Article 10 of the Business Continuation Law
The law of 7 August 2023 on the preservation of businesses and the modernisation of bankruptcy law (the “Business Continuation Law”), in Article 10, provides for the appointment of a judicial representative (mandataires de justice) when serious and proven breaches by the debtor or its management threaten the continuity of the business, provided that the requested measure is likely to safeguard it.
The Luxembourg District Court, upon request of the Public Prosecutor or any interested party, may appoint one or more judicial representatives, chosen from the list of sworn experts. The court order appointing the judicial representative must detail the scope and duration of his mission.
It should be noted that the opening of judicial reorganisation proceedings does not automatically terminate the judicial representative’s mission. Instead, the court will determine, either in the judgment opening the reorganisation or in a subsequent decision, whether the mission should continue, be modified, or be terminated. Finally, an ad hoc evaluation must also be carried out in the event that a conciliator has been already appointed.
Factual background
In the case at hand, the court had previously invited the parties to take a position on the decisions adopted by the board of directors regarding possible measures to be taken pursuant to Article 10 of the Business Continuation Law concerning the appointment of a judicial representative.
The defendant, a Luxembourg public limited company, argued that it had undertaken a series of measures to improve its financial situation, making the request for a judicial representative unfounded. It further asserted that two independent directors had been appointed by the general meeting of shareholders and had subsequently accepted their mandates. The company also presented a financial plan, including credit facilities, assets, and operations aimed at repaying its debts and improving its financial stability to ensure its continued presence on the market.
Conversely, the claimant, a company administrator, firmly contested the defendant’s position arguing that the independent directors’ appointment was not published on the Luxembourg Trade and Company Register, making their acceptance unclear. Moreover, he questioned the impartiality of one director, due to their close ties with the company.
Additionally, the claimant challenged the financial plan, citing the company’s failure to lift asset attachments and alleging irregularities in the 2022 accounts, as well as insufficient liquidity. He further claimed that conflict of interest had impaired the company’s ability to act properly, with no mitigating measures taken. As a result, he requested the court to appoint a judicial representative to restore the company’s financial viability.
Key takeaways from the decision
In order No. 2025TALCH02/00210, issued on 31 January 2025, the President of the District Court stepped in to address a governance crisis that had brought the company’s decision-making to a standstill. Internal opposition within the board had led to paralysis, with no concrete steps taken to resolve the company’s financial troubles.
Recognising this deadlock as a direct threat to the company’s survival, the court opted for a balanced solution: appointing a judicial representative – not to take control, but to mediate conflicts, ensure necessary measures were implemented, and protect the interests of all parties. The Court emphasised that the representative’s role should be one of “targeted and reasoned interventions” rather than active participation in the company’s daily management, rejecting the claimant’s request to grant the judicial representative veto powers as excessive.
The appointment was set for one-year term, with the possibility of extension or adjustment depending on the evolution of the company’s situation. This decision underscores the Court’s focus on preserving stability without overstepping into corporate governance.
Conclusive remarks
The Business Continuation Law expands the ability to request the appointment of a judicial representative, no longer limiting it to shareholders or directors in urgent circumstances. Now, any party with a legitimate interest can apply if serious misconduct by the company’s management threatens its survival – provided the measure could help preserve business continuity.
In this case, ongoing financial mismanagement and internal conflicts within the board of directors justified the appointment of a judicial representative. Crucially, the ruling clarified that the representative’s role is not to take over management but to intervene strategically to address specific issues, ensuring the company’s stability while respecting its governance.
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