Among the questions which have given rise to discussions since the entry into force of the law of 10 August 2016 modernising the law of 10 August 1915 on commercial companies (the “2016 Law“) is the one whether the restrictions on financial assistance provided for in Articles 430-19 and 430-21 of the amended law of 10 August 1915 on commercial companies (the “1915 Law”) also apply to sociétés à responsabilité limitée [1].

By enacting the law of 6 August 2021 amending the 1915 Law (the “New Law”), the Luxembourg legislator finally confirmed on the non-application of the financial assistance rules to sociétés à responsabilité limitée by amending Article 1500-7, 2° of the 1915 Law.

Under Luxembourg law, financial assistance is an operation whereby a company, directly or indirectly, advances funds, grants loans or security interests, or guarantees the acquisition of its own shares by a third party.

Articles 430-19 and 430-21 of the 1915 Law provide for a fairly strict financial assistance regime applicable to sociétés anonymes, sociétés en commandite par actions (pursuant to Article 600-2 of the 1915 Law), sociétés par actions simplifies actions (pursuant to Article 500-1 of the 1915 Law) and sociétés européennes (pursuant to Article 410-1 (2) of the 1915 Law). The question was whether these rules would also apply to sociétés à responsabilité limitée because of the ambiguous wording of Article 1500-7.

Indeed, Article 1500-7 of the 1915 Law, which is a criminal provision, read as follows before the effective date of the New Law:

“The same penalties shall apply to any person who, in its capacity as director, auditor, manager or member of the supervisory committee, knowingly

(…)

2° made loans or advances using company funds or provided security with a view to the acquisition of shares or corporate units (“parts sociales”) in the company or taken a pledge on the company’s shares or corporate units (“parts sociales”), in violation of Articles 430-19 and 430-21 in the case of sociétés anonymes;

(…).”

Although Article 1500-7, 2° of the Law of 1915 does not explicitly refer to sociétés à responsabilité limitée, it contains the notion of corporate units (parts sociales), which are specific to sociétés à responsabilité limitée. Before the reform of the 2016 Law it read parts d’intérêts, which was not fully free of ambiguity either. Thus, the notion of corporate units (whether read as parts d’intérêts or as parts sociales) contained in Article 1500-7, 2° of the Law of 1915 rose doubts as to the scope of application of this Article. And if Article 1500-7, 2° of the 1915 Law would sanction a violation by sociétés à responsabilité limitée of Articles 430-19 and 430-21 of the 1915 Law, this would indirectly make these Articles on financial assistance applicable to sociétés à responsabilité limitée.

On 14 July 2021, the Luxembourg Parliament adopted the Bill of Law No. 7791 amending the 1915 Law (becoming the New law), which aimed at clarifying the scope of application of Article 1500-7 of the Law of 1915 by deleting the reference to “corporate units (parts sociales)” and to the superfluous “sociétés anonymes” in Article 1500-7, 2° of the 1915 Law.

Indeed, Article 1500-7, 2° was obviously just the victim of a clerical error that slipped in during the legislative preparatory works leading to the adoption of the 2016 Law. The latter had in its early versions the intention to insert in the 1915 Law financial assistance provisions specific to sociétés à responsabilité limitée, so it inserted in the draft Article 1500-7, 2° references to such new Articles and to parts sociales. When it was later decided not to affect sociétés à responsabilité limitée by financial assistance rules, the reference to the sociétés à responsabilité limitée Articles which never came into existence was deleted again in the draft Article 1500-7, 2°, but the reference to parts sociales was left in. Now, the New Law just cleans up this left-over from the 2016 Law.

Thus, the amended text of Article 1500-7, 2° of the 1915 Law shall read as follows as from the effective date of the New Law:

“The same penalties shall apply to any person who, in its capacity as director, auditor, manager or member of the supervisory committee, knowingly

(…)2° made loans or advances using company funds or provided security with a view to the acquisition of shares in the company or taken a pledge on the company’s shares, in violation of Articles 430-19 and 430-21

(…)”

It should be noted that although the reference to manager in the first sentence of the amended Article 1500-7 is also specific to sociétés à responsabilité limitée, it is well justified here, of course not in relation to the amended indent 2°, but in relation to indent 1° which clearly applies to both sociétés anonymes and sociétés à responsabilité limitée.

This amendment definitely closes all discussions or misinterpretations on the non-applicability of financial assistance provisions to sociétés à responsabilité limitée and confirms clearly that sociétés à responsabilité limitée may grant loans or security interests or guarantee the acquisition of their owns shares by a third party without any restriction set out in Articles 430-19 and 430-21 of the 1915 Law.

The New Law will enter into force on 16 August 2021.

For further information or questions, MOLITOR’s Corporate M&A team is at your disposal.

[1] Martin WURTH and Hannes WESTENDORF, “Assistance financière et S.à r.l. : assistance à personne ” non ” en danger ?”, Revue Pratique de Droit des Affaires, Legitech, September 2018, pages 9 to 13