Luxembourg. margaretha wilkenhuysen, alexander koch NautaDutilh

Transcription

1 Date:23/11/13 Time:21:19:04 Page Number: Luxembourg margaretha wilkenhuysen, alexander koch NautaDutilh I II III IV V VI VII VIII IX X XI Implementation and scope Application of Luxembourg law Information to be included in the articles of association and related documents 1 General remarks 2 Information to be included in the articles of association 3 Information to be made public 4 Effects of publication Incorporation requiring prior authorisation Incorporation by one or more persons Capital requirements 1 Minimum capital 2 Composition of the capital 3 Issue price of the shares 4 Payment for shares 5 Contributions in kind A Auditor s report B Exceptions 6 Transfer of assets after incorporation quasi apport 7 Losses 8 Prohibition an subscription for own shares Acquisition of own shares 1 Restriction and scope 2 Rules for portfolio shares 3 Sale of shares Cross-participations Pledge of own shares Financial assistance for acquisition of shares by a third party 1 General rule 2 Exceptions 3 Conflicts of interest Changes to capital 1 General remarks 2 Capital increase 541

2 Date:23/11/13 Time:21:19:05 Page Number: margaretha wilkenhuysen, alexander koch XII A Decisions and conditions B Shareholders pre-emptive rights C Payment for newly issued shares D Sanctions 3 Capital reduction A Capital reduction and creditors protection B Capital redemption C Withdrawal of shares D Redeemable shares Distribution of profits 1 Limitations on the distribution of profits 2 Interim dividends 3 Capital increase by the incorporation of reserves 4 Sanctions I Implementation and scope 1. The Second Company Law Directive was transposed into Luxembourg law by the Luxembourg law of 24 April The amendments to the Directive introduced by Directive 92/101/EEC of 23 November 1992 were implemented by the Luxembourg law of 12 March The further amendments introduced by Directive 2006/68/EC of 6 September 2006 were implemented by the Luxembourg law of 10 June The scope of the Second Company Law Directive is limited to public limited liability companies. In the case of Luxembourg, the coordination measures prescribed by this Directive shall apply to the société anonyme ( SA ). Under Luxembourg law, the rules set out under the Directive apply as well to the société en commandite par actions ( SCA ), to the extent that the provisions of the Luxembourg law of 10 August 1915 on commercial companies as amended from time to time (the Law ) apply, but not as such to the société à responsabilité limitée ( SARL ). 2. The Second Company Law Directive allows the Member States to exclude from its scope of application investment companies with variable capital and cooperatives in the form of a public limited liability company. Under the Law, however, cooperatives that do take the form of a public limited liability company (sociétés cooperatives organisées comme des sociétés anonymes) ( the Cooperative(s) ) are subject to the provisions applicable to the société anonyme, including those implementing the Second Company Law Directive, unless stated otherwise in the Law. An investment company with variable capital (sociétés d investissement à capital variable SICAV) under the Luxembourg law of 20 December

3 Date:23/11/13 Time:21:19:05 Page Number: 543 luxembourg concerning collective investment schemes, as amended ( the UCITS Law ), shall adopt the form of a société anonyme and is subject to the rules applicable to a société anonyme, including those implementing the Second Company Law Directive, unless stated otherwise in the said law of 20 December Pursuant to the Luxembourg law of 15 June 2004 (the SICAR Law ) relating to the investment company in risk capital (sociétés d investissement en capital à risque ( SICAR )), a SICAR may have a variable capital and, if it takes the form of an SA (or respectively of an SCA or a Cooperative), is subject to the provisions applicable to an SA (and respectively the special provisions applicable to an SCA or a Cooperative), provided the aforementioned law of 15 June 2004 does not state otherwise. II Application of Luxembourg law 3. Luxembourg applies the effective seat theory (siège réel) to determine the national law applicable to a company. Therefore, under Luxembourg law, the head office (domicile) of the company determines the company s nationality and thus whether it is governed by Luxembourg law (Art. 159 of the Law). In order to determine the head office (domicile), reference is made to the place of the company s principal establishment (administration centrale), which in turn is (refutably) presumed to be located at the registered office of the company (Art. 2 of the Law). If the company s head office (domicile) is located in Luxembourg, Luxembourg law will, in principle, determine the rules applicable to the existence of the company, its corporate name, the incorporation formalities, the dissolution and liquidation, the legal capacity, the composition, the powers and the functioning of the company s corporate bodies, the relations amongst the company s shareholders and between shareholders and the company, the acquisition and loss of the shareholder status, the rights and obligations attached to the company s shares and the exercise of these rights, the liability for violation of the Law and the company s articles of association, and the extent to which the company is bound by obligations entered into by its corporate bodies. 4. If the head office of a company is located abroad but such company has one or more locations where it conducts operations (sièges quelconques d opération) in the Grand Duchy Luxembourg, the place of its most important establishment in the Grand Duchy of Luxembourg, which it shall indicate for that purpose in the company s documents the publication

