Judicial reorganisation by a court-ordered transfer of business
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Summary:
Avoid bankruptcy by transferring a business facing financial hardship to another business entity under court supervision, with a view to safeguarding jobs, the business's assets, and creditors' interests.
Judicial reorganisation by a court-ordered transfer of business is an option that is available to businesses facing extreme financial hardship as a last resort to avoid bankruptcy when other forms of reorganisation are not possible.
This procedure enables you to:
- maintain some of your business's operations by transferring them to another business entity under court supervision; and
- protect your creditors and your employees.
The main purpose of the procedure is to enable a business that cannot recover on its own to continue operating, while at the same time safeguarding jobs, maximising the value of its assets, and protecting its creditors' interests.
A petition for a transfer of business can be filed with the court voluntarily, or subsequently accepted in the course of the proceedings.
Who is concerned
This procedure is available to:
- traders;
- commercial companies;
- craftspeople; and
- civil companies (sociétés civiles).
A trader is any natural or legal person who:
- engages in commercial operations; and
- does so in a professional capacity.
Prerequisites
A petition for judicial reorganisation by a court-ordered transfer of business can only be filed by a public prosecutor, a creditor or an interested third party if:
- you find yourself facing serious financial hardship, but have not filed a petition for judicial reorganisation; or
- your petition for reorganisation was denied by the competent court or your creditors; or
- your petition for reorganisation was granted by the court, but the reorganisation process failed.
These conditions ensure that a court-ordered transfer of business may only be used as a last resort to safeguard a business's operations.
How to proceed
Initiating judicial reorganisation by a court-ordered transfer of business
Voluntary initiation
If you have determined that no other form of reorganisation is possible, you can petition the court to have your assets, or all or part of your funds, transferred to another business entity.
In that case, as soon as your petition for the transfer of your business is filed with the court – the district court (tribunal d’arrondissement) with jurisdiction for hearing commercial matters – a 'delegated' judge' (juge délégué) will be appointed to examine the admissibility and suitability of your petition.
Denial of the petition to initiate judicial reorganisation proceedings
If the court denies a petition to initiate judicial reorganisation proceedings – the purpose of which is to obtain a deferment to enable a business to reach an amicable agreement or a collective agreement with its creditors – it may order the transfer of all or part of your business or your business operations.
Early termination of the reorganisation procedure
During the judicial reorganisation proceedings, the court may terminate the procedure and order the transfer if it believes that:
- you have failed to honour your obligations under the procedure;
- recovery is no longer possible; or
- continuing the procedure will worsen the situation for your business.
Revocation of the reorganisation plan
During a judicial reorganisation by collective agreement procedure, the reorganisation plan that was initially endorsed by the court may be revoked if:
- you fail to honour your commitments under the procedure; or
- it is obvious that the plan cannot be implemented due to new circumstances.
In that case, the court may order a transfer of assets as an interim solution.
Refusal to endorse the reorganisation plan
During a judicial reorganisation by collective agreement procedure, the court may find that the proposed reorganisation plan:
- fails to comply with legal requirements;
- is not viable; or
- does not sufficiently protect your creditors' interests.
In that case, the court may refuse to endorse the plan and order a transfer.
Enforced initiation
Judicial reorganisation by a court-ordered transfer of business may also be enforced if a petition for this procedure is filed by:
- a public prosecutor;
- a creditor; or
- a party with an interest in acquiring the business.
In that case, the petition must be filed as a separate legal document in which you are identified as the defendant.
The above-mentioned individuals may initiate proceedings against you if:
- you satisfy the conditions for bankruptcy;
- the court denies your petition to initiate judicial reorganisation proceedings;
- your creditors do no approve the judicial reorganisation plan; or
- the court refuses to endorse the judicial reorganisation plan.
Specific features of a transfer of all or part of a business
Appointment of a judicial representative (mandataire de justice)
The court will appoint a judicial representative selected from a list of sworn experts. The judicial representative will be tasked with organising and implementing the transfer in your name and on your behalf.
The court may also:
- determine what exactly is to be transferred (your assets or your business operations);
- grant the judicial representative the power to make that determination.
Organisation and implementation of the transfer
One of the tasks assigned to the judicial representative is to search for a party who is willing to acquire all or part of your business. To that end, they will organise the sale or transfer of the assets that are required for your business to continue operating. To do so, they may organise:
- a public sale;
- a private sale, after issuing an invitation to tender.
Criteria for selecting the buyer/transferee
To select the buyer/transferee, several criteria are taken into consideration to maximise the likelihood that the reorganisation is completed successfully. These include:
- the buyer's/transferee's ability to maintain the business's operations and its employees;
- the financial guarantees offered by the buyer/transferee to ensure that the business can continue to operate;
- the conditions proposed by the buyer/transferee for your creditors, and how they intend to cover or restructure your debts.
The price proposed by interested parties must be at least equal to the price that would be obtained through the enforced disposal of the business's assets in the event of bankruptcy or liquidation. This ensures that the transfer will not be detrimental to your creditors.
Transfer of existing contracts
A potential buyer/transferee may wish to acquire some of the business's existing contracts, including any past debts in connection with them, provided that such contracts were not entered into intuitu personae (i.e., contracts entered into based on a personal or specific relationship).
If their offer is accepted, they will automatically acquire the business's rights and obligations under such contracts without having to obtain the other contracting parties' consent.
Finalisation of the sale
The judicial representative must prepare one or several business disposal plans and satisfy the following conditions:
- describe the due diligence process in detail;
- justify their choices in respect of your transferred assets and the conditions of the sale;
- prepare a draft deed for each sale.
These plans will be forwarded to the 'delegated' judge and will be sent to you at least 2 days before the hearing. The court will then be petitioned to authorise the sale.
Effects of the transfer
Once it is authorised by the court, the transfer will trigger several events:
- transfer of assets: your business's assets, or those of the branches of your business involved in the operation, will be transferred to the buyer/transferee;
- transfer of contracts: the contracts that are essential for your business to continue operating – such as your employment contracts – will generally be transferred to the buyer/transferee, unless provided for otherwise by law;
- restructuring of debts: your creditors' rights will be reassessed. Some of the debts may be cancelled or rescheduled.
With the transfer, the former managers will lose all their rights in respect of the business, and the transfer may even result in the dissolution of your business if all its assets are transferred.
Protection for creditors
Your creditors' and your employees' interests will be protected. As part of the transfer, your creditors will be entitled to a share of the proceeds from the sale of the assets.
Protection for employees
Employees will be afforded special protection, since the buyer/transferee has the option to maintain the existing employment contracts and save jobs.
In addition, the transfer must be approved by the labour tribunal. The labour tribunal's approval covers several aspects, including, most notably:
- the list of employees affected;
- working conditions; and
- your debts and obligations in connection with your employees' employment contracts.
Termination of the procedure
Once all the transfers have been made, the judicial representative will petition the court to terminate the judicial reorganisation procedure. The decision to terminate the procedure will discharge your distressed business from all its obligations, except those noted in the deed of transfer.
Who to contact
District Court District Court Luxembourg
- Address:
- Cité judiciaire L-2080 Luxembourg Luxembourg
- Phone:
- (+352) 47 59 811
District Court District Court Diekirch
- Address:
-
4, place Guillaume
L-9237
Diekirch
Luxembourg
B.P. 164, L-9202 Diekirch
- Phone:
- (+352) 80 32 141
Related procedures and links
Related procedures
Links
Legal references
- Code de Commerce
-
Loi du 7 août 2023
relative à la préservation des entreprises et portant modernisation du droit de la faillite
