Annex 1-2 National report - European Commission · 5. RIGHTS of the PLEDGOR .....119. Page 4 of 132 6. Enforcement ... 7. LIABILITY OF PLEDGEE

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CONTRACT

ETD/2008/IM/H1/53

IMPLEMENTED BY FOR

DBB LAW COMMISSION

EUROPEENNE

Study on the feasibility of reducing obstacles to the transfer of

assets within a cross border banking group during a financial crisis

National Report

LUXEMBOURG

By

Michel Bulach

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1. Part I - National regulation ............................................................................... 5

1. Summary ....................................................................................................... 5

2. Scope ............................................................................................................ 9

3. Conditions and sanctions .................................................................................17

Authorization ....................................................................................................17

Counterpart for the asset transfer .......................................................................23

Compulsory counterparts and guarantees .............................................................25

Financial capacities of the transferor and the transferee .........................................26

Information and transparency .............................................................................27

Sanctions .........................................................................................................29

Third parties .....................................................................................................32

Supervisory authorities .............................................................................32

Minority shareholders ...............................................................................34

Creditors .................................................................................................35

Employees ...............................................................................................36

Deposit holders ........................................................................................37

Member State ..........................................................................................39

Others ....................................................................................................39

Private international law .....................................................................................39

Part II -Evaluation of potential solutions ..................................................................44

1. Transfers from the parent company to the subsidiary or from the subsidiary to the

parent at arm‟s length: .........................................................................................44

Proposal n°1 ............................................................................................44

2. Transfers from the subsidiary to the parent company (in preferential conditions) ...52

a) Prior and overall agreements ........................................................................52

Proposal n°2:...........................................................................................52

b) Strong guarantees covering the risk of outstanding payment ............................59

Proposal n°3 ............................................................................................59

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c) Liability of the parent company for the subsidiary‟s debts .................................62

Proposal 4 ...............................................................................................64

Proposal n° 5 ...........................................................................................69

Proposal n° 6 ...........................................................................................72

d) Other solutions ..............................................................................................73

ANNEX A National regulations relevant in assets transfers between banks part of a same

banking group ......................................................................................................75

ANNEX B Examples of transfer of assets agreements ................................................95

1. DEFINITIONS AND INTERPRETATION ................................................................ 114

1.1. Definitions ............................................................................................. 114

1.2. Construction .......................................................................................... 116

2. PLEDGE ...................................................................................................... 116

2.1. Creation of the Pledge ............................................................................. 116

2.3. Dispossession and opposability ................................................................ 117

3. Restrictions and Further Assurances .............................................................. 118

3.1. Security ................................................................................................ 118

3.2. Disposal ................................................................................................ 118

3.3. Continuing Liability of the Pledgor ............................................................ 118

3.4. Further assurance .................................................................................. 118

3.5. General undertaking ............................................................................... 118

4. REPRESENTATIONS AND WARRANTIES .......................................................... 118

4.1. Ownership of the Pledged Claims .............................................................. 118

4.2. Authority to pledge the Pledged Claims ..................................................... 119

4.3. Validity and perfection of the Pledge ......................................................... 119

4.4. Place of principal management ................................................................. 119

4.5. Legality of Pledge ................................................................................... 119

4.6. Consents and authorisations .................................................................... 119

4.7. Repetition of representations and warranties ............................................. 119

5. RIGHTS of the PLEDGOR .............................................................................. 119

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6. Enforcement ............................................................................................... 120

6.1. Realisation of the Pledge ......................................................................... 120

6.2. Limitation to realisation ........................................................................... 121

7. LIABILITY OF PLEDGEE ................................................................................ 121

8. PLEDGEE‟s Rights ........................................................................................ 121

9. Saving Provisions ........................................................................................ 121

9.1. Continuing Security ................................................................................ 121

9.2. Reinstatement ....................................................................................... 121

9.3. Waiver of defences ................................................................................. 122

9.4. Immediate recourse ............................................................................... 122

10. Discharge of Pledge .................................................................................. 122

11. Expenses ................................................................................................. 123

12. Payments ................................................................................................ 123

12.1. Demands ........................................................................................... 123

12.2. Payments ........................................................................................... 123

13. Waivers ................................................................................................... 123

14. Assignment ............................................................................................. 123

15. Notices .................................................................................................... 123

16. INFORMATION NOTICE OF PLEDGE .............................................................. 124

17. Taxes and Stamp Duty ............................................................................... 125

18. Severability .............................................................................................. 125

19. Counterparts ............................................................................................ 125

20. Headings .................................................................................................. 125

21. Governing Law .......................................................................................... 125

22. Jurisdiction Clause ..................................................................................... 125

4. DEFINITIONS AND INTERPRETATION .............................................................. 130

5. PROCEDURE ................................................................................................ 131

6. Governing law and jurisdiction ....................................................................... 132

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1. Part I - National regulation

Please provide a presentation of your national regulation (law, cases,…) and attach it as

Annex A and B to this document :

the relevant legal texts and cases in English (or summarized in English).

If possible, examples of transfer of assets agreements.

For each question, please first consider:

your national Civil Law, Company Law, and Insolvency Law

and on a second time explain if there are specific regulations for Banking groups

on a third time explain if there are specific regulations for cross-border transfer of

assets.

1. Summary

Generally speaking, is the transfer of assets allowed (could you please precise

briefly under which conditions):

In crisis situation:

- from parent to subsidiary

- from subsidiary to parent

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- from subsidiary to another subsidiary

Similarly as to in going concern situations, the transfer of assets is in

principle allowed in the three above situations provided that the

transferor and the transferee have each a corporate interest in

transferring such assets and provided that the transfer is made on an

arm’s length basis.

The concept of corporate interest is not clearly defined under

Luxembourg law and it can be considered that the abstention of the

Luxembourg legislator to provide a definition of the corporate interest is

due to the fact that corporate interest is by definition a soft law concept

allowing a substantial margin for appreciation case by case.

Depending on each case, a different approach of the corporate interest

concept may be preferred. In a general fashion, it can be said that

Luxembourg law adheres both to the dual patrimonial and to the

entrepreneurial conceptions of the corporate interest. The patrimonial

conception puts the stress on the sole interest of the shareholders,

whereas the entrepreneurial conception favours a more holistic approach

and envisages the company as a whole constituted of the multiple and, to

some extent, diverging interests at stake, i.e. the interests of the

shareholders, managers, employees, creditors, even possibly the

strategic interest of the State where the company is located (e.g.

Luxembourg banks are, for the Luxembourg public authorities, strategic

entities as part of the Luxembourg banking sector which is the

Luxembourg leading economic sector). In a general fashion, it can be said

that the stress shall be put on the patrimonial conception for pure holding

or financial structuring (UCITs, SOPARFI) whereas the entrepreneurial

conception may be favoured in respect of commercial or industrial

structuring.

Most notably, Luxembourg banks/insurance undertakings share features

of both structuring forms: (i) holding/financial structuring: the vast

majority of Luxembourg banks/insurances undertakings are

subsidiaries/branches of non-Luxembourg banks/insurances. All

strategic decisions and policy-making of the groups are directed out of

Luxembourg. The implementation of banks/insurances is mainly due to

attractive Luxembourg regulations (banking secrecy, tax regime); (ii)

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commercial or industrial structuring: Luxembourg banks are major

employers in Luxembourg and the banking/insurance sector represents a

substantial part of the national economy either in terms of employment,

side services, real estate industry, etc.

Due to the afore dual structuring of the Luxembourg banking/insurance

sector, it is difficult to have a clear and rigid view on the approach of the

corporate interest concept which shall be preferred. Ultimately, it is likely

that any decisions shall closely take the political appreciation into

account and that the fundamental interests of the Luxembourg financial

place shall be ultimately considered. In this respect, the sole concept of

corporate interest may not be sufficient to impede a timely transfer of

assets, provided that such transfer does not jeopardize the fundamental

equilibrium between (i) the interest of the transferor and its group of

companies, (ii) the interest of third parties (deposit-holders) and (iii) the

Luxembourg public policy strategy

It should be stressed out that the Luxembourg commercial code foresees

the situation in which transfer of assets may be declared nil and void if it

has been made by a transferor which has been declared bankrupt and

which is not considered as favorable to the transferor. We do not further

develop that specific regime as we understand that the transfer of assets

should occur in favor of the transferee and not the transferor (which by

definition, is not insolvent or bankrupt).

In going concern situations:




In principle, the transfer of assets is allowed in going concern situations

in the above situations provided that the transferor and the transferee

each demonstrate a corporate interest in transferring such assets and

provided that the transfer is made on an arm’s length basis.

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It is to be noted that, as a general principle, if a transfer of assets is

fraudulent, such transfer could be challenged by any interested party (in

principle creditors).

Are there specific regulations for cross-border transfer of assets?

There are no specific regulations for cross-border transfer of assets under

Luxembourg law.

Are there any specific rules in Banking Law in relation to transfer of assets?




The Law of 5 April 1993 on the financial sector (hereinafter referred as

the “Law on the financial sector”), which is the general legal frame for

the Luxembourg banking sector, does not provide a distinction whether

transfers are made from the parent to a subsidiary, from a subsidiary to

parent or from subsidiary to subsidiary. Reference is made generally to

intra-group transactions. Intra-group transactions are defined in Article

51-9 (21) Law on the financial sector: “all transactions by which

regulated entities within a financial conglomerate rely either directly or

indirectly upon other undertakings within the same group or upon any

natural or legal person linked to the undertakings within that group by

close links, for the fulfillment of an obligation, whether or not

contractual, and whether or not for payment.”

Each bank supervised by the Luxembourg banking supervisory authority,

namely the Commission de surveillance du secteur financier (the “CSSF”)

within the banking group must comply with the legal requirements on

own funds, large exposures and different risk management.

These issues are more dealt with Section 2 below (specific intra-groups

transactions).

Are there specific regulations for cross-border transfer of assets?

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From a tax point of view, care should be taken that cross-border transfer

of assets are made on an arm’s length basis (please refer to paragraph 2

below for further developments on the “arm’s length” principle).

In general terms, cross-border transfer of assets generate the application

of private international law mechanisms (for more details, please revert

to the specific section devoted to private international law aspects

below).

2. Scope

Does the notion of company groups exist?

- Generally speaking in corporate Law? (If it exists, please give a definition,

conditions and the main applications?)

So far, there is no general and coordinated Luxembourg legislation

regulating the companies’ groups. Such restraint is due to several

reasons, in particular the lack of a coordinated position at the

European level (withdrawal of the draft 9th EC directive). From a

legal point of view, implementing a global company groups’

doctrine would also have a major impact on the core philosophy of

Luxembourg corporate law. Indeed, Luxembourg corporate law is

fundamentally attached to the legal and patrimonial autonomy of

each corporate entity. This is the raison d’être and also the effect

of the corporate legal body doctrine (théorie de la personnalité

morale).

However, several references to company groups can be found in

Luxembourg law:

(i) accounting principles relating to consolidated accounts: a

group of companies constituting a whole from an economic

perspective, it makes sense that accounting law takes such

unity into account. This legislation has transposed the fourth

and seventh EC directives.

(ii) corporate law: Article 49bis of the law of 10th August 1915

on commercial companies (hereinafter the “Companies’

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Law”) which regulates the crossed participations, makes an

indirect reference to the concept of company groups by

providing the criterium of dominant influence: a société

anonyme is deemed to exercise a dominant influence if (i) it

is in position to appoint or revoke the majority of the

management of another company and (ii) it is a shareholder

in the other company and has the majority voting rights

therein.

(iii) Domiciliation of companies: pursuant to the law of 31 May

1999 on the domiciliation of companies, a derogation has

been set forth to the benefit of controlled companies. Parent

companies can domiciliate their Luxembourg subsidiaries at

their registered office without being required to be vested

with a domiciliation authorization.

It can be concluded that the Luxembourg corporate law framework is

still fragmented in respect of the company groups’ concept. This

approach is similar to most other European jurisdictions (with the

exception of Germany) and the influence of European law in national

legislation does not indicate major changes to come in this respect

(reference can be made to the EC insolvency regulation 1346/2000

which does not encompass the specificity of companies’ groups). The

reference to the companies’ groups’ concept is therefore not

coordinated and the concept is used from legislation to legislation,

depending on the specific requirements at stake.

- Is there in your national law a definition of “group interest” that specifically

allows or facilitates intra-group transfer of assets?

Luxembourg law does not isolate a specific group interest and remains

attached to the individual corporate interest of the companies.

First of all, intra-group transfers of assets must also enter in the scope

of the corporate purpose (objet social), which is part of the articles of

association of the Luxembourg companies. In practice, the corporate

purpose (objet social) of the holding companies are generally defined

very broadly, allowing them to make intra-group loans and/or to grant

securities over their assets. However, the corporate purpose (objet

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social) must be examined before-hand in case a transfer of assets is

contemplated.

Secondly, Luxembourg law makes no reference to group interest and,

to the best of our knowledge, there is no published case-law which

has recognized or even dealt with such concept. Legal authors tend to

make explicit references to the French Rozenblum case-law dated

1985 which has recognized, subject to certain conditions, the

legitimacy of the group interest. This issue remains however one of

the most controversial and also one of the key-point issue in

Luxembourg corporate law, given that the vast majority of

Luxembourg companies are holding companies which are part of

larger groups in which the most important effective strategic and

operational decisions are not taken in Luxembourg.

In the light of the above, intra-group transfer of assets are not

specifically allowed or facilitated under Luxembourg law.

- Are there specific tax issues that need to be addressed in intra-group

transfers of assets?

Intra-group transfers of assets in which a Luxembourg company is

involved are subject to Luxembourg transfer pricing rules. Although

there are only two short significant related provisions in the

Luxembourg income tax law (“ITL”), such provisions have quite a

wide application. Broadly speaking, prices applied in intra-group

transactions must be the same as those applied on an arm’s length

basis between unrelated parties. If such “at arm’s length” principle is

not complied with in any type of transactions between a Luxembourg

resident and a directly or indirectly related non-resident party, the

Luxembourg tax authorities may consider that a transfer of profits

took place and may adjust prices with the effect to affect the taxable

basis of the Luxembourg company. In addition, the transaction, as

regarded as a transfer of profit by the tax authorities, may be

requalified as a hidden distribution of dividends or a hidden

contribution of capital.

- Are there specific regulations for banking groups?

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a) Concept of group in banking and financial law

The Law on the financial sector does not provide a definition of

“banking group”. However, the Law on the financial sector defines the

terms of “credit institution” and “group”.

According to Article 1 (12) of the Law on the financial sector, persons

whose business is to receive deposits or other repayable funds from

the public and to grant credits for their own account may be called,

without distinction, “credit institutions” or “banks”. A “credit

institution” shall have the meaning of a credit institution as defined by

Article 4, point (l), of the Directive 2006/48/EC.

According to Article 51-9 (15) of the Law on the financial sector a

“group” shall mean a group of undertakings which consists in a parent

undertaking, its subsidiaries and the entities in which the parent

undertaking or its subsidiaries hold a participation, as well as

undertakings linked to each other by virtue of being managed on a

unified basis pursuant to a contract or provisions of their

memorandum or articles of association, or by virtue of having

administrative, management or supervisory bodies consisting in the

majority of the same persons. Pursuant to the definition of the term

“participation” given by the Directive 2004/39/EC, the Law on the

financial sector defines a participation as “the holding of rights in the

capital of an undertaking, whether or not represented by certificates,

which, by creating a durable link with that undertaking, are intended

to contribute to the company's activities, or the holding, directly or

indirectly, of at least 20% of the voting rights or capital of an

undertaking”.

Although the concept of “banking group” is not defined expressly by

the Law on the financial sector, the concept is implied by the reference

made to the concepts of “parent undertaking” (as defined in Article

1(11) Law on the financial sector) and “subsidiary (as defined in

Article 1(18) Law on the financial sector). However, the term of

“group” is expressly defined by Article 51-9 (15) Law on the financial

sector in respect of the “financial conglomerates”: “"group" shall

mean a group of undertakings which consists of a parent undertaking,

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its subsidiaries and the entities in which the parent undertaking or its

subsidiaries hold a participation, as well as undertakings linked to

each other by virtue of being managed on a unified basis pursuant to a

contract or provisions of their memorandum or articles of association,

or by virtue of having administrative, management or supervisory

bodies consisting in the majority of the same persons“.

In the context of this study, we have assumed that the notion of

“banking group” (the definition of which is not delimited in the Annex

1-1, Introduction) shall include also the concept of “financial

conglomerate” as defined by Article 51-9(5) Law on the financial

sector: "financial conglomerate" shall mean a group which, subject to

Article 51-10, meets all the following conditions: a) the group

comprises at least one regulated entity having its head office in a

Member State which is at the head of the group or is a subsidiary; b)

where the entity at the head of the group is a regulated entity having

its head office in a Member State, it is either a parent undertaking of

an entity in the financial sector, an entity which holds a participation

in an entity in the financial sector, or an entity linked with another

entity in the financial sector by virtue of being managed on a unified

basis pursuant to a contract or provisions of their memorandum or

articles of association, or by virtue of having administrative,

management or supervisory bodies consisting in the majority of the

same persons; c) if the entity at the head of the group is not a

regulated entity having its head office in a Member State, the group's

activities mainly occur in the financial sector within the meaning of

Article 51-10, paragraph 1; d) the group simultaneously comprises at

least one entity within the insurance sector and at least one entity

within the banking sector or the investment services sector; e) the

consolidated and/or aggregated activities of the group within the

insurance sector and the consolidated and/or aggregated activities of

the group within the banking sector and the investment services

sector are both significant within the meaning of Article 51-10,

paragraphs 2 or 3. Any subgroup of a group within the meaning of

subparagraph (15) which meets the criteria in this point shall be

regarded as a financial conglomerate”.

b) Specific regulations for banking groups

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The Law on the financial sector regulates some specific situations

where a reporting of intra-group transactions to the CSSF is required

in order to permit the CSSF to exercise promptly its prudential

supervision. As a result, intra-group transfer of assets may be limited

or restricted in order to comply with the rules on prudential

supervision.

