On 3 July 2024, the draft law No. 8185 (the “Draft Law”) has been voted on for the first time before the Luxembourg Parliament (Chambre des Députés). A second vote on the Draft Law by the Luxembourg Parliament is normally required under the Luxembourg Constitution but it is expected that as permitted by the Luxembourg Constitution, the Luxembourg Parliament together with the Luxembourg Council of State will waive the requirement for such second vote. The version of the Draft Law that was voted on (the “Final Draft Law”), has been revised and submitted by the Finance Committee, upon receiving the pertinent opinions of the Chamber of Commerce, the designated commissions, and the Council of State.
In an article published on 3 April 2024, we had summarised the highlights of the Draft Law. For a comprehensive overview of the Draft Law, we refer you to our previous newsletter article on the topic available here.
Updates on the Draft Law
The Final Draft Law includes certain clarifications relating to:
- the transfer of non-performing loans;
- amendments to the Luxembourg law of 5 April 1993 on the financial sector;
- amendments to the Luxembourg law of 23 December 1998 establishing the financial sector supervisory commission (CSSF); and
- amendments to the Luxembourg law of 18 December 2015 on the failure of credit institutions and certain investment undertakings.
These are mostly minor and technical changes aiming at aligning them fully with the relevant EU directives and regulations and providing legal coherence among the provisions of the relevant laws.
A notable amendment worth mentioning is the addition of a new paragraph to Article 2 of the Final Draft Law. This amendment clarifies that Article 1699 of the Luxembourg Civil Code, which allows debtors of litigious claims being transferred to extinguish the transferred claim by repaying the transfer price to the assignee with interest, will not apply to the transfer of non-performing loans as defined by the Final Draft Law. The aim of this amendment is to prevent Article 1699 of the Luxembourg Civil Code from hindering the objective of facilitating the transfer of creditors’ rights under non-performing loans.
Amendment to the Financial Collateral Law
The Final Draft Law also includes an amendment to the Luxembourg law of 5 August 2005 on financial collateral arrangements (the "Financial Collateral Law"), which provides a much-anticipated clarification in respect of what “foreign law” and “foreign reorganisation and liquidation measures” mean within the sense of the Financial Collateral Law.
The amendment under the Final Draft Law incorporates new definitions of “national or foreign provisions”, “foreign law” and “reorganisation measures, liquidation proceedings or any other similar national or foreign proceedings”, that expressly include provisions, laws and measures of the States party to the European Economic Area (the “EEA Member States”) and any other State.
This is a highly welcomed development, as it reinstates legal certainty, particularly in light of recent court rulings that have limited the scope of Article 20 and Article 24 of the Financial Collateral Law. These articles state that financial collateral arrangements, as defined by the Financial Collateral Law, are valid and enforceable against third parties despite any reorganisation, winding-up measures, or similar national or foreign proceedings. The recent rulings had restricted the applicability of these articles to proceedings initiated solely within EEA Member States.
These new definitions will ensure that Luxembourg financial collateral arrangements remain valid and enforceable, regardless of any reorganisation or winding-up proceedings initiated, not only within EEA Member States but also in any other country worldwide.
Entry into Force
Provided that the requirement for a second vote of the Final Draft Law is waived, the Final Draft Law will enter into force four days after its publication in the Official Journal of the Grand Duchy of Luxembourg.
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