The Corporate Governance Review: Luxembourg

Overview of governance regime

i Statutory framework

Luxembourg's main statutes on corporate governance include the Companies Act,2 the EU Market Abuse Regulation3 and the Securitisation Act.4 The Companies Act was revamped in 2016 to modernise Luxembourg corporate law, and a consolidated version of the Act was published in December 2017, following the renumbering of its articles.5

Other notable statutory instruments regulating corporate governance in Luxembourg include:

  1. the Act of 30 May 2018 on Markets in Financial Instruments,6 introducing specific provisions on transparency for shares and transaction reporting, together with the EU Regulation on Markets in Financial Instruments (MiFIR);7
  2. the Takeover Bid Act,8 providing for minority shareholder protection, rules of mandatory offers and disclosure requirements for companies whose shares are admitted to trading on a regulated market in a Member State of the European Union;
  3. the Prospectus Act,9 which requires the publication of prospectuses from companies intending to admit their shares to trading on a regulated market or to make a public offer;
  4. the Transparency Act of 11 January 2008,10 as amended; and
  5. the Shareholder Act of 24 May 2011,11 as amended by the Act of 1 August 2019 setting out a number of shareholders' rights and aiming to increase long-term shareholder engagement, transposing the Second Shareholders' Rights Directive12 into Luxembourg law.

Furthermore, the Act of 21 July 201213 introduced a squeeze-out right in favour of dominant shareholders and a sell-out right in favour of minority shareholders in companies whose shares are admitted to trading on a regulated market,14 the Act of 6 April 2013 introduced a legal regime for dematerialised securities and the Act of 12 July 2013,15 as amended, introduced into Luxembourg law a new structure: the special limited partnership. Furthermore, in 2014, the Act on the Immobilisation of Bearer Shares16 instituted the requirement to deposit bearer shares with a recognised depositary and allowed access by judicial and tax authorities to information on the identity of bearer shares holders. Finally, the Act of 10 March 201417 provides for the possibility of forming a European Cooperative Society in conformity with the provisions of Council Regulation (EC) No. 1435/2003 of 22 July 2003.

As a supplement to the general statutory law, the Luxembourg Stock Exchange (LuxSE) 10 Principles of Corporate Governance (the LuxSE Principles)18 provide general principles, recommendations and guidelines on best practices relating to general corporate governance issues for all companies listed on the LuxSE and all Luxembourg companies whose shares are admitted to trading on a regulated market operated by the LuxSE.19

ii Regulatory authorities

Listed companies are often controlled by one or more major shareholders, rendering it impossible to rely solely on market monitoring to ensure that listed companies comply with the LuxSE Principles.

The other main regulatory authority is the CSSF,20 which is in charge of promoting transparency, simplicity and fairness on the markets of financial products and services.

As an operationally independent body, the CSSF has sufficient powers to conduct effective supervision and regulation of the Luxembourg securities market. To conduct its tasks effectively, the CSSF has broad powers, including the authority to attend meetings of LuxSE entities, suspend rulings or suspend market intermediaries' decision-makers if they fail to observe legal, regulatory or statutory provisions.

Corporate leadership

i Board structure and practices

Structure

Although public limited liability companies may choose between a two-tier board structure21 and a the one-tier board structure,22 the latter remains by far the preferred option in Luxembourg, with a company being managed exclusively by a board invested with the broadest powers to act in the name and on behalf of the company.

In a two-tier system, a company is managed by two bodies: the management board, charged with the day-to-day management of the company, and a supervisory board. The supervisory board's responsibilities include the appointment and permanent supervision of the management board members, and the right to inspect all company transactions.23 No person may be a member of both the management board and the supervisory board at the same time.24 Members of the supervisory board are liable towards the company and any third party in accordance with general law.25

Composition of the board in a one-tier board structure

The board is composed of appointed members (the company's directors). A public limited liability company can be managed by one director as long as it has a sole shareholder.26 Otherwise, the Companies Act requires a minimum of three directors;27 the maximum number of directors is undefined (the LuxSE Principles advise 16 directors as a reasonable limit).28 Although the directors are appointed by the shareholders of the company,29 the directors choose a chair from among their members.30 The Companies Act does not provide any specific powers to the chair of the board. However, unlike in other civil law jurisdictions, the chair of the board does not act on behalf of the company in his or her position as chair, but rather on the basis of his or her position as director of the company.