The Law on financial sector does not take into account the terms of

“transfer of assets” but refers to the general concept of “intra-group

transactions”, being defined as all transactions by which regulated

entities within a financial conglomerate rely either directly or

indirectly upon other undertakings within the same group or upon any

natural or legal person linked to the undertakings within that group by

close links, for the fulfillment of an obligation, whether or not

contractual, and whether or not for payment. In this context and for

the purposes of our examination, “intra-group transactions” clearly

include the intra-group “transfers of assets”.

Firstly, as professionals of the financial sector, banks established in

Luxembourg or subject to the CSSF supervision are bound to comply

at all times with the Law on the financial sector on an individual basis.

Therefore, in relation to a transfer of assets, the transferor must

comply with the legal requirements, in particular as regards capital

adequacy, liquidity, solvency, deposit guarantees, limitation of large

exposures, administrative and accounting procedures and internal

control mechanisms.

Secondly, banks submitted to the supervision of the CSSF on a

consolidated basis must comply with own funds’ requirements both on

an individual basis and on a consolidated basis. The CSSF prudential

supervision on a consolidated basis shall apply to the Luxembourg

parent holding company. Any significant intra-group transaction shall

be reported to the CSSF. Where such transactions are regarded as

threatening the financial position of the credit institution established

under Luxembourg law, the CSSF shall order the credit institution

concerned to rectify the situation within such time as it may

determine.

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However, the CSSF may decide not to apply, on a sub-consolidated or

on an individual basis, the rules on prudential supervision on a

consolidated basis to an entity authorized and supervised in

Luxembourg which is the subsidiary of a Luxembourg parent credit

institution if such subsidiary is included within the supervision on a

consolidated basis of the Luxembourg parent credit institution. This

exemption is subject to the fulfillment of all the legal requirements

expressed by the Law on the financial sector, and in particular there is

no current or foreseen material legal or practical impediment to the

prompt transfer of capital or the prompt repayment of liabilities by its

parent undertaking (Article 51-5 (3) Law on the financial sector).

Thirdly, in compliance with rules concerning large exposures, credits

provided by a subsidiary to a group of the parent undertaking shall not

exceed 20% of the own funds (after ponderation, in compliance with

the requirements of the CSSF circular letter 06/273, as amended) of

the relevant subsidiary on an individual basis.

Fourthly, in the context of transfer of assets, there exists no

regulation or restrictions expressed by the CSSF in relation to a re-use

(remploi) of the own funds of a credit institution, excepted the sole

case where a credit institution is refinancing its shareholder which

may be a subsidiary or a parent undertaking. In this case, the CSSF

considers that it shall constitute an artificial creation of the capital of

such bank because the funds will be reverted to the shareholder and it

constitute an inacceptable risk regarding to the prudential supervision

and therefore contravene to the Law on the financial sector.

Fifthly, the supplementary supervision exercised by the CSSF shall

relate to the financial position of the financial conglomerate in general

and to its capital adequacy in particular, to risk concentration and to

intra-group transactions, as well as to the internal control

mechanisms and risk management processes put in place at the level

of the financial conglomerate. This rule may also apply if the CSSF is

acting as coordinator in respect of a financial conglomerate which is

itself a sub-group of another financial conglomerate subject to

supplementary supervision. Therefore, in the context of a financial

conglomerate, the CSSF is entitled to control any form or amount of

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intra-group transfer of assets (for more details, please see below).

Indeed, according to Article 51-15 (4) of the Law on the financial

sector, the CSSF may set forth quantitative limits and qualitative

requirements with regard to intra-group transactions of regulated

entities within a financial conglomerate or take other supervisory

measures designed to control intra-group transactions of regulated

entities within a financial conglomerate.

However, so far (latest CCSF annual report dated 31 December 2007),

the CSSF has not yet identified any financial conglomerate in respect

of which it should be acting as coordinator in respect of the prudential

supplementary supervision.

Please specify any relevant information relating to intra-group transfer of assets

that has not been dealt with in the previous questions and that would be useful

for the study.

Financial assistance: pursuant to Article 49-6 (1) of the law of 10 August

1915 on commercial companies, as amended (the “Companies law”), a

company may not advance funds nor make loans nor provide security

with view to the acquisition of its own shares by a third party. However,

49-6 (1) does not apply to transactions concluded by the companies in

the normal course of their business nor to transactions effected with a

view to the acquisition of shares by or for the staff of the company.

Furthermore, such transactions may not have the effect of reducing the

net assets of the company below aggregate of the capital and the

reserves which may not be distributed under law or the articles of

association.

Article 49-6 (1) Companies’ law being inserted in the chapter of the

Companies’ law devoted to the société anonyme, the question was

whether such limitation applies to other types of companies, in particular

the société à responsabilité limitée. Although the majority of the practice

has inclined to consider that Article 49-6 (1) Companies’ law was specific

to the société anonyme, a pending draft law on the modernization of the

Luxembourg corporate law intends to extend such limitations to the

société à responsabilité limitée.

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3. Conditions and sanctions

Authorization

Do decisions to transfer assets have to follow specific approval procedures such as

the approval of the board of directors or the transferor or transferee or the

approval of shareholders obtained through a special meeting of shareholders?

In principle, only subject to the powers expressly reserved by law or by

the articles of association to the shareholders general meetings, the

board of directors has the widest power to take any action necessary or

useful to realize the corporate object, i.e. to run the business of the

company. Therefore, as a principle, and subject to the specific corporate

governance applicable principles, any agreement and transaction entered

into by a company must be approved by a decision of the board. There is

no “regulated agreements” regime set out by law.

In practice some of the decisions are taken by one or several directors

depending on the powers they have been granted to by the articles of

association of the company. These decisions are generally part of the

daily management decisions and are not major or significant decisions

that may have an influence on the substance of the company. The

approval of the shareholders is therefore not required. However,

reference must be made to a specific case in respect of the société

anonyme which requires such approval where the company, within the

two years following its incorporation, acquires any asset belonging to a

natural or legal person, by whom or on whose behalf the articles of

incorporation were signed, for a consideration of more than 10% of the

subscribed capital (Article 26-2 of the Companies’ law).

Do transfers of assets need to be approved by other third parties or supervisory

authorities?

- General: in principle, transfers of assets do not need to be approved by

third parties. Such approval could however be contractually required

between parties to an agreement. Note a specific case in Luxembourg

private limited liability companies (sociétés à responsabilité limitée

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(“Sàrl”)) where shares may not be transferred to non-shareholders

unless the existing shareholders representing at least three-quarters of

the share capital have agreed thereto in a general meeting (Article 189

Companies Law). In this respect, it is to be noted, that as far as

enforcement of pledges on shares of Sàrls is concerned, the law of 5

August 2005 on financial collateral arrangements (the “Law on financial

collateral arrangements”) put an end to the requirement to such approval

(based on Article 189 Companies law) in case the pledge covers all the

shares of the company. In other cases (i.e. pledge on part of the

company’s shares), the approval of the transfer may be given at any time

(and not at the time of the effective transfer, as set forth in Article 189

Companies Law). Therefore, the Law on financial collateral arrangements

has substantially lightened the conditions of enforcement of the pledge

and has facilitated the implementation of such pledges which are

frequently used in Luxembourg for securing leveraged M&A transactions.

Vis-à-vis third parties, and in particular vis-à-vis the transferred third

party (pledge of shares or receivables) or transferred debtor (assignment

of debts), pursuant to Article 1690 of the Luxembourg civil code (the

“Civil Code”) and Article 190 Companies Law (in respect of the transfer of

shares of a Sàrl), the formal approval of the transfer by such third parties

is one of the enforcement (opposabilité) measures which can be observed

in substitution to notification to such third party (for more details on the

notification option, please see below).

- Banking sector: the Law on the financial sector does not require any

prior approval by the CSSF in case of transfer of assets. However, any

credit institution subject to the supervision of the CSSF which intends to

take a qualifying holding (participation qualifiée) must first obtain the

authorization from the CSSF. Therefore, if the intra-group transfer of

assets consists in a qualifying holding, it shall be approved by the CSSF.

For the purpose of this matter, and in compliance with the Law on the

financial sector, a "qualifying holding" shall mean any direct or indirect

holding of 10% or more of the capital or of the voting rights in an

undertaking, in accordance with Articles 9 and 10 of Directive

2004/109/EC, or any other holding which makes it possible to exercise a

significant influence over the management of that undertaking (i.e. more

than 5% pursuant to the current interpretation of the CSSF).

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Do transfers of assets have to be notified to other third parties or supervisory

bodies or published?

- General:

if the transfer of assets has as effect a change in the beneficiary of an

obligation consisting in the execution of any kind by third parties such as

payment of dividends (or any other financial rights) by a company in case

of a transfer of shares, payment of the principal and/or interest by a

borrower in case of a transfer of a loan, etc., the transfer of the asset

must be notified in accordance with Article 1690 of the Civil Code to the

debtor of the obligation (alternate option of the notification is the formal

approval by the transferred debtor, please see above). Such notification

is essential so that the debtor is validly bound by such transfer. The

obligation of notification should however be considered on a case by case

basis as such obligation could vary depending on the law applicable to

the agreements or generally the law applicable to the execution of the

obligation.

The form of the notification is not strictly framed by law. Notification of

the transfer can be made either by the transferor and/or the transferee.

With respect to the legal form of the notification, Article 1690 Civil Code

expressly refers to the form of a notarial deed or a private deed. Parties

must be cautious as regards the evidence and timing effect of the

notification vis-à-vis the debtor.

- Banking sector:

Two situations must be distinguished: (i) CSSF supervision of the banking

undertakings on a consolidated basis; and (ii) supplementary CSSF

supervision of the financial conglomerates.

(i) The banking undertakings under the CSSF supervision on a

consolidated basis

In this case, the Law on the financial sector makes a distinction between

the situation of a “financial holding company” and a “mixed-activity

holding company”. A “financial holding company” means a financial

institution the subsidiary undertakings of which are either exclusively or

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mainly credit institutions or financial institutions, with at least one of

such subsidiaries being a credit institution, and which is not a mixed

financial holding company. A “mixed-activity holding company” means a

parent undertaking, other than a financial holding company or a credit

institution or a mixed financial holding company.

With respect to financial holding companies, no specific regulations

govern transactions and the transfer of assets either in case of financial

crisis or not from a parent to its subsidiary, from a subsidiary to its

parent or between subsidiaries.

With respect to mixed-activity holding companies, Article 51 of the Law

on the financial sector provides that the CSSF shall exercise general

supervision over transactions between credit institutions established

under Luxembourg law and their parent undertakings, where the parent

undertaking is a mixed-activity holding company, and between such

credit institutions and subsidiaries of that parent undertaking.

In such case, credits institutions must report to the CSSF any significant

transaction previously carried out with those entities, otherwise than in

the context of the rules concerning large exposures. Such significant

transactions shall be subject to control by the CSSF. Therefore, the

control by the CSSF is ex-post and not ex-ante.

(ii) the financial conglomerates under the CSSF supplementary

supervision

The entity at the head of a financial conglomerate, or if necessary any

other relevant entity in the financial conglomerate, shall report to the

CSSF on a regular basis, and at least annually, any significant intra-group

transaction of regulated entities within the financial conglomerate.

The Law on the financial sector provides that in the absence of any

definition of notification thresholds, an intra-group transaction shall be

deemed to be significant if its amount exceeds at least 5% of the total

amount of the capital adequacy requirements at the level of the financial

conglomerate.

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Pursuant to Article 51-15 of the Law on the financial sector and to the

CSSF Circular Letter 06/268, the CSSF shall determine for each financial

conglomerate, after consultation with the other relevant competent

authorities and the financial conglomerate, the categories of risks to be

notified, the notification thresholds and the detailed rules, including

those relating to frequency, for notification of significant intra-group

transactions in respect of a given financial conglomerate. For that

purpose, it shall take into account the specific group and risk

management structure of the financial conglomerate. However, due to

the lack of identified financial conglomerate in respect of which it should

be acting as coordinator in respect of the prudential supplementary

supervision the CSSF has not yet been in position to determine such

detailed rules.

Would a specific agreement incorporating the terms and conditions of the transfer

between transferor and transferee and executed by their authorized

representative be required?

Although according to Luxembourg law an agreement incorporating the

terms and conditions of the transfer between the transferor and the

transferee is not required in terms of validity (ad validatem) of the

transaction (however, evidence requirements are subject to strict formal

requirements set out in the Luxembourg Civil Code (formality of the

double copy, written agreement beyond a certain amount at stake)), in

practice, such a formal agreement shall be implemented for any such

transactions having a significant financial and economic impact. Such

agreement is in particular relevant for evidence purposes (ad validatem)

between the parties to the agreement but also toward third parties.

Those formal requirements may have as effect to delay the contemplated

transfers of assets. However, in case of urgency, it is possible to have the

transfer of assets formally ratified ex post, provided that the

management justifies ex post the practical impossibility to comply with

those requirements at the time of transfer.

From a tax and accounting point of view, such agreement would also be

considered as an accounting document which would be taken into

account for establishing the company’s accounts. This is of importance as

the tax accounts are based on the commercial accounts of a company.

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The absence of an agreement could lead to some misinterpretation of the

reality of the commercial relation between the parties. Such agreement

could also be used as evidence toward interested third parties and in

particular the tax authorities, in case such authorities challenge a

transaction or some of its aspects. Tax authorities have the right to

request to be remitted transaction documents (including agreements) as

supporting documents.

Banking sector: banks must comply with the large exposures

concentration requirements concerning a quarterly reporting on a

individual basis as well as on consolidated basis. On the basis of those

reports, the CSSF shall be in position to exert a control on the intra-group

transfers of assets. The reporting mainly consists in the communication

of tables to the CSSF. Where the CSSF notes that a transaction is

suspicious or raise a specific issue, it shall require to be provided with the

related transaction’s contractual, accounting and commercial

documentation for examination and review purposes.

Are there differences between transfers in going concern situations / transfers in

crisis situations?

- Tax comment: according to the Luxembourg accounting principles,

valuation of the assets of a company are made on a “going concern”

basis. Transfers made in crisis situation could have an impact on the

valuation of the transferred assets at the level of the transferor and the

transferee, depending on the chances to receive the assets back, the

winding up risks, etc. The tax treatment of a waiver of debt in crisis

situation and provided certain conditions are met, could also be more

favorable if the beneficiary of the waiver of debt is in a crisis situation

(note also that this favorable tax treatment is usually not granted when

the waiver is made by a subsidiary in favor of its parent company): at the

level of the beneficiary, it should not be considered as a hidden

contribution and at the level of the transferor, it should be considered as

a deductible charge.

- Banking sector : the Law on the financial sector makes no difference

between transfers in going concern situations and transfers in crisis

situations. However, if the transferor or a transferee is in a crisis

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situation, as appreciated by the CSSF, the prudential supervision of the

CSSF will exert a more in-depth examination.

Counterpart for the asset transfer

Is the transfer of assets treated differently by your national Law :

- if it respects the arm‟s length principle/normal market conditions dealing

(please explain what is considered as arm‟s length)

As indicated above, for Luxembourg tax purposes, inter-company transfer

pricing rules must be made on an arm’s length basis. In such a case the

transfer of assets is not treated differently by Luxembourg.

Luxembourg law does not contain specific provisions dealing with the

determination of what arm’s length transaction between affiliated

companies should be. One see in practice that Luxembourg tax

authorities do in principle accept all transfer pricing methods based on

the transfer pricing rules referred to by the OECD transfer pricing

guidelines.

Articles 56 and 164(3) ITL deal with the measures that can be used by

the tax authorities should transfer pricing not be considered as at arm’s

length: according to Article 56 ITL, the tax authorities can determine the

operating income on a lump-sum basis in a situation where a transfer of

result occurred due to direct or indirect particular relationships existing

between the Luxembourg entity and a non-resident person. Article

164(3) ITL provides that hidden distributions, being defined as direct or

indirect advantages granted by a Luxembourg company to the

shareholder (direct or indirect) which would otherwise not have been

granted absent the shareholding relationship, are non deductible from

the taxable basis of the company and may, to some extent, be subject to

dividend withholding tax. Direct or indirect advantages granted by the

shareholder (direct or indirect) to a Luxembourg company which would

otherwise not have been granted absent the shareholding relationship

may be re-characterized as hidden (or informal) capital contribution.

Although no established rules submit such informal capital contribution

to capital duty (0.5% of the contributed value), such a taxation may be

applied in practice.

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- if it is agreed under preferential conditions or disadvantageous to the

transferee but advantageous to transferor and the group as a whole

From a general corporate law perspective, the counterpart that should be

provided by the transferee to the transferor should be analyzed from the

transferor’s perspective and in particular from the corporate interest of

the transferor. Indeed, the transfer of assets to the transferee per

definition is made in favor of the transferee, i.e. an advantage is granted

to the transferee. The transferee has therefore a corporate interest in

that transaction. The approach is different from the transferor’s

perspective as it provides an advantage to the transferee. The question at

stake is whether a corporate interest from the transferor’s perspective

can be isolated. As indicated above, intra-group transfer of assets are not

specifically allowed or facilitated under Luxembourg law. As a result, the

transfer of assets shall be made also in the best interest of the transferor.

Although Luxembourg law does not define the concept of corporate

interest, such concept is usually defined as being the seeking of a profit

by a company. Therefore, all decisions or actions made by the

shareholders or the directors of a company shall be made in the view of a

realization of a profit. Should this not be the case, either the decisions or

the shareholders could be declared nil and void or the directors could be

declared liable (should these directors have acted in favor of their own

interest). As a direct consequences of that approach, any transaction in

which a company is involved must be governed by the corporate interest

concern, i.e. realizing a profit. As a direct consequence of that approach,

a donation is in principle not considered in the corporate interest of the

company as by definition there is no direct profitable counterpart.

