Mathieu Laurent avocat à la Cour, Partner - Robert Goerend, Avocat à la cour, Partner – Grégory Maricle, Avocat, Senior Associate (Photo: Luther)

Mathieu Laurent avocat à la Cour, Partner - Robert Goerend, Avocat à la cour, Partner – Grégory Maricle, Avocat, Senior Associate (Photo: Luther)

In a global economic context marked by uncertainty, the Law of 7 August 2023 on the preservation of businesses and modernization of bankruptcy law in Luxembourg comes at just the right time.

Many businesses, particularly SMEs, are facing increasing financial difficulties as a result of inflation and geopolitical crises. This law aims to provide an appropriate legal framework to support these companies in difficulty, by encouraging their reorganization rather than their bankruptcy. Among the key measures, the judicial reorganization procedure stands out for its varied options for effective recovery.

Eligibility Requirements

The judicial reorganization procedure is aimed at any company in difficulty that is experiencing financial problems that could jeopardize its future, either in the short term or in the long term. It should be noted that the bankruptcy of the company is not an obstacle to the opening of the procedure.

Judicial reorganization proceedings

The company files a request with the court to explain its situation, attaching precise financial information to support its claim.

Once the procedure has been opened, it allows the company in difficulty to maintain, under the judge's supervision, the continuity of all or part of its business and to obtain a stay of execution with a view to implementing a solution aimed at restoring financial equilibrium. This solution may take one of the following forms:

1. Negotiation of an amicable agreement: The company enters into discussions with its creditors to reach an amicable agreement. This may include terms of payment, debt forgiveness or changes to credit terms.

2. Proposal of a reorganization plan leading to a collective agreement: The company draws up a formal reorganization plan to be presented to the court and voted on by the creditors. This plan must include specific measures to restore financial viability, such as reducing operating costs and restructuring debt.

3. Transfer of the business to a third party: In order to maintain all or part of the business in difficulty, the procedure also allows for the partial or total transfer of the business to a third party. This may involve the sale of assets, thereby preserving the business and jobs.

Conclusion

By offering a variety of solutions via the judicial reorganization procedure, the Law of 7 August 2023 encourages the survival of businesses, preserves jobs and contributes to the country's economic stability. Modernizing bankruptcy law was absolutely necessary to enable Luxembourg to maintain its position as an attractive and dynamic business center. According to statistics from the Luxembourg Trade and Companies Register, just over twenty companies have already initiated judicial reorganization proceedings in the last twelve months. It goes without saying that the use of this procedure should increase in the years to come.

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