LUXEMBOURG Law and Practice Contributed by: Stefanie Ferring, Oliver Zwick and Geoffrey Scardoni, Clifford Chance
5.3 Downstream, Upstream and Cross- Stream Guarantees Entities in Luxembourg can provide downstream, upstream, and cross-stream guarantees. How - ever, there are some limitations and restrictions associated with these guarantees. Corporate Benefit Luxembourg law requires that the guarantor must derive a corporate benefit from providing the guarantee. Upstream and cross-stream guar - antees are usually limited by including a market standard limitation language. The amount to be taken into account is usually the higher of the amount at the time of grant of the guarantee or at the time of enforcement. Financial Assistance There are restrictions on financial assistance, particularly for public limited liability companies, which may limit the ability to provide guarantees for the acquisition of their own shares. 5.4 Restrictions on the Target Depending on the corporate form of the target, financial assistance rules apply. A whitewash procedure is available but not very often used. 5.5 Other Restrictions Works Council There is no specific restriction when it comes to works council. Hardening Periods Luxembourg insolvency law includes a “hard - ening period” (known as the “suspect period”) which is designed to protect creditors in the event of insolvency. This period can run up to six months prior to the declaration of insolvency and may lead to the unwinding of transactions that are considered prejudicial to creditors. Financial collateral arrangements such as share
and receivables pledges are not subject to insol - vency hardening period rules. Retention of Title Both retention of title and extended retention of title are known constructs under Luxembourg law. Anti-Assignment Provisions Luxembourg recognises anti-assignment provi - sions, commonly included in contractual agree - ments to limit the transfer of rights or obligations to third parties. 5.6 Release of Typical Forms of Security Release agreements are normally entered into by all the parties. 5.7 Rules Governing the Priority of Competing Security Interests and/or Claims Luxembourg law recognises multiple security rights over the same asset. The order or priority of such security interests is typically determined by the order in which such security rights were created. That order can be contractually varied by the holders of the security rights. Subordination provisions are generally effective in the insolvency of a Luxembourg borrower. 5.8 Priming Liens and/or Claims The most important preferred claims arising by operation of law are tax, social security and sal - ary claims. The intercreditor agreement is usually governed by English law and follows LMA standards. Thus, related ICA terms are not Luxembourg specific.
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