Lending activities

Subject to the provisions of the Luxembourg financial sector act dated 5 April 1993, as amended, EU-based financial institutions performing lending activities in Luxembourg shall not require a licence, based on the EU rules of freedom to provide services, freedom of capital and freedom of movement, which will prevail over any country-specific licence requirements in this respect, provided that such activities are covered by the authorizations that the relevant lenders received in their home countries.

Non-EU based financial institutions offering their services in Luxembourg shall be subject to the same authorization rules as those applying to professionals governed by Luxembourg law and shall, therefore, be required to obtain a licence from the Luxembourg Ministry of Finance if they engage in regulated financial sector activities such as, in particular, the business of granting loans to the public for their own account. However, based on the current official position of the Luxembourg financial sector authority (Commission de Surveillance du Secteur Financier; CSSF), such licence requirement shall only be triggered if certain cumulative conditions are met (notably if agents of the relevant lender are sent to Luxembourg to provide regulated services). Where a lender only provides general information on its activities to potential Luxembourg borrowers (e.g. by email or telephone) or where a Luxembourg borrower approaches the lender in the lenders’ home country to enter into a loan, no licence shall be required. Preparatory works, roadshows or preliminary meetings in Luxembourg leading to the entry into a loan agreement are also excluded from the scope of such licence requirement. However, each such situation shall be assessed on a case-by-case basis.

The CSSF has clarified that it considers that a lending activity is not directed towards the public (and thus does not trigger a licence requirement) where loans are granted to a limited circle of previously determined persons or the nominal value of a loan amounts to EUR 3,000,000 at least and the loans are granted exclusively to professionals.

The legislative framework in Luxembourg applicable to non-EU based financial institutions lending into Luxembourg is currently being modified. On 2 October 2025, Bill of Law No. 8627 was introduced to the Luxembourg Parliament in order to transpose Directive (EU) 2024/1619 of the European Parliament and of the Council of 31 May 2024 amending Directive 2013/36/EU as regards supervisory powers, sanctions, third-country branches, and environmental, social and governance risks (“CRD VI”).

An undertaking established in a non-EU country that carries out certain activities such as lending, taking deposits and other repayable funds, guarantees and commitments is now required to establish a branch in each EU Member State where they intend to provide banking services, as no EU passport will be available for third-country branches. Alternatively, such institutions may establish a subsidiary in an EU Member State and apply for an EU banking licence, which would allow them to passport their licence across all EU Member States without requiring separate authorisations in each jurisdiction where they wish to provide their services.

Certain exemptions apply to the requirement to establish a branch:

• intragroup transactions, provided they occur between entities that are part of the same group;
• where the non-EU undertaking provides a service or activity to a counterparty established in the European Union that is itself a credit institution; and
• in the case of a reverse solicitation, i.e. where the client or counterparty approaches the non-EU undertaking at its own exclusive initiative for the provision of any service or activity in relation to lending, taking deposits and other repayable funds, guarantees and commitments.

For activities falling under Annex I, points 2 and 6 of the LFS (i.e., the granting of loans, credits and guarantees), the branch establishment requirement applies only to third-country entities that would qualify as a “credit institution” within the meaning of Article 4(1)(1) of Regulation (EU) No 575/2013 (as amended) if they were established in the EU. Third-country entities that do not meet that definition — such as investment funds or other non-banking entities — may continue to carry out lending, credit and guarantee activities on a cross-border basis without being required to establish a local branch within the framework described above.

In the case of deposit taking, the new authorisation regime will apply to any type of third-country undertaking.

Taking security

There is no requirement for a foreign entity to obtain a licence/regulatory approval to take the benefit of security over assets located in Luxembourg, except for specific security interests such as pledges over a going concern/business universality (gages sur fonds de commerce) which can only be granted to specifically authorised credit institutions, notaries or breweries.

There is no Luxembourg law or regulation setting a limit on the amount of interest that can be charged by lenders. Luxembourg courts may, however, reduce any contractually agreed interest rate to be paid by a Luxembourg borrower to the maximum legal interest rate in case the contractual rate is held manifestly excessive by such courts.

In addition, in accordance with article 1154 of the Luxembourg Civil Code, interest stipulated in a Luxembourg law governed agreement may not accrue where it is overdue on capital, unless such interest has been due for at least one year and the compounding has been specifically agreed for in an agreement.

The above rules may be considered matters of international public order under Luxembourg law.

There are no specific Luxembourg laws or regulations in force which restrict loans being made or repaid in a foreign currency.

Yes, under Luxembourg law security can be granted over all of the above listed types of assets, as further explained hereafter.

i. real property (land) and plant

Land, connected rights and assets attached to the land (such as buildings) can be collateralized under Luxembourg law. The most common approach is the granting of security through a contractual mortgage (hypothèque).