4 Date:23/11/13 Time:21:19:06 Page Number: margaretha wilkenhuysen, alexander koch of which is required by law, shall constitute the secondary domicile (domicile secondaire) of that company in the Grand Duchy of Luxembourg. III Information to be included in the articles of association and related documents 1 General remarks 5. An SA/SCA/SARL is incorporated by notarial deed (Art. 4 of the Law), whereas a Cooperative may also be incorporated by an instrument under private seal (Art of the Law). For an SA/SCA/SARL, the minimum information to be included in the instrument of incorporation is expressly provided for by Article 27 in conjunction with Articles 103 or 184 of the Law. Subject to the provisions concerning the share capital and the role of an independent auditor (réviseur d entreprises) in the description of contributions other than in cash, the minimum information required for a SARL is identical to the information required for an SA/SCA. For a Cooperative, the minimum information to be included in the instrument of incorporation is expressly provided for by Articles 115, 116 and 137 4(4) of the Law. With respect to an SA/SCA/SARL/Cooperative (and as opposed to a general partnership (société en nom collectif ) and a limited partnership (société en commandite simple)), it is required that the respective instrument of incorporation is published in its entirety in the official legal gazette (Mémorial, Recueil des Sociétés et Associations) (the Mémorial ), with the minimum information set out under no 6 and 8 of this chapter respectively. 2 Information to be included in the articles of association 6. The notarial deed of incorporation of an SA/SCA shall include at least the following information: (i) the identity of the natural or legal persons by whom or on whose behalf the instrument has been signed; (ii) the form of the company and its denomination; (iii) the registered office (i.e., at least the municipality (commune) where the registered office is located); (iv) the corporate purpose; (v) the amount of the subscribed capital and, where applicable, of the authorised capital (capital autorisé); (vi) the amount of the subscribed capital initially paid-up;

5 Date:23/11/13 Time:21:19:06 Page Number: 545 luxembourg 545 (vii) where several classes exist, the classes of shares, the rights attaching to each class, the number of shares subscribed to and, in the case of an authorised capital, the shares to be issued in each such class and any rights concerning each class, as well as the nominal value of the shares or the number of shares for which no nominal value is specified; and any special conditions restricting the transfer of shares; (viii) whether the shares are in registered or bearer form and any provision in relation to the conversion of securities supplemental to, or derogating from, the law; (ix) particulars of each contribution other than in cash, the conditions on which it is made, the name of the contributor and the conclusions of the report of the réviseur d entreprises in connection with contributions in kind (cf. no 21 of this chapter); (x) the reason for, and the extent of, any special advantages conferred at the time of incorporation of the company upon any person who participated in the incorporation of the company; (xi) if applicable, the number of securities or units which do not represent the stated capital, as well as the rights attaching thereto, in particular the right to vote at general meetings; (xii) insofar as they are not provided for by law, the rules determining the number and method of appointment of the members of the corporate bodies responsible for representing the company with regard to third parties, for the administration, for the management, for the supervision or the control of the company and the allocation of powers among such corporate bodies; (xiii) the duration of the company; (xiv) at least the approximate amount of the costs, expenses and remuneration or charges of whatever form, which are payable by the company or chargeable to it by reason of its incorporation; (xv) the municipality (commune), date and time of the annual general meeting of shareholders (Art. 70 of the Law); (xvi) confirmation by the notary that the funds to pay-up the share capital (or part thereof) have been deposited in a bank account opened for this purpose (Art. 26(2) of the Law). 7. In addition, the deed of incorporation of an SA/SCA includes in practice the following information: (i) the opening and closing date of the company s fiscal year; (ii) the conditions for admission to general meetings of shareholders and for the exercise of voting rights thereat;

6 Date:23/11/13 Time:21:19:07 Page Number: margaretha wilkenhuysen, alexander koch (iii) the exact address of the registered office; (iv) the name, profession, date/place of birth, address, registration number, as applicable, of each person to be entrusted with the management of the company as well as the duration of their mandate (maximum of six years for an SA/SCA); in the case of an entity being appointed director, information on its permanent representative who must be a physical person is required; (v) in the case of a two-tier management structure, the names, profession, date/place of birth and address of the members of the supervisory board as well as the duration of their mandate (maximum of six years for an SA/SCA); (vi) the name, date/place of birth, address, registration number, as applicable, of the company s statutory auditor (commissaire aux comptes) or, as the case may be, approved independent auditor (réviseur d entreprises agréé) as well as the duration of their mandate (maximum of six years for an SA/SCA). The information mentioned in items (iii) through (vi) above should be included in the deed of incorporation rather than in the articles of incorporation to avoid having to amend the articles for example, every time a new director is appointed. The instrument of incorporation of an SCA must identify the unlimited partners who are jointly liable for the company s obligations. The general partners of this type of company have unlimited liability, while the limited partners can be held liable up to the amount of their subscriptions or contributions to the capital. Only unlimited partners may be entrusted with the management of the company. 8. In addition to the information mentioned under items (i) through (iv), (xi) through (xiii) and (xv) of no 6 of this chapter, the instrument of incorporation of a Cooperative shall include at least the following information: (i) instead of the information mentioned under items (vi) and (vii) of no 6 above: the manner in which the corporate fund is or will subsequently be made up, and the minimum amount to be subscribed for immediately; and the number of shares subscribed to, the category of shares if more than one category exists and the rights of each of such categories;

