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Financial assistance from S.à r.l. – Yes, it’s possible (in principle)

Luxembourg

Practitioners’ controversies on whether or not S.à r.l.s (sociétés à responsabilité limitée or private limited liability companies) may provide financial assistance (assistance granted by a company to a third-party purchaser with respect to the acquisition of the company’s own shares–for example, a mortgage to a bank to guarantee the bank’s financing provided to its new shareholder) were put to rest by the Law of 6 August 2021, which was published on 12 August 2021 and entered into force on 16 August by amending Article 1.500-7 point 2° (formerly Article 168) of the Law of 10 August 1915 on commercial companies, as amended (the “1915 Law“).

The initial Bill No. 5730 which resulted in the adoption of the Law of 10 August 2016 modernizing the 1915 Law, planned to insert new articles into the section on S.à r.l.s, to provide a framework for the financial assistance procedure for this type of company. To that end, the criminal provisions of the former Article 168 were also amended, targeting corporate units (units representative of the capital of an S.à r.l).

 

For the sake of flexibility for S.à r.l.s, during the parliamentary work, Luxembourg legislators eliminated the rules on S.à r.l. financial assistance initially stipulated via Articles 190septies and 190octies, but forgetting to make the corresponding required amendments to the 1915 Law’s criminal provision in Article 1500-7, point 2°, which textually continued to refer to “corporate units” (parts sociales), as when the 1915 Law originated S.à r.l.’s did not yet exist under Luxembourg law, and quite clearly it was not the legislators’ intent to prohibit financial assistance with respect to S. à r.l.s.

 

Nonetheless, certain practitioners deemed that there was ambiguity and refused to accept any financial assistance with respect to an S. à r.l.

 

Henceforth, the reference to “corporate units” has now been deleted from Article 1500-7, point 2°, of the 1915 Law.

 

This material error has thus finally been corrected, thereby confirming that the criminal provisions and the regime of specific rules applicable to financial assistance are not applicable to S.à r.l.s.

 

That said, despite this legislative amendment, one should not lose sight of the concerned company’s corporate interest, which should be upheld in all circumstances.

 

The corporate officers of limited liability companies shall therefore ensure, in the case of a financial assistance, that they adequately verify and document the motivation of their decisions in relation to the corporate interest.

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Posted by Communications Desk

2021-09-15 04:56:16