14.09.2018
14.09.2018
Luxembourg District Court rules on judicial management reports
On the 18th November 2016, the Luxembourg District Court clarified the requirements and procedures regarding judicial management reports provided for in Article 1400-3 (previously Article 154) of the Law of 10 August 1915 on commercial companies, as amended.
The new version of Article 154, introduced by the Law of 10 August 2016, has significantly extended the conditions under which shareholders can initiate the judicial management report procedure. In its decision, the court ruled, on the basis of the criteria established by French case law, that there is no need to order a judicial management report, if the answers provided to shareholders by the board of directors – even after legal action has been initiated – include all of the expected information and are thus satisfactory.
The court also specified that shareholders may ask questions only on matters which fall within the power of management bodies and not on operations that fall within the power of shareholders' meetings, even if affected by management bodies. Further, a question may address several issues, as suggested by the use of the plural 'operations' in the statute. However, questions should not address general management or accounting issues. Finally, questions which concern future projections, but are unrelated to an existing act of management, are excluded.
The ruling provides valuable insight into shareholders' rights to request information on management decisions. While the lowered threshold suggests a trend in Luxembourg law towards shareholder empowerment, as well as improved accountability and transparency of managing bodies, the ruling appears to be pro-management: It shields the management from unwarranted intrusions by setting an arguably low standard of disclosure and limiting the scope of shareholders' inquiries to specific managerial issues.
Luxembourg District Court rules on conditions for enforcing pledges
Following the Luxembourg District Court's decision of 12th July2017 concerning the conditions for the enforcement of a pledge, collaterals in the form of a pledge on the shares of a company can now even be enforced without a default payment (i.e., even if the secured debt is not due and payable). In the case at hand, the pledge agreement provided that the pledge was enforceable in the case of non-compliance with a binding financial ratio.
The decision confirms that, under Luxembourg law, parties may freely agree to the enforcement event of a pledge. This is notable, as Article 1(6) of the Law of 5 August 2005 on financial collateral arrangements provides that "any other event agreed by the parties" can activate and render a pledge enforceable. Hence, it is sufficient for one party to notify the other of the latter's breach of the related contractual clause.
In addition, the Luxembourg District Court stated that according to recent case law, the enforcement of a pledge cannot be annulled by courts which have only ex-post control powers (apart from in cases of manifest fraud or abuse).
Luxembourg Court of Appeal rules on discharge of managers
The principal way in which managers can protect themselves from liability is by obtaining a grant of discharge from the company's shareholders of the past financial year. As regards public limited companies, Article 461-7 of the Law of 10 August 1915 on commercial companies, as amended, provides as follows:
"After adoption of the annual accounts, the general meeting shall vote specifically as to whether discharge is given to the directors or to the members of the management board… Such discharge shall be valid only if the annual accounts contain no omission or false information concealing the true situation of the company."
In a decision of 1st February 2017, the Court of Appeal stated that, even if discharge is voted on at a general shareholders' meeting after the adoption of the company's annual accounts, the mere approval of the accounts does not automatically entail discharge. The court made clear that a decision to discharge a management body must be subject to a separate deliberation. Further, the court ruled that a granting of discharge will remain valid, even if the company's balance sheet omits certain information, contains false information or has been drawn up in such a way to conceal the real state of the company's affairs, if it is established that the general shareholders' meeting: was informed of the inaccuracies, omissions and irregularities in the annual accounts; and granted the discharge with full knowledge of these facts.
For further information on this topic please contact
 | Mathieu Laurent |
 | Maurice Goetschy |
These articles were originally edited by, and first published on www.internationallawoffice.com
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