To be valid, a Luxembourg law mortgage needs to be evidenced in the form of a notarial deed, passed before a Luxembourg notary (except for mortgages granted in favour of the Banque et Caisse d’Épargne de l’État).

Such notarial deed shall clearly identify the mortgaged property and the secured amount. The secured obligations must be certain and liquid, while either the mortgagee must be the person to whom the secured amount is owed or a beneficiary under a parallel debt structure being created (as further explained in our answer to Question 13.).

The mortgage deed shall be registered with the mortgage register (Bureau des Hypothèques) where the mortgaged property is located and with the Luxembourg Registration Duties, Estates and VAT Authority (Administration de l’enregistrement, des domaines et de la TVA).

A contractual mortgage becomes enforceable against third-parties upon registration with the competent mortgage register (Bureau des Hypothèques). Such registration is valid for a renewable 10-year period.

ii. machinery, equipment and inventory

Security over machinery, equipment or inventory shall take the form of a civil law or commercial law pledge and be executed either by way of a notarial deed or under private seal. The perfection of such pledge requires the transfer of physical possession of the relevant collateral to the secured party and is thus uncommon in practice.

Machinery, equipment and inventory may, however, also be pledged under a pledge over a going concern/business universality (gage sur fonds de commerce). Such pledge usually includes all the assets of the pledgor (excluding real estate) such as customers, trademarks and patents, business name and goodwill, rolling stock and other tools, equipment and up to 50% of the value of the inventory. A pledge over a going concern/business universality is subject to specific requirements set out in a Grand Ducal Decree of 27 May 1937 and can only be granted to authorised credit institutions, notaries or breweries. It shall be evidenced in writing and registered with the competent mortgage register (such registration being valid for a renewable 10-year period). Registration is subject to ad valorem taxes.

iii. receivables

Security rights over receivables are very common in Luxembourg. They may take two forms: a pledge over receivables or a transfer of ownership by way of security (the latter being rarely used in practice).

Both forms are provided for in the Luxembourg act of 5 August 2005 on financial collateral arrangements, as amended (the “Luxembourg Collateral Act”) which allows fast and out-of-court enforcement of financial collateral arrangements and contains certain lender friendly provisions in case of bankruptcy.

A pledge over receivables can be created under written private seal and it takes effect between the parties and against third-parties as of the date of execution of the pledge agreement.

However, as long as the debtor of the receivables did not have knowledge of the creation of the pledge, such debtor may validly discharge the relevant claim if payment thereof is made to the pledgor. It is hence recommended to make the debtor party to the receivables pledge agreement or to notify the pledge to the debtor with a request of acknowledgment (under which it is also common to obtain from the debtor a waiver of its rights of set-off and of any defence it may have against the pledgor).

Another type of security right over claims governed by the Luxembourg Collateral Act is a pledge over cash accounts held in Luxembourg. It can be created under written private seal and is perfected towards third-parties by the execution of an account pledge agreement between the pledgor and the pledgee and towards the account bank by the sending of a notice and the confirmation by the account bank (usually contained in an acknowledgment form) that it waives all its rights over the relevant account (including the first ranking pledge that Luxembourg banks usually hold over such accounts as per their general terms and conditions). The operation of the pledged account may be freely agreed upon between parties, without affecting the validity of the pledge.

Pledges over insurance contracts are possible; for the case of life insurance contracts certain further requirements apply.

iv. shares in companies incorporated in Luxembourg

Pledges over shares in companies incorporated in Luxembourg are the most common type of security rights (a security assignment is also possible but rarely used in practice).

Such pledges are governed by the Luxembourg Collateral Act and can be created under written private seal.

Their perfection formalities depend on the form of shares pledged. Shares issued by a Luxembourg company are generally issued in registered form and a pledge over such type of shares is perfected by the registration of the pledge in the shareholders’ register of the company whose shares are pledged.

Governing law

According to Luxembourg conflict of law rules, Luxembourg courts apply the lex rei sitae in relation to the creation, perfection and enforcement of a security interest. Assets located in Luxembourg shall thus be pledged under Luxembourg law governed documents to ensure the due perfection and enforcement of the relevant security rights. Any foreign law perfection requirements for non-Luxembourg parties to such agreements (or foreign debtors in the case of a pledge over receivables) shall also be taken into account.

Under the Luxembourg Collateral Act, it is possible for a pledgor to grant security over present and future qualifying collateral (i.e. financial instruments and claims) without the need to designate them specifically (subject however to certain perfection requirements when the relevant assets come into existence).