However, these general principles must be considered with a flexible

approach. Indeed, it is usually considered by the Luxembourg

practitioners and authors (in the absence of a published case-law on the

topic) that even if a company is involved in a transaction is not awarded

directly by an income or a return of any kind, such transaction may not be

considered as against its corporate interest if that transaction has for a

consequence to provide an advantage, direct or indirect, to the company,

at least in the long term. A transaction should therefore not be made

obviously in violation of the corporate interest of a company and a

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minimum of return would be expected at least in the long term.

Therefore, a general long-term balance must be complied with: a

company must not sacrifice its best corporate interests at all times to the

benefit of other companies of the group and must expect that a

temporary effort from its part shall benefit the company directly or

indirectly, even in a long-term perspective.

From a tax perspective and in respect of cross-border transfers, in the

absence of published regulations, and subject to case-by-case analysis,

the aforementioned general principles may be considered. In particular,

based on the above mentioned Articles 56 and 164 ITL, Luxembourg tax

authorities may re-characterize all or part of the possible exorbitant

advantages (interest-free loans, donations, etc.) that may be provided by

a Luxembourg company to a group company.

- if there is no counterpart/compensation for the transfer

Same comments as above.

- if the transfer is included in a loan or credit agreement between transferor

and transferee.

Same comments as above.


crisis situations?

There are no differences made under Luxembourg law between in going

concern situations and transfers in crisis situations, which would

primarily require to define the concept of crisis situation (independently

of the regime of insolvency situations).

Compulsory counterparts and guarantees

Is there any compulsory counterpart or guarantee that transferee should provide

to transferor?

Please refer to the section above.

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Please specify any other relevant information relating to the conditions to be met

for a transfer of asset to be authorized that has not been dealt with in the

previous question and that would be useful for the study

N.a.

Financial capacities of the transferor and the transferee

Does the decision to transfer have to comply with conditions relating to the

financial capacities/health of the transferor/transferee?

Notwithstanding the specific ratio limitations to which banks are subject,

transfers of assets should not have for a consequence to jeopardize the

financial health of the transferor and lead the transferor to bankruptcy.

No conditions are required at the transferee level.

What are the consequences when the transfer has occurred but those conditions

have not been respected?

If the above conditions are not met and if the transfer is considered as

not being made based on the interest of the transferor, the liability of

directors may be triggered.

Are there any conditions relating to the consequences of the transfer on the

financial situation of the group?

Tax comment: In case of a waiver of debt, if the parent company is the

creditor and the subsidiary the beneficiary, if such waiver is unconditional

(e.g. no repayment is foreseen, even in case of a return to better fortune

condition) and no additional shares are issued to the creditor, such

waiver may be considered as a hidden capital contribution eventually

subject to the Luxembourg capital duty (present rate of 0.5%).

There are no conditions relating to the consequences of the transfer on

the financial situation of the group.

What is the rank of claim of the transferor in case of insolvency proceedings of the

transferee ?Please specify any other relevant information relating to Financial

capacities of the transferor and the transferee that has not been dealt with in the

previous question and that would be useful for the study

Page 27 of 132

The rank of claim of the transferor in case of insolvency proceedings of

the transferee will depend on whether or not the transferor has secured

the transfer or not. If the transferor is an unsecured creditor, its

payment/reimbursement will be subordinated to all other secured

creditors or considered as such by the law (e.g. employees are considered

as having a “super privilege” regarding some of their unpaid salaries; the

Luxembourg State is also considered as secured creditor for the unpaid

taxes or certain social security claims). Once all secured creditors are

disinterested, the unsecured creditors (créanciers chirographaires) are

paid on a pro rata basis depending on the amount of their claims.

If the transferor benefits from a right in rem first ranking such as

mortgage, pledge, transfer with ownership’s right reservation (transfert

avec réserve de propriété) or claim (revendication), it may enforce such

security and will therefore not compete with the other creditors and will

therefore rank prior to the unsecured creditors.


crisis situations?

No legal differences apply, only specific economic and financial

considerations should be closely taken into account.

Information and transparency

Does specific information have to be communicated on the transfer to :

- Supervisors

General: n.a.

Banking sector: please refer to Section 3 a) above

- Shareholders

Subject to specific provisions in the articles of association or

contractual arrangements ( shareholders’ agreements), there is no

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legal requirement of information vis-à-vis the shareholders. Transfers

of assets are part of the management’s empowerment.

- Employees

Subject to specific requirements under collective agreements

(conventions collectives), there are no general requirements of ex

ante or ex post information to the employees in relation to transfers of

assets, to the extent that such transfers of assets do not substantially

affect the undertaking’s economic situation or does not fall into the

scope of specific protection of employees’ rules in the event of a

transfer of undertaking (transfert d’entreprise).

It should however be noted that Article L. 414-4 (1) of the

Luxembourg labour code (the “Labour Code”) foresees a general duty

of the employer to communicate on a regular basis to staff

representatives all relevant information with regard to the

undertaking’s current and future economic situation and employment

prospects. Furthermore, pursuant to Article L. 414-4 (4) Labour Code,

the employer shall inform and consult the staff representatives on any

decision which may trigger substantial changes in the work

organization or contractual relations, including, but not limited to,

collective redundancies and transfers of undertaking (i.e. transfer of

an undertaking, business, or part of an undertaking or a business as a

result of a legal transfer or merger).

- Third parties (specify who can have an access to this information and how)

With the exception of the notification requirements as detailed above

(See section above “Do transfers of assets have to be notified to other

third parties or supervisory bodies or published?”), there are no other

requirements of information to third parties.

If yes should this information be communicated before the transfer or after it :

- supervisors

Before/After

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General: N.A.

Banking sector: please refer to Section 3 a) above

- Shareholders

Please refer to general comments above.

- Employees


- third parties (specify who can have an access to this information and how)


Please specify any other relevant information relating to Information and

transparency that has not been dealt with in the previous question and that would

be useful for the study

N.a.

Sanctions

When a transfer of assets has occurred what at are the sanctions (civil liability of

the managers or the supervisory authorities, nullity, criminal penalty, etc.) that

may be incurred :

- under Insolvency Law

Under Insolvency law the liability of the directors can be incurred as

follows:

a) Ordinary liability

This liability is detailed in the below section “Company law”.

b) Extension of the bankruptcy to the directors

According to Article 495 of the Luxembourg commercial code, in case

of fraudulent bankruptcy of a company, the directors may be

personally put into bankruptcy if they:

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- either effectuated commercial acts in their personal interest; or

- used the corporate goods as their own; or

- went on intentionally with a deficit administration of the

company.

If a Director is convinced of having performed any such

aforementioned acts, his personal assets could be merged with the

assets of the liquidated company.

c) Action in « comblement de passif »

According to Article 495-1 of the Luxembourg commercial code, where

a company declared in bankruptcy has no sufficient assets to cover its

debts, the court may decide that the debts should be paid, in whole or

in part, by the directors of the company, when it appears that such

directors are guilty of misconducts by having contributed to the

bankruptcy.

This action may be intended by the liquidator of the Company and is

justified only when the misconduct is serious.

- under Civil Law

Subject to a possible contractual liability basis (violation by the

directors of their obligations as mandates of the company), the

directors can be declared liable based on the general tort liability

principles as set out by Article 1382 of the Luxembourg civil code The

Directors’ liability is subject to the evidence of three criteria of (i) the

existence of a fault; (ii) a damage suffered and (iii) a link of causality

between the fault and the damage.

- under Company Law

According to Articles 59 and 192 Companies Law, the directors shall

be liable towards the company, in accordance with general law for the

execution of the mandate given to them and for any misconduct in the

management of the company's affairs.

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The Law furthermore provides that the Directors shall be jointly and

severally liable both towards the Company and any third parties for

damages resulting from the violation of the Company Law or the

articles of association of the company and shall be discharged from

such liability in the case of a violation to which they were not a party

provided that no misconduct is attributable to them and they have

reported such violation to the first general meeting of shareholders

after they had knowledge thereof.

- Under Banking Law

The CSSF is empowered to require the credit institution to put an end

to the irregular situation. The CSSF is vested with injunction powers.

If, despite the measures taken by the CSSF, the credit institution

persists in infringing provisions of the Law on the financial sector, the

CSSF may take appropriate measures to prevent or curb further

irregularities and, in so far as may be necessary, to withdraw the

authorization or, as the case may be, to prevent that credit institution

from operating any further transactions in Luxembourg.

- under Criminal Law

Luxembourg law does not consider the criminal liability of a legal

entity (irresponsabilité pénale des personnes morales). Therefore, if a

criminal infraction is committed by the management of a corporate

entity, the natural persons (director(s), manager(s)) shall be held

personally liable, in the proportion of their commitment as regards

criminal law provisions (Tribunal d’Arrondissement de Luxembourg,

14 December 2000).

Articles 162 to 173 Companies’ law provide for financial and criminal

penalties in some specific cases against directors who acted in breach

of some specific requirements of the Companies Law (preparation and

submission of the annual accounts within the legal timing, prohibited

financial assistance). In particular, directors may incur criminal

penalties where they performed fraudulent acts in their personal

interest (misuse of corporate assets).

The Tribunal d’Arrondissement (District Court) may also, at the

application of the Procureur d’Etat (public prosecutor), order the

dissolution and the liquidation of any company governed by

Luxembourg law which pursues activities contrary to criminal law

(Article 203) and order the close-down of any establishment of a

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foreign company which pursues activities contrary to criminal law

(Article 203-1).

- Other

Under tax law, as indicated above, main sanctions could result in a

new assessment of the taxable basis of the involved companies, the

non-deduction of certain charges and the re-characterization of

certain advantages considered as “undue” as hidden distribution of

dividend (possibly subject to a withholding tax) or hidden contribution

(eventually possibly subject to capital contribution).

Third parties

Supervisory authorities

What is the role of the supervisory authorities in case of a transfer

of assets (right to be informed, have to give an authorization,

etc.)? Please distinguish the home/host supervisory authorities.

The CSSF is competent to supervise credit institutions and investment

firms carrying on business in more than one European Union Member

State.

Acting as the competent authority of the “home Member State”, the

CSSF shall exercise the prudential supervision of credit institutions

established under Luxembourg Law and such supervision extends to

the business carried on by any such institution in another Member

State, whether by means of the setting up of a branch or pursuant to

the freedom to provide services.

Therefore, the CSSF may require information relating to the

management, running and ownership of the credit institution

concerned as may require the supervision thereof and examination of

the conditions attaching to its authorization, together with all such

information as may require the monitoring of that credit institution,

especially as regards capital adequacy, liquidity, solvency, deposit

guarantees, limitation of large exposures, administrative and

accounting procedures and internal control mechanisms. Such power

allows the CSSF to supervise the intra-group transfer of assets.

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Acting in its capacity as “host Member State”, the CSSF is responsible,

in collaboration with the competent authorities of the home Member

State, for the supervision of the liquidity of Luxembourg branches of

credit institutions authorized in another Member State.

Therefore, if such branch does not fulfill the legal requirement of

liquidity due to an excessive transfer of assets to the parent

undertaking, the CSSF, after informing the competent authority of the

home Member State, may take appropriate measures to prevent or

curb further irregularities and, in so far as may be necessary, to

prevent that credit institution or investment firm from initiating any

further transactions in Luxembourg. In this respect, the CSSF may

supervise the transfer of assets from a Luxembourg subsidiary to the

parent undertaking.

Are there any conditions or consequences relating to solvency ratios

(implementation of Bale I et II notably)?

In any case, each credit institution must comply with the solvency

ratios as required by the Law on the financial sector and as calculated

in accordance with the CSSF circular 06/273, as amended (for

reference minimum 8%). Under Basle 2, the trigger point is the

requirements on minimum capital. Indeed, the CSSF circular letter

06/273 provides that credit institutions shall at any time comply with

the capital requirements (8% after ponderation). In case of default,

credit institution shall inform immediately the CSSF which may provide

the credit institution with a delay to comply with this requirements.

However, pursuant to a Luxembourg discretionary rule and according

to the CSSF circular 06/273, intra-group exposures are exempted from

large exposure limitations. As a result, Luxembourg subsidiaries may

transfer to the parent or the pooling entity of the group any or all of

their cash excess.

Are there differences between transfers in going concern situations /

transfers in crisis situations?

Concerning financial conglomerates for which the CSSF acts as

coordinator, its supplementary supervision tasks shall cover planning

Page 34 of 132

and coordination of supervisory activities in going concern as well as in

emergency situations, in cooperation with the other member states’

relevant supervisory authorities involved.

Article 51-19 of the Law on the financial sector provides a system of

cooperation and exchange of information between the competent

authorities. In the context of cross border assets transfers, such

cooperation shall include the gathering and the exchange of

information concerning in particular, without limitation, the financial

conglomerate's strategic policies; the financial situation of the financial

conglomerate, in particular as regards capital adequacy, intra-group

transactions, risk concentration and profitability and the financial

conglomerate's major shareholders and management.

According to article 51-23 of the Law on the financial sector, where the

CSSF, in the exercise of its functions as coordinator, estimates that the

intra-group transactions or the risk concentrations are a threat to the

financial situation of the regulated entities in the financial

conglomerate, it shall require the parent undertaking and its banking

subsidiaries established under Luxembourg law which form part of the

financial conglomerate to rectify the situation within such time-limit as

it may specify. The CSSF has to inform the other competent authorities

concerned of its findings.

Please specify any relevant information relating to the supervisory

authorities that has not been dealt with in the previous questions and that

would be useful for the study

N.a.

Minority shareholders

Does a minority shareholder of the transferor have any right concerning

the transfer :

- before the transfer or the decision to transfer (eg. right of

opposition, right of approval, right to be informed…)

Page 35 of 132

Subject to specific provisions in the articles of association or

contractual arrangements ( shareholders’ agreements), minority

shareholders have in principle no specific right concerning the transfer

before the transfer or the decision to transfer.

- after the transfer (e. g. right to have the transfer annulled

when transfer disadvantageous to transferor, request for an

audit…)

According to Article 154 Companies Law, judicial courts may, in

exceptional circumstances, upon application by shareholders

representing 20% of the share capital, appoint one or more auditors

with the duty to examine the books and accounts of the company. This

procedure is not often used in practice and it is unlikely that it could

lead to the cancellation of the transfer even when disadvantageous to

the transferor.

Shareholders have also a personal right to trigger the directors’

liability based on Article 1382 of the Luxembourg civil code as

indicated above under Section “Civil law liability”. It is however

unlikely that this legal action would lead to the cancellation of the

transfer, unless the transferee was aware or should have been aware,

at the time of transfer, of the fraudulent character of the transfer.

Creditors

Do Creditors of the transferor have any rights concerning the transfer :

- before the transfer or the decision to transfer (eg. Right of

opposition, acceleration rights, or right of approval, right to

be informed…)

Before the transfer, there are no such rights to the creditors.

- after the transfer (right to have the transfer annulled for

fraud when transfer disadvantageous to transferor and

aimed at fleecing creditors…)

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After the transfer, the following legal actions are available to the

creditors in case the transferor has operated a transfer to the

detriment of its creditors:

actio pauliana (action paulienne): this right of action is set forth

in Article 1167 of the Luxembourg Civil code and allows a

creditor to judicially apply for the annulment of acts committed

by the debtor fraudulently to the prejudice of the rights of the

creditor. The actio pauliana is subject to the evidence of (i) an

impoverishment of the transferor, (ii) a fraud of the transferor,

(iii) a complicity of the transferee and (iv) the creditor suffered

a damage resulting from such impoverishment. ;

action oblique ou subrogatoire: this right of action is set forth

in Article 1166 of the Luxembourg Civil code and allows a

creditor to be substituted to the debtor in case the debtor is in

negligence to exert its rights and actions against third parties.

Only rights and actions exclusively attached to the person of the

debtor are outside the scope of action of the creditor. The

action oblique ou subrogatoire is subject to the evidence of (i) a

debt owed vis-à-vis the creditor and (ii) a negligence of the

transferor for recovering the debt having as effect to

impoverish the transferor (e.g. a term for repayment was

contractually set forth between the transferor and the

transferee and after the expiration of such term, the transferor

makes no best efforts to enforce its rights to repayment).

Employees

Do Employees of the transferor have any right concerning the transfer :

- before the transfer or the decision to transfer (eg. Right of

opposition, acceleration rights, or right of approval, right to

be informed…)

Subject to specific requirements under collective agreements

(conventions collectives), employees of the transferor do not

have any right in relation to transfers of assets, to the extent

that transfers of asset do not substantially affect the

undertaking’s economic situation or does not fall into the scope

Page 37 of 132

of specific protection of employees rules in the event of a

transfer of undertaking.

It should indeed be noted that article L. 414-4 (1) Labour Code

foresees a general duty of the employer to communicate on a

regular basis to staff representatives all relevant information

with regard to the undertaking’s current and future economic

situation and employment prospects. Furthermore, under article

L. 414-4 (4) Labour Code, the employer shall inform and consult

the staff representatives on any decision which may trigger

substantial change in the work organization or contractual

relations, including, but not limited to, collective redundancies

and transfers of undertaking (i.e. transfer of an undertaking,

business, or part of an undertaking or a business as a result of a

legal transfer or merger)

- after the transfer (right to have the transfer annulled when

transfer disadvantageous to transferor and likely to result in

redundancies…)

The above comments apply after the transfer.

Deposit holders

Regarding the directive 94/19 : Who provides the deposit guarantee (the

government, national bank, insurers…)? For which amount?

According to Luxembourg Law (, the deposit guarantee is provided by

the Deposit Guarantee Association Luxembourg (AGDL). The AGDL is

set up under the form of a non-profit association. The purpose is to set

up a mutual guarantee system covering deposits in cash (deposit

guarantee) and also claims resulting from investments’ transactions

(investors’ compensation).