As for the representation of the company, most articles of association provide that any two directors can represent the company without evidence of a board resolution.

Although their appointment, removal from office and powers may be specified, limited or extended by the articles of association or the competent corporate body, the Companies Act states that no restrictions to their representative powers may be validly opposed in relation to third parties, even if their appointment is published.31 The liability of the day-to-day manager is based on the general rules relating to mandates.32

A company will generally be bound by the acts of its directors or by the person entrusted with its day-to-day management, even if those acts exceed the company's corporate object, unless the company proves that the third party knew that the relevant acts exceeded the company's corporate object or could not, in view of the circumstances, have been unaware of it. The publication of a restriction to a director's powers in the company's articles of association is deemed insufficient to constitute such proof.33

Regarding listed companies, the LuxSE Principles distinguish between executive and non-executive managers.34 There is no other distinction under Luxembourg law, with all board members having the same rights and obligations. A more permanent division of tasks and responsibilities between board members is possible (e.g., by providing for different classes of directors), but any such division is purely internal and is unenforceable towards third parties. However, it is possible for the board to delegate certain specific powers to individual board members or non-board members in the framework of a specific delegation of power.

Separation of CEO and chair roles

Chair's role and responsibilities

Although the roles of chief executive officer (CEO) and chair tend to be separated in practice, there are no legal provisions or guidelines pertaining to a separation of roles or responsibilities.

For listed companies, the LuxSE Principles require that the chair prepares the board meeting agendas after consulting the CEO, and ensures that the procedures for preparing meetings, deliberations, decision-making and the implementation of decisions are correctly applied.35

For listed companies, according to the LuxSE Principles, companies should 'establish a policy of active communication with the shareholders' and allow shareholder dialogue with the board and the executive management.36

Remuneration of directors

Directors are not employees of the company as such, and their remuneration falls under the general rules on mandates and corporate law. Generally, and unless otherwise provided by the articles of association, services rendered by the company directors are considered to be provided remuneration-free. If the articles of association authorise remuneration, the global amount to be paid to the directors will be fixed by the general meeting of shareholders, and the board will allocate that amount between board members as it deems fit.37 The rules on conflicts of interest forbid directors from taking part in or voting on resolutions relating to their own remuneration.

The LuxSE Principles recommend establishing a remuneration committee to deal with these issues.

Concerning listed companies, following the transposition of Shareholder Directive II, shareholders must now be informed in detail of the remuneration of directors and the company's remuneration policy. Shareholders have an advisory vote on this policy, unless the company's articles of association provide for a binding vote. The remuneration policy must be submitted to the general meeting of shareholders for approval each time there is a significant change thereto and at least every four years. In addition, companies must prepare a report for the annual general meeting on the remuneration and benefits granted to directors.38

Committees

A company's articles of association may allow for the creation of committees appointed by the board to ensure that the directors' obligations are fulfilled. The LuxSE Principles advise listed companies to establish, from among the board's members, inter alia:

  1. a committee to assist the board in relation to corporate policies, internal controls, financial and regulatory reporting, and risk management;
  2. an audit committee;39
  3. a nomination committee to nominate suitable candidates as directors; and
  4. a corporate governance committee to ensure compliance with corporate governance practice.

ii Directors

The directors of a public limited liability company are appointed by the general meeting of the shareholders for a period that cannot exceed six years,40 although they can be re-elected if the company's articles of association do not provide otherwise. They may at any time be removed from office by the general meeting of shareholders41 without cause, by simple majority.

Although no general legal obligations are in place, the LuxSE Principles require that listed companies' boards have a sufficient number of independent directors (the number depends on the nature of the company's activities and share ownership structure). Although there are no specific legal provisions regarding independent directors, it is generally understood that all directors, including independent directors, should be provided with timely information for the proper performance of their duties.