Outside the scope of the Luxembourg Collateral Act, it is also in principle possible to grant a commercial law pledge over future assets but given that such pledge requires a physical dispossession of the collateral to be effective, such pledge may be regarded as a mere undertaking to pledge (promesse de gage) until the relevant assets come into existence. Finally, mortgages can only be granted over existing assets.

Regarding the possibility to grant security to secure future obligations, the Luxembourg Collateral Act expressly provides for such possibility. It is also possible to grant a civil law/commercial law pledge to secure future obligations. As regards mortgages, they are only valid if they secure certain and liquid obligations determined in the mortgage deed.

Except for pledges over a going concern/business universality (gage sur fonds de commerce), there is no concept of “all asset” security or “floating charge” recognised under Luxembourg law.

Under the Luxembourg Collateral Act, it is possible for a company to pledge all the qualifying collateral (financial instruments and claims) it holds without designating them specifically. However, as different perfection requirements apply depending on the type of assets pledged (typically shares, receivables and bank accounts), it is more common to enter into separate security documents per asset type.

Certain security interests are also subject to a specific regime (e.g. mortgages) and may hence only be documented under a separate agreement/notarial deed (as applicable).

In cross-border financings, it is however common for a Luxembourg obligor to grant a foreign law governed floating charge or debenture but, in such case, it is recommended to exclude any assets located in Luxembourg from the scope of such security (please see our answer to Question 4. regarding the governing law of pledges over assets located in Luxembourg).

There are no such requirements under Luxembourg law for security interests governed by the provisions of the Luxembourg Collateral Act nor for most civil law/commercial law pledges.

Mortgages over real estate, aircrafts or ships are evidenced by way of a notarial deed. The same holds true for pledges over a going concern/business universality and pledges over machinery/equipment which can however also be documented in a private instrument. Powers of attorney are generally granted for the execution of notarial deeds and depending on the place of execution of the power of attorney or of localization/registration of the grantor, certain notarisation and legalisation/apostille requirements may apply.

Under Luxembourg law, there is no registration requirement in relation to the execution, performance or enforcement of Luxembourg law security agreements, except for mortgages, pledges over a going concern/business universality (gage sur fonds de commerce) and security rights over specific types of assets (such as aircrafts, certain vessels, IP rights, etc.).

The Luxembourg Collateral Act requires that a pledge over registered shares shall be recorded in the shareholder register (privately held by Luxembourg companies at their registered office) of the company whose shares are pledged.

As a general note, there are no particular material costs related to the taking of Luxembourg law security rights governed by the Luxembourg Collateral Act (unless these are voluntarily registered). Costs are further minimized as their enforcement can be completed without the initiation of court proceedings.

Costs which should be taken into consideration when structuring deals apply to mortgages and pledges over a going concern/business universality (gage sur fonds de commerce) and are as follows: (i) a fee of 0.24% on the principal amount of the secured obligations, (ii) a tax of 0.05% on the principal amount of the secured obligations for first registration and renewal (required every 10 years) and (iii) notarial fees calculated based, inter alia, on the value of the encumbered asset, the secured amount and the complexity of public searches.

There is no Luxembourg legislation specifically addressing the granting of guarantees or security interests to guarantee/secure the obligations of another group company. The concept of “group of companies” is itself not defined under Luxembourg law.

However, based on French and Belgian court precedents, to which Luxembourg courts may turn for guidance, it is generally admitted that a Luxembourg company may validly grant a guarantee or a third-party security for the obligations of a subsidiary, a parent company or an affiliated company if the following cumulative conditions are met:

i. the corporate object of the company expressly allows the granting of a guarantee and/or third-party security to such group company;

ii. the company derives a benefit from the giving of the guarantee/third-party security;

iii. the company is a member of a structured group with a common economic strategy; and

iv. the commitments of the company granting the guarantee and/or third-party security are not disproportionate to the commitments of any other group companies involved in the same transaction and do not exceed the company’s financial capacity.

Luxembourg public limited liability companies (sociétés anonymes) and corporate partnership limited by shares (sociétés en commandite par actions) are prohibited from granting loans, guarantees, security interests or advancing funds to a third-party for the acquisition of their own shares, unless a whitewash procedure is followed. Such whitewash procedure requires, inter alia, sufficient distributable reserves at least equal to the amount of the financial assistance provided and an approval of the shareholders and is rarely used in practice.

Unlawful financial assistance may result in the guarantee or security interest being declared void and may trigger civil and criminal liabilities of the target’s directors/managers.

The financial assistance prohibition only applies to transactions entered into by a company to support the acquisition of its own shares (and not the shares of its direct or indirect shareholders or of related companies) but the corporate interest of the company granting the assistance shall however always be taken into consideration.

