liquidation/dissolution judiciaire), appointment of a provisional administrator (administrateur provisoire) or a receiver (séquestre).
Does entry into any insolvency or other process in your jurisdiction prevent or delay secured lenders from accelerating their loans or enforcing their security in your jurisdiction?
During bankruptcy proceedings, all enforcement measures by secured and unsecured creditors are suspended, subject to the exceptions applicable to financial collateral arrangements subject to the Collateral Law. Certain actions by the company and its creditors, such as security interests granted during the pre-bankruptcy hardening period (période suspecte), may be challenged and set aside by the bankruptcy receiver (unless subject to the Collateral Law). The process is court-led and in general creditors have little influence on the process once the court declares a company bankrupt. The receiver will play a leading role in this case and will generally only seek at liquidating the assets of the bankrupt company.
In what order are creditors paid on an insolvency in your jurisdiction and are there any creditors that will take priority to secured creditors?
Cost of liquidation and any claims that are preferred under Luxembourg law will rank ahead of creditors of the bankrupt company. Other preferential claims under Luxembourg law include remuneration owed to employees, employees’ contributions to social security and certain amounts owed to the Luxembourg tax authorities.
Assets (such as shares, financial instruments, debt instruments, accounts or receivables) on which a security interest has been granted and perfected will in principle not be available for distribution to unsecured creditors (except after enforcement and to the extent a surplus is realised), and subject to application of the relevant priority rule and liens and privileges arising mandatorily by law.
Are there any hardening periods or transactions voidable upon insolvency in your jurisdiction?
The hardening period (période suspecte) lapses between the date of cessation of payments (cessation de paiements), as determined by the bankruptcy court, and the date of the court order declaring the bankruptcy. The hardening period cannot exceed six months and ten days.
Are there any other notable risks or concerns for secured lenders in enforcing their rights under a loan or collateral agreement (whether in an insolvency or restructuring context or otherwise)?
Security interests governed by the Collateral Law are insolvency proof and will remain valid even if entered during the hardening period. Furthermore, the start of bankruptcy proceedings will not prevent the secured creditors from enforcing their security. As such, this protection is extremely efficient and has been enshrined by Luxembourg courts over the years. However, this protection does not extend to other types of security interests, nor to other acts that could fall within the risk of clawback provisions.
Please detail any taxes, duties, charges or related considerations which are relevant for lenders making loans to (or taking security and guarantees from) entities in your jurisdiction in the context of acquisition finance, including if any withholding tax is applicable on payments (interest and fees) to lenders and at what rate.
Under Luxembourg law, there is no mandatory registration of the finance documents by the Luxembourg borrower. Therefore, stamp or registration duty may only be due in Luxembourg in the event of voluntary registration by one of the parties, in which case a fixed or an ad valorem registration duty may be due.
Luxembourg does not impose withholding tax on arm’s length interest payments made by Luxembourg resident borrowers to a foreign lender, except in some rather particular cases (e.g. interest on profit participating bonds).
Although finance documents typically include a “gross-up clause” intended to protect the position of the lender in the event tax is being withheld from the payment made by the borrower, such provisions are of little relevance in respect to the Luxembourg withholding taxes given the current legislation.
Are there any other tax issues that foreign lenders should be aware of when lending into your jurisdiction?
There are no tax filing requirements in Luxembourg for foreign lenders not carrying out any other activity in Luxembourg with respect to the lending activities towards the Luxembourg resident entities.
Deductibility of interest
Arm’s length interest expenses of a Luxembourg borrowing entity are, in principle, deductible for tax purposes unless in relation to exempt income. Furthermore, deduction of interest may be limited based on (i) the interest deduction limitation rules and (ii) rules denying deduction of payments towards blacklisted jurisdictions.
Based on the interest deduction limitation rule introduced in Luxembourg law by way of implementation of Council Directive (EU) 2016/1164 laying down rules against tax avoidance practices that directly affect the functioning of the internal market, interest expenses that are over and above the interest income of the borrower would be deductible only up to 30% of EBITDA (income before interest, taxes, depreciation and amortisation) or EUR 3,000,000, whichever is the higher. Effectively, this rule does not present any issue if the loan granted to the borrower is used to finance another loan granted by the borrower or where the asset financed by the loan generates exempt income.
Further to the recommendations of the European Council dated 5 December 2019, Luxembourg introduced in its tax law the rule which denies deduction of interest and royalties expenses due as from 1 March 2021, if the beneficiary of such payments is a collective undertaking that is considered a related entity and is located in a blacklisted jurisdiction. The “blacklist” was adopted and is regularly updated by the European Council, the last update having been made on 4 October 2022.
What is the regulatory framework by which an acquisition of a public company in your jurisdiction is effected?
Luxembourg companies having their shares listed on a stock exchange tend not to be listed in Luxembourg but instead on more international listing venues such as the New York Stock Exchange or the Frankfurt Stock Exchange, so that largely local rules and regulations apply.
If the shares of the Luxembourg public company are listed on an EU Regulated Market, the law of 6 May 2006 on public takeovers (the Takeover Law) applies and sets the relevant rules and requirements.
Matters regarding company law (and related questions), such as, for instance, the question relating to the percentage of voting rights which give control over a company and any derogation from the obligation to launch a bid or regarding information to be provided to employees of the offeree company, and to the extent applicable, any sell-out or squeeze-out procedures further to a voluntary or mandatory takeover bid, are governed by Luxembourg law.