Liability of directors

Directors must act in the best corporate interests of the company, and are obliged to comply with the Companies Act and with the company's articles of association. They must manage the company's business in good faith, with reasonable care, in a competent, prudent and active manner, at all times in the company's best interests, and must refrain from doing anything that does not fall within the scope of the company's corporate objectives. The Companies Act also imposes certain general duties on directors, including the general management of the company, representation of the company towards third parties and upholding their duty to avoid any conflicts of interest.42

The Luxembourg legislator has remained silent on what should be considered a company's best corporate interest. In a judgment delivered in 2015,43 the Luxembourg District Court made some observations on this notion. It explained that it is an adaptable concept, the exact interpretation of which depends on the company concerned and the nature of its activities. For some companies, the corporate interest is aligned to the interests of a company's shareholders. For others, it includes the interest of the legal entity as a whole, including the interests of shareholders but also those of employees and creditors. The Court remarked that for companies that are used for purposes of financing and pure holding companies, the interest of the company's shareholders will be of overriding importance as the focus of the company's activities is on the rate of return of its investments.

The directors' duties are owed to the company, and as such they may be held liable towards the company both on civil and criminal grounds.

They are jointly and severally liable in accordance with the general provisions on civil liability44 and the provisions of the Companies Act,45 both towards the company and towards all third parties, for any damage resulting from a violation of the Companies Act or of the articles of association of the company. To avoid collective liability, a director must prove that he or she has not taken part in the breach of the Companies Act or of the articles of association of the company, that no misconduct is attributable to him or her, and that he or she reported the breach at the first shareholders' meeting following his or her discovery or knowledge of the breach.

With regard to mismanagement, every director is individually liable.46 In the event of misconduct, according to prevailing doctrine and case law, the shareholders' meeting must decide whether to make any claim against a director in connection with faults committed by the director in the performance of his or her functions.

Both the company and third parties (including any shareholder or creditor with a legitimate interest) may bring an action against a director. However, shareholders may only seek compensation for a prejudice that is distinct from the company's collective damage, and that can be defined as an individual and personal damage. The possibility for a (minority) shareholder to sue a director has been given an explicit legal basis in Luxembourg law.47

If the shareholders have suffered collective damage, it is up to the shareholders' meeting to demand compensation, in which case an action must be brought by the shareholders' meeting on behalf of the company (an action initiated by a single shareholder will be dismissed). The legal basis for the action differs depending on whether the proceedings are invoked by the company or by third parties.

Any action by the company has a contractual basis, whereas an action by third parties will be brought on the grounds of tort liability. Under contractual liability, only reasonably foreseeable damage is to be repaired (except in cases of fraud), whereas under tort liability, all damage caused by the misconduct must be repaired.

Directors' liability towards the company is exonerated further to cover the discharge granted to the board by the annual shareholders' meeting approving the annual accounts. This discharge is valid only for the period covered by the accounts presented to and approved by the general meeting of shareholders, provided that they do not contain any omission or false statement of a material fact.

Conflicts of interest of directors

Regarding the rules relating to conflicts of interest,48 any director who has a financial interest, either directly or indirectly, that is contrary to that of the company in a transaction submitted for approval to the board is obliged to inform the board of his or her conflict, refrain from taking part in the deliberations, abstain from voting and have his or her statement recorded in the minutes of the meeting. A special report regarding the transactions in which one of the directors had a (potential) conflict of interest is then to be prepared and submitted at the next general meeting before voting on any resolutions. The above-mentioned obligations do not apply when a decision to be taken by the board relates to the company's normal course of business and is taken under normal conditions.

Disclosure

i Trade and Companies Register and the ultimate beneficial owner register

The Articles of Association and amendments are filed and are published, in principle, in full in the Electronic Digest of Companies and Associations.49

On 1 March 2019, the law establishing a Luxembourg register of beneficial owners (the RBE Act), transposing Article 30 of the 4th Anti-Money Laundering Directive50 entered into force.51 The RBE Act applies to entities registered with the Luxembourg Trade and Companies Register, including but not limited to civil and commercial companies, branches of foreign companies,. There is, nevertheless, an exception for companies whose securities are admitted to trading on a qualifying regulated market (qualifying listed entities). Qualifying listed entities are required only to provide the name of the market on which their securities are traded.