The financial assistance rules do not apply to private limited liability companies (sociétés à responsabilité limitée) (but the corporate interest of the company shall still be carefully considered).

The Luxembourg Collateral Act specifically provides that a security over financial collateral (i.e. financial instruments or claims) may be provided in favour of a person acting on behalf of the collateral taker, a fiduciary or a trustee in order to secure the claims of third-party beneficiaries, whether present or future, provided that these third-party beneficiaries are identified or identifiable. As such, a security trustee/security agent can act on behalf of other syndicate members and hold qualifying collateral/enforce the syndicate rights under the pledge agreement and apply the enforcement proceeds to the claims of all lenders in the syndicate, even where such security agent/security trustee is not itself a creditor of the secured debt.

The Luxembourg Act of 10 July 2020 on professional payment guarantees (the “PPG Act“) also introduced the possibility for a guarantee expressly submitted to the PPG Act to be granted in favour of a person acting on behalf of the beneficiaries, of a fiduciary or a trustee, to guarantee third-party beneficiaries’ present or future claims on the condition that such third-party beneficiaries are identified or identifiable.

Outside the scope of the Luxembourg Collateral Act and the PPG Act, the holder of a security interest or the beneficiary of the guarantee shall, in principle, be the same person to whom the secured obligations are owed (please see our answer to Question 13. for ways to structure this).

As mentioned in our answer to Question 12., the role of the agent or trustee is recognized where a security right is created over financial collateral (financial instruments and claims) under the Luxembourg Collateral Act or where a guarantee is expressly submitted to the PPG Act.

However, outside the scope of these two acts, the holder of a security right or the beneficiary of a guarantee must be the same person to whom the secured obligations are directly owed as a lender. To address this concern, parallel debt structures under which an appointed third-party acts as pledgee/beneficiary and under which parallel debt obligations (i.e. newly created obligations of the borrowers towards the agent mirroring the obligations of the borrowers towards the lenders) are secured, have been accepted in the market (e.g. for pledges over movable property or mortgages). In such case, only the agent would however benefit from a right in rem and the underlying creditors only have a contractual recourse against the agent. Such parallel debt structures have however, to our knowledge, never been tested before Luxembourg courts.

The choice of a foreign law (including English law) as the governing law of any agreement entered into by a Luxembourg company is generally recognized and given effect to by Luxembourg courts, subject to certain reservations laid down in Regulation (EC) No 593/2008 of 17 June 2008 on the law applicable to contractual obligations.

A court of competent jurisdiction in Luxembourg may however not apply the chosen foreign law if such choice is abusive and/or if:

i. such choice of law is abusive and/or if it is not pleaded and proved;

ii. such foreign law is contrary to overriding mandatory provisions (lois de police) of Lux-embourg or other jurisdictions where all other elements relevant to the situation at the time of the parties’ choice are located;

iii. the applicable provisions would be manifestly incompatible with the public policy of Lux-embourg or the European Union, or if the obligations arising out of a contract have to be or have been performed in another jurisdiction with applicable mandatory provisions; or

iv. a party is subject to insolvency proceedings, in which case it would apply, to the effects of such insolvency, the laws of the jurisdiction where such insolvency proceedings were regularly opened (subject to certain exceptions set out in Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (re-cast)).

New York judgments

Final and conclusive judgments of U.S. courts will be recognized and enforced in Luxembourg without further review of the substantive matters adjudicated thereby or re-examination of the merits of the case, subject to the enforcement (exequatur) procedure of the Luxembourg New Code of Civil Procedure. Under Articles 678 et seq. of the Luxembourg New Code of Civil Procedure, exequatur shall be granted if the Luxembourg court is satisfied that all of the following conditions are met: (i) the foreign court awarding the judgement has jurisdiction to adjudicate the respective matter under applicable foreign rules, and such jurisdiction is recognised by Luxembourg private international and local law; (ii) the foreign judgement is enforceable in the foreign jurisdiction; (iii) the foreign court has acted in accordance with its own procedural laws; (iv) the judgement was granted following proceedings where the counterparty had the opportunity to appear, and if it appeared, to present a defence; and (v) the foreign judgement does not contravene public policy (ordre public) as understood under the laws of Luxembourg or has been given in proceedings of a criminal nature.

The US have signed the Convention of 30 June 2005 on Choice of Court Agreements (“2005 Hague Convention”) and the Convention of 2 July 2019 on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters (“2019 Hague Convention”), but none of these has entered into force yet.