7 Date:23/11/13 Time:21:19:07 Page Number: 547 luxembourg 547 (ii) the conditions for admission to, and resignation from, membership and for exclusion of the members and withdrawal of contributions; (iii) how and by whom the business of the company is to be managed and controlled and, if appropriate, the method of appointment and removal of the managers, directors and statutory auditors, the extent of their powers and their term of office; (iv) the powers of the general meeting, the rights conferred upon members thereat, the procedure for convening meetings, the majority required for the validity of resolutions and the procedures for voting; (v) the sharing in profits and losses; (vi) the extent of the liability of the members, whether they are liable for the commitments of the company jointly and severally or only severally, against their entire assets or only up to a specified amount. An SA/SCA/Cooperative may, inter alia, be declared null and void if its articles of association do not include information on its corporate form and name, corporate object, the capital contributions or the amount of its subscribed share capital (Arts. 12ter, 115 of the Law). The nullity of an SA/SCA based on these grounds takes effect as from the date of the relevant court decision. It is however not enforceable against third parties prior to the due publication of the said court decision (Art. 12quater of the Law). With respect to a Cooperative, no such nullity may be relied upon by the members of a Cooperative towards third parties. Between the members of a Cooperative themselves, any such nullity shall produce its effects only as from the date of the application for a court order to declare such nullity (Art. 115 of the Law). 3 Information to be made public 9. Pursuant to the Second Company Law Directive, certain information must be made public, upon incorporation and afterwards, so as to enable third parties to understand the characteristics of the company in question. This information is listed at no 6 of this chapter (for an SA/SCA) to no 8 of this chapter (for a Cooperative). In a first step, this information must be filed with the Luxembourg Trade and Companies Register ( the RCS ) in accordance with the Law and the Luxembourg law of 19 December 2002 concerning the trade and companies register and the accounting and annual accounts of companies, as amended (the 2002 Law) within one month from the

8 Date:23/11/13 Time:21:19:07 Page Number: margaretha wilkenhuysen, alexander koch company s incorporation or respectively the amendment of the relevant information (cf. Art 15 of the 2002 Law, Art 9 1 of the Law), by filing a (n) (electronic) standard form with the RCS. At incorporation (or upon any further amendment of the articles of association), the notary before whom the company is incorporated (or the articles of association are amended), is responsible for filing the form, together with the deed of incorporation (or the deed relating to the amendment of the articles of association) and any additional relevant documents such as powers of attorney and the independent auditor s report on any contributions in kind, as the case may be. In a second step, within two months from its filing, the relevant information must be published in the Mémorial. The information is published in at least one of the official languages of the Grand Duchy of Luxembourg, i.e., Luxembourgish, French and/or German. For this reason, the deeds of incorporation/the articles of association of limited liability companies regularly include an English version followed by a French or German version, whereby the English version generally prevails. Certain information, such as restated articles of association (statuts coordonnés), which need to be filed with the RCS after each amendment of the company s articles of association (cf. Art. 11bis 3 of the Law), and (also consolidated) annual accounts (cf. Art. 9 3 of the Law), does not need to be published in its entirety; instead, the publication in the Mémorial of a mention of the filing of such information with the RCS is sufficient. 4 Effects of publication 10. Documents and extracts of documents that by law are subject to publication will only be valid towards third parties from the day of their publication in the Mémorial unless the company proves that the relevant third parties had prior knowledge thereof. Third parties may however rely upon documents or extracts thereof that have not yet been published (Art. 9 4 of the Law). However, with regard to transactions taking place before the sixteenth day following the day of publication, these documents or extracts of documents will not be valid towards third parties who prove that it was impossible for them to have had knowledge thereof. 11. In the event of any discrepancy between the document filed and the document published in the Mémorial, the latter is not valid towards third parties. Third parties may however rely upon the same unless the company proves that they had knowledge of the text of the document filed.

