Amended Law of 10 August 1915, end of the transitional period

It has now been two years since the passing of the law of 10 August 2016 which amended the law of 10 August 1915 on commercial companies (the "1915 Law"). The law of 10 August 2016 became effective on 23 August of the same year. It modernised the 1915 Law in a pragmatic manner by providing for further flexibility and, at the same time, consecrating some well-established practices.

A transitional period of 24 months, which ends on 23 August 2018, was given to companies incorporated before 23 August 2016 to adapt their articles of association. 

What will happen at the end of the transitional period?

As from 23 August 2018, any provision of the articles of association contrary to the 1915 Law shall be deemed unwritten and the mandatory rules of the 1915 Law will apply.  

What we see in practice

The 1915 Law does not clearly state which of its provisions are mandatory or not. The mandatory nature of a provision may result from the context.  

We have come across articles of association which look outdated as regards the 1915 Law but, mostly due to the circumstances applicable to such companies, it does not mean they have to be restated. A few changes may however be required or advisable depending on the case at hand.

Although less and less frequent, we have seen articles of association of a société à responsabilité limitée providing that the general meeting of shareholders is the competent body to resolve on the payment of interim dividends. Certain legal practitioners have advised that the management body was competent in resolving such matters long before the law of 10 August 2016 became effective. In such circumstances, it has usually been advised to pass management resolutions and shareholders' resolutions in order to comply with both the legal practice and the outdated articles of association. However, the 1915 Law now provides that interim dividends may only be paid if the articles of association authorise the management body to do so. There is thus a risk that, after 23 August 2018, a société à responsabilité limitée would no longer be able to formally approve an interim dividend if its articles of association continue providing that the general meeting of shareholders is the competent body. This would typically be the case if the annual accounts of such company are audited.

Even though amending the articles of association is not required strictly speaking, because they are not contrary to any mandatory rule of the 1915 Law, a change may nevertheless be advisable in order to have state-of-the-art articles of association taking full advantage of the flexibility provided by the 1915 Law. A classic example is the abolition of the so-called "double majority" requirement regarding a change to the articles of association of a société à responsabilité limitée. If, on the one hand, the relevant company is and will always be held by one shareholder only, the benefit of making any amendment is low. If, on the other hand, a company is held by several shareholders pertaining to a different group of companies (e.g. joint venture), any contemplated change of the articles of association would, in any event, have to be carefully considered in view of the interests at stake.

In other circumstances, amending outdated articles may also be advisable if it is intended to sell the shares of the relevant company, in particular to anticipate requests of the purchaser at signing or closing, assuming, of course, the cost-benefit of an amendment to the articles of association remains reasonable.

What should you do?

Companies would be ill-advised, in a rush before the end of the transitional period, to amend their articles while not strictly required, thus generating unnecessary stress and costs.  

The need to amend articles of association should be considered on a case-by-case basis, taking into account the company's structure and practical needs, which we would be pleased to advise on.  

If any of you have questions, please contact your Hogan Lovells (Luxembourg) corporate team.

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