English judgments

Since Brexit, the exequatur procedure laid down above also applied to the enforcement of English courts judgments, except if the relevant agreement included an exclusive choice of court clause. In case of such exclusive choice of jurisdiction, the enforcement procedure of the 2005 Hague Convention, as construed by Luxembourg courts, applied.

Since 1 July 2025, the 2019 Hague Convention has been in force in the United Kingdom, thereby facilitating the recognition and enforcement of UK judgments in Luxembourg. In particular, pursuant to Article 5(1)(m) of the 2019 Hague Convention, judgments of UK courts rendered on the basis of non-exclusive jurisdiction arrangements may, in principle, be eligible for recognition and enforcement in Luxembourg, provided all other applicable conditions under the 2019 Hague Convention are met.

On 27 February 2025, the Court of Justice of the European Union (the “CJEU”) held in Case C‑537/23 (Società Italiana Lastre) that asymmetric jurisdiction clauses are not per se invalid under EU law. The CJEU ruled that the effectiveness of such clauses under Article 25(1) of the Brussels I Recast Regulation (Regulation (EU) No 1215/2012) depends on compliance with specific conditions, including that the clause can be interpreted as designating courts with sufficient predictability and precision, and that it does not conflict with mandatory jurisdiction rules. Although this ruling was rendered in the context of the Brussels I Recast Regulation, it is of broader significance for the assessment of asymmetric jurisdiction clauses under other instruments, including the 2019 Hague Convention.

New York Arbitration Convention

Luxembourg is a party to the New York Arbitration Convention, which was ratified by Luxembourg pursuant to a law dated 20 May 1983.

In accordance with the provisions of Article 437 of the Luxembourg Commercial Code (“LCC”), the Luxembourg Commercial Court (the “Court”) can open bankruptcy proceedings in relation to a company if (and only if) the following cumulative conditions are met: (a) the company is unable to pay its debts as they become due out of its own cash flow (i.e. due and payable liabilities exceed available assets (cessation de paiements)) and (b) the company is unable to obtain additional credit from its creditors or third-parties (e.g. banks) (ébranlement du crédit).

The payment term of all claims against the bankrupt company is accelerated upon the adjudication in bankruptcy. As for the administration of the bankruptcy, Articles 444 and 466 LCC provide that the managers/directors of the bankrupt company will be released from office as from the date of the adjudication in bankruptcy and one or more  trustees in bankruptcy (curateurs) will be appointed by the Court to manage the bankrupt company’s affairs and realise its assets in accordance with the provisions of the LCC. The trustee in bankruptcy must act as a reasonably prudent person (bon père de famille) in the management of the bankruptcy and shall act in the interest of the bankrupt company and the company’s creditors as a whole (masse des créanciers). It shall perform its functions under the supervision of a bankruptcy judge (juge-commissaire) with the objective of inter alia (a) managing the bankrupt company’s affairs (as the incumbent managers/directors are released from office), (b) immediately realising perishable assets or subject to imminent depreciation (Article 477 LCC), with the prior approval of the bankruptcy judge, (c) selling immovable assets with prior court authorization and (d) distributing the proceeds from the realised assets to creditors.

Pursuant to Article 496 LCC, the creditors of the bankrupt company are required to file a declaration of their respective claims with supporting documents at the registry of the Court within the time limit set in the adjudication of bankruptcy. In terms of claims’ filing deadlines, no distinction is made between foreign creditors and local creditors, but the bankruptcy judge may grant foreign creditors extensions for filing deadlines in certain circumstances.

Further steps shall be implemented towards the satisfaction of the declared and admitted claims to the bankruptcy, as per the provisions of Articles 528 et seq. of the LCC:

• the trustee in bankruptcy will prepare the distribution plan;
• a meeting of the company’s creditors (i.e. creditors whose claims have been admitted to the bankruptcy) will be convened, and the distribution plan will be submitted by the trustee in bankruptcy for approval by the bankruptcy judge only. Creditors can object to the distribution plan (Article 533 LCC); and
• once approval is obtained from the bankruptcy judge and all the assets have been distributed accordingly, the trustee in bankruptcy will then request the Court to close the bankruptcy proceedings. If the bankrupt company were then to be in boni, it would automatically continue as a going concern following the Court’s judgement closing the bankruptcy proceedings.

The Luxembourg Act of 7 August 2023, on businesses preservation and modernization of bankruptcy law and transposing Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132 (Directive on restructuring and insolvency) entered into force on 1 November 2023 (the “New Insolvency Law”).

