Clarification of the rules on financial assistance for Luxembourg SARLs
A new law of 6 August 2021 (the “New Law”) was adopted to clarify the rules contained in article 1500-7 paragraph 2° of the amended law of 10 August 1915 on commercial companies (the “1915 Law”) regarding financial assistance by a Luxembourg private limited liability company (société à responsabilité limitée) (“SARL”).
Following the extensive reform which took place in 2016 to modernise the 1915 Law, article 1500-7 paragraph 2° of the 1915 Law stated that criminal sanctions consisting of a jail term of one month to two years and a fine from 5,000 euros to 125,000 euros or either one of such penalties, may apply to any person who, in their capacity as director or manager notably, would knowingly:
- grant loans or advances using corporate funds or provide sureties (sûretés) with a view to acquire shares (actions) or corporate units (parts sociales) in the company; or
- grant a pledge over the shares (actions) or corporate units (parts sociales) of the company,
in violation of articles 430-19 and 430-21 in the case of Luxembourg public limited liability companies (sociétés anonymes).
While the 1915 Law did not expressly provide for such prohibition in SARLs, the reference to corporate units (parts sociales) in article 1500-7 paragraph 2° of the 1915 Law was a source of uncertainty among practitioners.
The Luxembourg parliament has now clarified the situation by removing all references to corporate units (parts sociales), therefore confirming that the criminal sanctions contained in article 1500-7 paragraph 2° of the 1915 Law do not apply to the managers of an SARL. Financial assistance is therefore not prohibited for SARLs, but is still to be cautiously considered in light of the corporate interest of the company.
The New Law will enter into force on 16 August 2021.