By the Act of 10 July 2020, Luxembourg established a register of fiducies52 and trusts.53 Trustees and fiduciaries are obliged to obtain and hold information regarding the identity of the beneficial owners of the trust or fiducie and must submit these to a central register.

ii Financial reporting and accountability

Every company must file all company accounts annually under the Companies Act, which imposes consolidated accounting for all Luxembourg-based companies where the company:

  1. has a majority of the shareholding or voting rights in another entity;
  2. is a shareholder or member in another entity and has the right to approve or appoint a majority of the members to the administrative, management or supervisory body of the entity; or
  3. is a shareholder or member of another entity and solely controls a majority of shareholders' or members' voting rights in the entity, further to a shareholder or member agreement.54

Depending on whether a company can be categorised as small, medium or large, various financial reporting obligations apply, such as the obligation to draw up consolidated annual accounts or the obligation to use a certain structure of balance sheet and profit and loss account.

iii Auditors' role and authority, and independence

The Audit Act55 and Luxembourg legislation exclusively reserve statutory audits to statutory auditors and to audit firms that have been approved by the CSSF. Access to the auditing profession is regulated by the Audit Act, and the titles 'auditor' and 'audit firm' are exclusively granted by the CSSF to applicants on fulfilment of certain criteria.56

iv The comply or explain model and mandatory disclosure

The comply or explain approach, recommended by the Organisation for Economic Co-operation and Development and the European Commission, is favourably received by company boards and investors.

The LuxSE Principles were drafted to be highly flexible and adaptable to the size, structure, exposure to risks and specific activities of each company. The Principles consist of three sets of rules: general principles (comply), recommendations (comply or explain) and guidelines.

Corporate social responsibility / ESG

Corporate responsibility and corporate social responsibility (CSR) have become more and more important for Luxembourg companies. Following the National Action Plan on the implementation of the United Nations Guiding Principles on Business and Human Rights of 2018–2019,57 Luxembourg is now working on a National Action Plan on CSR and aims to raise awareness of the importance of CSR.

Directive 2014/95/EU on disclosure of non-financial and diversity information by certain large undertakings and groups was transposed into national legislation by the law of 23 July 2016. Furthermore, when publishing its revised LuxSE Principles in December 2017, the LuxSE added a new Principle on CSR to this document, introducing mandatory disclosure of companies' CSR commitments.58 This latest LuxSE Principle forces companies to define their policy on CSR aspects.

Besides the LuxSE Principles, the Act of 5 December 2007 implementing, among other things, the Directive on annual and consolidated accounts,59 includes a provision on corporate governance practices that listed insurance companies should apply.60

Moreover, the Transparency Act requires listed companies to publish information regarding their share capital and all regulated information (including financial reporting and shareholding) on their websites, and the Market Abuse Regulation stipulates that complete and effective public disclosure of any inside information must be published on both the company's and the LuxSE's websites.61 Listed companies must also publish their corporate governance charters on their websites. In practice, listed companies tend to publish not only regulated information but also all past and present press releases and corporate information.

Although CSR commitments displayed on participating companies' websites have no legal basis and, therefore, are not subject to legal enforcement, the unique nature and size of the Luxembourg marketplace has increased the effect of peer pressure on companies.

CSR and employees

The Labour Code62 introduced a legal requirement for employee representatives on certain company boards. This legal obligation is limited to public limited liability companies fulfilling two criteria: all companies established in Luxembourg and with more than 1,000 employees over a three-year period; and all companies established in Luxembourg in which the state retains a financial participation of more than 25 per cent, or that exercise a state-awarded concession.

Shareholders

i Shareholder rights and powers

Shareholders' meetings and equality of voting rights

The Shareholder Act came into force on 1 July 2011 aiming, inter alia, at strengthening the exercise of minority shareholders' voting rights in listed companies to improve the corporate governance of such companies. The Shareholder Act explicitly refers to a principle of equal treatment of shareholders.63

Pursuant to the Shareholder Act, listed companies must give at least 30 calendar days' notice64 before holding a meeting65 (notwithstanding particular requirements under the Takeover Bid Act). Should the quorum not be met at the first meeting, a second meeting must be convened at least 17 calendar days before the meeting is held.66

The Shareholder Act allows distance voting by shareholders in advance of the meeting, provided that the company has expressly recognised this possibility in its articles of association.67

The Shareholder Act requires proxy voting to be offered to shareholders under certain conditions, with the proxy holder having the same rights as the shareholder.

