LUXEMBOURG Law and Practice Contributed by: Johan Terblanche, Baptiste Aubry and Michelle Barry, Maples Group
6.3 Dispute Resolution for Consideration Structures Alternative dispute resolution is in its infancy in Lux - embourg and, probably for that reason, separate dis - pute resolution mechanisms in the transaction agree - ments are rare regardless of whether a locked-box consideration mechanism or a completion accounts consideration mechanism is used. Typical wording in the transaction documents would envisage an immediate recourse to the Luxembourg court system although references to foreign law and jurisdiction (eg, English law with London arbitration) are sometimes included, particularly in cross-border transactions. However, as awareness of alternative dispute reso - lution grows in Luxembourg, the inclusion of spe - cific dispute resolution mechanisms in private equity transaction documents in the country is increasing in prevalence. 6.4 Conditionality in Acquisition Documentation It is common for private equity transactions in Lux - embourg to include relevant regulatory conditions. In addition, if the target itself is located in Luxembourg, then shareholder approval requirements are also not uncommon to ensure compliance with the relevant provisions of Luxembourg company law. However, such shareholder approval requirements are often superfluous, particularly if the seller typically owns sufficient equity for separate and specific approvals not to be required (as is often the case). Material adverse change/effect provisions are fairly common. 6.5 “Hell or High Water” Undertakings In those deals where there is a regulatory condition, it would be unusual for a private equity-backed buyer to accept a “hell or high water” undertaking in Luxem - bourg. It would be much more common for comple - tion to be conditional upon the necessary approvals and contractual requirements being fulfilled; the use of clauses in the transaction documents to stipulate such approvals and requirements (including qualita - tive conditions) is standard practice.
6.6 Break Fees In conditional deals with a private equity-backed buy - er, neither break fees nor reverse break fees are com - mon. Instead, it is typical for both parties to incur the risks of their costs and expenses until the conclusion of the transaction (and the completion of all relevant conditions). Any break fees that are envisaged must comply with the usual contract law requirements. In addition, both break fees and reverse break fees should not impose unrealistic penalties, as Luxem - bourg law provides for the possibility for an excessive contractual penalty – such as a financial sanction that is out of proportion to the loss or harm caused – to be reduced by the courts, even down to an amount of zero. 6.7 Termination Rights in Acquisition Documentation A private equity seller or buyer may typically only terminate the acquisition agreement in Luxembourg in limited circumstances, including the triggering of a specifically planned escape clause in the transac - tion documents, not meeting a condition imposed in the agreement between the parties, or (in much rarer circumstances) due to the complete frustration of the object of the agreement. Typically, the long-stop date would depend largely on the nature of the target (pri - vate business versus listed entity/regulated activities), and it could range from 6 to 18 months. 6.8 Allocation of Risk Typically, risk is shared equally, regardless of wheth - er the buyer and sellers are private equity funds. Of course, the share of risk may be pushed further in one direction or another, depending upon the relative bargaining strength of the parties. The main limitations on liability for the seller will relate to the financial exposure (which would typically be capped) and the length of the liability exposure (which would not generally be limited to a period of two years). The exceptions to these general rules are tax matters, where the relevant period of the statute of limitations will apply and will set the time limit for any liability – which, of course, would probably be to the state rather than the other party. The seller will also typically seek to exclude liability for any known facts
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