Adopted on 19 July 2023, Luxembourg’s and modernisation of insolvency law came into force on 1 November 2023. It includes, among other aspects, several new procedures meant to help preserve companies. EY Luxembourg, Dentons and INSOL Europe-The European Association of Restructuring and Insolvency Professionals on 5 December 2023 hosted an event focusing on legal updates related to the preservation of companies, the modernisation of bankruptcy law and the implementation of EU Directive 2019/1023.

The conference included presentations on important aspects of the Belgian and Luxembourg laws, while a panel discussion featuring insights from Ivan Verougstraete, Bart De Moor, Andreas Ziegenhagen and Laurent Fisch and moderated by John Tan (EY Restructuring Luxembourg) and Martine Gerber-Lemaire (Dentons) explored the experience of neighbouring countries with implementing the European restructuring directive in recent years.

“The implementation of this new law and its success will involve a wide range of stakeholders in the Luxembourg finance and legal industries […] and require leveraging the expertise of accountants, financial analysts, lawyers, valuers, turnaround and subject-matter experts, all to name a few,” noted , partner and strategy & transactions leader at EY Luxembourg. “The ultimate aim of this collaboration: to avoid outright bankruptcy when the debtor’s business can be restructured and bring a satisfactory outcome to all stakeholders of the restructuring in a timely and efficient manner.”

Change of “mindset”

Laurent Fisch, an insolvency professional based in Luxembourg City, presented the key elements of the Luxembourg law on business preservation during the conference.

“The big thing that has changed is that the mindset is completely different,” said Fisch. With the entrance into force of the new law in November, “we have a meaningful process to not destroy value in the event that an economic undertaking, a company, an enterprise, a business goes into difficulties.”

It’s not about finding a “bad” company, punishing it and blaming its management, but rather about finding a meaningful way to move forward and find solutions to problems.

Preserving value for different players

The first perspective to consider is that of business owners, said Fisch. “The new Luxembourg law gives an array of possibilities for what he or she can do--as a management team--when the company is entering into troubled waters.”

One category is to try to find a solution with creditors outside of the courts. “You’re contacting your creditors, speaking to them, you’re telling them, ‘I have a problem’ and you try to find a way out,” he explained. This could be paying later or paying in instalments, for instance.

The business owner and the creditor--it doesn’t need to be all the creditors, the law doesn’t specify--sign an agreement, then inform the court that a deal has been found. The court then gives its homologation, or approval, which provides all parties involved with “certainty” with regard to the agreement. “It is an incentive for business owners to go out there and be frank about the situation,” noted Fisch.

Court involvement

Other tools and options--still outside of the courts--are available to business owners. Conciliators, for example, work on preparing reorganisation measures. But there are procedures--such as collective arrangements--that also involve the courts, added Fisch. Business owners can also go to the court to ask for additional time to find a solution.

Reorganisation plans are an option, which are similar to those in other jurisdictions such as Belgium or Anglo-Saxon countries. Creditors are put into different classes with names and voting rights attached to them, while majority rules prevent a single party from dictating everything.

Another court-driven process involves the sale of the assets, activities or parts of a company. It can be part of another restructuring measure in a reorganisation plan, said Fisch. “It’s up to the debtor to come up with a plan that works with the creditors.”

Creditor perspective

So why is this new law good news for creditors?

The creditors have the possibility to be “alerted” and to get an “advance notice” of any problems, which was not the case before, said Fisch. Now, there is an “incentive” for businesses to proactively reach out to creditors.

“As a matter of principle, as a business owner, you need to put your information on the table, you need to be transparent.” Some information--like trade secrets--can be withheld, but transparency with creditors is key.

The new law is “creditor-friendly,” added Fisch. The reorganisation needs to be in the best interest of the creditors--it’s not just about salvaging businesses, but also creditors.

Opportunities for the business community

With this new law, new opportunities open up for the business community. “Until now, it was just a few lawyers who were dealing with insolvency,” said Fisch. Creditors would sometimes consult lawyers, advisors or accounting specialists in anticipation of issues.

“That will change now, I think, dramatically. There are more actors in this process.” There are, for example, the conciliator or the moniteur de justice. “There is a big, new community that is about to pop up.”