Powers of shareholders to influence the board

The Companies Act reserves the management of a company, in principle, to its board.68 Should a shareholder be directly involved in the management of the company, he or she may be deemed a de facto director and face civil or criminal liability, or both, and generally be liable under the same circumstances as the appointed directors.

However, shareholders do control the appointment of the board (and, therefore, its composition) via a majority decision of more than 50 per cent to appoint a new director.69 In addition, shareholders representing 10 per cent of a company's share capital may force the board to postpone a general meeting of shareholders for up to four weeks70 and may request the addition of items to the agenda of the shareholders' meeting.

As for listed companies, the Shareholders Act acknowledges the right of any shareholder or group of shareholders holding at least 5 per cent of the capital to ask for items to be included in the agenda for the general meeting, and to lodge draft resolutions concerning the items on the agenda of the meeting.71

Furthermore, during the annual general meeting, the shareholders can question the board on all aspects of a company's management, accounting and so forth throughout the year, and may withhold the granting of discharge. The right of shareholders to ask questions during the meeting and to receive answers to their questions is legally enshrined.72

Under the Shareholder Act, in addition to the right to ask questions verbally during a meeting, shareholders may have the right to pose written questions about the items on the agenda before the meeting is held. If provided for in a company's articles of association, questions may be asked as soon as the convening notice for the general meeting is published. The company's articles of association will furthermore provide the cut-off time by which the company should have received the written questions.73

Apart from several specific circumstances (e.g., in the case of confidential information), the company must answer any questions addressed to it. Should several questions relate to the same topic, the company may publish a detailed questions and answers document on its website, in which case the chair should draw the shareholders' attention to the publication.

The Companies Act also allows shareholders to submit questions to management outside a meeting.74 Any shareholder representing at least 10 per cent of a company's share capital or voting rights, or both, can put questions about the management and operations of the company, or one of its affiliates, to the board of directors or management body, without the need for extraordinary circumstances. If the company's board or management body fails to answer these questions within one month, the shareholders may petition, as in summary proceedings, the president of the district court responsible for commercial matters to appoint one or more independent experts to draw up a report on the issues to which the questions relate.75

Certain matters must also be reported to the shareholders, such as any director's conflict of interest relating to voting on a resolution.76

Furthermore, if a minority shareholder of a public limited liability company finds that directors and members of its management and supervisory boards are negligent or simply not diligent in the performance of their duties, it may sue them. Such an action may be brought by one or more shareholders, the holders of founders' shares, or both, representing 10 per cent or more of the company's voting rights.77

Decisions reserved to shareholders and approval of material transactions

The Companies Act provides that a company's management board has the most extensive powers to perform all actions necessary or appropriate to fulfil the company's corporate objectives,78 with the exception of the actions specifically reserved by law to the shareholders' meeting. These actions include, inter alia, any amendments to the company's articles of association, the approval of annual accounts and the allocation of the company's results, which are reserved to the company's shareholders.

In addition, shareholders must approve material transactions with related parties. With regard to the definition of 'material transaction', Luxembourg Law takes into account the nature of the transaction as well as the position of the related party.79

Rights of dissenting shareholders

The Companies Act currently recognises only a few rights of action on behalf of the company in favour of individual shareholders.

Seeking invalidation of a shareholder decision by dissenting shareholders is only possible on the basis of five grounds specified in the Companies Act:

  1. a procedural irregularity that influenced or could have influenced the outcome of the decision;
  2. a violation with fraudulent intent of the rules governing general meetings;
  3. an ultra vires act or abuse of power affecting the decision;
  4. the exercise at a general meeting of voting rights that have been suspended by legislation other than the Companies Act, provided the quorum or majority required to adopt the decision would not have been met but for the unlawful exercise of these voting rights; and
  5. any other cause provided for by the Companies Act.80

In addition, minority shareholders enjoy a sell-out right under certain conditions. According to the Squeeze-out Act, in the event of an individual or legal entity acquiring at least 95 per cent of the share capital of the company and subject to certain conditions, the remaining minority shareholders are entitled to exercise a sell-out right within three months of the required notification and publication of the acquisition.81

Benefits for long-term shareholders

The Companies Act does not provide for any specific benefits (e.g., extra votes or dividends) for long-term shareholders, although these types of facilities may be included in a shareholders' agreement or incorporated into the articles of association, or both.

ii Shareholder duties and responsibilities

Controlling shareholders' duties and liability

All shareholders have certain obligations by law, including the payment of shares, a proportional contribution to any losses suffered by the company and an obligation of loyalty.

