The law of 28 October 2022 creating the procedure for administrative dissolution without liquidation (the Dissolution Law) introduces in Luxembourg a simplified administrative dissolution procedure the aim of which is to allow certain illegible companies to be dissolved without recourse to the formal judicial and liquidation process, as set forth by article 1200-1 of the Luxembourg law on commercial companies of 10 August 1915, as amended (the 1915 Law).
Background and objectives
The Dissolution Law originates from the decision of the Justice Committee to split the bill of law n°6539 into two separate texts, namely the bill of law 6539B dealing with the administrative dissolution procedure without liquidation and the bill of law no. 6539A regrouping the reform of insolvency procedures.
The introduction of the administrative dissolution procedure without liquidation is the result of observations over the years: (i) that a significant number of judicial liquidation proceedings concern companies that have repeatedly committed breaches of the 1915 Law (like for instance, lack of a registered office, resignation of the entire board of directors without replacement, failure to file annual accounts with the Register of commerce and companies (the RCLS); and (ii) that many companies subject to judicial liquidation are lacking any assets or no longer operational for some time. Closures of liquidation proceedings due to lack of assets are constantly increasing and result in a substantial administrative burden for the Courts and constantly increasing costs for the State.
Therefore, the introduction of a mechanism allowing these "empty shells" to be disposed of within a short period of time and at low cost to the State under certain conditions became of paramount importance.
Companies may be dissolved by this new simplified administrative dissolution procedure only if the three strict following conditions are cumulatively met:
- They have no employees;
- They have no assets; and
- They fall within the scope of article 1200-1 of the 1915 Law, which means that they perform activities contrary to criminal law or which seriously contravene the provisions of the Commercial Code or the 1915 Law, including those laws governing the authorisations to do business.
Certain entities that are subject to prudential supervision are excluded from the new simplified administrative dissolution procedure. Without being exhaustive, are amongst other excluded, credit institutions, insurance and reinsurance companies, certain types of investment funds, certain securitisation vehicles, payment institutions and electronic money institutions, as well as companies exercising the profession of lawyers. For a complete detailed list, please refer to article 2 of the Dissolution Law.
The procedure is twofold. Indeed, despite the administrative nature of the new simplified administrative dissolution procedure, it is only initiated at the request of the State prosecutor (procureur d’Etat) and in no case can a debtor himself request that the simplified procedure be applied to him.
In order to carry out the required checks, the State prosecutor can have recourse to a whole range of information that is already partly available to him, such as information from the RCSL. Other sources of information are also available, in particular information from the tax authorities, which the State prosecutor may request or which the authorities concerned may provide spontaneously.
Where there are precise and concordant indications that a company meets the three cumulative conditions, the State prosecutor shall request the administrator of the RCSL to initiate proceedings for administrative dissolution without liquidation.
The administrator of the RCSL will open the said simplified administrative dissolution procedure within three days of the State prosecutor’s request. Thus, he will notify the concerned company the decision by registered letter with acknowledgement receipt and publish the notice in two Luxembourg newspapers as well as in the electronic official gazette (Recueil électronique des sociétés et associations (RESA)).
As from the publication in the RESA of the above notification, article 444 of the Commercial Code shall apply, which means that the management from the concerned company is divested of any management power.
At the same moment in time, the administrator of the RCSL will start performing several checks to determine whether the cumulative conditions of the Dissolution Law are met or not. To this end, he will require communication of additional information on the financial and administrative situation of the relevant company and therefore will contact various designated intermediaries like credit institutions, non-life insurers, mortgage register, social security authority, etc..
After carrying out its analysis and tasks, the administrator of the RCSL shall inform the State prosecutor of the result thereof. If it is confirmed that the three cumulative conditions of the Dissolution Law are fulfilled, the State prosecutor shall request the administrator of the RCSL to continue and finalise the procedure for administrative dissolution without liquidation. However, if one of the cumulative conditions is not fulfilled, the State prosecutor shall request the administrator of the RCSL to halt the procedure. For sake of transparency and information of the public, the decision to discontinue the proceedings shall be published by the administrator of the RCSL in the RESA.
The concerned company as well as any interested third party who considers that the three cumulative conditions required for the implementation of the simplified administrative dissolution procedure are not fulfilled, may lodge an appeal against such decision before the judge presiding the chamber of the District Court (Tribunal d'Arrondissement) sitting in commercial matters acting as judge on the merits within one month following the publication of the decision in the RESA.
If the judge considers that the three cumulative conditions are not fulfilled, he shall revoke the decision to open such proceedings, which will be published on the RESA.
It is important to notice that if assets appear after the administrative dissolution without liquidation procedure has been terminated, the District Court may, at the request of the State prosecutor, annul the decision to terminate the administrative dissolution without liquidation procedure of the company and order its liquidation.
However, it is necessary to emphasize that in the absence of any definition of the notion of “assets” in the Dissolution Law, possible difficulties of interpretation are likely to arise in the future in this respect.
Timing and effect
The procedure for the simplified administrative dissolution procedure is closed at the latest six months after the publication of the decision to open the procedure at the RESA. The decision of the administrator of the RCSL to close the proceedings shall be published in the RESA.
The decision to close the operations of the administrative dissolution procedure without liquidation entails the dissolution of the company.
Entry into force
The Dissolution Law shall enter into force on the first day of the third month following its publication in the Official Gazette, which means that considering the publication date on 4 November 2022 of the Dissolution law, it will consequently enter into force on 1 February 2023.