The New Insolvency Law abolished certain proceeding (i.e., controlled management (gestion contrôlée) and composition with creditors (concordat préventif de faillite)), which were not used anymore in practice. It further transposes Directive 2019/1023 on restructuring and insolvency proceedings into Luxembourg law and thus introduced certain new proceedings (with and without court proceedings), the objective of which is primarily the continuance of the business of the relevant company. These include out-of-court mutual agreement (réorganisation extra-judiciaire par accord amiable), judicial reorganisation in the form of a stay to enter into a mutual agreement (sursis en vue de la conclusion d’un accord amiable), judicial reorganisation by collective agreement (réorganisation judiciaire par accord collectif), judicial reorganisation by transfer of assets or activities (réorganisation judiciaire par transfert sous autorité de justice).

The out-of-court amicable agreement is a private, consensual process whereby the debtor negotiates an agreement with at least two of its creditors to reorganise its assets or activities. The agreement may be homologated by the court to make it enforceable, but remains confidential and is not published. Third-parties may only become aware of it with the debtor’s express consent.

The judicial reorganisation in the form of a stay enables the debtor to obtain a court-ordered moratorium on individual enforcement measures in order to facilitate the negotiation of an amicable agreement with its creditors. During the stay, forced sales and seizures are suspended and new enforcement actions cannot be initiated.

A judicial reorganisation by collective agreement is obtained further to a court-supervised process whereby the debtor seeks creditor approval for a restructuring plan. The plan is binding on all creditors once approved by a majority in each class and homologated by the court, subject to cross-class cram-down mechanisms where applicable, with implementation capped at five years.

A judicial reorganisation by transfer of assets or activities consists of a court-ordered sale of all or part of the business to one or more third-parties, aimed at preserving the going concern and, where possible, safeguarding employment. It may be ordered where no reorganisation plan has been approved or, where appropriate, alongside other reorganisation measures.

In accordance with the provisions of Article 444 LCC, the bankrupt company shall be prevented from administering its assets as from the date on which it is declared bankrupt by the Court and all payments, transactions and acts carried out by the debtor as from the date of the adjudication in bankruptcy shall be deemed null and void, including the enforcement of any security granted over the bankrupt company’s assets to a lender.

Under the New Insolvency Law, the debtor can obtain a court-ordered stay (sursis). From the date of the court order granting the stay (certain protective effects may also apply from the time the application is filed), individual enforcement and forced execution measures are generally stayed—in particular, forced sales and seizures are suspended and new enforcement actions cannot be initiated. As a result, a lender will generally be unable to enforce or realise its security during the stay and must wait for the outcome of the reorganisation (including any plan), with enforcement typically resuming only when the stay ends or if the plan is revoked or terminated.

However, the Luxembourg Collateral Act contains an important exception for holders of qualifying collateral (i.e., financial instruments and claims within the meaning of the Luxembourg Collateral Act). Secured creditors holding such qualifying collateral may enforce their security interests notwithstanding the opening of bankruptcy or other insolvency or reorganisation proceedings against the collateral provider, subject to restrictions which exist in case of fraud.

The Court may determine the period for which payments shall be suspended, as per the provisions of Article 442 LCC. It shall set a date prior to the adjudication in bankruptcy, as from which time the company shall be deemed to be in a state of suspension of payments (cessation de paiements). Such hardening period or doubtful period (période suspecte) cannot be set more than six months (Article 442 LCC) prior to the date of the adjudication in bankruptcy. Certain acts and transactions carried out during such hardening period or within the ten days preceding this period (Article 445 LCC), may be voided.

Article 445 LCC provides for the ipso jure voidance of certain acts and transactions carried out during the hardening period. The transactions and acts referred to in Article 445 LCC are (a) transactions transferring property free of charge or without reasonable consideration, (b) payments by whatsoever means of debts that are not due yet, (c) payments of debts by non-cash means, and (d) the grant of security for debts contracted prior to the start of the hardening period.

Article 446 LCC provides that the Court may declare void all other payments made by the company for debts that are due, and all other transactions made in return for consideration after the suspension of payments and before the adjudication in bankruptcy, if the other party was aware of the company’s inability to meet its payment obligations. However, the fact that the other party knew about the company’s financial distress does not necessarily mean that it was also aware of the company’s inability to meet its payment obligations.

Finally, Article 448 LCC and Article 1167 of the Luxembourg Civil Code, both relating to fraudulent conveyance (actio pauliana) each enable a creditor to challenge any fraudulent payment, transaction or transfer made prior to the bankruptcy of the company, without any time limit.

However, as mentioned in our answer to Question 21., Luxembourg security interests falling within the scope of the Luxembourg Collateral Act, as well as their enforcement measures remain valid and enforceable against third-parties (including a bankruptcy trustee) even if entered into during the hardening period (save in case of fraud).

