Does the grand old lady of Luxembourg company law need a face lift?  That was the question asked by Patrick Santer at a luncheon hosted by the British Chamber of Commerce for Luxembourg (BCC) back in February. Two months later, his answer remains resoundingly in the affirmative. That is hardly surprising, given that Santer was the president of the parliamentary judicial commission that drafted amendments to the bill. Ironically, just days after “projet de loi 5730” was submitted to the Council of State, Santer resigned as a member of the Chamber of Deputies to be replaced on the CSV benches by mayor of Niederanven, Raymond Weydert. Santer will now take up a place on the Council of State.

The law of 1915 has been amended several times, especially in the last 10 or 15 years, says Santer, but most of these amendments have arisen in response to EU legislation and directives. “Which meant the government’s leeway to act was narrow. Other minor amendments have been more punctual, such as the transfer of professional assets or the fact that the minimal nominal value of shares has been abrogated.” But bill 5730 is, he says, the first “non-EU commanded, overhaul revamping of the whole law.” Like many Luxembourg laws, an overhaul is long overdue. Much has changed since 1915 and, indeed, since 1933 when the Sàrl was introduced as a legal structure for family businesses. “But since then, and especially in the last ten years or so, Sàrls have been used in mergers and acquisitions or other financial transactions for tax purposes, and particularly for US tax purposes,” Santer explains. “Which is not really in line with the original goal in 1933.” The government wants to use the new law to adapt and modernise the structure towards the new users of the Sàrl.

Contractual freedom

In addition, other contemporary techniques and mechanisms being used by businesses have not yet been fully addressed by company law. “For instance, most banks these days have a comité de direction because it is too cumbersome to have a board of directors’ meeting every two days. But they are not mentioned in the current law – even if it is perfectly legal for the board to delegate to such a committee, we have not defined their liability. Is it the same as a board of directors? What about conflict of interest? There might be internal rules, but they are not written down in law.” Basically the government wants to maintain the same guidelines as used for the 1915 law, says Santer. That means allowing contractual freedom and avoiding over-regulation. “That is the only way to allow the shareholders to tailor a company to their own needs. And security for third parties – creditors, minority shareholders and so on – is also important.”

One of the most significant changes in the law will be the introduction of the Société par Actions simplifiée (SAS) – inspired by the French structure of the same name. “In France they saw that a normal Société Anonyme was difficult to handle, so they created a sort of ‘SA light’. Although our system is already light compared to the French SA structure, we have included the SAS because it has more flexibility,” Santer explains. Under the proposed law, the SAS will not require a minimal share capital and can be run by a one-man management body – a president. “It is taken from France, after all,” says Santer with a smile. “So someone has to be president; although the president can appoint special delegates.” Its flexibility will allow the SAS structure to be used for specific operations, such as special purpose vehicles, but it will not be permitted to be quoted on the stock exchange.

Santer says that none of the amendments has been informed by the current crisis – indeed, the original bill was filed in June 2007. “The crisis may accelerate things, because company law is an important element of competitiveness. And anything that strengthens this is good. But in dealing with the Ministry of Justice, while drafting the current amendments, there was never any impact of the crisis.” Nevertheless, the law is not likely to come into effect until a new parliament is sitting in September. “The problem is that parliament stops in the first half of May and both it and the Council of State have more urgent bills to address, such as that on mergers and acquisitions. So it is feasible to see this bill passed by the end of the year,” says an optimistic Santer.