In addition, the controlling shareholders are notably prevented from dictating or imposing an increase of the other shareholders' obligations without their prior consent, although this principle has been considerably attenuated by the Squeeze-out Act, which grants the right to force the acquisition of shares held by minority shareholders by shareholders controlling at least 95 per cent of the share capital.82

Institutional investors' duties and best practice

Institutional investors and asset managers shall develop and publicly disclose an engagement policy that describes how they integrate shareholder engagement in their investment strategy. They shall also publicly disclose annually how this policy has been implemented.83 Institutional investors, asset managers and proxy advisers are all bound by accrued transparency obligations.

Code of best practice for shareholders

Luxembourg has no official code of best practice for shareholders, although companies may draw up internal codes of best practice for their shareholders.

iii Shareholder activism

Shareholder activism is not a defined notion under Luxembourg law, and neither derivative actions nor proxy battles are common practice.

As stated in Section II, in listed companies, shareholders are entitled to have a say on pay. Shareholders must be informed in detail of the remuneration of directors and the company's remuneration policy, on which shareholders have an advisory vote, unless the company's articles of association provide for a binding vote.

iv Takeover defences

Takeover bids are covered by the Luxembourg Takeover Bid Act.84 The scope of this Act is limited to companies whose shares are traded on a regulated market in one or more Member States of the European Union. Although Luxembourg law admits the principle of defensive measures, there has been no case law specifically covering this question as yet. In implementing any defensive measures, the board has an obligation to act in good faith with respect to the shareholders' interests.

Shareholder and voting rights plans, and similar measures

As a general rule, any increase of a Luxembourg company's share capital is decided by the general meeting of shareholders. However, the articles of association of a public limited liability company may authorise the board of directors to increase the share capital up to a designated amount in one or more instalments.85 The authorisation to do so is valid only for five years, but may be renewed by the general meeting of shareholders.86

White-knight defence

In Luxembourg practice, the board of any company that is the subject of a takeover bid may seek out a third party with the purpose of the third party making a counter-offer that is more favourable to the company. It can do so without the need for approval by the company's shareholders.

Staggered boards

Directors of a public limited liability company shall be appointed for a term of office that may not exceed six years. However, directors may be removed from office by the general meeting of shareholders at any time and without stating reasons.87 As a result, a staggered board does not constitute a major obstacle for a hostile acquirer holding sufficient shares to make changes to the composition of the board.

v Identification of and contact with shareholders

One of the main objectives of the Shareholder Rights Directive88 is to give listed companies the right to identify their shareholders and, in the end, to improve communication between companies and their shareholders. Intermediaries, even those in third countries, are required to provide a company with information about shareholders' identity.89 They must also provide the shareholders with information to facilitate the exercise of shareholder rights.90

Outlook

We have not dealt with the various measures taken by the Luxembourg government, in particular, to allow companies holding board and shareholder meetings while respecting social distancing during the covid-19 pandemic. It is not unlikely that the pandemic will change aspects of corporate governance in the future; for example, once the pandemic is over, the legislator may more easily accept virtual participation in meetings and modify the law accordingly.

What is certain is that the covid-19 pandemic, SPACs in the form of Luxembourg SAs, De-SPACs and the raised awareness of climate change have reinforced a trend already observed in recent years, namely that corporate responsibility and, in particular, environmental aspects have become more important and increasingly influence corporate governance.

Footnotes

1 Margaretha Wilkenhuysen is a partner at NautaDutilh Avocats Luxembourg SARL.

2 Act of 10 August 1915 on Commercial Companies.

3 Regulation (EU) No. 596/2014 of the European Parliament and of the Council on market abuse as complemented by the Act of 23 December 2016 on Market Abuse as last amended by the Act of 27 February 2018, implementing Regulation (EU) No. 596/2014, Directive 2014/57/EU and Directive 2015/2392/EU.