In the event of insolvency of a member establishment, the AGDL

protects all cash depositors by guaranteeing the reimbursement of

their deposits up to the amount of 20,000 euros.

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Is there a specific regulation concerning the deposit guarantee in case of a

transfer of assets in another Member State?

No specific regulation concerning the deposit guarantee exists in case

of a transfer of assets in another Member State. However, the

transferor, in case it is subject to the Law on the financial sector, is

bound by the provisions of this legislation, in particular by the

requirements in relation to adequacy of capital to cover credit risk,

market risks, operational risk and adequacy of internal capital. In any

case, if the banking transferee is a branch established in another

Member State by a credit institution governed by Luxembourg law,

such branch may voluntarily join one of the official deposit-guarantee

schemes set up in the Member State in which the branch is established,

in order to supplement the cover which their depositors enjoy.

If a transfer of assets including deposited funds occurs, does the deposit

insurer or guarantor have to be notified?

No specific provisions of the Law on the financial sector or of the

Articles of Association of the AGDL require any notification to the CSSF.

Do Deposit holders of the transferor have any right concerning the transfer

:

- before the transfer or the decision to transfer (e.g. right of

opposition or right of prior approval)

Pursuant to a Luxembourg case-law dated 1998 (Cour de cassation, 30

April 1998, Pas. 31, 1.), a funds’ deposit agreement between a banker

and its client imply for the bank the right to dispose freely of the

deposited funds and its liability is therefore limited to the obligation to

restitute the funds. Banks are only liable for the ultimate restitution of

the deposited funds and clients have therefore no right to control the

use of the deposited funds and are not vested with any right of prior

approval or control on intra-group transfers of assets.

- after the transfer (e.g. right to have the transfer annulled as

deposited funds not part of transferor‟s assets but belong to

deposit holders, etc.)

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In the light of the aforementioned case-law, the deposit holders are not

in principle entitled to claim for the annulment ex post of the transfers

of assets. Banks are only liable for funds restitution vis-à-vis the clients.

In case the funds are not ultimately restituted, civil law mechanisms

may apply in case the transfers of assets may be regarded as fraudulent

(fraus omnia corrumpit), yet the evidence of the fraud would be

required on both sides of the transferor and the transferee (it should be

evidenced that, at the time of the transfer, the transferee was aware or

should have been aware of the fraudulent character of the transfer).

Member State

In case of transfer of assets to/from a transferee/transferor located in

another Member State, has the host/home Member State any right or

obligation?

Please refer to Section 3 e) above.

Others

Please specify any other relevant information relating to third parties that

has not been dealt with in the previous question and that would be useful

for the study

Private international law

Luxembourg private international law system is mainly regulated by two

major European regulations: (i) in respect of the conflicts of laws, the

Rome convention of 19 June 1980 on the law applicable to contractual

obligations (the “Rome Convention”), and (ii) in respect of jurisdiction

and recognition/enforcement of judicial decisions in civil and commercial

matters, by the EC Regulation 44/2001 (the “Brussels I Regulation”).

Outside the scope of application of those two regulations, Luxembourg

private international law applies mechanisms which have been mainly set

forth by the case-law and the French system of private international law

also exerts a prominent influence.

Transfer of assets generally involving contractual obligations, it can be

said that the freedom of the choice of governing law by the parties is the

core applicable principle. Between professionals (company groups are

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professional entities and are generally advised by expert lawyers),

choices of law clauses are most often inserted in transfers’ agreements

and raise no notable issues.

In the contractual matter, public policy rules are in a limited number so

that the designation of a non-Luxembourg governing law scarcely raises

serious legal issues. However, reference must be made to capitalization

of interest, which is commonly applied in common law jurisdictions.

Pursuant to Article 1154 of the Luxembourg civil Code, capitalization of

interest is subject to two cumulative conditions of (i) annual basis

minimum compounding and (ii) approval of the compounding effect by

the debtor after the minimum annual basis minimum compounding is

effective. Although it is debatable whether this provision is to be

interpreted as an international public policy rule applicable to fully-aware

professionals, the absence of Luxembourg case-law on this issue is a

concern;

In respect of rights in rem transfers, in particular in respect of securities

such as pledges, the governing law is the lex rei sitae for legal issues

relating to the transferability of the asset, the opposability of the transfer

to third parties and the enforcement. It is indeed considered that those

issues must necessarily and objectively be governed by the law of the

jurisdiction where the asset is located: third parties being not parties to

the transfer, the choice of the governing law by the parties is deemed to

be unenforceable (inopposable) towards them. Therefore, rights in

personam and inter partes are governed by the law freely chosen by the

parties (e.g. pledgor and pledge) whereas the rights in rem are governed

by the lex rei sitae. This dual applicable regime regime is a source for

confusion and in practice, require the parties to apply the lex rei sitae to

all the legal aspects of the contract. An additional difficulty may be to

determine the situs in respect of dematerialized assets (receivables).

What is the applicable law in case of transfer of assets:

If the transferor is located in your member state and the transferee in

another member state?

The applicable law depends on the type of transfer of assets and also

depends on the competent jurisdiction. Indeed, conflicts of laws are

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national legal rules and the competent courts (for) apply their own

jurisdiction’s conflicts of laws’ rules. For the sake of clarity, it must

be supposed that either Luxembourg courts or other courts in the EC

area are competent :

- Loans: the applicable law must be determined pursuant to

the general mechanisms of the Rome Convention. The

lender and the borrower are free to choose the applicable

law. In case no choice of law was made, according to case-

law, the applicable law is the law of the jurisdiction where

the lender, as the party who delivers the characteristic

obligation, is domiciled or has its registered office.

- Assignment of debt (cession de créances): according to

Article 12 Rome Convention relating to the applicable law

to assignment of debts, the assignor and the assignee are

free to choose the governing law for inter partes effects. In

case no choice of law has been made, according to case-

law, the applicable law is the law of the jurisdiction where

the assignor, as the party who delivers the characteristic


However, in respect of rights in rem and opposability of the

transfer vis-à-vis the assigned debtor, the applicable law is

the law governing the debt transferred (loi de la créance

cédée). In this respect too, either the governing law of the

transferred debt has been chosen by the transferred debtor

and the assignor (loi d’autonomie) or no choice had been

made and therefore, the determination of the law

governing the debt transferred (loi de la créance cédée)

must be made according to the applicable conflict of laws’

rule (e.g. in case the debt transferred originated in a loan,

the governing law of the loan is in principle, where no

choice was made, the law of the jurisdiction where the

lender, as the party who delivers the characteristic


- Collateral securities (cautionnement)/guarantee on first

demand: the applicable law must be determined pursuant

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to the Rome Convention general mechanisms. The parties

are free to choose the applicable law. In case no choice of

law was made, the applicable law is the law of the

jurisdiction where the grantor of the collateral engagement

(caution) / guarantor, as the party who delivers the

characteristic obligation, is domiciled or has its registered

office.

- Asset-backed securities: in respect of mortgages

(hypothèque), the applicable law is fully the law of the

jurisdiction where the immovable asset is located (lex rei

sitae). This exclusivity is based on the attractiveness of the

situs in respect of immovable assets. In respect of pledges,

the distinction between rights in personam and rights in

rem must be made. In respect of the rights in personam

affecting the relations between the pledgor and the

pledgee, the parties are free to choose the applicable law

according to the general mechanisms of the Rome

Convention. In case no choice of law has been made, it

makes sense that the applicable law is the law of the

jurisdiction where the pledgor, as the party who delivers

the characteristic obligation, is domiciled or has its

registered office. In respect of rights in rem aspects (i.e.

right to pledge the asset, dispossession regime (if any),

enforceability of the pledge) and also in respect of the

opposability regime (notification regime) of the pledge vis-

à-vis the third pledged party (bank in case of pledge on

receivables, issuing company in case of pledge on shares),

the applicable law is the law of the jurisdiction where the

asset is located. As a result, in case It is most

recommended, for obvious practical reasons, to have the

pledge governed by the same law, i.e. the lex rei sitae, for

both rights in personam and rights in rem. Therefore, the

situs must be primarily located which will determine the lex

rei sitae and, by extension, the governing law of the

pledge, including in respect of the rights in personam

aspects. As mentioned, the determination of the situs may

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raise difficulties, in particular in respect of intangible or

dematerialized assets

- Equity: participations/capital injections are fully governed

by the lex societatis. Therefore, in case the taking of

participations/injection of capital is made by a Luxembourg

company in the share capital of another state member’s

company, the transaction shall be governed by the law of

the other state member’s company. In case the other state

member’s rule of conflicts of laws refuses to govern the

case (which is unlikely) and considers that the Luxembourg

law is applicable, the theory of renvoi (renvoi au premier

degré) shall apply in principle and Luxembourg law should

accept its competence (French case-law Banque ottomane,

1966). The doctrine of renvoi au second degré (designation

of the law of a third jurisdiction) may also theoretically

apply. The doctrine of renvoi is applicable in the field of

corporate law whereas in the contractual matter, the Rome

Convention (and in general all private international law

systems) expressly excludes the renvoi mechanism.

If the transferor is located in another member state and the transferee in

your member state?

The analysis above is valid whether the transferor or the transferee is

located in Luxembourg or not. Indeed, the private international law

mechanisms detailed above being coordinated at the EC level (Rome

Convention), in principle the chore mechanisms will apply mutatis

mutandis. However, the complexity of private international law rules

require from the parties and their counsels an accurate analysis. In

particular, the autonomous character of the rights in rem require that the

assets be located with precision and in this respect, the criteria of

location may vary from member state to member state.

Please specify any other relevant information relating to Private international law

that has not been dealt with in the previous question and that would be useful for

the study

N.a.

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Part II -Evaluation of potential solutions

WILDGEN note: for ease, all WILDGEN answers are in bold.

The purpose of this second part is to analyze potential solutions to remove obstacles to

asset transferability. Different categories of solutions will be proposed.

We first would like to know which parts of your legislation would need to be amended in

order to implement the solution.

Second, we would like to have your personal opinion about the feasibility of the solutions

regarding the legislation in your Member State.

After that, we would like know if you consider that this solution is satisfactory and we

would like you to explain why.

Lastly, we would like to know what legal obstacles still remain in your Member State.

Regarding those proposals, please consider that a transfer of assets from the subsidiary

to the parent company in a crisis situation should not be considered as a transfer at

arm‟s length.

1. Transfers from the parent company to the subsidiary or from the

subsidiary to the parent at arm‟s length:

Proposal n°1

Community legislation allows:

- any kind of transfer from the parent company to the subsidiary and

- transfers from the subsidiary to the parent at arm‟s length.

Possible consequences or conditions:

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- Any restriction to those transfers have to be removed by Members States

- After the transfer, specific information about the transfer have to be

communicated to supervisors and shareholders

Questions

i) Please provide a summary of the national measures that should be revised in

order to reach this result.

A distinction must be drawn up between the Companies Law and the Law

on the financial sector.

1. Companies Law

1.1. The choice of (i) implicit non-prohibition of (intra-group) transfers or

(ii) express legal provision allowing such transfers

With respect to the Companies Law and general Luxembourg law, no

express allowance of intra-group transfers is dealt with so far and also,

most importantly, the concept and regime of company group is not

regulated. So the question at hand is whether transfers at arms’ length

should be expressly declared permitted by law or whether legal

abstention is preferable. First of all, it is to be noted that the traditional

trend of Luxembourg law is to regulate those matters at minimum. The

underlying philosophy of such conception is (i) positively, to favour the

freedom of action of the economic actors1 and, (ii) negatively, to avoid to

the possible extent any interpretation issues inherent to rigid legal

provisions.

Subject to the above considerations, and given the high level of urgency

raised by crisis situations, it may be advisable, for avoiding any

1 Article 1 LSC sets forth that “(commercial companies) are ruled out by the agreement of the parties, by the laws

and the practices specific to trade and by the Civil Code”. According to an authoritative author, “by giving priority

to the agreements between the parties, the LSC makes clear that the contractual character is the prominent legal

background of the Luxembourg company law” (J. Delvaux, La société anonyme, Cours du centre universitaire de

Luxembourg, page 29). See also A. Steichen, Précis de droit des sociétés, Luxembourg, 2006, n° 679: “It must

not be forgotten that Luxembourg corporate law grants a great deal of space to contractual freedom”.

Page 46 of 132

paralysing risk due to legal uncertainty, to foresee a general affirmative

principle of permission of transfer of assets in crisis situations. This

provision may be worded broadly as a general principle, allowing the

actors to have a margin for action.

1.2. The legal recognition of the concept of group interest

Given that such transfers would be mainly intra-group, it may also be

considered to implement in law the concept of group interest, conceived

as a specific interest sided to the individual corporate interest and which

would justify, to some extent, that a company of the group grants specific

efforts to the benefit of other group’s company in jeopardy. However,

such concept of group interest should be strictly framed, so as to avoid

any undesirable excess of the group interest’s use. In this respect, the

limitations set forth by the French Rozenblum case-law2 may serve as

helpful guidelines: (i) ratione personae limitation: as a principle, the

efforts must be on a reciprocal basis, which means that a company of the

group must not be systematically sacrificed to the benefit of the others;

(ii) ratione quota limitation: the financial support must not be

disproportionate to the financial capacities of the grantor; and (iii)

ratione temporis limitation: although the effectiveness of the

counterparties to the financial support may be delayed in time, they must

be returned ultimately to the grantor of the support, either by the

beneficiary or by other group’s entities (e.g. the mother company in case

of a financial support granted by a sister company to another sister

company).

It may also be required that any transfer made in the group’s interest be

justified in details by the management and that all specifically detailed

economic and financial motives (not only general yet specific reasons in

the case at hand) which justify the transfer be detailed in the resolutions

of the management.

1.3. The definition of the group

2 Cass. Crim., 4 février 1985, Rozenblum et Allouche. In respect of a possible transposition of the Rozenblum

criteria into Luxembourg law, see Stef Oostvogels and Daniel Boone, De l’intérêt social à l’intérêt de groupe en

droit des sociétés: perspectives luxembourgeoises, in Droit bancaire et financier au Luxembourg, Bruxelles, 2004,

spéc. pp. 1063 s.

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A specific issue relates to the definition of groups. In the Rozenblum

case, the French Cour de cassation estimated that a group interest is

legitimate only if there is a structured group of companies sharing a

common global purpose, either economically, socially or financially.

Adversely, a group of companies which would be composed of companies

having no such links or synergy would not be entitled to claim the benefit

of a group interest, even though from a pure legal point of view, the

control criterium would be fulfilled. Therefore, the question is whether, in

case the concept of group interest would be introduced by law, such

group interest would apply on the ground of the legal concept of control

(as defined in the Companies Law) or on the ground of more economic

criteria.

1.4. Information to shareholders

As detailed in the part I of this Questionnaire, the management (board of

directors or managers) is legally vested with the right to enter into, in the

name and on behalf of the company, any transaction not reserved by law

or the articles of association to the shareholders. In this respect, pre or

post information on transfers of assets is not a legal prerequisite. Also, in

respect of transfers of assets in crisis situations, it can be wondered

whether a pre-information to or approval by the shareholders would be

suitable, given that such decisions should be taken on the ground of

extreme urgency (possibly to be operated within one day or so).

The question whether information should be given to or ratification

should be sought from the shareholders relates to two different concerns:

(i) corporate governance concerns, and/or (ii) protection of the

management.

Corporate governance concerns differ from each company/group’s inner

policy and a general legal provision may not be quite relevant in that

context.

Protection of the management may justify more attention. Transfers of

assets being decided in urgency and possibly relating to substantial

amounts/assets, it may be noted that the management may be reluctant

to take such decisions without having the further guarantee of being

comforted by the shareholders. The question is how to legally frame such

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a protection, which should not be automatic (at the risk of giving a free

hand (blanc-seing) given to the management). Reference to the

mechanism of the quitus given to the management in the context of the

approval of the annual accounts may be considered in this respect. The

management may be in charge of preparing a report on the transfers of

assets detailing the raison d’être, the conditions and counterparts of the

transfer of assets. On the ground of such report transmitted in advance to

the shareholders, the shareholders may be requested to opine on the

transfer of assets. In order to reduce the risk of a refusal by the

shareholders, such refusal may only be pronounced subject to the

evidence by the shareholders of wilful misconduct or gross negligence of

the management in transferring the assets.

1.5. Supervision

Except for professionals already subject to supervision (banks, insurance

and reinsurance undertakings, financial conglomerates), an additional

supervision applicable to any company entering into transfers of assets

may be regarded as a burdensome and time-consuming formality which

may have the undesirable effect of delaying transfers of assets which, in

crisis situations, needs to be completed within a short timeframe.

II. Law on the financial sector

As detailed in Part I of this Questionnaire, the Law on the financial sector

does not provide a distinction whether transfers are made from the

parent to a subsidiary, from a subsidiary to parent or from subsidiary to

subsidiary. Reference is made generally to allowed intra-group

transactions. Intra-group transactions are defined in Article 51-9 (21)

Law on the financial sector: “all transactions by which regulated entities

within a financial conglomerate rely either directly or indirectly upon

other undertakings within the same group or upon any natural or legal

person linked to the undertakings within that group by close links, for the

fulfillment of an obligation, whether or not contractual, and whether or

not for payment.”

When entering in intra-group transactions, each bank supervised by the

CSSF within the banking group must at any times comply with the legal

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requirements on own funds, large exposures and different risk

management.

Such intra-group transactions are implicitly made at arms’ length. Any

non-arms’ length transactions may be regarded by the CSSF (at the

occasion of the quarterly legal reporting to be made by banks to the

CSSF) as jeopardizing the legal own funds, large exposures and different

risk management’s requirements.

III. Tax issues

LIR (and in particular Articles 164 and 56) and the law of 29 December

1971 on capital duty as amended (the “Law on Capital Duty”) are the

concerned national legal rules.

ii) In order to determine the feasibility of this solution, please explain precisely

whether those modifications would entail

frictions or even a disruption of your legal system or

entail substantial modifications but no major frictions with established legal

principles or

merely minor changes.

