Luxembourg Amends Corporate Governance Rules in Response to COVID-19

27 March 2020
By Patricia VolhardSimon Witney, and Christopher Dortschy

On 18 March 2020, the Luxembourg government declared a state of emergency in light of the current COVID-19 epidemic. Amongst various other measures, two days later, it enacted a Grand-Ducal Regulation (the “Regulation”), the purpose of which is to ensure the continued functioning  of Luxembourg companies despite all difficulties for the management as well as the owners and other stakeholders of Luxembourg entities to travel to, from and within Luxembourg. The Regulation effectively overrides the bylaws of all Luxembourg companies and allows them to hold board meetings and general meetings without physical presence regardless of what is set out in their instruments of incorporation. 

General Meetings 

The core provision of the Regulation deals with the possibility of holding  non-physical meetings of stakeholders in Luxembourg companies (i.e., shareholders, bondholders, (limited and general) partners, members, etc.) (the “Stakeholders”). Whereas the articles of incorporation of most private limited liability companies (Sàrls) and the partnership agreements of most limited partnerships (SCS/SCSp) will already positively permit decisions to be taken via written resolutions (with certain exceptions depending on the type of decisions), the Regulation now effectively enables entities taking other widely used legal forms – such as public limited liability companies (SAs) or partnerships limited by shares (SCAs) – to derogate from their obligation to hold physical meetings. Any general meeting of any Luxembourg company (which should include general meetings which require the presence of a notary) convened to be held on or prior to 30 June 2020 may effectively be held without any person being present. Stakeholders may “attend” and exercise their voting rights (a) by distance voting (in writing or electronically), (b) by way of power of attorney granted to a person designated by the company or (c) by video conference or other telecommunication means permitting their identification. 

It should be noted that powers of attorney are already widely used in practice, meaning that most general meetings take place with very limited physical presence. In those cases, the main difference will be that the person appointed as the proxy by the relevant Stakeholder will also have to “attend” the non-physical meetings through any of the options (a), (b) or (c) above. 

Stakeholders participating by any of the above means will be counted as “attending” in terms of both quorum and majority. 

The Regulation also contains rules that deal with general meetings which were already convened on 20 March 2020. The relevant companies will still have the right to switch to non-physical forms of meeting by either issuing a new convening notice or by posting a publication on their website. This must occur at the latest three business days before the date of the general meeting. Given the short time frame and the risk that Stakeholders will not receive the amended convening notice in time, we would advise using this option with care. 

Management 

Another emergency measure contained in the Regulation is the introduction of distance communication measures at the level of supervisory and management boards of Luxembourg companies. Most instruments of incorporation of Luxembourg companies will already foresee the possibility of taking decisions by circular resolutions or allowing the members of the relevant board to attend via telephone, video conference or other telematic means. The Regulation should therefore have less impact on the daily routine of the management of Luxembourg companies. 

Other Measures 

Finally, the Regulation deals with annual general meetings of Luxembourg companies and the date on which they should be held. A great number of Luxembourg entities (not all) have an obligation to hold an annual general meeting either at a date mentioned in their instrument of incorporation or within six months after the end of their financial year. The Regulation clarifies that the annual general meeting of these entities must take place by the later of the following two dates: (a) the date falling a maximum of six months after the end of their financial year; and (b) 30 June 2020. 

The above is accompanied by emergency measures of the Luxembourg trade and companies register (RCSL) and the country’s financial regulator (CSSF), who have both granted the relevant entities more time to file certain reports and have also declared, in certain areas, that they will be less strict in enforcement measures, subject to due justification, which will be assessed on a case-by-case basis. 

The CSSF has issued further guidance, such as: 

  • Publishing a general COVID-related FAQ on its website.
  • Granting an additional four weeks to file its AML/CTF survey, thereby moving the new deadline to end of business on 10 April (as opposed to 15 March).
  • Issuing a press release confirming that the CSSF remains operational but closed for external visits.
  • Updating its FAQ on Swing Pricing to flex the application of swing pricing policies for UCITS, Part II Funds and SIFs beyond the maximum percentages set out in the prospectuses.

Publishing MiFID II- and short position-related guidance.