Protecting Luxembourg Investment Funds and Companies Operating During the COVID-19 Crisis

Under emergency legislation applicable with immediate effect for three months with a view to contain the rapid spread of COVID-19 in Luxembourg,  Luxembourg enacted on 20 March 2020 temporary measures applicable to all companies and investment funds to provide for virtual shareholder meetings, board meetings and meetings of supervisory boards (i.e., without any individual attending in person). These measures, outside the scope of any existing legislation, facilitate the continuation of business of all Luxembourg corporate funds and companies during the three-month emergency state period, whilst applying lockdown orders. 

I. Board meetings

Regardless of any provisions to the contrary in the articles of association, any management body of a Luxembourg legal entity may hold meetings with no physical presence, either (i) by written circular resolutions or (ii) by video conference or other telecommunication means permitting identification of the attendee. 

Any board member attending the meeting by one of the above-mentioned means will be deemed present for the determination of the quorum and applicable majority to take a resolution. The same applies to over governance meetings such as meetings of the supervisory board in an SCA (société en commandite par actions).

As regards the operations of companies, the appointment of a Luxembourg resident responsible for day-to-day management functions (délégué à la gestion journalière) might be an additional option to consider on a case-by-case basis based on the current specific operational circumstances of the company. This option has always been available under the Companies Act and might be worth re-considering by those companies that opted  against prior to the COVID-19 crisis, as it would limit the number of meetings to be held during this period.  

II. LPs, shareholders and bondholders meetings

a. What’s improved for all meetings?

Save for amendments to articles of association, investors in a Luxembourg private limited liability company (S.à r.l.) can only take resolutions in writing provided that there are no more than 60 shareholders in the company and this is not an option available to public limited liability companies (SA) and funds or companies set-up partnerships limited by shares (SCA), where holding a general meeting is compulsory. This is now greatly improved for any general meeting convened on or prior 30 June 2020, where notwithstanding any provision to the contrary in articles of association or the Companies Act, regardless of the expected number of participants, any general meeting may be held with nobody attending in person and where shareholders, bondholders and, as  applicable, other participants may attend and exercise their voting rights:

a) by voting from a remote location in writing or electronically, provided that the full text of the resolutions or decisions to be taken has been published or communicated to them;

b) through a proxy holder appointed by the company / fund; or

c) by video conference or other telecommunication means permitting their identification.

Any proxyholder of an investor (limited partner, shareholder/bondholder) will also only be entitled to participate to the general meeting by one of the means listed above.  All investors attending the meeting by one of the above means will be deemed present for the determination of the quorum and relevant majority. 

Any legal entity which has already convened a general meeting of  investors prior to 20 March 2020 can implement the above measures, and notify their shareholders and other  participants in the same form as the original convening notice or by publication on their website at the latest on the third business day before the date of the general meeting. As regards listed companies, should a shareholder or limited partner have appointed a proxyholder other than as provided above, this proxyholder may participate in that meeting as provided under items (a) to and including (c) above. The adoption of written resolutions and remote voting solutions will likely be the best option going forward, as such resolutions can be circulated by electronic means and signed in one or several counterparts, effectively avoiding all physical contacts and travels.

With regards to general meetings having to be held before a Luxembourg notary, these will follow the same rules set-out above. We recommend to grant a proxy to any employee of the officiating notary to represent the shareholders or partners.

b. Annual general meetings and approval of accounts

Companies and funds are further allowed, irrespective of any contrary provisions in their constitutive documents, to convene their annual general meeting at the later of the following two dates:

a) the date falling maximum six months after the end of its financial year; and 

b) a date within a period ending 30 June 2020.

The financial year of a majority of legal entities in Luxembourg runs from 1 January to 31 December, and the annual general meeting must be held within six months after the end of its financial year. The above will therefore only provide an extension for legal entities with a financial year ending after 31 December. 

Under normal circumstances, annual accounts of Luxembourg entities must be filed within one month from their approval by the general meeting. Taking into consideration the COVID-19 crisis, the Register of Trade and Companies has also adopted the following emergency measures:

• with regards to the filing of the annual accounts for the financial year ended in 2019, Luxembourg legal entities will have an additional administrative period of four months to make their financial data filings, at the standard rate; and 
• the surcharge for late filing of financial data is exceptionally suspended, until 30 November 2020 for filing delays of up to four months included. 

It is worth noting that the above does not apply to financial statements relating to previous years, which should be approved and filed as soon as reasonably possible. The approval of these can be achieved in accordance with the general rules set out above.

It cannot be excluded that these deadlines will be further extended by the Luxembourg government as the situation evolves.  

c. Any risk from a tax substance perspective?

For substance reasons and in order to strengthen the tax residence of a company in Luxembourg, it is generally recommended that shareholder and board meetings be held physically in Luxembourg rather than virtually and remotely.

However, given the exceptional and temporary nature of these facilitating measures to continue the operations of companies and funds in these unprecedented circumstances, hopefully foreign tax authorities should not be as strict as usual on these aspects when analyzing the substance of the Luxembourg company. The holding of digital general meetings of investors should therefore not have any impact on the Luxembourg tax residence of a company or fund, even if this remains to be confirmed on a case-by-case basis.

The link to the grand ducal regulation dated 20 March 2020 authorizing companies and other legal entities to adopt resolutions without physical meetings can be found here. 

III. Temporary relief for UCITs and SIFs

The Luxembourg regulator updated its frequently asked questions on 20 March 2020 to provide on an exceptional and temporary basis for swing pricing/dilution levy factors to be applied at a greater percentage than as provided in the fund’s constitutive documents, which applies to UCITS, Part II funds and SIFs. For the avoidance of doubt, no authorization or notification to the CSSF is required, but the CSSF may request the rationale for the swing and evidence that this was in line with the prevailing market conditions. Investors should be notified of the decision to exceed the percentage. 

IV. Extended deadline for AML survey for Luxembourg AIFMs

The deadline to the annual online survey for the year ended 31 December 2019 on the collection of standardized key information on money laundering and terrorist financing risks was extended by the CSSF by 4 weeks to 10 April 2020.

The extension by the CSSF can be found here. 

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