9 Date:23/11/13 Time:21:19:08 Page Number: 549 IV luxembourg 549 Incorporation requiring prior authorisation 12. Luxembourg law does not require a prior authorisation to commence business, except for specific types of trade, commercial, regulated or licensed activities, such as banking or insurance activities. An SA/SCA/SARL/Cooperative acquires legal personality upon execution of its instrument of incorporation, a société européenne (SE) however not until its filing with the RCS. V Incorporation by one or more persons 13. An SA/SARL may be incorporated by a single founder. If one shareholder holds or acquires all the shares of the company, the shareholder will be called the sole shareholder (l associé unique). As a principle, the liability of the sole shareholder is limited to the amount of its contribution (Art. 23 of the Law). The death or the dissolution of the sole shareholder does not result in the dissolution of the company (Art. 23 of the Law). For as long as all shares are held by a single shareholder, that shareholder will act as the general meeting. The resolutions of the single shareholder shall be documented in minutes. An SE may have a single shareholder if it is formed by conversion of an SA governed by Luxembourg law the shares of which are held by a sole shareholder and which has for at least two years a subsidiary governed by the laws of another Member State of the European Economic Area (Art. 3 of the Law). 14. An SCA can be established by one or more shareholders who are indefinitely and jointly and severally liable for the obligations of the company and shareholders who only contribute a specific share of capital. Given that the unlimited shareholder may in practice be at the same time a limited shareholder of the SCA, at least two founding shareholders are thus required. 15. A Cooperative may be incorporated by one founder (Arts (1), 137-4(2), 26(1) 1) of the Law). VI Capital requirements 1 Minimum capital 16. An SA must have a share capital of at least EUR 30, (Art. 26(1) of the Law). The capital must be fully subscribed and at least 25 per cent

10 Date:23/11/13 Time:21:19:08 Page Number: margaretha wilkenhuysen, alexander koch must be paid-in. In the case of a contribution in kind, the remainder must be paid in within five years from incorporation (Art. 26-1(1) of the Law). The same applies to the SCA. An SE must have a fully subscribed capital of at least EUR 120,000 (Art. 26(1) of the Law). A SARL must have capital of at least EUR 12, (Art. 182 of the Law). The capital must be fully subscribed and paid in at incorporation. No minimum corporate funds (fond social) are required for Cooperatives. Its articles of association yet need to provide for a minimum amount below which the corporate funds shall never drop. The corporate deed (acte de société) shall specify the minimum corporate funds that shall be immediately subscribed; however, no immediate payment thereof is required by law (Art (2) of the Law). A société cooperative européenne (SCE) must have a subscribed capital of at least EUR 30,000 (Art. 3(2) SCE Regulation). 2 Composition of the capital 17. In the event of contributions in kind, the assets contributed must be capable of economic assessment; an undertaking to perform work or supply services is yet expressly excluded (Art of the Law). Knowhow can be contributed if it is reflected in a tangible asset, such as recipes, trade secrets, manufacturing knowledge and information about computer software, or if its forms part of a business or branch of activity. The right to obtain know-how cannot be contributed as this constitutes an undertaking to perform a service. Goodwill may be contributed when linked to a particular business and thus being capable of economic assessment so long as it is not considered to represent an undertaking to supply a service (i.e., to make customers available to the buyer in exchange for shares). 3 Issue price of the shares 18. The shares can be issued with or without a nominal value. In the first case, the nominal value must be mentioned in the articles of association. A Cooperative only may issue shares with different nominal values (Art (6) of the Law). In principle, the nominal value determines the rights

11 Date:23/11/13 Time:21:19:08 Page Number: 551 luxembourg 551 of the shareholders. In a SARL, shareholders 1 are entitled to a number of votes corresponding to that portion of the capital represented by their shares. The same holds true for an SA/SE/SCA/Cooperative unless shares without voting rights are issued, which may, in the case of an SA/SE/SCA, not represent more than 50 per cent of the share capital. In an SCA, the general partner has de facto a veto right with respect to measures to be adopted or ratified by the general meeting that affect the interests of the company towards third parties or that amend the articles of association, subject however to any contrary provision of the articles (Art. 111 of the Law). The capital represented by the shares held also determines the preemptive rights of a specific shareholder in the event of a capital increase of an SA/SE/SCA by means of contributions in cash (cf. no 56 et seq. of this chapter). The articles of association cannot provide otherwise. However, the articles may freely determine dividend rights, although a shareholder may not be excluded altogether from the profits or from sharing the company s risk. The articles of association of a Cooperative may as well freely determine shareholder rights provided a shareholder is not excluded from the profits or from sharing the Cooperative s losses. Shares may not be issued for an amount lower than their nominal value or, in the absence of a nominal value, their accounting par value. However, those persons who undertake to place shares in the exercise of their profession, may, with the consent of the company, pay less than the total amount of the shares for which they subscribe in the course of such a transaction (Art. 26-5(2) of the Law). 4 Payment for shares 19. At least 25 per cent of the issue price of each share of an SA/SE/SCA must be paid-in. A contribution in kind must be paid-in entirely within five years (Art. 26-1(1) of the Law). So long as the shares have not been paid in their entirety, they will be in nominative form (Art. 43 of the Law). The exercise of voting rights attached to shares in respect of which calls have not been paid shall be suspended until such time as those calls which have been duly made and are payable shall have been paid (Art. 67(7) of the Law). 1 For ease of reading, this report uses the same terminology for a SARL as for an SA, i.e., shareholder and shares, it being understood that the Law by times uses terms with respect to a SARL that are distinct from those used with respect to an SA (e.g., associé, part sociale ).

