The Luxembourg legislator has adopted certain modifications with a view to modernizing and clarifying various provisions relating to the execution and others of the Luxembourg collateral law. The amendments adopted, which are in line with the creditor-friendly spirit of the Luxembourg security law, are mainly technical in nature and their effects are expected to be limited in practice. Most of these amendments merely confirm well-established market practice on these points and are in line with the approach adopted by Luxembourg practitioners in recent years.
On July 7, 2022, the Luxembourg parliament adopted bill no. 7933 (the Law), which will enter into force on July 24, 2022. The law amends, among other things, the Luxembourg law on securities.
The stated objective of the Luxembourg legislator when amending the Luxembourg law on securities was to modernize certain modes of enforcement, such as the public sale procedure. A public sale is, however, very rarely used in practice as a method of enforcement (and secured creditors would generally opt for amicable appropriation or private sale on normal commercial terms in the vast majority of situations). For more details on the reformed public sale procedure, reference is made to the provisions of the law.
More importantly, the Luxembourg legislator has implemented other explanatory changes with regard to the enforcement of pledges on certain specific types of assets, including the following notable additions to Article 11 of the Luxembourg law on securities:
- for the units or shares of an undertaking for collective investment, it is specified that direct redemption constitutes a mode of execution in the sense that the pledgee is entitled to request the redemption of the units or shares at the redemption price determined in accordance the governing documents of the collective investment scheme collective investment scheme (new paragraph 11, (1)(f));
- for pledges on insurance contracts, it is specified that the pledgee is entitled to exercise all the rights arising from the pledged insurance contract, including for life insurance contracts or capitalization transactions, the right to surrender or the right to require the insurance company to pay the sums due under the insurance contract (new paragraph 11, (1)(g)).
Among other notable changes, the law introduces a new definition of “trading venue”, which refers to “a regulated market, a multilateral trading facility or an organized trading facility”. The term encompasses Luxembourg, European and third country trading venues.
The law thus extends the terms of execution to target (i) an assignment of assets pledged on the trading platform on which they are admitted to trading and (ii) an amicable appropriation at the market price (current price) if the financial instruments are admitted to trading on a trading venue.
The law also provides that with regard to fungible precious metals falling within the scope of the Luxembourg Grand-Ducal regulation of 18 December 1981 relating to the deposit of fungible precious metals, Luxembourg collateral law applies to pledges on these fungible precious metals, thus increasing its legal solidity.