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Nauta Dutilh: Modernisation of Luxembourg Company Law: Convertible Debt Instruments

The Act of 10 August 2016 modernising Luxembourg company law and amending the Act of 10 August 1915 on commercial companies (the “Act”) has clarified the rules applicable to the issuance of convertible debt instruments.

1. General rules

The issuance of convertible bonds by a Luxembourg-based company is subject to the rules laid down in Articles 84 to 94-8 of the Act. The issue documentation can, however, derogate from these rules, at the company’s choosing.

These rules can be applied in whole or in part to any issuance of convertible securities by a Luxembourg or a foreign company.

2. Issuance of convertible instruments by an SA, SCA or SAS

The rules applicable prior to the Act of 10 August 2016 have been clarified but not substantially amended.

Convertible bonds, other convertible debt instruments and subscription rights issued pursuant to a board decision within the limits of the authorized capital (capital autorisé) can be converted into shares, even after expiry of the authorization period.

A report by an independent auditor (réviseur d’entreprises) is not required when convertible bonds or other convertible debt instruments are issued in return for cash contributions or converted into shares. The shares issued upon conversion of the bonds are deemed paid for in cash by way of set-off with the claim against the company.

3. Issuance of convertible instruments by other corporate forms

The issuance of convertible bonds, other convertible debt instruments and subscription rights by any other corporate form is subject to compliance with the rules applicable to that type of company on share transfers and the approval of new shareholders. The same rules apply to the transfer of convertible bonds, other convertible debt instruments and subscription rights.

Approval can be given at any time before the conversion, in the issue documentation or at a later stage, and can be irrevocable. It can relate to specific persons or to persons capable of being determined in accordance with the decision.

The new rules clarify the conditions applicable to the issuance of convertible debt instruments and will facilitate the use of such instruments in practice.