LUXEMBOURG Law and Practice Contributed by: Laure-Hélène Gaicio Fievez, Fabio Trevisan and Carolina Vasselli, BSP
2.3 Secured Creditors Security Taken by Secured Creditors Over Real Estate Property in Luxembourg In Luxembourg, the most common forms of security over real estate property include the following. Mortgage (hypothèque) A mortgage requires the following. • A notarial deed – this establishes the mortgage in a formal and binding manner. • Registration – (a) the notarial deed must be registered with the Administration de l’enregistrement et des domaines to establish its rank, except for the hypothèque occulte (hidden mortgage) of the state in inheritance cases; and (b) to be enforceable against third parties, the deed must also be registered with the Bureau de conservation des hypothèques in the judicial district where the property is located. • Renewal – after ten years, the registration must be renewed to maintain enforceability against third parties. Pledge over real estate (antichrèse) While less common than mortgages, this pledge involves the following. • Registration – similar to a mortgage, it must be registered with both the administration registry and the mortgage registry. • Dispossession – the pledgor must relinquish possession of the property, which is held by the pledgee until the debt is fully repaid (eg, through rental income generated by the property). Seller’s lien (privilège du vendeur) Granted under Article 2103 (1) of the Luxembourg Civil Code, this lien allows the seller of real estate to retain a preferential claim on the property until the full pur - chase price is paid. Lender’s lien (privilège du prêteur de deniers) As provided under Article 2103 (2) of the Civil Code, this lien is available to lenders financing real estate acquisitions. It must be included in a notarial deed and registered with both the administration registry
(a) preferred creditors by law ( créanciers priv- ilégiés ): this category includes statutory pre - ferred creditors, such as employees owed certain debts and tax authorities; and (b) creditors with non-bankruptcy proof contrac - tual or judicial security ( créanciers ayant une sûreté conventionnelle ou judiciaire ): these creditors hold security interests (such as pledges or mortgages) but are subordinated to preferred creditors. • Ordinary unsecured creditors ( créanciers chi- rographaires ) – these are creditors without any security or special status and are paid pro rata from any remaining assets after higher-priority claims are satisfied. • Shareholders – generally treated as subordinated creditors, shareholders are only entitled to any remaining surplus from the liquidation after all other creditor claims are satisfied, based on their share - holding proportion. • “Bankruptcy-proof” secured creditors – creditors with security interests that fall under the Luxem - bourg Financial Collateral Law of 2005, such as those holding financial collateral or mortgages, are outside the bankruptcy estate. These creditors can enforce their rights independently of the bankrupt - cy proceedings and are not subject to the ordinary distribution and priority rules. 2.2 Priority Claims in Restructuring and Insolvency Proceedings Except for claims considered as “out of estate of the insolvency” (this is mainly the case for the claim of the pledgee over a going-concern and the first registered mortgage creditor), the waterfall for the settlement of preferential claims in bankruptcy is as follows (before any payments of unsecured creditors): • legal costs resulting from the insolvency proceed - ings; • claims of the debtor’s employees (super-privileged claims – limited to the amount that would normally be due in the case of dismissal with notice from the date of the declaration of bankruptcy – and, where applicable, any outstanding salaries during the six months of work prior to the bankruptcy); and • tax claims from public administrations.
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