I. Corporate law

In respect of general corporate law, amendments to be made to the law

actually depend on the possible options chosen and whether express

legal provisions relating to permitted transfers of assets are regarded as

desirable (see our analysis above). If such express provisions are

inserted, substantial modifications would be entailed, in particular in case

group companies are recognized as entities vested with a specific legal

regime and an autonomous group corporate interest.

II. Tax law

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In respect of tax issues, the possible transfer of assets from a subsidiary

to its parent company should be subject to a modification of LIR and in

particular of Articles 164 and 56 to avoid any re-characterisation into

hidden distribution of dividends. In particular, a case that may create

frictions could exist in case assistance is granted by a subsidiary to a

parent company without counterparts such as a

repayment/reimbursement obligation by the parent company (in case of

return to better fortune for example).

The Law on Capital Duty should be amended in order to avoid the hidden

contribution re-characterization risk when the transfer is made by the

mother company in favour of a Luxembourg subsidiary. A recent draft law

has been released abolishing capital duty as from 1st January 2009. As a

consequence, the transfer of assets from the mother company to its

subsidiary should not create major frictions under Luxembourg law.

III. Labour law

To the extent that the purported solution does not intervene with the

current definition of a transfer of undertaking and that no transfer of

employees should arise, no specific provision of Luxembourg labour law

appears to be in conflict with such solution.

iii) Please precise if this solution does satisfactorily take into account interests of

parent companies, subsidiaries, minority shareholders, creditors, deposit holders,

employees, supervisory authorities or Member States as a whole.

I. Corporate law

In respect of transfers made at arm’s length, all rights are in principle

preserved, subject that the counterpart is effectively solvent or that the

object of the counterpart is valuable.

II. Banking law

This proposal does not affect the prudential supervision principles under

Luxembourg Law. Therefore, in so far as there exists a counterpart in the

intra-group transfer of assets, this proposal would not affect interests of

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deposit holders. Moreover, this proposal should not reduce the current

powers of the CSSF in relation to the prudential supervision.

This proposal would not breach interests of deposit holders because the

transfer of assets will be done at arm’s length. However, in case of

significant intra-group transactions or of transfer of assets in favour of a

bank which is in a financial crisis situation, it should be preferably to

inform the AGDL.

III. Tax law

An important issue would be to avoid tax evasion or tax mitigation

unfairly based on what is actually not assistance granted to a company,

member of the group being in a financial crisis. Therefore the crisis

situation must be clearly defined and a counter-part should exist in

favour of the transferee or, as the case may be, a possible

repayment/reimbursement in the future.

IV. Labour law

This proposal does not imply to provide any additional information to the

employees with regard to the financial situation of their employer.

iv) Please precise whether legal obstacles remain and how they could be removed in

banking, insolvency and company law

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2. Transfers from the subsidiary to the parent company (in preferential

conditions)

a) Prior and overall agreements

Proposal n°2:

Similar EU instrument:

Art. 234 - Solvency II: Amended Proposal for a Directive on the taking-up and

pursuit of the business of Insurance and Reinsurance http://eur-

lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2008:0119:FIN:EN:PDF

Proposal:

For this proposal, please consider that an EU instrument has been adopted, which

provides that a group agreement under which the parent company and some of

the entities of the group can mutually commit themselves to transfer assets in a

crisis situation has to be allowed by the Member States. This agreement is

endorsed by each legal entity being a party to the agreement. This agreement

guarantees financial support from the parent to the subsidiary and from the

subsidiary to the parent. This agreement could only be voluntary because of the

freedom of contracts, the limited liabilities of companies and minority shareholder

rights.

This agreement is submitted to the supervisory authorities. A group-wide view of

solvency and liquidity would be a useful part of the supervisory assessment of an

intra-group transfer. This group-wide approach will be required as part of the

review of the CRD on 'colleges'.

The agreement may already be submitted when the subsidiary asks for

authorization to take up and pursuit the business of credit institutions. This

agreement may also be submitted when the subsidiary asks for authorization and

will be considered as a modification to the conditions of the authorization to take

up and pursuit the business of credit institutions.

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2008:0119:FIN:EN:PDF

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2008:0119:FIN:EN:PDF

Page 53 of 132


-The capital adequacy rules is still respected after the transfer

-The transfer does not endanger the transferor‟s solvency

-The amount of the transfer is to be reimbursed by the transferee to the

transferor. In case of insolvency, the creditors of the transferee will be reimbursed

before the creditors of the transferor up to the amount of transfers that occurred

-After each transfer, the transferor informs supervisors and the shareholders

during the ordinary General Assembly meeting following the transfer

- If the good faith, competence and prudence of the transferor's management is

not in question and if the transfer fulfils all the conditions specified above, then

the transfer cannot be challenged under Insolvency Law.

Questions



I. Corporate law

As previously mentioned, the management (board of directors or

managers) is legally vested with the right to enter into, in the name and

on behalf of the company, any transaction not expressly reserved by law

or the articles of association to the shareholders. In this respect, pre- or

post information on transfers of assets is not a legal prerequisite. Also, in

respect of transfers of assets in crisis situations, it can be wondered

whether a pre-information to or approval by the shareholders would be

suitable, given that such decisions should be taken on the ground of

extreme urgency (possibly within one day or so).

However, management decisions of the transferor having as effect to

create unfavourable (known as such at the time of transfer) conditions

for the transferor obviously raise difficult issues in terms of information

to shareholders and liability of the management.

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Liability of the management: pursuant to Article 59 and 192 Companies’

law, directors/managers are liable to the company, in accordance with

general law, for the execution of the mandate given to them and for any

misconduct in the management of the company’s affairs. Directors must

act in the company’s best interest. They must execute their fiduciary

duties vis-à-vis the company as a bonus pater familias, i.e with full

diligence, care and honesty. As a result directors are liable vis-à-vis the

company for management faults, notwithstanding that they did not act

ultra vires or that no legal decisions were infringed. Wrong decisions may

be justified if they would have been taken by a reasonable prudent

person, put in the same circumstances of place and time3. Good faith will,

in most cases, be taken into account for appreciating the directors’

liability. Nevertheless, good faith does not apply as a general cause for

excluding liability4.

By deciding transfers at preferential conditions, directors may incur the

risk to have such decisions challenged by the company or the

shareholders later on if it appears that such decision, although justified at

the time, ultimately put the company in jeopardy. As a result, at the risk

of having the management reluctant to enter into such transactions

without guarantees that its decisions shall have an ultimate positive or

neutral effect for the company, safety-nets should be granted to the

management in this respect.

Towards third parties, the directors may incur a general liability based on

Articles 1382 sq. of the Luxembourg Civil Code. Given that such liability

may not be escaped, such liability may be covered by a guarantee granted

by the company/shareholders to the directors against any potential

liability risks incurred vis-à-vis third parties.

First of all, a general safety-net may be achieved pursuant to the

recognition by law of the group interest (see our analysis above). In case

the management is in position to back its decision to transfer upon the

group interest and if it can make clear that the survival of the group (or

3 J. Delvaux, op. cit., p. 233

4 P. Thielen & J. Delvaux, La responsabilité civile des administrateurs de sociétés anonymes en droit

luxembourgeois, situation actuelle et tendances futures, Bulletin droit et banque, 1984, Luxembourg, n° 4, p. 9.

Page 55 of 132

entity(ies)) of the group) depends on the contemplated transfer, the

company’s sole interest would not be the ultimate criterium any longer.

In this respect, the obligation that may be borne by the management to

back up in detail the transfer’s decision on the group interest may serve

as a further safety-net.

Secondly, the question whether information should be given to or

ratification should be sought from the shareholders is clearly more acute

than in arm’s length transfers’ situations. Given the high-intensity risk of

such management’s decisions, it can be considered that, in broad terms,

information to and backing support from the shareholders may be

welcome. The main issue relates to the practicalities of such

information/support, which must balance conflicting concerns: quickness

to react versus complete information and awareness, protection of the

management versus right of effective control by the shareholders.

With respect to rights of information of the shareholders, urgency

motives justify that such rights should not have as effect to delay unduly

the urgent transfer. Alternatively, either (i) a reference to the mechanism

of the quitus given to the management in the context of the approval of

the annual accounts or (ii) a ratification sought at the occasion of the

next ordinary general meeting may be considered in this respect. The

management may be in charge of preparing a report on the transfers of

assets detailing the raison d’être as well as the conditions and

counterparts of the transfer of assets. As an additional requirement, it

may be required that the management justifies the granted preferential

conditions. On the ground of such report transmitted in advance to the

shareholders, the shareholders may be requested to opine on the transfer

of assets. In order to reduce the risk of a refusal by the shareholders,

such refusal may only be pronounced subject to the evidence by the

shareholders of a wilful misconduct or gross negligence of the

management in transferring the assets.

II. Insolvency law

According to Article 445 Luxembourg Code of commerce, any acts of

transfer on movable or immovable assets are declared nil and void if the

value of the assets transferred notably exceeds the counterpart. Such

Page 56 of 132

nullity is incurred for such transactions concluded during the clawback

period, which can be extended retroactively up to six months and ten

days from the bankruptcy judicial order (jugement déclaratif de faillite).

Although some recent legislations have made exceptions to that

nullification risk (exempli gratia, law of 5th August 2005 on financial

collateral arrangements), Article 445 Luxembourg Code of commerce

clearly raises a general obstacle to preferential conditions’ transfers

made by the transferor.

III. Banking law

The Law on the financial sector provides that a credit institution shall

have effective processes to identify, manage, monitor and report the risks

it is or might be exposed to, and adequate internal control mechanisms,

including sound administrative and accounting procedures. Same rules

apply in the context of banking groups in order to identify, manage,

control and report intra-group transactions, otherwise than in the context

of the rules concerning large exposures. Therefore, the target of such

rules is to define global risks taken by a banking group and to supervise

the own funds of the group in relation risks taken. Concerning

Luxembourg Banks, the procedure of risks identification and management

must be submitted to the CSSF for approval before exerting any banking

activities and in case of modification of such procedure, banks shall also

obtain the CSSF approval. In this context, the Law on the financial sector

which require the approval of the CSSF in relation to the procedure and

mechanism of risks management needs not be revised.

However, in case of a transfer of assets from a subsidiary to the parent in

preferential conditions in connection with a financial crisis situation, the

Law on the financial sector should be amended in order to define the

concepts of “preferential conditions” and “financial crisis situation “ and

to determine restrictions or limitations of such transfers. In practice, the

CSSF does not prevent in principle intra-group transfer of assets if it is

necessary to rescue the financial situation of the parent undertaking in so

far as the own funds ratio of the transferor is fulfilled and such transfer

does not endanger the transferor’s solvency. This situation should be

expressly taken into account in the Law on the financial sector, and

Page 57 of 132

generally in the Companies Law (for example, by inserting a section on

intra-group financial assistance).

IV. Labour law

To the extent that the purported solution does not interfere with the

current definition of a transfer of undertaking and that no transfer of

employees should arise, no specific provision of Luxembourg labour law

appears to be in conflict with such solution.





principles or


I. Corporate law

Substantial modifications would be entailed:

- recognition of the concept of group interest (would entail a friction

with the current Luxembourg corporate law concepts);

- redefinition of the liability possibly incurred by the management;

- express authorization granted to the CSSF to release the capital

ratio requirements in case a group entity is in momentary crisis

situation

II. Insolvency law

- Substantial amendment of Article 445 Commercial Code (transactions

made during the claw-back period);

III. Banking law

Page 58 of 132

The modifications would entail substantial modifications but no major

frictions with established legal principles because the Law on the

financial sector does not provide expressly that a subsidiary may transfer

assets to his parent in preferential conditions even if all the conditions

above will be fulfilled. From a prudential supervision point of view, it will

aggravate the risk of insolvency and the CSSF should not authorise such

transfers without counterparts. Indeed, it will constitute a special risk for

the deposit holders and for the national financial stability. For example, if

many of Luxembourg subsidiaries transfer a part of its assets to their

relative parents, in case of insolvency of one or several members of the

AGDL, the premium which will be paid ex post by members could not to

be sufficient in Luxembourg, significant funds being transferred to the

parent having its office in another member State, i.e. it will constitute a

risk for the guarantee for the deposit holders in case of insolvency of

several members of the AGDL in the same time.

Moreover, the Law on the financial sector should create some provisions

in relation to an intermediary financial crisis situation. Such situation

should be identified before opening the procedure of suspension of

payment or of the winding up as provided by the Law on the financial

sector. In particular, in case of emergency, a special procedure may be

expressed in the law concerning notification/approval of the transfer of

assets/project to assets transfer, and the law should require a decision

from the CSSF in the day or at the earliest.

IV. Tax law:

As further described above, in order to avoid re-assessments of the

taxable basis of the Luxembourg entity or re-characterisations as hidden

distributions or hidden capital contributions, Luxembourg law should

avoid sanctions should the transfers not be made at arm’s length. If the

amount is to be reimbursed by the transferee to the transferor and if, in

case of insolvency, the creditors of the transferor will be reimbursed

before the creditors of the transferee up to the amount of transfers that

occurred, the Luxembourg tax authorities should not consider such

transfer as hidden distributions or hidden capital contributions.

Page 59 of 132



employees, supervisory authorities or Member States as a whole

This solution takes satisfactorily into account the interests of the

supervisory authorities insofar as this proposal provides that the banks

must submit for approval to the authority the intra-group transfer of

assets agreement. Moreover, the CSSF shall at any time control if

requirements on own funds are still fulfilled. This proposal shall not also

prevent the existing system of the reporting on regular basis.

In principle, this proposal should not affect the interests of deposit

holders because, as said above (please refer to the Part I, Section e)

“Deposit holders”), deposit holders have no right other than the

obligation for the banker to the restitution of the deposited funds.

If the transfer of assets is substantial (a level to be determined by the

law or regulation or circular letter), the current Law may be removed in

order to provide a mechanism of notification to the AGDL.

Labour law: this proposal does not provide any information to the

employees with regard to the financial situation of their employer.


banking, insolvency and company law ).

As mentioned above, the major obstacle consist in the delimitation of the

concepts of “banking group”, “transfer of assets”, “preferential

conditions” and “financial crisis situation”. Those terms shall be subject

to common definitions in all member States, in particular, which entity

may/shall determine a crisis situation (parent or subsidiary unilaterally,

notification ex ante or ex post or approval ex ante of supervision

authority…).

b) Strong guarantees covering the risk of outstanding payment

Proposal n°3

Page 60 of 132


Directive 2002/47/EC of the European Parliament and of the Council of 6 June

2002 on financial collateral arrangements (http://eur-

lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32002L0047:EN:HTML )

Proposal:

For this proposal, please consider that an EU instrument has been adopted, which

provides that a group agreement under which the parent company and some of

the entities of the group can mutually commit themselves to transfer assets in a

crisis situation has to be allowed by the Member States. This agreement is

endorsed by each legal entity being a party to the agreement. This agreement

guarantees financial support from the parent to the subsidiary and from the

subsidiary to the parent. This agreement could only be voluntary because of the

freedom of contracts, the limited liabilities of companies and minority shareholder

rights.

This agreement is submitted to the supervisory authorities. A group-wide view of

solvency and liquidity would be a useful part of the supervisory assessment of an

intra-group transfer. This group-wide approach will be required as part of the

review of the CRD on 'colleges'.

The agreement may already be submitted when the subsidiary asks for

authorization to take up and pursuit the business of credit institutions. This

agreement may also be submitted when the subsidiary asks for authorization and

will be considered as a modification to the conditions of the authorization to take

up and pursuit the business of credit institutions.


-The capital adequacy rules is still respected after the transfer

-The transfer does not endanger the transferor‟s solvency

-The amount of the transfer is to be reimbursed by the transferee to the

transferor. In case of insolvency, the creditors of the transferor will be reimbursed

before the creditors of the transferor up to the amount of transfers that occurred

-After each transfer, the transferor informs supervisors and the shareholders

during the ordinary General Assembly meeting following the transfer

- If the good faith, competence and prudence of the transferor's management is

not in question and if the transfer fulfils all the conditions specified above, then

the transfer cannot be challenged under Insolvency Law.

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32002L0047:EN:HTML

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32002L0047:EN:HTML

Page 61 of 132

Questions



The Directive 2002/47/EC of the European Parliament and of the Council

of 6 June 2002 on financial collateral arrangements has been transposed

in Luxembourg law by the law of 5 August 2005 on financial collateral

arrangements. This law takes into account in general terms such

proposals and no provisions of the law exclude the application of the

rules on financial collateral arrangements to a banking group.

Moreover, the proposals provide that requirements provided by the law

on the financial sector, such as conditions in relation to own funds and

solvency ratios, shall be fulfilled.

Therefore, Luxembourg law need not be amended.

From a tax perspective no national measures do really exist. In practice

however, the fact to provide a guarantee could have tax consequences at

the level of the collateral provider: if a subsidiary has secured or shall

secure the debt of its parent company it can not be excluded that the

Luxembourg tax authorities will take the position that such subsidiary

needs to earn an arm's length guarantee fee for such guarantee.

However, such guarantee fee would be due if the subsidiary has no

underlying reasons for granting such a security, according to transfer

pricing rules.

If such underlying reasons do not exist, the tax authorities could correct

the subsidiary taxable basis (subject to approx. 30% Corporate Income

Tax) and levy a 15% dividend withholding tax on a constructive dividend.

Such withholding tax risk would however be mitigated if the subsidiary

has a corporate interest in providing such security. This could be the case

in a crisis situation and/or if the funds are reimbursed to the subsidiary

at a later stage.

Page 62 of 132

From a labour law perspective, to the extent that the purported solution

does not intervene with the current definition of a transfer of undertaking

and that no transfer of employees should arise, no specific provision of

Luxembourg employment law appears to be in conflict with such

proposal.





principles or


From a tax perspective, in order to avoid the tax risks described above,

given that the above is only based on an administrative practice, it would

only be necessary to include a statement in the LIR (Luxembourg tax

law) that would consider that granting security in crisis time is

considered as being made at arm’s length.




