Luxembourg Parliament has Passed The Insolvency Modernisation Act
The Luxembourg parliament has passed the Insolvency Modernisation Act (IMA), which focuses on business continuity, restructuring, and modernising bankruptcy procedures. Prior to the IMA’s adoption, Luxembourg had a limited range of restructuring options, primarily based on consensus and solvency.
Traditionally, Luxembourg lacked effective restructuring procedures, as the existing ones were outdated and impractical. With the introduction of the IMA, Luxembourg aims to fill this gap by providing various judicial and extrajudicial restructuring processes in addition to the existing ones.
Key changes include mechanisms to prevent bankruptcy and the removal of outdated insolvency procedures (controlled management, composition with creditors, and reprieve from payment), which were rarely used.
The IMA’s adoption follows over ten years of legislative effort and emphasises preserving and reorganising a debtor’s business over liquidation.
The impact of the new restructuring procedures on local and international companies and their reception and implementation by insolvency practitioners and judiciary will depend on a number of factors including the efficiency and cost of the process. Many international stakeholders in Luxembourg companies will already be accustomed to availability of restructuring procedures with a moratorium on claims and may welcome this development.
It’s important to note that the IMA does not affect the special protection of collateral arrangements under the Financial Collateral Act.
- Scope of the IMA: The IMA applies to various entities, including traders, commercial companies, special limited partnerships, craftsmen, and civil companies.
- Introduction of Prevention Measures: The IMA introduces measures to detect financial difficulties early, involving the Minister of the Economy and the Minister for Small and Medium-sized Businesses and creating an Evaluation Committee for Businesses in Difficulties.
- Reorganisation by Amicable Agreement: The IMA allows debtors to negotiate amicable agreements with creditors, subject to court certification for enforceability, with clawback provisions not applying.
- Judicial Reorganisation: This procedure aims to preserve assets or activities under a judge's supervision, with suspension of enforcement measures and the possibility of transferring the business or reaching a collective agreement with creditors.
- Modernisation of Bankruptcy: The IMA amends provisions related to bankruptcy, including initiation by the public prosecutor, suspension of directors' obligations to declare cessation of payments, and changes in the classification of fraudulent bankruptcy offenses. It also broadens the eligibility criteria of restructuring professionals to be appointed as receiver (curateur).
- Entry into Force: The IMA came into force on 24 July 2023 .
- Outlook: The impact and practical feasibility of the IMA in Luxembourg's international debt restructuring landscape remain uncertain, and its success will come from advisers and court users becoming habituated with the practical usage and benefits of the new law and an adaptation by all stakeholders involved.