LUXEMBOURG Law and Practice Contributed by: Andreas Heinzmann, Hawa Mahamoud and Eva Jean, GSK Stockmann
a company, bonds, intercompany receivables, bank accounts and securities accounts, without prejudice to more peculiar sorts of collateral such as insurance receivables and the capital calls and commitments of the investors in a fund. The Collateral Law clarifies that under its scope fall pledges on financial instruments which are in physi- cal form, dematerialised, transferable by book entry, including the securities accounts maintained within or through secured electronic registration mechanisms, including distributed ledgers or electronic databases, or delivery, bearer or registered, endorsable or not, and regardless of their governing law. The reference to tokenised financial instruments is a recent addition to the provisions of the Collateral Law, made pursuant to the Luxembourg law of 15 March 2023 (the “Block- chain III Law”), and confirms that the validity and per- fection of a collateral created under the Collateral Law will not be affected by the technical means by which the pledged security is created or held. Security Governed by the Civil Code and Special Laws The in rem securities under civil law may also be granted, such as commercial pledges, inventory pledges and mortgages over real estate properties. Other types of securities – such as (i) mortgages over aircraft, governed by the law of 29 March 1978, and (ii) a general pledge over ongoing business concerns, governed by the Grand Ducal decree of 27 May 1937, as amended (the “1937 GDD”) – are also available under Luxembourg law. The Civil Code provides an entire regime for sure- tyships ( cautionnements ), but also recognises the enforceability of other personal securities, such as autonomous guarantees, comfort letters and other sui generis personal undertakings. In addition, the Law of 17 July 2020 on professional payment guarantee (the “PPG Law”) introduced a new form of flexible professional payment guarantee, which may be adapted to the specific transaction, with the provisions agreed by the parties receiving full recognition under Luxembourg law, without risk of recharacterisation.
More specifically, the PPG Law introduced a new legal form of guarantee, going beyond the traditional dis- tinction between suretyship and first-demand guar- antee, whereby the former constitutes an accessory obligation, the existence and enforceability of which depends on the status of the underlying guaranteed obligation and the latter creates an obligation to the guarantor that is independent from the underly- ing secured obligation. The PPG Law introduces an optional (opt-in) contractual guarantee regime that allows the parties to structure their contract by com- bining features of the existing guarantee types, with- out them facing the risk of recharacterisation. More specifically, unless otherwise agreed by the parties, the professional payment guarantee can be enforced irrespective of the default of the underlying obligation. In that sense, the guarantor cannot raise any defence related to the underlying obligation to the creditor. On top of that, the insolvency of the debtor or the com- mencement of a reorganisation plan will not affect the obligations of the guarantor. At the same time, unless otherwise agreed, the guarantor will be subrogated to the rights and obligations of the creditor after the repayment of the guarantee. Finally, under the PPG Law, it is possible to grant a guarantee in favour of an intermediary that acts for the benefit of the creditor. The application of the PPG Law requires that the guarantor provide guarantees on a professional basis, that the parties explicitly opt in to the PPG Law and that the agreement is evidenced in writing. Formalities and Perfection Requirements for a Security Governed by the Collateral Law Pledges over financial instruments and claims require that the pledgor must be dispossessed with respect to the pledged assets, which is typically achieved as follows: • through a pledge over (i) the shares of a private limited liability company, by the mere conclusion of the pledge agreement between the pledgor and the pledgee in the presence of the company that issued the pledged shares and its registration in the shareholders’ register of the said company, and (ii) the shares of a public limited liability company
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