Corporate law recognises a fundamental principle which is known as the 'organ theory' – that is, directors acting in their capacity as a company's corporate representative cannot be held personally liable for the corporate obligations arising from their position. However, there are exceptions to this principle with respect to tax law. The Administrative Court recently rendered a judgment which is a concrete example of the Luxembourg courts' approach in this regard.
In a notable case, the Luxembourg District Court ruled on a dispute between two joint venture partners which had arisen in relation to a serious disagreement on the management of a hotel group. The decision provides interesting insight into the duty of resigning managers, the rules governing the convening of shareholders' meetings and the consequences of their breach and the conditions for obtaining a court-ordered dissolution of a joint venture company due to a serious disagreement among its partners.
In a notable decision, the Luxembourg District Court cancelled a company's capital increase on the grounds of a breach of the preferential subscription right of one of its shareholders. The decision gives interesting insight into the convening process for shareholders' meetings, the legal qualification of a debt contribution and its consequences, the outcome of a breach of a preferential subscription right and the prescription period applicable to the cancellation of shareholder decisions.
The Luxembourg District Court recently ruled that a wrongful action committed by a company in the context of third-party attachment proceedings was justification to pierce the corporate veil. The decision confirms that the often-difficult task of proving that a company is fictitious is no longer the only possible way in which to thwart a debtor's fraudulent manoeuvres.
To counterbalance the negative economic impact that the COVID-19 lockdown measures have triggered, Luxembourg has introduced several regulatory and legislative measures to limit or at least mitigate the financial difficulties that many businesses may face in order to avoid bankruptcy. This article highlights the unforeseeability theory, which has not been used much in previous case law, but could be useful in the context of the unfolding COVID-19 pandemic.
Due to the unprecedented health crisis brought about by COVID-19, many economic actors are facing the impossibility of fulfilling their contractual obligations or do not wish to honour them because they are no longer commercially viable. In the absence of specific material adverse change clauses, one possibility offered by Luxembourg law is the legal concept of force majeure. This article looks at the lessons which can be learned from the available case law in this respect.
In a notable case, the Luxembourg District Court ruled on the requirements for bringing minority actions and whether a broad interpretation thereof is possible. The judgment exposes the common lack of legal recourse available to shareholders who hold equal parts in a company. Whereas majority shareholders can impose their will at general assemblies and minority shareholders can commence minority actions, the possibility for equal shareholders to take similar action would lead to a problematic stalemate.
In Luxembourg, several time limits apply with regard to prescription periods. Notably, the inclusion of specific prescription periods in the Law of 10 August 1915 on Commercial Companies does not preclude the application of prescription periods as provided for in the Civil Code. The Luxembourg District Court recently reiterated this position in a judgment regarding prescription periods for invalidating shareholder decisions.
The Luxembourg District Court recently ruled on the equivalence of suretyships and autonomous guarantees. Although the court interpreted agreements using the traditional rules, this decision illustrates its pragmatic approach of analysing commitments to qualify guarantees.
In a 2018 decision, the Luxembourg District Court found a liquidator liable for damages which the plaintiffs had suffered as a result of the early closure of the liquidation while legal proceedings were still ongoing. The court held that since the liquidator had personally received the document instituting the proceedings, he should not have ignored any claims that might have arisen from the ongoing dispute. Notably, the court went even further by also holding the liquidation auditor liable.
Under the General Tax Law, directors are held personally liable for the fulfilment of their company's tax obligations. Prior to a case law reversal, the Administrative Court took a strict approach towards directors and systematically held that they had breached their duties by failing to withhold, declare or pay company taxes. However, in 2017 the Administrative Court of Appeal held that the wrongful character of alleged tax breaches must be demonstrated by law and factually proved by the Tax Administration.
The buyer of an apartment signed a long-term lease and agreed to live in the apartment for at least 12 years. However, in contravention of this commitment, the buyer moved out and rented the property to a tenant. The seller sued the buyer, seeking to have the contract rescinded. In its decision, the Court of Appeal ruled that the contract had been divided into a contract of sale and a lease contract, and that the retroactive rescission principle would have a different effect on each of these.
A Court of Appeal decision appears to have definitively removed any possibility of effectively challenging a transfer of ownership of pledged assets in an enforcement scenario on the basis of fraud, including manifest fraud by the pledgee. This is in contrast to a 2013 Luxembourg District Court decision and the general practice to date, which has been to consider the facts on a case-by-case basis.
In a notable decision, the Commercial Section of the Luxembourg District Court clearly defined – for the first time – the concept of minority abuse at shareholders' meetings under Luxembourg law. Further, the court detailed the conditions which must be met in order for conduct to qualify as minority abuse. This decision is of particular interest, as the alternative conditions for determining whether minority abuse has taken place are much broader than those initially set out in Luxembourg law.
In a dispute between a public limited liability company and one of its employees, the Court of Appeal issued a decision concerning the testimony of executive board members of a party to a dispute. The court's decision contradicts case law that seemed to have overcome this problem with regard to public limited liability companies. Hence, the courts remain divided as to whether the testimony of a director who individually has no power to represent their legal entity will be taken into consideration.
The plaintiff in a recent Court of Appeal case concerning the enforcement of a pledge on shares given to a bank as part of a financing believed that the court's original decision was unclear. It consequently asked the court to clarify 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.
The Court of Appeal recently ruled on the prorogation of general shareholders' meetings. 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.
The EU European Account Preservation Orders (EAPO) Regulation states 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. As Luxembourg's existing legislation proved to be poorly adapted to the execution of EAPOs, it recently implemented the EAPO Conversion Law in order to introduce a specific court enforcement procedure applicable only to EAPOs.
The Court of Appeal recently ruled on the loss of credit capacity in the context of bankruptcy. This was the first time that the availability of company funds in a third-party 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.
The Court of Appeal recently ruled that shareholders have a right to seek an annulment of decisions made by their company's board of directors. This decision sets a precedent for challenging board decisions on the grounds of the Companies Law, thereby increasing legal certainty by filling the gaps left by the law. However, it also marginally limits the scope of such challenges by excluding former shareholders from initiating new proceedings.