19.11.2018

A small selection of Luxembourg procedural law of 2018

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Background

19.11.2018

A small selection of Luxembourg procedural law of 2018

Our latest overview of Luxembourg's case law informs you, among other things, of the New law on court enforcement of European account preservation orders and a Court of Appeal’s decision on the interpretation of court decisions.

 

 

Court of Appeal rules on loss of credit capacity in bankruptcy

On 25 April 2018 the Court of Appeal ruled on the loss of credit capacity in the context of bankruptcy. The case involved a company that intended to resist a creditor's application for bankruptcy on the basis that it had not lost its credit capacity, as it could prove that the funds needed to settle its debt were available in its lawyer's third-party account. Therefore, the court had to verify whether there was a loss of credit capacity, which is necessary to declare bankruptcy.

The court stated that a loss of credit capacity must exist at the time of the judgment, regardless of the situation at the time of the bankruptcy application. The court further ruled that the debtor's lawyer's confirmation that sufficient funds were available in his third-party account to settle the company's debts (regardless of the origins of the funds) sufficiently proved that the debtor had not lost its credit capacity.

Finally, the court rejected the creditor's argument that the availability of funds in an account, let alone a third-party account, did not guarantee the use of those funds to pay off the creditor.

This decision is notable due to its favourable impact on debtors. This was the first time that the availability of company funds, against which bankruptcy proceedings had been applied, in a thirdparty account was seen as a sufficient reason to avoid the loss of credit capacity. Thus, the court has finally clarified the notion of the loss of credit capacity referred to in Article 437 of the Code of Commerce in a way that is restrictive and favourable for debtors.
 

New law on court enforcement of European account preservation orders

Introduction
On 4 August 2018 the Law of 18 July 2018 on the Conversion of the European Account Preservation Order (EAPO) into an Enforceable Attachment of Bank Accounts (EAPO Conversion Law) came into force.(1) The law is based on the EU EAPO Regulation (655/2014).

The EU EAPO Regulation deals only with the conservatory phase; Article 23 thereof expressly refers to national law with regard to the enforcement phase, stating that attachment orders must be enforced through the courts in accordance with the procedures applicable to the enforcement of equivalent national orders in the member state of enforcement. Luxembourg's existing legislation proved to be poorly adapted to the execution of EAPOs, which created legal uncertainty for practitioners. This situation was deemed to be unacceptable in view of the considerable number of bank accounts opened in Luxembourg by international entities. The EAPO Conversion Law therefore adds Article 718-1 to the Civil Procedure Code, which sets out a specific court enforcement procedure applicable only to EAPOs.

Court enforcement procedure
According to Article 718-1, creditors that hold an enforceable judgment regarding a claim for which they have obtained an EAPO must have a conversion document served to the relevant Luxembourg banks and the debtor.

Conversion documents must contain:

  • a copy of Part A of the EAPO;
  • a copy of any decision that modified the EAPO;
  • a copy of the enforceable judgment;
  • a statement of the amounts due under the enforceable judgment;
  • a payment request; and
  • a statement that the conversion document will result in the immediate transfer of the claim to the creditor.


Debtors may object to the conversion deed in the event of:

  • the inaccuracy of the statement of the amounts due;
  • the disappearance or amendment of the enforceable judgment; or,
  • the cancellation or amendment of the EAPO.

Objections must be notified to the creditor and the bank within 15 days (without prejudice to any distance periods in the event that the debtor does not reside in Luxembourg). They will be judged by the president of the district court, whose decision cannot be appealed. If no objection is raised by the debtor within the time limit, the bank will proceed with payment on the presentation of a certificate prepared by the bailiff who served the conversion document.

Endnotes
(1) Further information is available here and here.

 

Court of Appeal rules on prorogation of general shareholders meetings

On 28 March 2018 the Court of Appeal ruled on the prorogation of general shareholders meetings.

