LUXEMBOURG Law and Practice Contributed by: Claire-Marie Darnand, Victorien Hémery, Johan Léonard, Benjamin Marthoz and Tom Storck, Stibbe
against third parties, the mortgage on real estate property must be renewed every ten years. 3.4 Taxes or Fees Relating to the Granting and Enforcement of Security Real estate assets are often secured by first- ranking mortgages, the registration of which triggers a 0.24% registration duty and a 0.05% inscription fee, with both rates being applied to the total secured debt (usually borne by the pur - chaser). The notary fees to record the mortgage inscrip - tion in the mortgage registry are calculated on a sliding scale and are also generally borne by the purchaser. 3.5 Legal Requirements Before an Entity Can Give Valid Security The issuance of a guarantee or the granting of security over its assets by a Luxembourg com - pany must comply with the following rules. • Financial assistance in Luxembourg refers to the prohibition on public limited liability companies or partnerships limited by shares advancing funds, making loans or granting security, directly or indirectly, for the purpose of a third-party acquisition of its shares. It is arguable whether the financial assistance prohibition also applies to private limited liability companies, but the prohibition can be mitigated by the application of the so- called “white-wash procedure”, which allows the management and shareholders of the applicable company to overrule the financial assistance prohibition. • Upstream and cross-stream guarantees: (a) the possibility of the issuance of a guar - antee to third parties or companies within the same group shall be set out in the
articles of association of the Luxembourg company; and (b) the managers/directors of the company must ensure that the issuance of the guarantee is in the company’s corporate benefit ( intérêt social ). • The corporate benefit test is the responsibil - ity of the managers/directors. The company giving the guarantee shall receive some consideration in return (either economical or commercial benefit), but the benefit shall be proportionate to the burden of the guarantee/ security granted. • More generally, all guarantees issued and security granted by a Luxembourg company shall be discussed and approved at a dedi - cated meeting of the board of managers/ directors. 3.6 Formalities When a Borrower Is in Default The events of default are generally provided under the main credit agreement and, as such, Luxembourg security agreements usually refer to them by cross-reference. If the main credit agreement contains a specific acceleration procedure clause, it should also be applied to the enforcement of Luxembourg security agreements. If that is not the case, the creditor informs the debtor of the occurrence of an event of default and the enforcement of its security (all or only some of them). Usually, the enforcement is realised over the shares of the company owning the real estate. The creditor usually creates a specific purpose vehicle, which will appropriate the shares.
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