12 Date:23/11/13 Time:21:19:09 Page Number: margaretha wilkenhuysen, alexander koch In an SARL, all of the capital must be fully paid-in upon subscription, irrespective of whether all shares are held by a single or more persons and irrespective of whether the payments are made by contribution in cash or in kind (Art. 183 of the Law). There is no minimum capital requirement with respect to a Cooperative. No immediate payment of the corporate funds provided for by the relevant Cooperative s corporate deed is required (Art (2) of the Law). In a SCE, at least 25 per cent of the nominal value of the shares issued in return for cash must be paid-up on the subscription date; the balance must be paid within five years unless the articles provide for a shorter period (Art. 4(4) SCE Regulation). Shares issued in return for a contribution in kind must be fully paid-up on the date of issuance (Art. 4(5) SCE Regulation). 20. Payments in cash must be made to an account opened in the name of the company in formation with, in principle, the Luxembourg branch of a bank. The funds shall be blocked on the account and a certificate (certificat de blocage) of payment be provided to the notary no later than the time of incorporation. The funds are released after the company s incorporation and the issue by the notary of a certificate to this end (certificat de déblocage). In general and unless the articles provide otherwise, the board of directors/management board/manager(s) shall determine the exact date on which the remaining contributions shall be paid-in, based on the corporate interest and the financial needs of the company. As long as the board or directors/management board/manager(s) have not yet called for payment, the shareholders are not entitled to pay in the balance of their contributions. 5 Contributions in kind A Auditor s report 21. In the event of a contribution in kind, a registered independent auditor (réviseur d entreprises agrée) must prepare a report prior to incorporation (or respectively prior to any increase of share capital). The auditor must be a member of the Luxembourg Institute of registered auditors (Institut des Réviseurs d entreprises) and is appointed by the founders (Art. 26-1(1) of the Law). These rules apply to the SA, the SE, the SCA and the SCE. In contrast, these rules do not apply to the SARL nor to the Cooperative (Art (3) of the Law).

13 Date:23/11/13 Time:21:19:09 Page Number: 553 luxembourg 553 The independent auditor s report must include a description of each asset contributed to the capital and the valuation methods used. In addition, it must specify whether the values arrived at by application of these methods correspond at least to the number and the nominal value or, if there is no nominal value, the accountable par of the shares and, if applicable, the share premium (Art. 26-1(3) of the Law). The auditor s conclusions and identity must be mentioned in the instrument of incorporation or in the instrument of capital increase (Art. 26-1(3) of the Law). 22. The independent auditor s report shall be annexed to the instrument of incorporation or of capital increase and be filed together with this instrument with the RCS and published in the Mémorial. B Exceptions 23. An independent auditor s report is not required for certain assets whose value has been established otherwise. Luxembourg law provides for such an exception if 90 per cent of the nominal value or, in the absence thereof, the accountable par of all shares is issued to one or more companies in return for a contribution in kind and if the following requirements are met: (i) the founders of the issuing company have agreed to dispense with the independent auditor s report and their agreement; (ii) such dispensation remains attached to the instrument of incorporation; (iii) the contributing companies have reserves which by law or pursuant to their articles of association may not be distributed and which are at least equal to the nominal value or, if there is no nominal value, the accountable par of the shares issued in return for the contribution in kind; (iv) the contributing companies guarantee, up to an amount equal to the nominal value or accountable par value of the issued shares, payment of the debts of the issuing company arising between the time the shares are issued and one year after publication of the company s annual accounts for the financial year during which the contribution was made; (v) any transfer of the shares issued in return for the contribution in kind is prohibited within the period mentioned in (iv); (vi) the guarantee referred to in (v) is made in an annex to the instrument of incorporation;

14 Date:23/11/13 Time:21:19:09 Page Number: margaretha wilkenhuysen, alexander koch (vii) the contributing companies incorporate a reserve at least equal to the amount indicated in (iii), which may not be distributed until three years after the publication of the annual accounts of the issuing company for the financial year during which the contribution was made or, if necessary, until such later date on which all claims relating to the guarantee referred to in (iii) submitted during this period have been settled (Art. 26-1(4) of the Law). In addition, no independent auditor s report is necessary with respect to the following types of assets: (i) transferable securities or money-market instruments traded on a regulated market; (ii) other assets for which a fair value opinion by a recognised independent auditor that is not older than six months is available; and (iii) other assets the value of which can be determined with reference to audited statutory accounts of the preceding financial year (Art 26-1 (3bis), (3ter) and (3quater) of the Law). (i) The first type of assets includes transferable securities and moneymarket instruments. 2 Transferable securities are defined as securities that are negotiable on a capital market (with the exception of payment instruments), including shares in companies and other securities equivalent to shares in companies, partnerships or other entities, and depositary receipts in respect of shares; bonds or other forms of securitised debt, including depositary receipts in respect of such securities; and any other securities giving the right to acquire or sell any such transferable securities or giving rise to a cash settlement determined with reference to transferable securities, currencies, interest rates or yields, commodities or other indices or measures. Moneymarket instruments are defined as instruments that are normally traded on the money market, such as treasury bills, certificates of deposit and commercial papers but excluding payment instruments. Such transferable securities and money-market instruments can be contributed without an independent auditor s report if they are valued at the weightedaveragepriceatwhichtheyhavebeentradedononeormore regulated markets over a period of six months preceding their effective contribution date. The EU Regulated Market (or Bourse de Luxembourg market) and the exchange-regulated market (Euro MTF Market, implemented in 2005) are the regulated markets in Luxembourg. In the event the market price has been affected by exceptional circumstances liable to significantly influence the value of the securities or the money-market instruments at the date of their contribution, a 2 In the sense of Article 4(1)(18) and (19) of Directive 2004/39/EC of 21 April 2004 on markets in financial instruments.

