LUXEMBOURG Law and Practice Contributed by: Johan Terblanche, Baptiste Aubry and Michelle Barry, Maples Group
Restrictive covenants would typically be part of both the equity package and employment contract. In conclusion, while restrictive covenants are a com - mon and necessary feature of agreements with man - agement shareholders in Luxembourg, their enforce - ability hinges on a balance between protecting the company’s interests and ensuring that the restrictions do not unreasonably impede the individual’s ability to work and compete in the market. It is essential that these covenants are drafted with precision and a clear understanding of the legal framework within which they operate. 8.5 Minority Protection for Manager Shareholders Manager shareholders are not usually granted greater protection than other minority shareholders. It is worth noting that, under Luxembourg law, minority share - holders do not benefit from any form of special protec - tion regime; there is only an anti-dilution mechanism provided in the law for shareholders in an SA. On a contractual basis, an anti-dilution mechanism could be agreed upon between the shareholders, but in most deals it is unusual for a majority shareholder to agree to such an anti-dilution mechanism on a volun - tary basis. In the same way, management rarely enjoys veto rights, except over a limited number of matters related to the business. The typical deal structure of a private equity trans - action would not allow a management team to have a right to control or influence the exit of the private equity fund as the fund will, on the contrary, wish to ensure that it has full freedom to decide the time, form and mechanism of its exit. 9. Portfolio Company Oversight 9.1 Shareholder Control and Information Rights Assuming that it has at least a majority shareholding, a private equity shareholder ultimately has total control over a portfolio company, although it would be unu - sual for the shareholder to interfere in the operations of the board on a day-to-day basis.
A private equity fund shareholder would generally, as a minimum, have the final say in the majority of the appointments to the portfolio company’s board, thus indirectly ensuring control over the management. When only a minority stake is taken, the private equity shareholder will typically require a right of veto over key decisions, whether at board or shareholder level, such as the disposal of assets, entering into new or amended financing arrangements, a change in key executives or the entering of new investors into the structure. 9.2 Shareholder Liability The concept of a separate legal identity for a corpora - tion is recognised and enforced in Luxembourg, and the corporate veil would only be pierced in extreme circumstances in the event of insolvency of the com - pany and actions inconsistent with the position of the shareholder on the part of the fund. Limited partners of a limited partnership are generally only liable for the debts of the partnership if they have interfered in its management, and a (non-exclusive) list of limited partner prerogatives is enshrined in law. Shareholders of limited liability companies generally have the ability to influence the actions of the com - pany via their voting rights. The authors are not aware of any other form of private equity exit other than a sale to other private equity- backed investors or corporates in the past 12 months. The typical holding period for private equity transac - tions before the investment is sold or disposed of varies depending upon a variety of factors. Due to a slowdown in M&A activity, coupled with valuation challenges over the last few years, this period has increased from an average of three to five years to five to seven years. The most common form of private equity exit is via a share sale to a third party (often a secondary trans - action with another private equity sponsor). IPOs are becoming more and more frequent, in part due to the 10. Exits 10.1 Types of Exit
374 CHAMBERS.COM
Powered by FlippingBook