4 Act of 22 March 2004 on Securitisation, as last amended by the Act of 27 May 2016.

5 Act of 10 August 2016 amending the Act of 10 August 1915 on Commercial Companies. Following the renumbering of the articles of this Act, a new consolidated version of the Commercial Companies Act was published on 15 December 2017 by the Grand-Ducal Regulation of 5 December 2017.

6 Act of 30 May 2018 on Markets in Financial Instruments as last amended by the Act of 25 March 2020. The Act of 30 May 2018 implemented Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments (MiFID II).

7 Regulation (EU) No. 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Regulation (EU) No. 648/2012 (MiFIR). MiFIR entered into force on 2 July 2014, and its provisions are applicable since 3 January 2018.

8 Act of 19 May 2006 implementing Directive 2004/25/EC, as last amended by the Act of 18 December 2015.

9 Act of 16 July 2019 on prospectuses for securities.

10 Act of 11 January 2008 on Transparency Requirements in relation to information about issuers whose securities are admitted to trading on a regulated market, as last amended by the Act of 27 February 2018. The Transparency Act transposes Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market.

11 Act of 24 May 2011 on shareholders rights in listed companies, as last amended by the Act of 1 August 2019.

12 Directive (EU) 2017/828 of the European Parliament and of the Council of 17 May 2017 amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement.

13 Act of 21 July 2012 on Mandatory Squeeze-Out and Sell-Out of Securities of companies currently admitted or previously admitted to trading on a regulated market or having been offered to the public.

14 Until the Squeeze-out Act came into force, a squeeze-out and a sell-out right existed only in the context of a public takeover under the Act dated 19 May 2006 implementing Directive 2004/25/EC on takeover bids.

15 Act of 12 July 2013 on Alternative Investment Fund Managers, as last amended by the Act of 8 April 2019.

16 Act of 28 July 2014 on the Immobilisation of Bearer Shares.

17 Act of 10 March 2014 amending the Act of 10 August 1915 on Commercial Companies.

19 As an exception, the 10 Principles do not apply to regulated investment companies with variable capital and funds, to which specific regulations apply. The fourth version of the LuxSE Principles entered into effect on 1 January 2018, and applies to annual reports for financial years as from that date. The main provisions of the LuxSE Principles are discussed in Section IV herein.

21 Companies Act, Article 442-1.

22 ibid., at Articles 441-1 to 441-13.

23 ibid., at Article 442-1 et seq., in particular, Article 442-2, Paragraph 3, Article 442-3, Paragraph 1, Article 442-7, Paragraph 1, and Articles 442-11 to 442-16.

24 ibid., at Article 442-17, Paragraph 1.

25 ibid., at Article 442-16.

26 ibid., at Article 441-2, Paragraph 1.

27 ibid.

28 LuxSE Principle 3, Guideline to Recommendation 3.3.

29 Companies Act, Article 441-2, Paragraph 3.

30 ibid., at Article 444-3, Paragraph 2.

31 ibid., at Article 441-10, Paragraph 2.

32 ibid., at Article 441-10, Paragraph 5.

33 ibid., at Article 441-10, Paragraph 2.

34 Luxembourg Stock Exchange, 10 Principles of Corporate Governance [LuxSE Principles], Principle 4.

35 LuxSE Principle 2, Recommendation 2.4.

36 LuxSE Principle 10.

37 Companies Act, Article 442-19.

38 Shareholder Act of 24 May 2011, as amended by the Law of 1 August, Articles 7(a) and 7(b).

39 Should the company not have an audit committee, LuxSE Principle 8, Recommendation 8.1 requires that the board reassess the need to create an audit committee regularly.

40 Companies Act, Article 441-2, Paragraph 4.

41 Civil Code, Article 2004.

42 Companies Act, Articles 441-7 and 441-12.

43 Luxembourg District Court, 23 December 2015, Nos. 145 724 and 145 725.

44 Civil Code, Articles 1382 and 1383.

45 Companies Act, Article 441-9.

46 ibid., at Article 441-9, Paragraph 1.