15 Date:23/11/13 Time:21:19:10 Page Number: 555 luxembourg 555 revaluation must be carried out at the initiative and under the responsibility of the board of directors of the company issuing the shares. This will notably be the case when the market for the securities or money-market instruments has become illiquid. In the event of a revaluation, an independent auditor s report will be required as set out above under no 21 and 22 of this chapter. (ii) Assets other than securities or money-market instruments admitted to trading on a regulated market can be contributed without an independent auditor s report being required if, upon decision of the board of directors of the issuing company, (a) the fair market value of each asset can be determined from the statutory accounts, provided these have been audited in accordance with Directive 2006/43/EC of 17 May 2006 on statutory audits of annual accounts and consolidated accounts; or (b) the assets have been subject to a fair value opinion by an independent auditor and the following conditions are met: (i) the fair value is determined as of a date no more than six months before the effective contribution date; and (ii) the valuation has been performed in accordance with valuation standards and principles generally accepted in Luxembourg with respect to the type of assets contributed. If new circumstances arise which are liable to significantly change the fair value of the assets as at the effective date of contribution, a revaluation must be carried out by an independent auditor as set out above under no 21 and 22 of this chapter at the initiative and under the responsibility of the board of directors. In the event of a capital increase, if the board of directors fails to have a revaluation performed, one or more shareholders collectively holding at least 5% of the subscribed capital on the date the decision to increase the capital is taken may request a revaluation by an independent auditor in accordance with no 21 and 22 of this chapter. The request for revaluation must be submitted no later than the effective contribution date, provided that the requesting shareholders still hold 5 per cent of the shares at that time. The company shall bear the expense of the revaluation. 24. If no independent auditor s report is required (cf. no 23 of this chapter), the company shall publish a declaration with additional information on the contribution. This declaration must include the following information: (i) a description of the contributed assets; (ii) the name of the contributor, (iii) the value of the contribution in kind, the source of the valuation and, where appropriate, the valuation method; (iv) the nominal value of the shares issued in exchange for the contribution in kind or, in the absence thereof, the accountable par; (v) a statement as to whether the value of the

16 Date:23/11/13 Time:21:19:10 Page Number: margaretha wilkenhuysen, alexander koch received value corresponds at least to the number, the nominal value or, in the absence thereof, the accountable par value of and, if any, the share premium on the shares to be issued in exchange for the contribution in kind; and (vi) a statement that no new qualifying circumstances liable to affect the original valuation have occurred (Art.26-1(3quinquies) of the Law). At incorporation, this declaration is prepared by the founders; if the contribution is made further to a capital increase, it is prepared by the board of directors. The said declaration must be published within one month after the effective contribution date in accordance with Article 9 of the Law (cf. no 9 of this chapter). 25. If a contribution in kind is made further to a capital increase within the limits of the authorised capital (capital autorisé), an announcement including the date of the decision on the capital increase and the same information as the declaration (cf. no 24 of this chapter) must be published before the contribution becomes effective. The purpose of this announcement is to inform all interested parties before the transaction. However, no specified time period between the date of the announcement and the effective date of the capital increase is provided for. In this case, if the declaration is published at the time of or after the capital increase, it may be limited to a statement that no new qualifying circumstances have occurred since the announcement. The announcement shall be filed with the RCS and be published in the Mémorial. It is not clear whether the shareholders, upon being informed by the announcement of the contribution in kind without an independent auditor s report, are entitled to request that a report be prepared if the contributed assets are not securities or instruments admitted to trading on a regulated market (cf. no 24 in fine of this chapter). It may be argued that an announcement would be pointless if shareholders, who besides have concurrent competence to increase the company s share capital, are not entitled to request an auditor s report. Therefore, it should be possible for shareholders collectively holding at least 5 per cent of the subscribed capital to request valuation by an independent auditor, no later than the effective contribution date. The company shall bear the valuation costs. 26. Non-compliance with the rules on the preparation and filing of the independent auditor s report can result in the imposition of criminal sanctions. In addition, the directors can be held liable if they violate the above rules.