From a labour law perspective, this solution does not provide any

information to the employees with regard to the financial situation of the

employer.


banking, insolvency and company law )

c) Liability of the parent company for the subsidiary‟s debts

Prior question

Page 63 of 132

Firstly, please indicate if in your Member State, the parent company can be held jointly

and severally liable for the subsidiary‟s debts and why:

-due to the specific legal form of the subsidiary where the shareholders are

systematically liable for all decisions

-due to preferred shares under which the shareholder is systematically liable for

some or all decisions of the company

The liability of the parent undertaking as shareholder of the subsidiary is

different depending on the legal company form

If the subsidiary is set up under the form of a public limited company/

Joint stock company (Société anonyme) or of a private limited liability

company (Société à responsabilité limitée), the liability of the parent

shall be in principle limited to their contribution.

If the subsidiary is set up under the form of a general partnership

(Société en nom collectif), the liability of the parent as shareholder shall

be unlimited, i.e. it will be personally, jointly, severally and indefinitely

liable;

If the subsidiary is set up under the form of a limited partnership

(Société en commandite simple) or of a partnership limited by shares

(Société en commandite par actions), the liability of the parent as

shareholder shall be as follows: general partners will be jointly, severally,

and unlimitedly liable and the liability limited partners will have their

liability limited to their contribution.

Reference must be made to Article 153 Companies’ law which provides

that creditors may, in all types of companies, obtain from a court an order

demanding the payments provided for in the articles of association and

which are necessary for safeguarding their rights. The company may

cause the action to be dismissed by paying the amounts owed to the

creditors, after deduction of a discount. Creditors may exercize a direct

action against the shareholders as regards any outstanding payments

which are due by virtue of the articles, corporate resolutions or court

orders.

Page 64 of 132

The application of the above principles of limited liability may however be

challenged in specific situations. It cannot be completely ruled out that a

shareholder may face further liability, that the corporate veil is pierced or

that a shareholder is held to be a de facto director. These exceptions are

applied with caution as it contradicts the legal body doctrine

(personnalité morale). De facto director theory may more particularly be

taken into account in case it appears that subsidiaries have no power of

autonomous decisions, that their corporate interest is utterly sacrificed in

the sole interest of the parent, and that the creditors of the subsidiary

have obviously no recourse against the subsidiary given that all assets

and profit of the subsidiary are returned to the parent. In this respect,

any implementation of the group interest (see detailed analysis above)

would possibly mitigate the application of the de facto director doctrine,

although, as mentioned, the group interest criterium should balance the

reciprocal interests of the companies’ group.

Proposal 4

Then, for this proposal, please consider that an EU instrument has been adopted and

creates an automatic liability:

- by means of a specific type of company where the shareholders are systematically

liable for all decisions that are disadvantageous for the company

- or by means of a preferred shares under which the shareholder is systematically

liable for some or all decisions of the company

Questions



The Companies Law should be revised in order to take into account the

principle of systematic liability of shareholders for all disadvantageous

decisions of the company. Indeed, in principle, the Companies Law

provides the liability of managers/ directors for decisions which are

incompatible with the company’s interests. The shareholders are in

principle liable up to the amount of their contribution in the company. The

Page 65 of 132

Law on the financial sector should also be revised in order to consider

such issues.

The Companies Law does not acknowledge the principle of preferred

shares under which the shareholder is systematically liable for some or

all decisions of the company. In general, the managers or directors of the

company are liable for decisions they have taken. The Law on the

financial sector should also be revised in order to consider such issues.

From a labour law perspective, to the extent that the purported solution

does not intervene with the current definition of a transfer of undertaking

and that no transfer of employees should arise, no specific provision of

Luxembourg employment law appears to be in conflict with such solution.





principles or


The modifications would entail a fundamental disruption of the

Luxembourg legal system because such proposal consists in the transfer

of liabilities currently borne by the management to the shareholders.

Numerous provisions of the Companies’ Law would need to be amended

and it may be considered that such change would deeply modify the

architecture of the Companies’ Law.

It is to be noted that major changes would also affect insolvency law

mechanisms, in particular under Regulation 1346/2000 on international

bankruptcies. Regulation 1346/2000 applies the criterium of the center of

main interests and, pursuant to the ECJ case-law (Eurofood case), the

center of main interests applies to each group company and is not to be

found at the level of the parent. In case the liability of the

Page 66 of 132

shareholder/parent would apply at all times, then the creditors of the

subsidiaries should be entitled to claim directly against the

shareholder/parent.




The situation of the parent company would be clearly at disadvantage

since it could not hide any longer behind the corporate veil of its

subsidiaries.

At first glance, the situation of the subsidiaries would be comforted.

The situation of the minority shareholders would be affected since that

their liability could be incurred whereas they did not necessarily vote in

favour of the decisions which led to the crisis situation.

This solution may satisfactorily take into account interests of creditors or

deposit holders because the liability of managers or directors of the

subsidiaries will be extended to the parent undertaking. The solvability of

the subsidiaries would be accrued.

From a prudential supervision perspective, the main issue relates to the

necessary coordination which should be organized between the

supervisor in charge the parent and the supervisor in charge of the

subsidiary.

From the employees’ perspective, a general distinction must be drawn up

between the employees of the mother and the employees of the

subsidiary. In respect of the employees of the mother, their position is at

disadvantage given that the liability incurred by the parent may

jeopardize the parents’ assets and financial health. In respect of the

employees of the subsidiary, their position is a priori favored by the

comfort provided by the parent.


banking, insolvency and company law

Page 67 of 132

Given the current architecture of Luxembourg law, there are considerable

obstacles before the proposal’s outlines can be achieved. The whole

conception of legal personality should be reconsidered and numerous

issues would be raised:

- would the liability apply to the shareholder(s) in general or to the parent

only? In complex group structures, intermediary shareholders are

subsidiaries which are themselves controlled by the ultimate parent;

- coordination of the liability held by the management of the subsidiary and

the liability of the shareholder(s)/ parent?

- Liability principles being based upon a personal action or omission, how

to attribute a liability to the shareholder/parent who did not necessarily

take part directly to the management of the subsidiaries?

- The rights of the minority shareholders would be endangered, in

particular in the context of a listed parent company;

- Listed companies: listing prospectus will need to include investors’

information on the potential liability incurred by the parent vis-à-vis the

subsidiaries. If so, will it not bear the risk of frighten the investors?

- Would the criminal liability be incurred at the level of the parent. By

definition, criminal law is strictly attached to the person who committed

the offence. Also, difficult international criminal law (droit pénal

international) issues will be at stake (what about if the criminal law of

the jurisdiction where the subsidiary is located does not recognize the

criminal liability of the legal bodies and the law of the parent does and

vice-versa? Equivalence of criminal laws and qualifications?)

- Intricate private international law issues would also be raised given that,

in most cases, the subsidiary and the parent shall be governed by distinct

laws;.

- Supervision at the national level should reconsidered and added

supervisory scope of action should be granted to the supervisor of the

parent extended to the subsidiaries. Tight coordination measures

Page 68 of 132

between the supervisor of the parent and the supervisors of the

subsidiary should be considered.

Conclusion on Proposal n° 4

Considering the major (non exhaustive) legal issues listed above, it can be

doubtful whether Proposal n°4 would be compatible with the general

principles governing Luxembourg law.

In case the parent is ultimately responsible for its subsidiaries, it can be

wondered whether the distinction between subsidiaries and branches would

still make sense and whether the universal concept of legal body/personal

liability would still be viable.

From a practical point of view, the question is whether such proposal would

not entail considerable law changes which could not obviously be finalized

before long, not excluding the ultimate risk of having systemic

contradictions. However, an intermediary solution may be possibly

considered: in case transfers of assets have been made by the subsidiaries

to the parent, having as effect to dry the subsidiaries’ assets and therefore

jeopardize the deposit-holders/creditors of the subsidiaries, it makes sense

that the deposit-holders/creditors should be in position to claim directly

against the parent, in particular depositing their claims in bankruptcy

proceedings and be at par in terms of rank vis-à-vis the direct deposit-

holders/creditors of the parent.

Another option may be the obligation for the deposit-holders/creditors to

claim first against the subsidiary with which the deposit-holders/creditors

had legal relations and a subsequent right of action against the parent in

case of assets’ evasion to the parent. In such case, for avoiding time

limitations and downgrade rankings/deposit-holders and creditors of the

parent, the rights of the subsidiaries’ deposit-holders/creditors may be

preserved by keeping the benefit of the initial time of action/claims’ lodging

against the subsidiary (e.g. a deposit of claims against the subsidiary was

judicially registered on 1st January. Due to the assets’ evasion to the parent

acknowledged on 1st March, the deposit-holder/creditor may lodge its claim

against the parent with the benefit of its 1st January initial lodging).

Page 69 of 132

Proposal n° 5


Draft of the Ninth Company Law Directive for the conduct of groups containing a

public limited company as a subsidiary

“Company Law Action Plan” dated May 2003 : “framework agreement” for group

companies

Under the "Company Law Action Plan" dated May 2003, the European Commission

recommended specific rules on the enforcement of the group policy, for which

Member States are required to draft a "frame agreement" for group companies

that allows them to adopt a coordinated group company policy, as long as the

interests of the companies' creditors are protected. This initiative has not been

pursued. There might be merit in further investigating whether the definition of

banking groups might remove obstacles in terms of banking law.

In that respect, a draft Ninth Company Law Directive on the conduct of groups

containing a public limited company as a subsidiary was presented in December

1984 for consultation. The Commission did not pursue this work. The Directive

was intended to provide a framework in which groups are managed on a sound

basis whilst ensuring that interests affected by group operations are adequately

protected. Particular reference was made to the possibility to transfer assets while

protecting the interests of different parties. Under the 9th Directive project, the

legal recognition of the 'group' went hand in hand with specific steps to protect

minority shareholders and creditors. It must be noted that a banking group would

be a contract freely entered into. As contemplated in 1984 under the 9th Directive

on company law, if a banking group does not wish to submit to a group regime, it

will have to respect the economic interests of the subsidiary.

Proposal:

Page 70 of 132

For this proposal, please consider that the idea of “group company” has been

adopted by an EU instrument.

The managers of the subsidiaries will be obliged to follow instructions even if the

subsidiaries will thereby incur financial losses. These managers must therefore not

be held liable vis-à-vis their own companies. This power of management is

accompanied by the right to use the financial resources of the subsidiary, since

the economic advantage of the group can be maximized only where there is a

complete integration of the two entities.

Once the agreement is concluded, transfers of assets are allowed between the

members of the group.


- The constitution of the group is submitted to the supervisory authorities.

- In case of insolvency, there is a possibility for creditors to file their claims with

any of the companies of the group

- In case of Insolvency, the creditors of the transferor will be reimbursed before

creditors of the transferee up to the amount of transfers that occurred and the

possibility for creditors to file their claims to any of the companies concerned by

the transfer

Questions



The Companies Law and in general the Luxembourg corporate law

structure should be revised in order to reach this result. Indeed, as said

above in the first Part of this Questionnaire, the Luxembourg Law is

based on the principle of the corporate interest of each corporation.

Page 71 of 132

The Law on the financial sector should also be revised in order to take

into account this proposal. Under this Law, a subsidiary constitutes a

legal entity which has an own existence, own funds and own interests.

Moreover, the Law on the financial sector should be amended in order to

take into account the system of information of deposit holders in case of

transfer of assets and to provide a system of privileged claim in favour of

creditors of the transferor with any of the member of the group in case of

insolvency.

Employment position: The event of insolvency is regulated under

Luxembourg employment law and employees’ rights are duly protected.

Any solution which would imply insolvency procedures shall be treated

carefully and protection of employees’ rights shall be ensured.





principles or


Such modifications would entail a disruption of Luxembourg legal system

which is attached to the concept of “corporate interest”.

Concerning the proposal in relation to the obligation for the managers of

the subsidiaries to follow instructions even if the subsidiaries will thereby

incur financial losses shall not be compatible with the current legal

system.

It will constitute a major risk for the prudential supervision which aim to

supervise that the transfer of assets will not endanger the subsidiary. As

mentioned in connection with proposal 4, major changes would need to

be implemented in terms of supervision. Given that the group would

constitute a global entity, it makes sense that a global supervision of the

group be also organized.

Page 72 of 132

Employment position: Such solution would require revision of general

rules of Commercial law and legal proceedings relating to insolvency

matters.




This solution takes into account the group interest and the interest of the

parent company. It should not satisfactorily consider the corporate

interest of subsidiaries. The subsidiaries may not follow its economic

policies in independence. Those would constitute only a group

instrument. However, interests of subsidiaries should be preserved if

such proposal is accompanied of the whole liability from the subsidiaries

to the parent undertaking. Concerning supervisory authority, all the

group being under the supervision of the supervisors authority, its

interest could be considered as satisfactorily taken into account.

Employment position: Such solution does not satisfactorily take into

account employees’ interests and does not contain any information

procedure.


banking, insolvency and company law )

The major obstacle is to make a political choice. Do we prefer group

interest instead of corporate interest? In the first case, intra-group

transfer of assets in preferential conditions or without counterpart for the

transferor will be done in the group interest. In the second case, such

transfer will not be compatible with the corporate interest. The solution

shall be done by the legislator. For the result of this proposal, the concept

of group interest should be introduced in the Companies Law and govern

all the philosophy of such Law. The same comments apply to the Law on

the financial sector and to the insolvency Law.

Proposal n° 6

Page 73 of 132

Supervisors of the transferor and the transferee can jointly authorize transfers of assets

without any counterpart if:

- The transferee is facing difficulties but no insolvency proceeding has been opened;

- The transfer does not jeopardize the solvency of the transferor.


- Transfer cannot be challenged by the national company Law, criminal Law or

insolvency law because of the special resolution regime for banks/early interventions;

- The legislation ensures the entity providing a transfer a priority right in case of

insolvency proceeding of the transferee.

d) Other solutions

Please feel free to suggest other solutions here.

National level

Rules concerning large exposures require that credits provided by a

subsidiary to a group of the parent undertaking shall not exceed 20% of

its own funds. This level could be exceeded on a singular case basis

appreciated by the CSSF in order to rescue a member of a banking group

in a financial crisis situation.

The CSSF does not accept the refinancing of its shareholder which may be

a subsidiary or a parent undertaking. This rule resulting from the

practice, should be softened in order to take account the financial crisis

situation of the banking shareholder. Indeed, in case of financial crisis

situation of a banking shareholder, the Law or a CSSF circular letter

should permit the possibility of refinancing of the shareholder, even if it

may only done in arm’s length.

In order to supervise all of the financial sector, Luxembourg law could be

amended in order to unify the prudential supervision of banking sector

and insurance sector (in order to simplify the regime of financial

conglomerates). The single supervision authority could be in charge of all

of the financial sector.

Page 74 of 132

At the EU level, several issues may be considered:

Firstly, a single European supervision authority of financial sector could

be constituted in order to supervise in fine all the financial entities

(including insurance and reinsurance sector) which would be competent

to control intra-group transactions from a member State or another

member States and from a member State to a Third-Country. The

implementation of a single supervisor could simplify

bureaucracy/formalism which are sometimes directed towards

centralized EU administrations. The working language issue is not the

least one in this respect. This could be given to EU Commission or to an

independent European authority.

Secondly, a special supervisor could be constituted in order to supervise

some major groups.

Thirdly, home supervision could be reinforced in favour of a prominent

competence to the national supervisor of the parent company acting in

tight cooperation with the national supervisors competent for

subsidiaries.

This approach is currently favoured in the context of the pending

Solvency II negotiations: in case of disagreements between supervisors,

and after consultation between supervisors, the parent’s supervisor is

entitled to take final decisions. Also, technique of delegation by parent’s

supervisor to subsidiaries’ supervisors may be considered.

The practical issue within this approach is relating to crisis situations:

decisions must be taken on a quick pace and the collegial system may be

critical in this respect.

The trend is therefore to have a limited number of supervisors located in

a few major financial European centres with broad expertise and

competence outside their national boarders, mixed with delegation

granted to local supervisors.

Page 75 of 132

ANNEX A National regulations relevant in assets transfers between banks part of a same banking group

Disclaimer: French, German and Luxembourgish are the official legal languages

admitted in Luxembourg. Therefore, all the English translations below are informal

and no guaranty may be given on their legal accuracy.

Part I - Relevant provisions of the Law of 10 August 1915 on commercial

companies (as amended)

Article 26-2: “(1) The acquisition by a company, within the tvvo years following

its incorporation, of any asset belonging to a natural or legal person, by whom or

on whose behalf the constitutive instrument was signed, for a consideration of not

less than one tenth of the subscribed capital, shall be subject to a verification and

publication in the manner provided by Article 26-1 and shall be subject to

approval by the general meeting of shareholders. The réviseur d'entreprises is

appointed by the board of directors or by the management board, as the case

may be”.

“(2) Paragraph (1) shall not apply to acquisitions made in the normal course of

the company's business nor to acquisitions made at the instance or under the

supervision of an administrative or judicial authority or to stock exchange

acquisitions”.

Article 49-6 :

“(1) of the companies‟ Law, a company may not advance funds nor make loans

nor provide security with view to the acquisition of its shares by a third party.

(2) Paragraph (1) shall not apply to transactions concluded by banks and other

financial institutions in the normal course of business nor to transactions effected

with a view to the acquisition of shares by or for the staff of the company.

However, such transactions may not have the effect of reducing the net assets of

the company below aggregate of the capital and the reserves which may not be

distributed under law or the articles”.

Article 49 bis:

(1) a) The subscription, acquisition or holding of shares in a société anonyme by

another company within the meaning of article 1 of Directive 68/151/EEC in which

the société anonyme directly or indirectly holds a majority of the voting rights or

on which it can directly or indirectly exercise a dominant influence shall be

regarded as having been effected by the société anonyme itself.

