On 19 January 2023, the Luxembourg Court of Appeal provided an interesting clarification on the scope of the immunity of financial collateral arrangements provided for by the Law of 5 August 2005 (the "2005 Law").
In this case, a pledgee had applied to the District Court (“Tribunal d’arrondissement”) of and in Luxembourg for the compulsory realisation of a pledge against his debtor who had subsequently been put into judicial liquidation before the entry into force of the 2005 Law. Based on the 2005 Law, which established the immunity of financial collateral arrangements from insolvency proceedings, the pledgee requested the compulsory enforcement of the pledge, notwithstanding the existence of the insolvency proceedings.
The debate between the parties centred on the question of whether this immunity could also apply to collective proceedings that had been opened before the 2005 Law came into force.
The judges of the first instance ruled that the 2005 Law could not apply to collective proceedings opened before its entry into force on the grounds that such application would have the effect of making the 2005 Law retroactive, which would be prohibited by Article 2 of the Civil Code.
In an interlocutory judgment of 19 January 2023, the Court of Appeal disagreed with the judges of first instance. The Court of Appeal first recalled the principle that only the legislator can give retroactive effect to the law. Then, in this case, it held that the legislator had expressly intended to give retroactive effect to the 2005 Law in Article 27 which provides that financial collateral arrangements entered into before its entry into force are subject to the 2005 Law. After reaffirming the retroactive nature of the 2005 Law, the Court of Appeal finally ruled that the immunity provided for by the 2005 Law applies to both current and future collective proceedings.
With this decision, the Court of Appeal reaffirmed the retroactive nature of the 2005 Law and its immediate and full application, even in the case of collective proceedings opened before its entry into force.