Administrative dissolution without liquidation – a sweep for dormant entities

November 14, 2022 | Publication

On 18 October 2022, the Luxembourg Chamber of Deputies passed a law (the Law) introducing administrative proceedings available to the Public Prosecutor (Procureur d’Etat), allowing him to initiate a company’s administrative dissolution without liquidation. The Law is the first part of the reform of bankruptcy procedures in Luxembourg.

These administrative dissolution proceedings are an alternative to judicial liquidations as set forth in Article 1200-1 of the law of 10 August 1915 on commercial companies, as amended (the Companies Law). It is mainly meant to tackle dormant entities quickly and at limited costs.

Opening cases

The administrative dissolution proceedings require that the following cumulative conditions are fulfilled.

The commercial company:

  • falls under the scope of article 1200-1, paragraph 1 of the Companies Law;
  • has no employees;
  • does not have any assets; and
  • pursues activities that are in breach of criminal law or that seriously contravene the provisions of the Luxembourg Commercial Code or the laws governing commercial companies, including business licenses.

Certain companies, such as entities subject to prudential supervisions (e.g. credit institutions and investment firms, (re)insurance companies, specialised investment funds, central securities depositories, venture capital investment companies, pension funds, and other institutions) are beyond the scope of the Law.

Process

Administrative dissolution is an option provided for by the Law, and is initiated by the Public Prosecutor, who requests the administrator of the Luxembourg RCS (Gestionnaire du Registre de Commerce et des Sociétés) (the Administrator) to open an administrative dissolution procedure without liquidation within three days.

The notification and the publicity of the procedure are made through a publication in the Luxembourg Trade and Companies Register (Registre de Commerce et des Sociétés) (RCS).

The Administrator then verifies whether the company fulfils the above-mentioned conditions of the administrative dissolution by requesting the company’s information from, inter alia, credit institutions or certain Luxembourg administrations.

The Administrator must inform the Public Prosecutor of the results of his investigation, with two possible outcomes:

  • all the conditions are not fulfilled, in which case the administrative dissolution is suspended and the decision to do so is published by the Administrator in the Luxembourg RCS;
  • all the conditions are fulfilled, in which case the decision of closing the administrative dissolution without liquidation is taken by the commercial division of the district court and is published by the Administrator in the Luxembourg RCS. This then leads to the dissolution of the company, not later than six months after the publication of the initial decision.
Remedies

A company being subjected to an administrative dissolution or any interested third party may object to such a proceeding to the commercial division of the district court in the month of the publication of the decision in the RCS.

If the commercial division of the district court rules that the conditions for the opening of an administrative dissolution procedure without liquidation are not fulfilled, the procedure is suspended, and the decision is published in the RCS.

If assets appear after the closure of the administrative dissolution procedure without liquidation, the commercial division of the district court may, at the request of the Public Prosecutor, revoke the decision to close the administrative dissolution proceeding without liquidation and order the company’s liquidation through the formal judicial dissolution and liquidation proceedings. In this case, the company is considered to exist only for the purpose of its liquidation.

Timing and next steps

The Law is scheduled to enter into force on the first day of the third month following its publication in the Official Gazette. Given that the waiver of the second vote was approved by the State Council on 25 October 2022, it is currently expected, provided that the publication still occurs in November, that the Law will take effect on or around 1 February 2023.

The second and most important part of the reform to modernise bankruptcy law is still pending at the Chamber of Deputies and is expected for mid-2023.

For more information, please contact Nicolas Marchand or Cédric Bless.

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