LUXEMBOURG Law and Practice Contributed by: Stefanie Ferring, Oliver Zwick and Geoffrey Scardoni, Clifford Chance
6.6 Practical Considerations/Limitations on Enforcement Because the enforcement process is relatively simple, it is an effective tool to force parties into a consensual solution. Such a consensual solu - tion is usually more cost effective. 6.7 Claims Against Secured Lenders Post-Enforcement Enforcement of security can take place outside as well as during insolvency, and in both cases the secured creditor can take recourse against the proceeds in full. 7. Bankruptcy and Insolvency 7.1 Impact of Insolvency Processes The main insolvency procedure in Luxembourg is the bankruptcy procedure, which is a liqui - dation procedure. Financial collateral arrange - ments remain enforceable despite the opening During insolvency, a secured creditor can take recourse against the secured assets in full. Any residual claim constitutes an unsecured claim which shall rank pari passu with the other unse - cured creditors in the insolvency. All the costs of the estate, including the salary of the bankruptcy trustee, costs for liquidation and potential litiga - tion in relation thereto, and investigation of the causes of bankruptcy, rank ahead of unsecured creditors. Also, tax and social security claims as well as certain employee and rental obligations shall have a prior ranking ahead of the unse - cured creditors. of bankruptcy proceedings. 7.2 Waterfall of Payments
7.3 Length of Insolvency Process and Recoveries Luxembourg insolvency proceedings take sev - eral years and all the costs of the bankruptcy are paid, as a preferred claim, out of the estate value. This means that insolvency proceedings are often value destructive. Also, secured credi - tors can take recourse outside of the bankruptcy proceeding, but unsecured claims will often only receive payment (if value is available to them) at the very end of the insolvency proceeding or when assets have been sold. 7.4 Rescue or Reorganisation Procedures Other Than Insolvency Under Luxembourg law a debtor can initiate a judicial reorganisation procedure to imple - ment a restructuring, which involves setting up a restructuring plan, and where there is also a cram-down procedure possible that can involve write-off of debt, extension of maturity dates, debt-for-equity swaps and similar arrangements. This is a new procedure which has been avail - Insolvencies are usually value destructive and all costs of the bankruptcy will need to be paid out of the estate. Upon the opening of the insolven - cy proceeding, a court-appointed bankruptcy receiver will take over, which means there is loss of control. Furthermore, a bankruptcy receiver is obliged to investigate the causes of bankruptcy, which include preferential transactions and any form of director liability claims. Lender liability is able since 1 November 2023. 7.5 Risk Areas for Lenders
normally not the primary concern. 7.6 Transactions Voidable Upon Insolvency
Transactions entered into during the so-called hardening period (the period preceding the open - ing of the bankruptcy proceedings by a maxi -
205 CHAMBERS.COM
Powered by FlippingBook