The LCC generally prohibits set-off (either legal, judicial or contractual) of pre-existing claims to the extent they were not liquid, payable and fungible (liquide, exigible, fongible) prior to the adjudication in bankruptcy, except for  statutory set-off where the claims are related and interdependent (créances connexes) (i.e. they arise from mutual obligations under the same agreement concluded before the hardening period (période suspecte)), or if the conditions for statutory set off (i.e., the claims and cross-claims are liquid, due and mutual) were met prior to the adjudication in bankruptcy. In addition, netting arrangements governed by the Luxembourg Collateral Act remain valid and enforceable against third-parties despite the opening of insolvency proceedings.

The general prohibition of set-off in the context of bankruptcy (save for the exceptions mentioned above) ensures that all creditors of the bankrupt company are treated equally and is in line with the purpose and intent of Article 444 LCC, which provides that the debtor shall be prevented from administering its assets as from the date on which it is declared insolvent by the competent court and that all payments, transactions and acts carried out by the debtor as from the date of the adjudication in bankruptcy shall be deemed null and void.

A security right will not necessarily have the priority over enforcement proceeds that has been agreed in the relevant security agreement, but may be subject to certain preferential liens (privilèges) on movable assets of debtors in favour of, inter alios, Luxembourg tax authorities and social security institutions, as well as employees in respect of their claims (if any); they may take precedence over the rights of other secured or unsecured creditors.

Notwithstanding the above, Luxembourg preferential liens may not affect a security right in the form of title security (droit de propriété) or, in certain circumstances, in the form of a retention right (droit de rétention) under the Luxembourg Collateral Act. The same holds true for mortgagees who may freely enforce their mortgage despite the adjudication in bankruptcy of the mortgagor and are considered as being outside the bankruptcy estate (hors masse).

With regard to insolvency laws in Luxembourg, a new procedure for administrative (i.e. the participation of the administrative court) dissolution without liquidation was introduced as of 1^st February 2023 for “ghost” companies. The New Insolvency Law has entered into force as from 1 November 2023.

As mentioned above in our answer to Question 16, certain outdated proceedings like controlled management (gestion contrôlée), composition with creditors (concordat préventif de faillite) have been abolished and replaced by out-of-court mutual agreement (réorganisation extra-judiciaire par accord amiable), judicial reorganisation in the form of a stay to enter into a mutual agreement (sursis en vue de la conclusion d’un accord amiable), judicial reorganisation by collective agreement (réorganisation judiciaire par accord collectif), judicial reorganisation by transfer of assets or activities (réorganisation judiciaire par transfert sous autorité de justice) pursuant to the New Insolvency Law.

Reflecting the general tendency in the European Union, the law of 15 March 2023 (bill 8055) introduced a clarification in the definition of financial instruments that can be pledged under Luxembourg law, to include securities accounts maintained in or through secure electronic recording devices, including distributed electronic registers or databases.

Recent amendments to the Luxembourg Collateral Act clarified and modernised the enforcement process of Luxembourg pledges subject to that law.

Such amendments concern (i) the trigger events for enforcement, (ii) the enforcement of financial collateral arrangements by way of sale and (iii) the application of enforcement proceeds.

The Luxembourg Collateral Act now clarifies that the parties to a Luxembourg pledge agreement may agree on any event “whatsoever” to trigger its enforcement, meaning that enforcement does not necessarily require a payment default in respect of the secured obligations if so agreed between parties.

Regarding the enforcement as such, the Luxembourg Collateral Act now expressly covers enforcement of pledges over claims under insurance policies (other than life insurance policies).

In addition, the Luxembourg Collateral Act no longer refers to a public auction by the Luxembourg stock exchange as the default competent authority for an enforcement by means of a public sale of the pledged assets, but sets out a more detailed, yet flexible framework, which allows public auctions to be carried out by a notary or bailiff. Where the pledged assets are admitted to trading, the Luxembourg Collateral Act has now extended the types of platforms on which a sale of the pledged assets may occur in the context of an enforcement.

The Luxembourg Collateral Act has further been amended by the Luxembourg legislator to introduce a new definition of “national or foreign provisions” to include “the provisions of another State that is a contracting party to the European Economic Area Agreement, or of another State”. The legislator explicitly stated that the original intention of the Luxembourg Collateral Act was to cover all foreign insolvency proceedings, not just those of EEA member states. This amendment, which came into force with the law of 15 July 2024 on the transfer of non-performing loans, was intended as a clarification rather than an addition.

This amendment was recently confirmed by case law in Luxembourg.

