Background
As reported in our previous newsletter article, a draft law to modernise the Luxembourg accounting legislation (the “Draft Law”) was submitted to the Luxembourg Parliament (Chambre des Députés) in July 2023. This Draft Law No. 8286 intends to clarify and consolidate general accounting legislation, currently spread in several legislations, into a single accounting law and foresees the introduction of new accounting obligations.
As a reminder, some of the main changes proposed by that Draft Law include:
a mandatory auditors’ report for interim dividend payments for all SARLs regardless of their size;
the abolition of the office of “commissaire aux comptes”;
the introduction of a “bottom-up approach”, i.e. shifting the focus from large companies to small undertakings. The small-sized companies’ regime will become the norm and additional requirements will be added for medium and large-sized companies;
new audit requirements for holding companies having a total balance sheet exceeding EUR 500 million, who will need to have the annual accounts certified by a réviseur d’entreprises agrée;
the introduction of a new “micro entities” category as an optional regime with simpler requirements;
the introduction of the definition of “Control” in the context of a group; and
new requirements for entities in liquidation / dissolved, the Draft Law making it clear that the general accounting principles apply before and after a dissolution with liquidation.
Opinion of the Luxembourg Bar
On 24 April 2024, the Luxembourg Bar Association (Ordre des avocats du barreau de Luxembourg) (“LBA”) issued its opinion on the Draft Law.
The key comments of the LBA include the following:
the necessity of requiring an auditors’ report on interim dividend payments for all companies established under the legal form of a SARL goes against the spirit of the interim dividend procedure whose purpose is to allow the rapid payment of a dividend, subject to the safeguards already in place to protect third parties. Hence, this new requirement may not be appropriate as it appears to be cumbersome, costly, and put unnecessary burden on companies. The LBA also considers this measure to have a detrimental effect on the attractiveness of Luxembourg companies and may constitute a competitive disadvantage for the financial centre.
the proposed abolition of the commissaire aux comptes would undermine the objective of providing quality financial information. The commissaire aux comptes acts as a counterweight to the management body and has prerogatives conferred by law, designed to ensure that shareholders are adequately informed and protected against any excesses of power by the management body. It is also an essential tool for structuring corporate governance.
the current wording of article 470-1 of the Draft Law suggests that the consolidated financial statements must be approved by the general meeting. The LBA opined that from a practical point of view, the approval of consolidated financial statements by the general meeting would be problematic. Indeed, if the consolidated financial statements were to be approved by the general meeting, they could only be approved if the annual financial statements themselves had been approved, which would require two shareholders' meetings to be held within the timeline allowed for approving the financial statements. Secondly, the scope of the discussions at the general meeting would be limited, as the management body would only be able to respond with regard to the accounts for which it is responsible. Lastly, the discharge would relate only to the individual financial statements.
the Draft Law introduces a different definition of “control” from that in the law of 5 April 1993 on the financial sector. It defines the concept of control without introducing the concept of dominant influence (which constitutes a situation of exclusive control according to the Directive (EU) 2013/34 (the “EU Directive”). Based on the Draft Law, such a situation of exclusive control would not exist in Luxembourg. However, the incomplete transposition of the definition of control may trigger a different interpretation and application of the law, while it is a common concept which is included in the text of many Luxembourg laws.
The Chamber of Commerce has also recently given an its opinion on the Draft Law. on 24 May 2024. It is anticipated that the legislative process for the adoption of the Draft Law will accelerate in the coming months and that once approved, the provisions of the Draft Law will be applicable from 1 January 2025.
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