17 Date:23/11/13 Time:21:19:10 Page Number: 557 luxembourg Transfer of assets after incorporation quasi apport 27. The acquisition by a company, within two years following its incorporation, of any asset belonging to a natural or legal person by whom or on whose behalf the instrument of incorporation was signed, for a consideration of not less than 10 per cent of the subscribed capital, shall be subject to a verification and publication as provided in Article 26-1 of the Law (cf. no 21 et seq. above) and subject to the approval by the general meeting of shareholders. The approved independent auditor is appointed by the board of directors or by the management board, as the case may be (Art of the Law). These rules apply to a SA/SE/SCA, but not to a Cooperative/SARL/SCE. However, no independent auditor s report and no approval by the general meeting of shareholders are required for acquisitions made in the normal course of a company s business or for acquisitions on a stock exchange or at the initiative of or under the control of an administrative or judicial authority. For the avoidance of doubt, an auditor s report is not required either in the cases discussed at no 24 of this chapter. The directors shall be liable to the company, in accordance with general law, for the execution of the mandate given to them and for any misconduct in the management of the company s affairs. They shall be jointly and severally liable both towards the company and any third parties for damages resulting from the violation of the Law or the articles of association of the company. They shall be discharged from such liability in the case of a violation to which they were not a party provided no misconduct is attributable to them and they have reported such violation to the first general meeting after they had acquired knowledge thereof (Art. 59 of the Law). Based on this, the board of directors or the management board may be held liable for any damage which immediately and directly results from a valuation that is clearly too high. 7 Losses 28. If, as a result of losses, the net asset value falls to less than half the subscribed share capital, without prejudice to stricter provisions in the company s articles of association, the board of directors or the management board shall convene a general meeting of shareholders so that it is held within a period not exceeding two months from the time at which the loss was or should have been ascertained by them in order to deliberate and vote on the liquidation of the company or other

18 Date:23/11/13 Time:21:19:11 Page Number: margaretha wilkenhuysen, alexander koch restructuring measures on the agenda, with the quorum and majority required for the amendment of the articles of association. The same rules shall be observed where the net asset value falls to less than 25 per cent of the subscribed share capital provided that in such case, dissolution shall take place if approved by 25 per cent of the votes cast at the general meeting of shareholders. In the event of any infringement of these provisions, the directors may be declared personally and jointly and severally liable towards the company for all or part of the increase of the loss (Art. 100 of the Law). Given that the directors do not have control over the company s shareholders, they may not be held liable if the shareholders refuse to inject additional funds into the company; they may only be held liable for any prejudicial consequences of not having duly convened the general meeting. If the company s losses are subsequently reduced and its net asset value rises above the 25 per cent or 50 per cent threshold, the abovementioned procedure will have to be reapplied if the net asset value again falls below one of these thresholds. However, there is no need to apply this procedure at the end of each fiscal year if no thresholds have been crossed in the meantime. These rules apply to the SA/SE/SCA/Cooperative and SCE, but not expressly to the SARL. The managers of a SARL should nevertheless apply these rules in order to limit their own potential liability. The district court (tribunal d arrondissement) dealing with commercial matters, may, at the application of the public prosecutor (Procureur d Etat), inter alia order the dissolution and the liquidation of any company governed by Luxembourg law which seriously contravenes the provisions of the commercial code or the laws governing commercial companies including those laws governing authorisations to do business. 8 Prohibition on subscription for own shares 29. A company cannot subscribe to its own shares (Art. 49-1(1) of the Law). The subscription of shares of a company by a subsidiary of that company may on certain conditions be deemed a subscription of own shares by that company (cf. no 36 et seq. of this chapter on crossparticipations). If the shares of a company have been subscribed for by a person acting in his own name but on behalf of the company (or the subsidiary), the subscriber shall be deemed to have subscribed for them for his own account.

19 Date:23/11/13 Time:21:19:11 Page Number: 559 luxembourg 559 The above prohibition does not apply to any subsidiary acting in its capacity and in the context of its activities as a professional dealer in securities, provided that it is a member of a stock exchange situated or operating within a Member State of the European Community, or is authorised or supervised by an authority of a Member State of the European Community competent to supervise professional dealers in securities which may include credit institutions (Art. 49bis(4) of the Law). The prohibition does not apply either in the event that the subscription is effected on behalf of a person other than the subsidiary and who is neither the issuing company nor another company in which the issuing company directly or indirectly holds a majority of the voting rights or on which it can directly or indirectly exercise a dominant influence. The natural or legal persons as well as the founding shareholders (Art. 29(2) of the Law) or, in the case of an increase of the subscribed capital, the members of the board of directors shall be obliged to pay-up any shares subscribed for in contravention of this Article 49 of the Law. However, the above-mentioned persons may be released from that obligation on proving that no misconduct is attributable to them personally. The prohibition applies expressly to the SA, the SE, the SCA and the SCE, but not to the Cooperative or the SARL. The Law does not expressis verbis rule out the possibility for a SARL to subscribe to its own shares. Yet given the requirement under Article 183 of the Law of full payment of the shares issued by a SARL, it is generally considered that the prohibition under Article 49-1 of the Law may be applied mutatis mutandis to a SARL. As a result thereof, and in application of Article 184(2) of the Law, the founders of a SARL and, in the event of a capital increase, also its managers shall be jointly and severally liable towards all interested parties for the portion of the capital subscribed to by the company itself. They will by operation of law considered to be subscribers thereof. VII Acquisition of own shares 1 Restriction and scope 30. In general, a Luxembourg company is entitled to buy its own shares. Further to the Second Company Law Directive, a limited liability company was only allowed to purchase up to 10 per cent of its outstanding shares. This cap was abolished pursuant to the Luxembourg law of 10 June 2009 implementing Directive 2006/68/EC of 6 September 2006.