On 19 December 2024, the Luxembourg Supreme Court ruled that Article 20(1) of the Luxembourg Collateral Act must be interpreted to ensure the validity and enforceability of financial collateral arrangements under Luxembourg law in the context of insolvency proceedings opened in third-countries, not just within the EEA. Although the Luxembourg Collateral Act had already been amended in this sense, this ruling further underscores the attractiveness of Luxembourg law in protecting creditors.

Although there is neither any official statistics nor publicly available data in Luxembourg to support this statement, we have seen a clear uptick in the proportion of lending provided to Luxembourg companies by alternative credit providers over the past few years. Debt funds have in particular gained a significant market share. 90 % of the top 30 debt fund managers worldwide are present in Luxembourg. As for the Luxembourg private debt funds, they are mainly focused on three debt strategies: direct lending (52%), mezzanine (17%) and distressed debt (11%), noting that funds of funds (14%) are gaining traction.

It is also worth mentioning that Luxembourg is the leading venue in Europe for the listing of high yield debt securities issued by Luxembourg issuers or foreign issuers.

Distributed Ledger Technology (DLT) is becoming increasingly important in practice. Luxembourg legislation has been amended several times in recent years to reflect technological advances, particularly in the area of securities issuance. Although the legislation is technology-neutral, it explicitly refers to DLT.

In this context, the CSSF has also published a non-binding document in the form of a “white paper” aimed at guiding interested professionals in the conduct of their due diligence process related to the DLT and its use in the provision of services in the Luxembourg financial sector.

ESG considerations are increasingly important for financial sector participants, including for Luxembourg secured lending documentation, usually in line with LMA principles and guidelines.

The Covid-19 pandemic has firmly established the use of electronic signatures in Luxembourg law governed contracts, including for secured lending transactions.

Secured lending will certainly be significantly influenced by legislation promoting sustainability:

1. • A bill of law (8370) has been introduced to the Luxembourg Parliament to transpose Directive 2022/2464 on Corporate Sustainability Reporting (the “CSRD Directive”) into Luxembourg law. Its adoption will strengthen existing sustainability reporting requirements applicable to in-scope undertakings. On 16 April 2025, the Stop-the-Clock Directive (Directive (EU) 2025/794) was published, extending the first reporting year by two years for certain categories of undertakings. These enhanced reporting obligations may affect the information and representations required from borrowers in secured lending documentation, including sustainability-related covenants and disclosure undertakings.
   • On 12 February 2026, bill n°8628 was adopted to implement Directive (EU) 2024/927 (AIFMD II). The law was published in the Luxembourg Official Gazette on 9 March 2026 and is expected to enter into force by 16 April 2026, with certain provisions applying from 16 April 2027. Of particular relevance to lending and secured finance practitioners, the Law of 9 March 2026 introduces a comprehensive framework for loan origination by AIFs, including a 20% concentration limit per borrower (where the borrower is a financial undertaking, another AIF, or a UCITS), leverage caps of 175% for open-ended and 300% for closed-ended loan-originating AIFs, a prohibition on pure originate-to-distribute strategies, and a 5% loan retention requirement on transferred loans. Loan-originating AIFs are required to be of the closed-ended type as a general rule, with a limited exception subject to CSSF approval, and are prohibited from granting loans to consumers in Luxembourg. These requirements will have a direct impact on the structuring of lending transactions involving Luxembourg-domiciled AIFs.
   • A bill of law is expected to be introduced to transpose Directive (EU) 2024/1760 on Corporate Sustainability Due Diligence (the “CSDDD”), which will require in-scope companies to identify and mitigate adverse human rights and environmental impacts arising from their activities and value chains. On 26 February 2025, the European Commission adopted the Omnibus Package simplifying the CSRD Directive and the CSDDD. The resulting Omnibus Directive ((EU) 2026/470) significantly reduced the scope of both directives by raising applicable thresholds (including increasing the CSDDD turnover threshold to EUR 1.5 billion and the employee threshold to 5,000) and deferring the CSDDD application deadline to 26 July 2029. These changes are expected to narrow the universe of borrowers subject to mandatory sustainability reporting and due diligence obligations, which may in turn affect the scope of sustainability-related provisions in secured lending documentation.
   • Bill 8370 must be updated to consider the changes further to the approval of the Omnibus Package by the European Parliament.
   • A provisional agreement on an EU directive harmonising key aspects of insolvency law was reached on 19 November 2025 between the Danish presidency of the Council and European Parliament negotiators. The directive aims to simplify cross-border investment by reducing the current fragmentation, where investors must consider up to 27 different insolvency regimes across EU Member States. This harmonisation is a crucial step towards more efficient and integrated European capital markets. Following formal approval by the Council, Luxembourg will need to transpose the directive into domestic law, with consequent impacts on secured lending documentation and deal structuring.