_Even though it is preferable that shareholders find a solution to their conflict without having to initiate legal proceedings, in many cases, legal proceedings cannot be avoided, as parties cannot, or do not want to find common ground for a settlement.
A shareholder considering legal proceedings in Luxembourg should take, (amongst others), the following points into consideration for the most effective strategy:
Depending on the characteristics of the shareholding, the parties are usually qualified as merchants. Moreover, conflicts between shareholders usually have a value higher than 10,000 EUR and therefore the district court of Luxembourg or Diekirch will be competent. For the purpose of this article, the district court of Diekirch will not be taken into account, as in the large majority of cases the district court of Luxembourg is competent.
Taking summary proceedings aside, which are dealt with in the next paragraph, the claimant will have the possibility to choose between a commercial procedure, and a commercial procedure following a civil procedure. The main difference is that the commercial procedure is essentially an oral procedure, with one main hearing; whereas the civil procedure is a written procedure, in which parties submit written observations in accordance with a calendar determined by the court. This has as a consequence that the commercial procedure is particularly apt for simple conflicts, which can easily be presented at an oral hearing, whereas the civil procedure is used for complex disagreements. As the commercial procedure is usually based on one hearing, it is much faster to obtain a judgment with such a process (six month to one year). Proceedings following a civil procedure can easily take two to three years. As shareholder conflicts are often complex proceedings, it is not rare that the civil procedure is chosen (excluding scenarios in which a larger amount of parallel proceedings are initiated on different matters, which may include a combination of civil and commercial procedures). It goes without saying that an appeal of such judgments is possible.
As proceedings on the merits can take a long time, (certain matters may require urgent attention), it is possible to use summary proceedings in Luxembourg to obtain provisional measures on specific matters. In shareholder conflicts, this can include replacing the management board with a provisional court-appointed manager, suspending certain shareholder (or board) decisions, or obtaining an escrow on shares of the company. For example, that means the Luxembourg court would suspend the results of certain shareholder decisions until a judgement on the merits is provided, such as in proceedings on the merits, focusing on the nullity of certain shareholder decisions. Even though such summary proceedings are generally emergency proceedings, a shareholder should not expect to obtain provisional measures within days. It may easily take two to four months to obtain a decision by the court sitting in summary proceedings. It is thus always important to consider simultaneously what other out-of-court measures may have to be taken to protect a shareholder´s position.
Luxembourg also provides a larger legal toolbox of other proceedings that may be useful in shareholder conflicts. These range from specific proceedings to obtain evidence, to processes to obtain information about the acts of management of the company and to freeze assets, such as cash on bank accounts. Such options should be discussed with a legal advisor who is specialised in such matters.
Finally, it should also be noted that initiating legal proceedings does not exclude reaching an out-of-court settlement, and withdrawing proceedings once a settlement is reached. It may be beneficial that even during legal proceedings, communication channels between the adversarial parties remain open for such purposes. It is advisable to do so via the lawyers of the respective parties. Not only are they experienced in such cases, but they are also bound by the deontological rules of the Luxembourg Bar Association. These rules include that certain communication between lawyers is confidential and cannot be used before a court. Negotiations can therefore take place much more flexibly, compared to a scenario where the parties would negotiate directly with each other.
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If you would like to talk to one of our expert team members about any queries you might have, contact the author, Dr Thomas Biermeyer, and we would be pleased to assist.