20 Date:23/11/13 Time:21:19:11 Page Number: margaretha wilkenhuysen, alexander koch These rules apply to the société anonyme (SA), the European company (SE) and the société en commandite par actions (SCA). The transfer of shares in a Cooperative is not allowed; however, its shareholders have the right to exit the Cooperative and receive reimbursement for their shares (Arts. 113, 120, first sentence, of the Law). In this respect, there is still a debate about the société à responsabilité limitée (SARL). It may be argued that, since the acquisition of own shares is not expressly prohibited by the Law, it may be foreseen in the company s articles of association as long as it does not restrain the right of veto of the shareholders and there are sufficient funds enabling the company to acquire its shares. In addition, Article 189(5) of the Law provides that, if no transferee for the shares of a deceased shareholder of a SARL can be found or approved, the SARL may acquire these own shares provided it fulfils the conditions required for the acquisition by a company of its own shares. If an acquisition by a SARL of its own shares is considered possible, the SARL may yet not hold its own shares and must cancel or transfer them. 31. An acquisition of own shares is subject to certain conditions and limitations. These apply both to an acquisition by the company itself and to acquisitions by a person acting in his own name but on the company s behalf. These conditions and limitations apply to the acquisition of shares representing capital. Violation of these rules by directors / managers is subject to criminal sanctions (Art. 168 of the Law). The acquisition of own shares by a subsidiary of an SA/SE/SCA is as well subject to conditions and limitations further described in no 36 et seq. of this chapter on cross-participations. Without prejudice to the principle of equal treatment of all shareholders who are in the same position and the law of market abuse, the following conditions must be satisfied in order for a company to be entitled to acquire its own shares (Art. 49-2(1) of the Law): (i) In principle, the authorisation to acquire the shares must be granted by a general meeting of shareholders. The general meeting shall determine the terms and conditions of the acquisition and, in particular, the maximum number of shares to be acquired, the period of validity of the authorisation, which may not exceed five years, and, in case of acquisition of shares for consideration, the maximum and minimum consideration to be paid. The board of directors will in general carry out the acquisitions and it will see to it

21 Date:23/11/13 Time:21:19:12 Page Number: 561 luxembourg 561 that, at the time of any authorised acquisition, the conditions (ii) and (iii) below are complied with. No general meeting is required to acquire shares which are intended to be offered to the employees of the company or an associated company. These shares must be distributed to the employees within twelve months from their acquisition. In addition, no shareholders meeting is required if the acquisition is necessary to prevent serious and imminent harm to the company. Following an acquisition to prevent serious, imminent harm, the next general meeting of shareholders must be informed by the board of directors or, as the case may be, the management board of the reasons and purpose of the acquisition made, the number of shares acquired and their nominal value or, as the case may be, their accountable par value, the portion of the subscribed capital they represent and the consideration paid for the shares. (ii) The acquisitions, including shares previously acquired by the company and held by it, and the shares acquired by a person acting in his own name but on behalf of the company, may not have the effect of reducing the net assets below the amount mentioned in no 67 of this chapter. (iii) The shares to be acquired must be fully paid-up. Any shares acquired in violation hereof must be disposed of within one year from their acquisition. Otherwise, they shall be cancelled (Art and Art of the Law). The subscribed capital may be reduced by a corresponding amount. Such a reduction shall yet be compulsory if the acquisition of shares to be cancelled results in the net assets having fallen below the amount referred to in no 67 of this chapter (Art and 49-3(3) of the Law). The wording of the Law on the cancellation of own shares ( les actions doivent être annulées ) if not disposed of within the prescribed period is not entirely clear. Notably, it needs to be determined if the cancellation occurs ipso iure at the lapse of the period or if it requires specific action. Pursuant to Article 20(3) of the Second Company Law Directive, the laws of a Member State may make the cancellation of own shares that are not disposed of within the period laid down subject to a corresponding reduction in the subscribed capital. On this basis, the cancellation is not automatic and may depend on a capital reduction in accordance with Luxembourg law. This further implies that the company may resell the shares after the lapse of the cancellation period without such share