Compulsory dissolution/liquidation of a company

Last update 03.09.2019

The liquidation of a company leads to the disappearance of the company and its legal personality.

A liquidation may be:

There are 3 possible situations in which the court can order the compulsory liquidation of a company:

  •  at the request of one or more partners/shareholders;
  •  at the request of any interested party when the shares are held by one individual;
  •  at the request of the public prosecutor for serious violations of the law.

The judgement ordering the liquidation marks the beginning of the liquidation procedure and provides for the appointment of an official liquidator.

The liquidator is responsible for all the liquidation operations until the judgement closing the liquidation procedure.

Once the procedure is closed, the company is struck off the trade and companies register (registre de commerce et des sociétés - RCS).

Who is concerned

Compulsory liquidation at the request of the shareholders/partners

For partnerships (société de personnes), a partner may request the dissolution of a company that has perpetual existence.

For capital companies (société de capitaux), the desire of a single shareholder is generally not sufficient to request a liquidation, and a decision by the general meeting is required.

For companies that have perpetual existence, one or more shareholders or partners may petition the court for the dissolution/liquidation of their company, provided that this petition is in good faith and not made at an inopportune moment.

Example: a relinquishment in the company is not in good faith when the partner intends to take for themselves the profits that the partners are supposed to share.

It is at an inopportune moment when it would be in the company's interest to postpone the dissolution.

For partnerships formed for a fixed term, dissolution may generally not be requested prematurely unless there are legitimate reasons, such as:

  • a partner has seriously breached their obligations; or
  • a regular disability makes the partner incompetent for the company's business; or
  • other similar cases.

Company law has extended the application of this provision to cover public limited companies (société anonyme - SA), partnerships limited by shares (société en commandite par actions - SCA), limited liability companies (société à responsabilité limitée - SARL) and cooperative companies (société cooperative - SCOP).

The concept of 'legitimate reasons' is not defined by the law. The judge will assess the reasons by taking into account the interests of the company instead of the interest of the shareholders/partners.

Example: a serious disagreement between partners may constitute a legitimate reason for the dissolution of the company if it impedes the normal operation of the company.

Liquidation after one of the partners manages to obtain all of the shares

For some types of companies, the law requires that there be more than one partner. It may happen that a single partner holds all of the company's shares.

Ownership by one partner of all of the company's shares does not automatically lead to the company's liquidation, but the liquidation of the company may be requested by any interested party.

This form of liquidation does not apply to single-person companies.

Compulsory liquidation at the request of the public prosecutor

The public prosecutor can request that the court order the dissolution/liquidation of any Luxembourg company that:

  • engages in activities which contravene criminal law; or
  • seriously contravenes:
    • the provisions of the commercial code; or
    • the laws on commercial companies; or
    • the provisions governing the authorisation to set up a business.

The court will assess whether the infringements are sufficiently serious to justify the dissolution/liquidation, regardless of the company's financial situation.

Examples:
the following infringements may constitute grounds for dissolution:

Costs

In the event of liquidation at the request of a shareholder or partner, the applicant must pay a deposit for the winding up fees and expenses.

How to proceed

Liquidation at the request of a shareholder/partner

A partner in a commercial company must lodge a request for liquidation with the district court in the jurisdiction where the company is established (Luxembourg or Diekirch).

If the court accepts the reasons cited, it will order the liquidation of the company. The court will then appoint a liquidator and set the conditions for the liquidation.

Generally, the court will apply the rules governing liquidation in bankruptcy in order to keep control of the liquidation procedure.

Liquidation after one of the partners manages to obtain all of the shares

When a single partner holds all of the company's shares, the company is not automatically dissolved. However, any interested party may petition the competent district court to have the company liquidated if the situation has not been resolved within one year. The court may grant the company 6 months to resolve the situation.

The sole partner may liquidate the company at any time without referring the matter to the court.

In the event of dissolution, the company's assets are transferred to the sole partner without liquidation. In such cases, the company's creditors may, within 30 days, file a petition with the president of the competent district court to seek some form of collateralisation.

Liquidation at the request of the public prosecutor

Where the infringements are deemed sufficiently serious, the court may order the liquidation of the company. The court will then appoint a liquidator and set the conditions for the liquidation.

Generally, the court will apply the rules governing liquidation in bankruptcy, but it may change these rules at a later stage.

If the judgement ordering the liquidation is declared provisionally enforceable, the liquidation procedure will continue, even if the company has instituted proceedings (opposition or appeal) against the judgement.

Liquidation procedure

Following the judgement ordering the liquidation, the liquidator must:

  • publish an extract of the judgement ordering the liquidation, as well as an extract of the judgement declaring the conclusion of the liquidation procedure, in the newspapers and in the electronic compendium of companies and associations (Recueil électronique des sociétés et associations) (following filing with the trade and companies register) to notify third parties and allow them to file their debt claims;
  • draw up an inventory and the opening balance sheet for the liquidation procedure;
  • recover any money owed to the company and realise (sell off) the dissolved company's assets;
  • check the company's receivables;
  • depending on the case:
    • distribute the assets among the various creditors;
    • distribute any remaining funds (surplus on liquidation) to the partners/shareholders.
    • file for bankruptcy;
    • initiate legal proceedings;
    • report any criminal offences to the public prosecutor's office;
  • submit the winding up report to the judge who ordered the liquidation.

The judge can then pronounce the judgement closing the liquidation procedure.

Consultation of the RCS

When the liquidation procedure begins and when it is closed, the clerk of the court will forward an extract from the judgement to the Luxembourg Business Registers (LBR) for the purpose of having the legal decision registered in the trade and companies register.

The wording 'en liquidation judiciaire'(compulsory liquidation) or 'radiée' (removed) will then appear next to the company name in the search results on the website of the Luxembourg trade and companies register (see "Consulter une personne").

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