LUXEMBOURG Law and Practice Contributed by: Andreas Heinzmann, Hawa Mahamoud and Eva Jean, GSK Stockmann
Lenders based within the European Union can grant loans in Luxembourg through the provision of cross- border services, the establishment of a branch or the appointment of a tied agent, provided that they hold an authorisation from the ECB or the competent authority of their home member state, as the case may be, to perform lending activities. Lenders based in a third country can only grant loans in Luxembourg through the establishment of a branch. Such branch shall be subject to the same authorisa- tion rules as those applying to credit institutions and other professionals governed by the LFS. Further- more, third country-based lenders wishing to grant loans without having an establishment in Luxembourg but that occasionally and temporarily come to Luxem- bourg in order to, among others, collect deposits and other repayable funds from the public and provide any other regulated service under the LFS, are also sub- ject to prior authorisation from the CSSF. However, the CSSF clarified in its Q&A that going to Luxembourg temporarily to carry out an upstream or downstream activity from the above-mentioned activities is not subject to authorisation. 3.2 Restrictions on Foreign Lenders Receiving Security See 3.1 Restrictions on Foreign Lenders Granting Loans on restrictions on foreign lenders granting loans. Provided that the foreign lender lawfully grants loans in Luxembourg, there are no specific restrictions relating to the granting of security to secure such a loan, to the extent that the security is constituted on a type of asset over which security can be granted. 3.3 Restrictions and Controls on Foreign Currency Exchange CSSF Circular No 12-538 on lending in foreign cur- rency, implementing the recommendation of the Euro- pean Systemic Risk Board of 21 September 2011 on lending in foreign currencies (ESRB/2011/1), provides for specific conditions to be observed by credit institu- tions and professionals performing lending activities when providing loans in a foreign currency. The pro- visions of the Circular aim, among others, to enforce the risk awareness of borrowers in a foreign currency, highlight the creditworthiness of the borrowers as a condition to be analysed by credit institutions and
indicate to credit institutions the need for incorporat- ing into their internal risk management systems the specific risks entailed in foreign currency lending. 3.4 Restrictions on the Borrower’s Use of Proceeds Unless otherwise agreed between the borrower and lender, and save for the financing of criminal activities, there are no specific restrictions related to the use of proceeds arising out of a loan or debt instruments. 3.5 Agent and Trust Concepts The concepts of agent and agency ( mandat ) are gov- erned by the Luxembourg Civil Code. The Securitisation Law provides for a specific legal framework applying to agents in charge of represent- ing investors’ interests. It expressly allows the grant- ing of security interests and guarantees to a (security) agent without the need to use parallel debt provisions in the relevant documentation. The rights and obliga- tions of such agent should be assessed based on the Civil Code provisions governing the agency. Furthermore, under the Law of 27 July 2003 on trusts and fiduciary agreements, as amended (the “Fiduciary Law”), foreign trusts are recognised in Luxembourg to the extent that they are authorised by the law of the jurisdiction in which they are created. According to the Fiduciary Law, a Luxembourg fiduci- ary may enter into a fiduciary agreement with a fidu- ciary, pursuant to which the fiduciary becomes the owner of a certain pool of assets forming the fiduci- ary estate, which are, even in an insolvency scenario, segregated from the assets of the fiduciary and held off-balance sheet. 3.6 Loan Transfer Mechanisms Under Luxembourg law, loans (receivables) can be transferred by the lender through an assignment, sub- rogation or novation. Assignment of Receivables All rights and obligations on the receivables may be assigned by a lender to an assignee pursuant to Arti- cles 1689 et seq of the Luxembourg Civil Code. The assignee will therefore become the legal owner of the
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