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Etude Max Mailliet

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L-2419 Luxembourg

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Controlled Management

1.       What is it?


Controlled management is a procedure enabling a trader/company to reorganise its business or to realise its assets by placing itself under the control of the justice delegates while avoiding bankruptcy or the cessation of its activity.


Controlled management is governed by the Grand-Ducal decree (“arrêté grand-ducal”) dated 24 May 1935.


2.       To whom does this apply?


This controlled management procedure is open to the following persons:


·         Traders within the meaning of the Commercial Code, which therefore includes companies (article 1 of the Grand-Ducal Decree of 24 May 1935); and

·         Owners of industrial establishments who are not traders (article 18 of the Grand-Ducal Decree of 24 May 1935).


3.       What does this apply to?


As soon as the Commercial District Court (“tribunal d’arrondissement siègeant en matière commerciale”) considers the application eligible and appoints a delegated judge (see procedure below), this will result in the suspension of all enforcement proceedings, even by mortgage, preferential or pledgee creditors.


This implies, moreover, that the requesting trader/company may not dispose of, constitute pledges or mortgages, compromise, borrow, receive sums of money, make payments, commit or receive movable capital without the written authorisation of the delegated judge or the commissioner (depending on the stage of the procedure), on penalty of nullity.


4.       What are the conditions?


Whoever wants to obtain controlled management must be able to demonstrate the following:


·         his credit is shaken (“ébranlé”)[1] or that the complete execution of his commitments is compromised ;

·         not to have been declared bankrupt by a judgement;

·         be in good faith;

·         that there is a possibility of reorganising the company.


It should already be noted that even if the above-mentioned conditions are considered to be met, the approval of the majority of creditors, representing by their receivables more than half of the liabilities, will still be required.


5.       What is the procedure?


The procedure is initiated by an application addressed to the Commercial District Court of the district where the trader has established his principal place of business and, in the case of a company, its registered office.


This application must contain the following information:


-          The grounds for the application ;

-          The ideas envisaged to enable the reorganisation of the company or the disposal of the assets;

-          the supporting documents of the situation;

-          The list of creditors.


The procedure consists of three stages: (i) the examination of the application, (ii) the preparation of the project and (iii) the approval of the project.


(i)                  Examination of the application


The Commercial District Court hears the applicant and examines the application a first time.


Ø  Either the Commercial District Court considers, directly from the evidence presented to it, that the measure applied for does not meet the conditions and rejects the application.

Ø  Or the Commercial District Court delegates one of its judges to report to it on the situation of the applicant's business.


Following the report on the business situation, the Commercial District Court hears the applicant again.


Ø  Either the Commercial District Court will reject the application.

Ø  Or the Commercial District Court will decide to put the management of the applicant's assets under the control of one or more commissioners.


(ii)                The preparation of the project


Within a period of time to be fixed by the Commercial District Court, the commissioners will draw up either a plan for the reorganisation of the applicant's business, if this proves possible, or a plan for the disposal and allocation of asset.


This proposal will be communicated to the creditors, joint and several co-debtors and known guarantors and is submitted to the Commercial District Court for approval. The creditors will have to send the Commercial District Court within 15 days their approval or objection to the commissioners' draft project, as well as any observations they may have.


(iii)               The approval of the project


The Commercial District Court will then hear the applicant for the third time and, if it so decides, the interested parties who have sent their observations or objections.


Ø  Either the Commercial District Court will reject the commissioners' draft project and then, if the conditions are met, bankruptcy may be declared.

Ø  Or the Commercial District Court approves the draft project. It can only do so if more than half of the creditors representing, through their receivables not contested by the commissioners, more than half of the liabilities have given their approval.


Once the draft project has been definitively adopted, the trader/company shall enjoy his rights, except where restrictions are provided for, in order to be able to carry out the proper execution of such project.


6.       How long does controlled management last?


The Commercial District Court will determine the periods within which the reports must be drawn up and when it hears the applicant and the creditors.


The duration depends on the complexity of the case, the assets to be managed, the number of creditors and the progress of the delegated judges and commissioners.


7.       Does controlled management prevent bankruptcy?


Yes, bankruptcy can only be declared if there is a final decision of rejection of the controlled management.


However, if the Commercial District Court finds, when it decides to place the management of the applicant's assets under the control of one or more commissioners (see procedure above), that the applicant is in a state of cessation of payment (“cessation de paiement”), it may also establish the applicant's cessation of payment and determine, either by this judgment or by a subsequent judgment, the time at which the cessation of payment took place.


The date of cessation of payment may be dated only up to a maximum of 6 months before the query for a controlled management.

[1] That means it is impossible for the applicant to get money to pay his debts, but it can also simply be the fact that creditors refuse to extend the deadlines for payment.