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b) Subparagraph a) shall also apply where the other company is governed by the

law of a third country and has a legal form comparable to those listed in article 1

of Directive 68/151/EEC.

(2) However, where the société anonyme holds a majority of the voting rights

only indirectly or can exercise a dominant influence only indirectly, paragraph (1)

does not apply, but in such case the voting rights attached to the shares in the

société anonyme held by the other company are suspended.

(3) For the purpose of this Article:

a) a société anonyme is deemed to be able to exercise a dominant influence

if it:

- has the right to appoint or dismiss a majority of the members of the

administrative organ, of the management organ or of the supervisory organ,

and is at the same time a shareholder or member of the other company or

- is a shareholder or member of the other company and has sole control of

the majority of the voting rights of the other company's

shareholders or members under an agreement concluded with other

shareholders or members of that company.

b) - a société anonyme is deemed to indirectly hold voting rights where such

voting rights are held by a company having one of the legal forms referred

to in paragraph (1) in which the société anonyme directly holds a majority of

the voting rights

- a société anonyme is deemed to be able to indirecdy exercise a dominant

influence on an other company where the société anonyme directly holds the

majority of the voting rights in a company having one of the legal forms

referred to in paragraph (1) which

- has the right to appoint or dismiss the majority of the members of the

administrative organ, of the management organ or of the supervisory organ

and is, at the same time, a shareholder or member of the other company or

- is a shareholder or member of the other company and has sole control of

the majority of the voting rights of the other company's shareholders or

members under an agreement concluded with other shareholders or

members of that company.

c) a société anonyme is deemed to hold voting rights where, in application of

the articles, the law or an agreement, it is entitled to exercise the voting

rights attached to the shares of the company and can in fact exercise them.

(4) Paragraph (1) shall not apply where

a) a subscription, acquisition or holding is effected on behalf of a person

other than the person subscribing, acquiring or holding the shares and who

is neither the société anonyme referred to in paragraph (1) nor another

company in which the société anonyme directly or indirectly holds a majority

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of the voting rights or on which it can directly or indirectly exercise a

dominant influence;

b) the subscription, acquisition or holding is effected by the other company

referred to in paragraph (1) in its capacity and in the context of its activities

as a professional dealer in securities, provided that it is a member of a stock

exchange situated or operating within a Member State of the European

Community, or is authorised or supervised by an authority of a Member

State of the European Community competent to supervise professional

dealers in securities which, within the meaning of this article, may include

credit institutions.

(5) Paragraph (1) does not apply where the holding of shares in the société

anonyme by the other company results from an acquisition made before the

relationship between the two companies corresponded to the criteria laid down in

paragraph (1)

However, the voting rights attached to those shares shall be suspended and those

shares shall be taken into account in order to determine whether the condition laid

down in Article 49-2, paragraph (1) 2° is fulfilled.

(6) Paragraphs (2) and (3) of Article 49-3 and Article 49-4 shall not apply where

shares in a société anonyme are acquired by the other company referred to in

paragraph (1) provided:

a) the voting rights attached to the shares in the société anonyme held by

the other company are suspended;

b) the members of the management body of the société anonyme are

obliged to buy back from the other company the shares referred to in

paragraphs (2) and (3) of Article 49-3 and in Article 49-4 at the price at

which the other company acquired them; this sanction shall be inapplicable

only where such members prove that the société anonyme played no part

whatsoever in the subscription for or acquisition of the shares in question”.

Article 59: “The directors shall be liable to the company in accordance with

general law for the execution of the mandate given to them and for any

misconduct in the management of the company's affairs.

They shall be jointly and severally liable both towards the company and any third

parties for damages resulting from the violation of this law or the articles of the

company. They shall be discharged from such liability in the case of a violation to

which they were not a party provided no misconduct is attributable to them and

they have reported such violation to the first general meeting after they had

acquired knowledge thereof”.

Article 154: The “Tribunal d'Arrondissement dealing with commercial matters”

may, in exceptional circumstances, upon application by shareholders or society

members representing one-fifth of the corporate interests, notified by court

process server upon the company in the form of a writ, appoint one or more

auditors with the duty to examine the books and accounts of the undertaking.

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The court shall hear the parties in chambers and shall give its decision in open

court.

The order shall specify the matters to be investigated and shall determine the

amount to be paid in escrow in advance to cover the payment of expenses; the

said expenses may be included in those of the proceedings which may result from

such findings”.

The report shall be lodged at the registry.

Article 162: “Any person who, purporting to be the owner of shares or bonds

which do not belong to it, participates, in a company constituted under the

present law, in any vote in a general meeting of shareholders or bondholders and

any person who has delivered shares or bonds so that they may be used for the

purpose described above are punishable by a fine of« 500 to 25,000 euros”.

Article 163: “The same penalty shall be imposed upon:

1° the persons who fail to include the information required by Articles 26, 27, 29

and 31 in the instruments, draft instru¬ments or notices published in the

Mémorial or lodged in accordance with Article 9, in subscription forms,

prospectuses, circulars addressed to the public, announcements and notices

published in newspapers;

2° the managers and directors who have failed to submit to the general meeting

within six months after the end of the financial year, the annual accounts, the

consolidated accounts, the management report, the certificate of the person

entrusted with the audit as well as the managers and directors who have failed to

publish such documents in violation of the requirements of Articles 75, 132, 197,

252 and 341 of this law and article 79 of the law of 19th December, 2002 on the

register of commerce and companies and the accounting and annual accounts of

undertakings.

3° the directors, statutory auditors or liquidators who have failed to

convene, within three weeks of being requested to do so, the general meeting

provided for in Article 70, second paragraph;

4° the persons who contravene the regulations adopted in implementation of

Article 137, first paragraph concerning the audit of sociétés coopératives;

5° the managers of sociétés à responsabilité limitée and of civil companies and, in

the latter, in the absence of managers, the members, who have failed to publish

changes of membership in accordance with Article llbis, §2, 3);

6° the managers who, directly or through intermediaries have opened a public

subscription for corporate units or bonds of a société à responsabilité limitée.

7° the directors of sociétés anonymes who fail to lodge the report referred to in

Article 49-5, paragraph (2), or who present a report not containing the minimum

information prescribed thereby;

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8° the persons referred to in Article 160-9 who have failed to carry out the

publications provided for by Articles 160-2 to 160-4, 160-6, 160-7”.

Article 164: “Shall be regarded as guilt)' of escroquerie (fraud) and be subject to

the penalties laid downin the Code Pénal (Criminal Code) any person who shall

have caused any subscriptions or payments to be made, or shares, bonds or other

securities of companies to be purchased:

by simulating subscriptions or payments to a company;

by publishing subscriptions or payments which they know not to exist;

by publishing the names of persons described as being now or in the future

associated with the company on any basis whatsoever, when they know that such

description is untruthful;

by publishing any other facts which they know to be false”.

Article 165: “Shall be subject to a jail term of one month to two years and a fine

of 5,000 to 125,000 euros, any person who, by any fraudulent means, caused or

attempted to cause the price of company shares, bonds or other securities to rise

or fall”.

Article 166: “The following shall be subject to a jail term of one month to two

years and a fine of 5,000 to 125,000 euros or to either one such penalties:

1° the managers or directors who have fraudulently given incorrect

information in the statement of bonds outstanding referred to in Article 94-1.

2° the managers or directors who, with fraudulent intent, have failed to publish

the annual accounts, the consolidated accounts, the management report and the

certificate of the person entrusted with the audit, as provided for by Articles 75,

132 and 341 and Article 79 of the law of 12th December 2002 on the register of

commerce and companies and the accounting and annual accounts of

undertakings.»

«3° (abrogated)

4° any director contravening Article 26-4”.

Article 167: “Any manager or director who, in the absence of inventories, or

notwithstanding inventories, or by means of fraudulent inventories, have caused

dividends or interest to be distributed to shareholders which was not taken from

the actual profits and any director who contravenes Article 72-2, shall be subject

to the same penalty”.

Article 168: “The same penalties shall apply to any person who, in his capacity

as director, statutory auditor, manager or member of the supervisory committee,

knowingly:

- repurchased shares by decreasing the corporate capital or the legal reserve,

contrary to the provisions of Article 49-2 in the case of sociétés anonymes;

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- made loans or advances using company funds on shares or other interests in the

company, contrary to Articles 49-6 and 49-7 in the case of sociétés anonymes;

- ordered, authorised or accepted that another company, as defined in Article

49bis, paragraph (1), sub-paragraphs a) and b), subscribes, acquires or

holds shares in the conditions referred to in the provisions of sub-paragraphs a)

and b) of paragraph (1) of Article 49bis and in violation of Article 49-2;

- made by any means whatsoever, at the expense of the company, payments on

shares or corporate units or acknowledged payments to have been made which

have not in fact been made in the prescribed manner and at the prescribed

times”.

Article 169: Shall be subject to réclusion (criminal jail term of five to ten years)

and a fine of 5,000 to 250,000 euros any person who has committed forgery with

fraudulent intent or the intent to cause damage, in the balance sheets or the profit

and loss accounts of companies prescribed by law or by the articles thereof,

either by means of false signatures,

or by forgery or alteration of records or signatures,

or by fabrication of agreements, provisions, obligations or discharges or by

insertion thereof in the balance sheets or profit and loss accounts after the event,

or

by the addition or alteration of clauses, declarations or facts which these

documents are intended to include and record”.

Article 170: “Any person making use of such false instrument shall be punished

as if he had done the forgery”.

Article 171: “The balance sheet shall exist, for the purpose of application of the

foregoing Articles, as from the time it is submitted for inspection to the

shareholders or members”.

Article 171-1: “Shall be subject to a jail term of one to five years and a fine of

“500 to 25,000 euros” or either one of these penalties, the legally appointed or de

facto directors, who, in bad faith,

- will have made a use of the assets or the credit of the company which they knew

was contrary to its interests, for personal purposes or for the benefit of an other

company or undertaking in which they were direcdy or indirectly interested in;

- will have made a use of the power they had or the votes they could cast, in that

capacity, which they knew was contrary to its interests, for personal purposes or

for the benefit of an other company or undertaking in which they were directly or

indirectly interested in”.

Article 172: “The provisions of the first livre (book) of the Code Pénal (Criminal

Code) and “the provisions of Articles 130-1 to 132-1 of the Code d'Instruction

Criminelle (Criminal Procedure Code)” shall apply to the offences provided for in

this law”

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Article 173: “Evidence of the accusations made against managers , directors and

statuatory auditors of sociétés en commandité par actions, sociétés anonymes and

sociétés coopératives, by reason of acts relating to their management or

supervision, shall be admitted, either against such persons or against the

company, by all ordinary methods of proof unless the opposite is proven by the

same methods, all in accordance with the law of 8th June 2004 on the freedom of

expression in the media”.

Article 173bis: “The sanctions prescribed by articles 162 to 173 are applicable,

depending on their respective duties, to the members of the management board

and to the members of the supervisory board of sociétés anonymes governed by

articles 60bis-1 to 60bis-19”.

Article 189: “Corporate units may not be transferred inter vims to non-members

unless members representing at least three-quarters of the corporate capital shall

have agreed thereto in a general meeting.

Corporate units may not be transmitted by reason of death to non-members

except with the approval of owners of corporate units representing three-quarters

of the rights owned by the survivors.

In the case referred to in paragraph 2, no consent shall be required where the

corporate units are transferred either to heirs compulsorily entitled to a portion of

the estate or to the surviving spouse or, insofar as the articles so provide, to other

legal heirs.

Heirs or beneficiaries of last will provisions or contractual instruments affecting

the estate who have not been approved and who have not found a transferee

fulfilling the requisite conditions may cause the company to be prematurely

dissolved, three months after giving formal notice, served on the manager by

process-server and notified to the members by registered mail.

However, during the said period of three months, the corporate units of the

deceased may be acquired either by the members, subject to the requirements of

the last sentence of Article 199, or by a third party approved by them, or by the

company itself if it fulfils the conditions required for the acquisition by a company

of its own shares.

The repurchase price of the corporate units shall be calculated on the basis of the

average balance sheet for the last three years and, if the company has not been

operating for three financial years, on the basis of the balance sheet of the last

year or of the last two years.

If no profit has been distributed, or if no agreement is reached as to the

application of the basis for repurchase referred to in the foregoing paragraph, the

price shall, in the event of disagreement, be determined by the courts.

The exercise of the rights attached to the corporate units of the deceased shall be

suspended until the transfer of such rights is valid vis-à-vis the company”.

Article 190: “Transfers of corporate units must be recorded by a notarial

instrument or by a private document.

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Transfers shall not be valid vis-à-vis the company or third parties until they shall

have been notified to the company or accepted by it in accordance with the

provisions of article 1690 of the Civil Code”.

Article 192: “The managers shall be liable in accordance with Article 59”

Article 203: “(1) The Tribunal d'Arrondissement dealing with commercial

matters, may, at the application of the Procureur d'Etat (public prosecutor), order

the dissolution and the liquidation of any company governed by Luxembourg law

which pursues activities contrary to criminal law or which seriously contravenes

the provisions of the commercial code or the laws governing commercial

companies including those laws governing authorisations to do business.

(2) The application and the procedural deeds shall be served through the greffe. If

the company can not be contacted at its legal domicile in the Grand-Duchy of

Luxembourg, the application is published by way of extract in two newspapers

printed in Luxembourg.

(3) Upon ordering the liquidation, the court shall appoint a supervisor}' judge and

one or more liquidators. It shall determine the method of liquidation. It may

render applicable to such extent as it may determine, the rules governing the

liquidation of a bankruptcy. The method of liquidation may be changed by

subsequent decision, either of the court's own motion or at the request of the

liquidator or liquidators.

(4) Court decisions ordering dissolution and liquidation of a company shall be

published by extract in the Mémorial. The court, may, in addition, and regardless

of the publications to be made in newspapers printed in Luxembourg, order

publication thereof, by extract, in such foreign newspapers as it may designate.

The publications shall be arranged by the liquidator or liquidators.

(5) The court may decide that the judgement ordering dissolution and liquidation

shall be enforceable on a provisional basis.

(6) In case the absence or an insufficiency of assets is ascertained by the

supervisory judge, the expenses and fees of the liquidators, which shall be ruled

upon by the court, shall be borne by the State and be paid as legal expenses.

(7) Actions against liquidators shall prescribe five years after publication of the

completion of the liquidation.

Article 203-1: “(1) The Tribunal d'Arrondissement dealing with commercial

matters, may, at the application of the Procureur d'Etat (public prosecutor), order

the close-down of any establishment of a foreign company which pursues

activities contrary to criminal law or which seriously contravenes the provisions of

the commercial code or the laws governing commercial companies including those

laws governing authorizations to do business.

(2) The application and the procedural deeds shall be served through the greffe. If

the company can not be contacted at its legal domicile in the Grand-Duchy of

Luxembourg, the application is published by way of extract in two newspapers

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printed in Luxembourg. The court may in addition order publication thereof, by

extract, in such foreign newspapers as it may designate.

(3) Court decisions ordering the close-down of the establishment of a foreign

company shall be published by extract in the Memorial. The court, may, in

addition, and regardless of the publications to be made in newspapers printed in

Luxembourg, order publication thereof, by extract, in such foreign newspapers as

it may designate. The publications shall be arranged by the Procureur d'Etat.

(4) The court may decide that the judgment ordering the close-down of the

establishment of a foreign company shall be enforceable on a provisional basis.

(5) Shall be subject to a jail term of eight days to five years and a fine of “1,250

to 125,000 euros" or to one of those penalties, any person who shall be in breach

of a judgment ordering a close-down pursuant to this article”.

Part II - Relevant provisions of the Law of 5 April 1993 on the financial

sector, as amended

Article 1 (11): “"parent undertaking" shall mean an undertaking which:

a) has a majority of the shareholders' or members' voting rights in another

undertaking; or

b) has the right to appoint or remove a majority of the members of the

administrative, management or supervisory body of another undertaking and is at

the same time a shareholder in or member of that undertaking; or

c) has the right to exercise a dominant influence over an undertaking of which it is

a shareholder or member, pursuant to a contract entered into with that

undertaking or by virtue of a provision in its memorandum or articles of

association, where the law governing that other undertaking permits its being

subject to such contracts or provisions; or

d) is a shareholder in or member of an undertaking and controls alone, pursuant

to an agreement with other shareholders in or members of that undertaking, a

majority of the shareholders' or members' voting rights in that undertaking; or

e) is able to exercise, or effectively exercises, a dominant influence over another

undertaking or

f) is placed with another undertaking under a single management”.

Article 1 (12): “"credit institution" shall mean a credit institution within the

meaning of Article 4, point (l) of Directive 2006/48/EC. In Luxembourg, this shall

mean any legal person whose business is to receive deposits or other repayable

funds from the public and to grant credits for its own account, as well as any other

person categorized as a credit institution in Chapter 1 of Part I of this Law.

Persons whose business is to receive deposits or other repayable funds from the

public and to grant credits for their own account may be called, without

distinction, credit institutions or banks”.

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Article 1 (18): “"subsidiary" shall mean an undertaking in respect of which the

rights listed in point (11) are held. A subsidiary of a subsidiary shall likewise be

regarded as a subsidiary of the parent undertaking which is at the head of those

undertakings”.

Article 51: (1)“Supervision on a consolidated basis shall include at least the

following:

a) supervision of the adequacy of capital to cover credit risk, market risks,

operational risk and of the control of major exposures;

b) the internal process used to assess the adequacy of internal capital;

c) compliance with Article 5, paragraph 1 bis.

If appropriate, the CSSF shall adopt the measures required to include parent

financial holding companies within the scope of supervision on a consolidated

basis, in accordance with Article 49, paragraph 2.

Compliance with the limits set for holdings shall be supervised and controlled on

the basis of the credit institution‟s consolidated or sub-consolidated financial

position.”

