Luxembourg, 2017-02-15

In Luxembourg law, when a company becomes insolvent or an employer declares private bankruptcy, the commercial court determines an insolvency administrator. From that moment, he assumes the administration of the assets and liabilities.

The creditors can no longer act against the insolvent employer or company. They have to lodge their declared claim to the commercial court which has opened the insolvency.  After examining the claims, those are accepted as the insolvency’s liabilities items.

It is questionable whether a creditor can hold a third party responsible who caused him a loss, if a misconduct of the third party simultaneously exacerbates the insolvency estate’s liabilities, or if only the administrator can take action in that case.

On 13 July 2015 the Luxembourgian commercial law gave an interesting judgment concerning the collectivisation of creditor losses by the administrator:

If an insolvency administrator acts in court on behalf of the insolvency estate, he exercises rights which are jointly meant for the creditors as a whole. He does not act on behalf of individual creditor rights.

The rights resulting from a loss caused by a misconduct which has increased the liabilities or reduced the assets to which all creditors are entitled. The assertion of a collective disadvantage has to be made by the administrator excluding the creditors whose individual claims are blocked; at least as long as the insolvency proceedings are ongoing.  This administrator’s monopole also exists if he remains inactive.

The “collectivisation” of creditor losses caused by a misconduct of a third party is a consequence of insolvency. Therefore, the administrator’ task is to claim financial compensation. Here, the collective loss is the total amount of all losses each creditor can claim. This barrier effect ends simultaneously with the repeal of the insolvency proceedings, when each creditor is entitled to act on his own again.

The following example illustrates the consequences of the jurisdiction from 13 July 2015: The limited company A files an application before the commercial court against bank B to claim a financial loss in the amount of € 600,000 plus interest, provisional enforcement and litigation indemnities.

On 28 March 2012 the claimant was commissioned by company C to perform construction works. On 12 April 2013 the bankruptcy of company C was declared. At that time, company C had debts in the amount of € 600,000 towards the applicant. However, there were no more assets to pay dividends to the subsequent creditors.

The applicant complained before the court that the counterparty (bank B) has granted company C a credit in the amount of more than 3 million € in March 2011. The bank did not sufficiently control the use of the capital by company C, or rather paid the money to company C instead of paying the creditor directly. Moreover, there was no sufficient examination of the financial situation neither before granting the credit, nor afterwards.

In this case, the commercial court judged that the applicant could not prove to have suffered a loss which was different from other losses of creditors of company C (collective loss). Between the credit approval (March 2011) and the time when the applicant worked for company C (March 2012) one year has passed. During this time other companies also fell into the mistaken solvency. All of them could blame the bank for not controlling the granted credits. If the accusations come true, all creditors are affected. Each of them would suffer from the increase of the liabilities and the decrease of their dividends.

The request was dismissed as inadmissible, on the one hand because no individual loss has been proved which was different from the creditors’ collective loss and on the other hand because the completed insolvency proceedings of company C were not specified.

The described case demonstrates that the extended definition of the collective loss, which is also found in French and Belgian jurisdiction, strictly limits a creditor’s enforcement of loss.

Author: Anne-Marie Schmit, Attorney at law

ETUDE ANNE-MARIE SChMIT