LUXEMBOURG Law and Practice Contributed by: Andreas Heinzmann, Hawa Mahamoud and Eva Jean, GSK Stockmann
Code, and (ii) established Luxembourg case law in respect of the enforcement of foreign law judg- ments. Arbitral Award An arbitral award may be enforced in Luxembourg provided that all the requirements of the enforcement procedure set out in Articles 1250 and 1251 of the Luxembourg New Civil Procedure Code have been satisfied. 6.4 A Foreign Lender’s Ability to Enforce Its Rights Other than those mentioned in 6.1 Enforcement of Collateral by Secured Lenders to 6.3 Foreign Court Judgments , there are no matters that might impact a foreign lender’s ability to enforce its rights under a loan or security agreement in Luxembourg. The declaration of a Luxembourg company as insol- vent results in the implementation of a moratorium/ automatic stay that prevents all unsecured creditors of the insolvent company from taking any enforcement actions against the company’s assets. In that sense, common creditors are obliged to wait for the comple- tion of the procedure and the allocation of the assets on a pari passu basis. On the other hand, secured creditors, and especially those benefiting from a security governed by the Col- lateral Law, are exempted from the automatic stay (safe harbour) and hence can, in principle, enforce their rights upon the occurrence of a trigger event (as contractually agreed between the parties), irrespective of any insolvency proceeding being initiated at the level of the collateral grantor. 7. Bankruptcy and Insolvency 7.1 Impact of Insolvency Processes Bankruptcy remoteness is an essential feature of the Collateral Law that further extends such insolvency safe harbour to financial collateral arrangements governed by laws other than those of Luxembourg, provided that the security provider is established in Luxembourg. To benefit from this additional safe har- bour, the foreign-law-governed security agreements
should be “similar” to the Collateral Law, with a similar scope of financial instruments and/or claims within the meaning of the Collateral Law. The insolvency of the borrower does not have any impact on guarantees issued by third parties. 7.2 Waterfall of Payments Pursuant to the Civil Code, the order of priority pay- ments on a company’s insolvency is as follows: • creditors of the bankrupt estate (including the court’s and bankruptcy administrator’s costs and fees); • preferred creditors; • ordinary unsecured creditors; and • shareholders, who are treated as subordinated creditors and receive any surplus from the liquida- tion, if any, in proportion to their shareholding. If the company does not have sufficient assets to pay the preferred creditors with a general preferential right, the claims of the creditors take precedence over other creditors (including creditors with a special preferen- tial right or a mortgage). Creditors benefiting from a security governed by Col- lateral Law fall outside the scope of the above list, as further explained in 5.1 Assets and Forms of Security . 7.3 Length of Insolvency Process and Recoveries There is no statutory determination of the maximum duration of insolvency proceedings under Luxem- bourg law. They typically last between one and three years, and in complex cases or where litigation is involved, they may last much longer. With respect to the recovery rate of insolvency pro- ceedings, it should be noted that in many cases the insolvent companies are holding companies or SPVs. In view of that, the recovery rate is typically rather high, especially with respect to SPVs, unless the value of the underlying assets has deteriorated. Additionally, most lenders, being institutional investors, are pro- vided with collateral governed by the Collateral law, which is carved out from the insolvency proceedings.
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