Cross-Border and National Mergers, Demergers and Conversions in Luxembourg: The Mobility Directive Implements a New Legal Framework

The approval by the Luxembourg Parliament of the bill of law No. 8053¹ on January 23, 2025, followed by the publication of the New Law dated February 17, 2025 in the Luxembourg official gazette on February 26, 2025, finalizes the implementation of the Mobility Directive² into Luxembourg law.

The New Law entered into force on March 2, 2025, and applies to mergers (fusions), demergers (scissions) and conversions (transformations) for which merger plan, the demerger plan or the conversion plan, as applicable, is published on or after April 1, 2025 (i.e. on the first day of the month following the entry into force of the New Law). For transactions where such plans are published before April 1, 2025, the previous rules shall continue to apply.

The Mobility Directive seeks to streamline and harmonize the procedures for cross-border corporate restructuring within the EU, as well as introducing specific protective mechanisms previously unknown in Luxembourg law. The Luxembourg legislator, in line with its practical and flexible approach, retained the most flexible options offered by the European legislators with the aim of establishing a cross-border mobility legal framework that is as flexible and competitive as possible.

The New Law amends the law of August 10, 1915, on commercial companies (as amended), by establishing two new distinct legal regimes for mergers, demergers and conversions: (a) a special regime that applies to cross-border restructuring transactions involving certain types of Luxembourg companies and other EU-based companies (the Special Regime), and (b) a general regime that applies to both (i) domestic restructuring transactions and (ii) cross-border restructuring transactions involving Luxembourg companies and non-EU-based companies (the General Regime). While the General Regime does not significantly diverge from the regime applicable in Luxembourg prior to the New Law, the Special Regime impacts the current practice for European cross-border restructuring transactions.

Below is a general outline of the new key requirements introduced by the New Law.

A.    Key Aspects of the Special Regime

Scope

The Special Regime introduced by the New Law applies to cross border restructurings between certain types of Luxembourg companies and at least one company from another EU Member State. Given that the rules introduced by the Special Regime are perceived as more restrictive than the legal framework existing in Luxembourg law, the Luxembourg legislator decided - in compliance with the flexibility granted by the Mobility Directive - to limit the applicability of the Special Regime to European cross-border restructuring transactions involving Luxembourg companies taking the form of a public limited liability company (société anonyme - S.A.)³, a private limited liability company (société à responsabilité limitée - S.à r.l.) or a corporate partnership limited by shares (société en commandite par actions - S.C.A.).

The Special Regime also does not apply, notably, to (i) companies in liquidation having started distributing assets to its shareholders, (ii) companies subject to certain insolvency proceedings or preventive measures and (iii) companies which are governed by other ad hoc rules, such as the undertakings for collective investments in transferable securities (UCITS) and the European companies (sociétés européennes or SE).

Increased Publication Requirements

Under the New Law, the management bodies of the Luxembourg company and, where applicable, of the other EU company involved in the cross-border transaction in scope of the Special Regime are required to provide more detailed information on the planned cross-border transaction (be it merger, demerger or conversion) in the common merger plan (projet commun de fusion)⁴, common demerger plan (projet commun de scission) or conversion plan (projet de transformation), as applicable (the Plan) that must be published in Luxembourg and in any other EU Member State involved. The Special Regime also introduces enhanced rights to information in respect of the cross-border transaction, including the publication of a notice by the management body of the Luxembourg company involved in the cross-border transaction informing shareholders, creditors and employees (or their representatives) of their right to submit comments concerning the contemplated transaction.

Enhanced Protection of Shareholders

Shareholders of the Luxembourg company involved in a cross-border transaction will benefit from strengthened protections under the Special Regime. Among other things, shareholders who have voted against a proposed cross-border transaction that nonetheless is approved will have the right to dispose of their shares for ‘adequate’ cash compensation. Furthermore, those shareholders will have the right to challenge such compensation in court if they consider it to be inadequate. Such protection is specific to the Special Regime and is not available in the context of a domestic merger or a cross-border merger involving non-EU companies.

Enhanced Protection of Creditors

The Special Regime provides specific protection to creditors of a company involved in a cross- border transaction. If the creditors are not satisfied by the guarantees offered to them pursuant to the Plan, they can, subject to prior notification to the company, and within three months of the publication of the Plan, request additional security for their claims before the president of the commercial court in the district where the registered office of the company is located. Creditors will need to demonstrate, in a credible manner, that the cross-border transaction compromises the recovery of their claims. Notably, the creditors' request will not suspend the contemplated cross-border transaction.

Enhanced Protection of Employees

The Special Regime further provides enhanced protection to employees of the Luxembourg company involved in a cross-border transaction, by requiring the management body of the company to issue a report to the employees or their representatives, setting out among others the implications of the cross-border transaction on the employment relationships and any significant changes that the transaction may bring in the employment conditions or in the place of work.

Anti-Abuse Control by Luxembourg Notaries

The Special Regime sees Luxembourg notaries play a significant role in the cross-border transactions in scope of the Special Regime. Specifically, Luxembourg notaries are required to carry out an anti-abuse control to ensure that all Luxembourg legal requirements applicable to a cross-border transaction are met. The notary is also required to verify the legality of the transaction and issue a formal certificate (certificat préalable) prior to the completion of the transaction, attesting that the transaction is in compliance with all relevant conditions and all procedures and formalities have been properly completed in Luxembourg.

The New Law provides that the notaries may not issue such a certificate if they find that the cross-border transaction is being carried out for abusive or fraudulent purposes leading to circumvention of EU or national law, or for criminal purposes. Such an assessment by the Luxembourg notary must be carried out on a case-by-case basis, in accordance with the Luxembourg legislation applicable to the notaries.

B.     Limited Changes to the Existing General Regime

The New Law not only transposes the Mobility Directive into Luxembourg law, it also amends the Luxembourg legal regime applicable to domestic transactions and to cross-border transactions that do not fall within the scope of the Special Regime, including cross-border transactions involving foreign entities from outside the EU and cross-border transactions involving a Luxembourg company other than a public company limited by shares (société anonyme), a private limited liability company (société à responsabilité limitée) or a corporate partnership limited by shares (société en commandite par actions).

The amendments to the General Regime include among other things (i) the possibility for the general meeting of shareholders to amend the Plan to a certain extent when approving the transaction or to subject approval of the transaction to a term or condition that it deems appropriate; and (ii) where under the previous regime a shareholder’s resolution was needed to waive the requirement for a report by an auditor (réviseur d’entreprises), such report is no longer required where the company engaged in the in-scope transaction has a sole shareholder which makes the process quicker and less burdensome from the documentation point of view.

The provisions of the General Regime apply by default to any aspects of a transaction within the scope of the Special Regime that are not specifically regulated by a provision of the Special Regime.

After a long legislative process, the New Law finally implements the Mobility Directive in Luxembourg and brings consistency and legal security for cross-border corporate restructuring transactions which previously were governed by a combination of old regime legal provisions still applicable in Luxembourg and of newly transposed legal provisions applicable in other EU Member States that had already embraced the new EU regime. It remains to be seen how this new legal framework will be effectively implemented by Luxembourg market participants, including notaries.