47 See Section V.i, 'Powers of shareholders to influence the board'.

48 Companies Act, Article 441-7. The same conflict of interest regime applies, in addition to directors, members of the management board and supervisory board of public limited companies, to managers of private limited companies, delegates entrusted with day-to-day management, members of executive committees and liquidators of public limited liability companies.

49 Companies Act, Article 100-10. By derogation from this, extracts of the instruments or the deeds establishing a partnership (société en nom collectif), limited partnership (société en commandite simple) and special limited partnership (société en commandite spéciale) shall be published.

50 Directive 2015/849/EU of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing.

51 The law is complemented by the Grand Ducal Regulation on registration requirements, administrative fees and access to information in the Luxembourg register of beneficial owners (RBE Regulation) adopted on 15 February 2019.

52 The law defines fiducies as a fiduciary contract subject to the amended law of 27 July 2003 relating to trusts and fiduciary contracts.

53 The law defines trusts by referring to the Hague Convention of 1 July 1985, which was approved by the amended Luxembourg law of 27 July 2003 relating to trusts and fiduciary contracts.

54 Companies Act, Article 1711-1.

55 Act of 23 July 2016 on the Auditing Profession, as last amended by the Act of 25 March 2020.

56 ibid., at Article 7.

58 See LuxSE Principle 9. This fourth version of the LuxSE's Principles entered into effect on 1 January 2018, and applies to annual reports for financial years as from that date.

59 Directive 2006/46/EC of 14 June 2006 amending Council Directives 78/660/EEC on the annual accounts of certain types of companies, 83/349/EEC on consolidated accounts, 86/635/EEC on the annual accounts and consolidated accounts of banks and other financial institutions and 91/674/EEC on the annual accounts and consolidated accounts of insurance undertakings.

60 Act of 5 December 2007, Article 85-1 et seq.

61 This means whenever an issuer, or a person acting on its behalf, discloses any inside information to a third party in the normal exercise of business (simultaneously in the event of intentional disclosure, promptly in the event of unintentional disclosure).

62 Labour Code, Article L426-1.

63 Shareholder Act, as amended, Article 2.

64 By doing so, Luxembourg's Parliament has imposed a longer notice period than the 21 -days required under Directive 2007/36/EC.

65 Article 3(1) of the Shareholder Act as amended.

66 ibid., at Article 3(1), Paragraph 2.

67 ibid., at Article 6.

68 Companies Act, Article 441-5. Since 2016, according to Article 441-11 of the Companies Act, the articles of association can authorise the directors to delegate their powers of management to an executive committee or chief executive officer.

69 ibid., at Article 441-2, Paragraph 3.

70 ibid., at Article 450-1(6) .

71 Shareholder Act as amended, Article 4.

72 ibid., at Article 7.

73 Shareholder Act, Article 7(2).

74 Companies Act, Article 1400-3. This new management evaluation procedure, inspired by French law, was introduced to the Companies Act by the Act of 10 August 2016.

75 Luxembourg District Court, 18 November 2016, No. 1809/2016. This judgment clarified the scope of application of this provisions, and, in particular, the questions that can be asked by the shareholders, and the answers provided by the management that are to be considered satisfactory.

76 Companies Act Article 441-7, Paragraph 2.

77 ibid., at Article 444-2.

78 ibid., at Article 441-5.

79 Shareholder Act as amended, Article 7(c).

80 Companies Act, Article 100-22.

81 Squeeze-out Act, Article 5.

82 ibid.

83 Shareholder Act, Article 1(e).

84 Act of 19 May 2006 implementing Directive 2004/25/EC, as last amended by the Act of 18 December 2015.

85 As a result of the entry into force of the Act of 10 August 2016, the articles of association of private limited liability companies in Luxembourg may now also include an authorisation to the board of managers to issue shares, provided that the shares are issued to either existing shareholders or a third party that has been approved in accordance with the law.

86 Companies Act, Article 420-22.

87 ibid., at Article 441-2, Paragraph 4.

88 Directive 2017/828/EU of the European Parliament and of the Council of 17 May 2017 amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement

89 Shareholder Act as amended, Article 1(a).

90 ibid., at Article 1(b).

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