Facts
Following the convening of a public limited company's ordinary general shareholders meeting, one of the shareholders, who held more than one-tenth of the company's share capital, informed the board of directors of the nullity of the convening notice and, at the same time, requested the prorogation of the meeting in his capacity as shareholder. Subsequently, a board of directors meeting noted that it did not have the quorum needed for a regular board of directors meeting and was thus unable to validly deliberate on the prorogation request. Consequently, the general shareholders meeting was held and not prorogated.

The shareholder who had requested the prorogation sued the other shareholders in order to have all of the decisions taken at the general shareholders meeting declared null and void. The company argued that only the board of directors could prorogate the general meeting and that, although it had met, it had been unable to deliberate on the prorogation because it had not had the required quorum (the plaintiff, who was also a member of the board of directors, had notably been absent).

Under Article 450-1(6) of the Law of 10 August 1915 on Commercial Companies, a board of directors can prorogate a general shareholders meeting for four weeks and must do so at the request of one or more shareholders representing at least one-tenth of the company's share capital. This extension cancels any decision taken by the shareholders.

Decision
The Court of Appeal confirmed the first-instance judgment, which had annulled the disputed general shareholders meeting. The court noted that the right of a shareholder representing at least one-fifth of the company's share capital to request prorogation cannot be denied. As regards the impossibility of achieving the quorum necessary to take a decision, the court noted that the company's articles of association provided that in case of emergency, a director may cast their vote in writing. According to the court, there had been urgency in this case and the plaintiff – who was not only a shareholder, but also a director – had agreed to the meeting's prorogation in a letter. Therefore, the board of directors could have validly taken the decision to prorogate the general meeting.

Comment
Although this decision confirms the existing case law on prorogation, it is notable as it is the first time that a court has ruled that a prorogation request can be made before, and not only during, a shareholders meeting. Ultimately, the decision strengthens the rights of minority shareholders.
 

Court of Appeal rules on interpretation of court decisions

On 28 March 2018 the Court of Appeal ruled on the interpretation of court decisions in a case concerning the enforcement of a pledge on shares given to a bank as part of a financing. The plaintiff (ie, the company that had granted the pledge to the bank) argued that the bank's enforcement of the pledge had been abusive because its enforcement conditions had been fulfilled before it had been granted. As the beneficiary of the pledge (ie, the bank) had been aware of this fact, the plaintiff  requested the cancellation of the pledge's enforcement and the restitution of the shares.

Although the court annulled the pledge, the plaintiff believed that the decision was unclear and consequently asked the court to clarify its position. It sought clarification as to whether the decision ordering the return of the shares entailed that the plaintiff should be considered a shareholder from the date on which the bank had:

  • unlawfully acquired the shares; or
  • effectively returned them to the plaintiff.

This question addressed case law interpretation, which is usually limited to clerical errors or ambiguous wording in decisions: a party may petition the Court of Appeal for interpretation purposes only if the interpretation is absolutely necessary and does not amount to an appeal on the merits.

In the case at hand, the court noted that it had stated in its initial decision that "the parties should be restored to the situation as if the loan had not been concluded" and inferred that the plaintiff should be repositioned to where it would have been if the harm had not occurred (ie, the plaintiff should be declared the owner of the shares as of the date on which the bank had unlawfully acquired them). Thus, the court implicitly argued that the language of its initial decision had already provided for the retroactive return of the shares and merely restated its previous decision without expanding on it.


For further information on this topic please contact:
 

 

Mathieu Laurent
Avocat à la Cour
Partner
Luther S.A., inscrite au Barreau de Luxembourg
mathieu.laurent@luther-lawfirm.com
Phone +352 27484 662

 

 

Maurice Goetschy
Avocat à la Cour
Senior Associate
Luther S.A., inscrite au Barreau de Luxembourg
maurice.goetschy@luther-lawfirm.com
Phone +352 27484 676
 

 

These articles were originally edited by, and first published on www.internationallawoffice.com