Pursuant to the Takeover Law, if a person, acting alone or in concert, obtains voting securities of the target which give such person voting rights representing 33.3% of all of the voting rights attached to the voting securities in the target, this person is obliged to make an offer for the remaining voting securities in the target at a fair price (mandatory bid). For such purpose, an offer document must be prepared which will need to be submitted to the CSSF.
What are the key milestones in the timetable (e.g. announcement, posting of documentation, meetings, court hearings, effective dates, provision of consideration, withdrawal conditions)?
The key trigger is the acquisition of 33.3% of the voting rights in the target which triggers the requirement to launch a mandatory bid. The process is strictly determined by the Takeover Law.
In a nutshell, the decision to launch the bid must be made immediately after the bidder has taken the decision to launch the bid and the CSSF must be informed of the bid before it is made public. As soon as the bid is made public, the board of the target will meet and inform the representatives of their employees of the bid. The decision to launch the bid is usually published in an ad hoc notice specifying that a full offer document will be prepared and submitted for approval to the CSSF.
The offer document must be filed with the CSSF within 10 working days from the publication of the intention to launch the bid. The CSSF must approve such offer document within 30 working days. The CSSF will review the offer document and may request additional information to be included therein. Upon approval of the offer document, the offer period can start. The time for acceptance of the bid may be no less than two weeks and no more than ten weeks from the date of the publication of the offer document. Before the end of the offer period, the board of the target must publish a reasoned opinion on the offer. Once the offer has closed and been settled, the squeeze-out and potentially delisting can be initiated by the bidder within three months from the end of the offer period.
Voluntary offers, i.e. offers falling outside of the scope of the mandatory bid, are subject to less regulation.
What is the technical minimum acceptance condition required by the regulatory framework? Is there a squeeze out procedure for minority hold outs?
The Takeover Law provides that, when as a result of an offer (mandatory or voluntary) addressed to all of the holders of voting securities of the target, the bidder holds voting securities representing not less than 95% of the share capital that carry voting rights to which the offer relates and 95% of the voting rights, the bidder may require the holders of the remaining voting securities to sell those securities to the bidder. The price offered for such securities must be a “fair price”, to be determined in accordance with the requirements of the Takeover Law.
In addition to the squeeze-out mechanism provided for by the Takeover Law, an alternative squeeze-out mechanism is provided for by the Luxembourg law of 21 July 2012 on the squeeze-out and sell-out of securities of companies admitted or having been admitted to trading on a regulated market or which have been subject to a public offer (the “Luxembourg Mandatory Squeeze-Out and Sell-Out Law”). This law provides that, subject to certain conditions being met, if any individual or legal entity, acting alone or in concert with another, becomes the owner (otherwise than by way of a voluntary or mandatory takeover bid pursuant to the Takeover Law), directly or indirectly, of a number of shares or other voting securities representing at least 95% of the voting share capital and 95% of the voting rights of the target, such owner may require the holders of the remaining shares or other voting securities to sell those remaining securities. Such squeeze-out must be exercised at a fair price according to objective and adequate methods applying to asset disposals and the process will be carried out in accordance with the Luxembourg Mandatory Squeeze-Out and Sell-Out Law and under the supervision of the CSSF.
At what level of acceptance can the bidder (i) pass special resolutions, (ii) de-list the target, (iii) effect any squeeze out, and (iv) cause target to grant upstream guarantees and security in respect of the acquisition financing?
The means and actions available to the bidder will mainly depend on the provisions of the articles of association of the target and the percentage of voting securities held by it. For a Luxembourg public limited liability company (société anonyme) in general, the bidder will gain control over the company as from the moment it holds the absolute majority of the voting rights in the company, entitling it to remove and appoint the board members of the company at its discretion. For listed entities, the threshold for control will in practice be lower than 50%+1 of the voting securities due to free float, therefore the Takeover Law refers to a threshold of 33.3% of the voting securities.
From the moment the bidder controls the board, actions can be taken by the board in accordance with the instructions received from the bidder. Obviously, any such action by the board will always need to remain within the corporate interest of the company and will be assessed at that level – including with regard to a delisting of the shares or the granting of security interests and upstream guarantees. It is worth flagging that there is a principal prohibition of financial assistance for Luxembourg public limited liability companies. Other specific thresholds may apply, for example to amending the articles of association of the Luxembourg company, and the articles of association of the Luxembourg company tend to provide for specific requirements and majorities, so that this should be carefully analysed in advance.
Is there a requirement for a cash confirmation and how is this provided, by who, and when?
There are no specific requirements applying to price and payment mechanisms for voluntary offers. For mandatory offers, the price to acquire the voting securities must be determined in accordance with the rules set out by the Takeover Law and constitute a “fair price” – the fairness of the price to be assessed by the CSSF. The bidder may as a rule offer securities, cash, or a combination of both.
Within the context of squeeze-out proceedings under the Takeover Law, the price offered in a voluntary offer would be considered a “fair price” in the squeeze-out proceedings if at least 90% of the securities representing share capital that carry voting rights and which were included in the offer were acquired in such voluntary offer. The price paid in a mandatory offer is deemed a “fair price” for the purpose of squeeze-out proceedings.
The consideration paid in the squeeze-out proceedings must take the same form as the consideration offered in the offer or consist solely of cash. Moreover, an all-cash option must be offered to the remaining shareholders of the target. Finally, the right to initiate squeeze-out proceedings must be exercised within three months following the expiration of the acceptance period of the offer.
What conditions to completion are permitted?
Other than pursuant to the Takeover Law (and unless the target would be otherwise regulated), the conditions to completion can generally be determined by the bidder. Offer documents will generally confirm that firm commitments have been obtained by the bidder to secure the funding of the contemplated offer.
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