(1 bis) “Without prejudice to the rules concerning the control of large exposures,

the CSSF shall exercise general supervision over transactions between credit

institutions established under Luxembourg law and their parent undertakings,

where the parent undertaking is a mixed-activity holding company, and between

such credit institutions and subsidiaries of that parent undertaking.

Credit institutions shall be required to have in place adequate risk management

processes and internal control mechanisms, including sound accounting and

reporting procedures, in order appropriately to identify, measure, monitor and

control transactions with the mixed-activity holding company and its subsidiaries.

Credit institutions shall report to the CSSF any significant transaction carried out

with those entities, otherwise than in the context of the rules concerning large

exposures. Such procedures and significant transactions shall be subject to

overview by the CSSF.

Where such transactions are a threat to the financial position of a credit institution

established under Luxembourg law, the CSSF shall, by registered letter, order the

credit institution concerned to rectify the situation found to exist within such time

as it may fix.”

(2) Prudential supervision on a consolidated basis shall not affect supervision on a

nonconsolidated basis.

(3) “When a credit institution that is a subsidiary of an EU parent credit institution

is authorized in Luxembourg, the CSSF shall apply to such institution the rules laid

down in paragraph 1 on an individual basis or, as the case may be, on a sub-

consolidated basis.

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The CSSF may choose not to apply, on a sub-consolidated or individual basis, the

rules laid down in paragraph 1 to an entity authorized and supervised in

Luxembourg that is the subsidiary of a Luxembourg parent credit institution if

such subsidiary is included within the supervision on a consolidated basis of the

Luxembourg parent credit institution pursuant to Article 49. Moreover, all of the

following conditions must be fulfilled in order to ensure that own funds are

distributed adequately among the parent undertaking and its subsidiary:

a) there is no current or foreseen material legal or practical impediment to the

prompt transfer of capital or the prompt repayment of liabilities by its parent

undertaking;

b) either the parent undertaking satisfies the CSSF with all necessary assurances

regarding the prudent management of the subsidiary and, with the CSSF‟s

consent, agrees to guarantee the subsidiary‟s contractual obligations, or the risks

in the subsidiary are of negligible interest;

c) the risk evaluation, measurement and control procedures of the parent

undertaking cover the subsidiary;

d) the parent undertaking holds more than 50% of the voting rights attached to

shares held in the subsidiary‟s capital and/or has the right to appoint or remove a

majority of the members of the management body of the subsidiary.”

(4) “The persons who effectively direct the business of a financial holding

company must be able to provide evidence of their professional standing. Such

standing shall be assessed on the basis of police records and of any evidence

tending to show that the persons concerned are of good repute and offering every

guarantee of irreproachable conduct on the part of those persons. In addition,

such persons must possess adequate professional experience to perform those

functions, by virtue of their having previously carried on similar activities at a high

level of responsibility and autonomy.

Any change in the persons in question must be authorized in advance by the

CSSF. To that end, the CSSF may request all such information as may be

necessary regarding those persons. An appeal against the decision of the CSSF

may be lodged within one month before the “Tribunal administratif”

[administrative court], which shall determine the matter as a court adjudicating

on the substance. The appeal shall be barred if it is not lodged within such

period.”

(5) “The CSSF may exercise the discretion laid down in paragraph 3 if the parent

undertaking is a Luxembourg parent financial holding company, provided that it is

subject to the same supervision as that exercised with respect to credit

institutions pursuant to paragraph 1.”

(6) “The CSSF may choose not to apply, on an individual basis, the rules laid

down in paragraph 1 to a Luxembourg parent credit institution if such credit

institution is subject to the CSSF‟s supervision and is included within supervision

on a consolidated basis pursuant to Article 49. Moreover, all of the following

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conditions must be satisfied in order to ensure that own funds are distributed

adequately among the parent undertaking and the subsidiaries;

a) there is no current or foreseen material practical or legal impediment to the

prompt transfer of own funds or repayment of liabilities to the parent credit

institution;

b) the risk evaluation, measurement and control procedures relevant for

consolidated supervision cover the parent credit institution.

In the event the CSSF uses the provisions of this paragraph, it shall inform the

competent authorities of all other Member States.”

(7) “Where the CSSF exercises the discretion laid down in paragraph 6, it shall

make public:

a) the criteria it applies to determine that there is no current or foreseen material

legal or practical impediment to the prompt transfer of own funds or the

repayment of liabilities;

b) the number of parent credit institutions which benefit from the use of the

provisions of paragraph 6 and, among them, the number of institutions that have

subsidiaries located in a third country;

c) on an aggregate basis for Luxembourg:

i) the total amount of own funds on a consolidated basis of the Luxembourg

parent credit institution which benefit from the provisions of paragraph 6 which

held in subsidiaries located in a third country;

ii) the percentage of total own funds on a consolidated basis of Luxembourg

parent credit institutions benefiting from the provisions of paragraph 6 that is

represented by capital held in subsidiaries located in a third country;

iii) the percentage of total minimum capital required under capital adequacy rules

to cover credit risk, market risks and operational risk on a consolidated basis of

Luxembourg parent credit institutions benefiting from the provisions of paragraph

6 that is represented by capital held in subsidiaries located in a third country.”

(8) “Where a Luxembourg parent credit institution has a subsidiary in a third

country that is a credit institution, financial institution or asset management

company within the meaning of Article 2(5) of Directive 2002/87/EC, or holds a

participation in such undertakings, and if the credit institution in question is the

subsidiary of a parent credit institution authorized in the EU, the CSSF shall apply

to such institution the rules laid down in paragraph 1 on a sub-consolidated basis.

The foregoing shall also apply in the event the parent undertaking of a credit

institution authorized in Luxembourg is an EU parent financial holding company

which has a subsidiary that is a credit institution, financial institution or an asset

management company within the meaning of Article 2(5) of Directive 2002/87/EC,

or holds a participation in such an undertaking.”

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(9) “Subject to the provisions laid down in subparagraphs (a) to (c), the CSSF

may, on a case by case basis, authorized Luxembourg parent credit institutions to

incorporate their subsidiaries in the calculation of their own funds requirements on

an individual basis, provided such subsidiaries meet the conditions laid down in

paragraph 3(c) and (d), and that their material exposures or material liabilities

are to that parent credit institutions.

a) The treatment provided for in this paragraph shall be allowed only if the parent

credit undertaking demonstrates fully to the CSSF the circumstances and

arrangements, including legal arrangements, by virtue of which there is no current

or foreseen material legal or practical impediment to the prompt transfer of own

funds or the repayment of liabilities when due by the subsidiary to its parent

undertaking.

b) Where the CSSF exercises the discretion laid down in this paragraph, it shall

inform the competent authorities of all other Member States of the use made of

paragraph 1 and of the circumstances and arrangements referred to in

subparagraph (a) on a regular basis, and not less than once a year. Where the

subsidiary is in a third country, the CSSF shall provide the same information to

the competent authorities of that third country as well.

c) In the event the CSSF uses the provisions of this paragraph, it shall publicly

disclose:

i) criteria it applies to determine that there is no current or foreseen material

practical or legal impediment to the prompt transfer of own funds or repayment of

liabilities;

ii) the number of parent credit institutions which benefit from the provisions of

this paragraph and, among them, the number of institutions that have subsidiaries

located in a third country;

iii) on an aggregate basis for Luxembourg:

- the total amount of own funds of parent credit institutions benefiting from the

provisions of this paragraph that is held in subsidiaries located in a third country;

- the percentage of total own funds of parent credit institutions benefiting from

the provisions of this paragraph that is represented by capital held in subsidiaries

located in a third country;

- the percentage of total minimum own funds required under own funds rules to

cover credit risk, market risks and operational risk of parent credit institutions,

which benefit from the provisions of this paragraph represented by own funds

which are held in subsidiaries in a third country”.

Article 51-5 (3): “When an investment firm that is a subsidiary of an EU parent

investment firm is authorised in Luxembourg, the CSSF shall apply to such firm

the rules laid down in paragraph 1 on an individual basis or, as the case may be,

on a sub-consolidated basis.

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The CSSF may choose not to apply, on a sub-consolidated or individual basis, the

rules laid down in paragraph 1 to an entity authorised and supervised in

Luxembourg that is the subsidiary of a Luxembourg parent investment firm if such

subsidiary is included within the supervision of the Luxembourg parent investment

firm on a consolidated basis pursuant to Article 51-3. Moreover, all of the

following conditions must be fulfilled in order to ensure an adequate allocation of

capital between the parent undertaking and its subsidiary:

a) there is no current or foreseen material practical or legal impediment to the

prompt transfer of capital or repayment of liabilities by its parent undertaking;

b) either the parent undertaking satisfies the CSSF regarding the prudent

management of the subsidiary and has declared, with the consent of the CSSF,

that it guarantees the commitments entered into by the subsidiary, or the risks in

the subsidiary are of negligible interest;

c) the risk evaluation, measurement and control procedures of the parent

undertaking cover the subsidiary; and

d) the parent undertaking holds more than 50% of the voting rights attaching to

shares capital and/or has the right to appoint or remove a majority of the

members of the management body of the subsidiary”.

Article 51-9 (5): “"financial conglomerate" shall mean a group which, subject to

Article 51-10, meets all the following conditions:

a) the group comprises at least one regulated entity having its head office in a

Member State which is at the head of the group or is a subsidiary;

b) where the entity at the head of the group is a regulated entity having its head

office in a Member State, it is either a parent undertaking of an entity in the

financial sector, an entity which holds a participation in an entity in the financial

sector, or an entity linked with another entity in the financial sector by virtue of

being managed on a unified basis pursuant to a contract or provisions of their

memorandum or articles of association, or by virtue of having administrative,

management or supervisory bodies consisting in the majority of the same

persons;

c) if the entity at the head of the group is not a regulated entity having its head

office in a Member State, the group's activities mainly occur in the financial sector

within the meaning of Article 51-10, paragraph 1;

d) the group simultaneously comprises at least one entity within the insurance

sector and at least one entity within the banking sector or the investment services

sector;

e) the consolidated and/or aggregated activities of the group within the insurance

sector and the consolidated and/or aggregated activities of the group within the

banking sector and the investment services sector are both significant within the

meaning of Article 51-10, paragraphs 2 or 3.

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Any subgroup of a group within the meaning of subparagraph (15) which meets

the criteria in this point shall be regarded as a financial conglomerate”.

Article 51-9 (15): “"group" shall mean a group of undertakings which consists of

a parent undertaking, its subsidiaries and the entities in which the parent

undertaking or its subsidiaries hold a participation, as well as undertakings linked

to each other by virtue of being managed on a unified basis pursuant to a contract

or provisions of their memorandum or articles of association, or by virtue of

having administrative, management or supervisory bodies consisting in the

majority of the same persons”

Article 51-9 (21): "intra-group transactions" shall mean all transactions by

which regulated entities within a financial conglomerate rely either directly or

indirectly upon other undertakings within the same group or upon any natural or

legal person linked to the undertakings within that group by close links, for the

fulfillment of an obligation, whether or not contractual, and whether or not for

payment”.

Article 51-15 : “Intra-group transactions”

“(1) Without prejudice to the sectoral rules, the CSSF shall exercise, in relation to

credit institutions and investment firms established under Luxembourg law which

form part of a financial conglomerate in respect of which it is acting as

coordinator, supplementary supervision of the intra-group transactions of

regulated entities in the financial conglomerate concerned, in accordance with this

Article, Article 51-16 and Section 4 of this Chapter.

The CSSF shall carry out a supervisory overview of intra-group transactions in

accordance with Section 4 of this Chapter. It shall pay particular attention to the

risk of contagion within the financial conglomerate, the existence of conflicts of

interests, circumvention of the sectoral rules and the level and size of the intra-

group transactions.

(2) The entity at the head of a financial conglomerate in respect of which the

CSSF is acting as coordinator shall report to the CSSF on a regular basis, and at

least annually, any significant intra-group transaction of regulated entities within

the financial conglomerate, in accordance with the provisions of paragraph (3).

The CSSF, after consultation with the other relevant competent authorities and

with the financial conglomerate, may authorise another regulated entity in the

financial conglomerate to communicate the information in question to it.

(3) The CSSF, acting in its capacity as coordinator, by agreement with the other

relevant competent authorities and after consultation with the financial

conglomerate, shall determine, pursuant to Article 56, the categories of risks to be

notified, the notification thresholds and the detailed rules, including those relating

to frequency, for notification of significant intra-group transactions in respect of a

given financial conglomerate. For that purpose, it shall take into account the

specific group and risk management structure of the financial conglomerate. The

notification thresholds shall be defined on the basis of regulatory own funds

and/or technical provisions. In the absence of any definition of notification

thresholds, an intra-group transaction shall be presumed to be significant if its

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amount exceeds at least 5% of the total amount of capital adequacy requirements

at the level of a financial conglomerate.

(4) The CSSF may set quantitative limits and qualitative requirements with regard

to intra-group transactions of regulated entities within a financial conglomerate or

take other supervisory measures designed to control intra-group transactions of

regulated entities within a financial conglomerate. In order to prevent any

circumvention of the sectoral rules, the CSSF may prescribe the application of the

sectoral rules concerning intra-group transactions of regulated entities within a

financial conglomerate.

(5) Where a financial conglomerate is headed by a mixed financial holding

company, the sectoral rules regarding intra-group transactions of the most

important financial sector in the financial conglomerate, if any, shall apply to that

sector as a whole, including the mixed financial holding company.

(6) Credit institutions and investment firms established under Luxembourg law

which form part of a financial conglomerate in respect of which a competent

authority other than the CSSF is acting as coordinator shall make information

relating to significant intra-group transactions available to the entity at the head

of the financial conglomerate or, as the case may be, to another regulated entity

of the financial conglomerate charged by the coordinator to communicate to it the

information needed in order to enable the coordinator to perform its task of

supervisory overview of intra-group transactions of regulated entities within a

financial conglomerate”.

Article 51-19: “Cooperation and exchange of information between

competent authorities”

“(1) The CSSF shall cooperate closely with the other competent authorities

responsible for the supervision of regulated entities in a financial conglomerate

and, where it is not acting as coordinator, with the authority performing that role.

Without prejudice to its responsibilities as defined by this Law, the CSSF shall

exchange with those authorities any information which is essential or relevant for

the exercise of their respective supervisory tasks under the sectoral rules and for

supplementary supervision. To that end, the CSSF shall, on request, communicate

to the other competent authorities and, where it is not performing that role, to the

coordinator, all relevant information and, on its own initiative, all essential

information.

Such cooperation shall include the gathering and the exchange of information

concerning the following matters:

a) identification of the group structure of all major entities belonging to the

financial conglomerate, as well as of the competent authorities responsible for

prudential supervision of the regulated entities in the group;

b) the financial conglomerate's strategic policies;

c) the financial situation of the financial conglomerate, in particular as regards

capital adequacy, intra-group transactions, risk concentration and profitability;

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d) the financial conglomerate's major shareholders and management;

e) the organization, risk management and internal control systems at financial

conglomerate level;

f) procedures for the collection of information from the entities in a financial

conglomerate, and the verification of that information;

g) adverse developments in regulated entities or in other entities of the financial

conglomerate which could seriously affect the regulated entities;

h) major sanctions and exceptional measures taken by competent authorities in

accordance with sectoral rules or this Chapter.

The CSSF may also exchange with the central banks of the Member States, the

European System of Central Banks and the European Central Bank such

information as may be needed for the performance of their respective tasks

regarding regulated entities in a financial conglomerate in accordance with this

Law.

(2) Without prejudice to its responsibilities under the sectoral rules as defined by

this Law, the CSSF shall, before taking any decision which is of importance for the

supervisory tasks of the other competent authorities concerned, consult those

other authorities with regard to the following matters:

a) changes in the shareholder, organizational or management structure of the

regulated entities in a financial conglomerate which require the approval or

authorization of those competent authorities;

b) major sanctions or exceptional measures taken by the CSSF.

The CSSF may decide not to consult the other competent authorities concerned in

cases of urgency or where such consultation may jeopardize the effectiveness of

the decisions. In such cases, the CSSF shall, without delay, inform the other

competent authorities.

(3) Where the CSSF is acting as coordinator, it may invite the competent

authorities of the Member State in which a parent undertaking has its head office

to ask the parent undertaking for any information which would be relevant for the

exercise of its coordination tasks, as defined in Article 51-18, and to transmit that

information to it.

Where the information referred to in Article 51-21(2) has already been given to a

competent authority in accordance with sectoral rules, the CSSF, if it is acting as

coordinator, may apply to such authority to obtain the information.

(4) Where necessary for the exercise of supplementary supervision, the CSSF may

exchange the information referred to in paragraphs (1), (2) and (3) with the

Commissariat aux assurances [Insurance Commission], the other competent

authorities concerned and the authorities referred to in the last subparagraph of

paragraph (1). The collection or possession of information with regard to an entity

within a financial conglomerate which is not a regulated entity shall not in any way

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imply that the CSSF is playing a supervisory role, in relation to that entity on a

stand-alone basis.

Information received in the context of supplementary supervision, and in

particular any exchange of information between the CSSF and other competent

authorities concerned or the authorities referred to in the last subparagraph of

paragraph (1) in accordance with this Chapter, shall be subject to the provisions

of Article 44”.

Article 51-23: “Enforcement measures”

“Where the CSSF, in the exercise of its functions as coordinator, finds that the

requirements of Articles 51-13 to 51-16 are no longer being complied with at the

level of the financial conglomerate or that those requirements are met but the

solvency of the financial conglomerate may nevertheless be jeopardized, or where

the intra-group transactions or the risk concentrations are a threat to the financial

situation of the regulated entities in the financial conglomerate, it shall, by

registered letter, call upon the mixed financial holding company at the head of the

financial conglomerate and the credit institutions and investment firms established

under Luxembourg law which form part of the financial conglomerate to rectify the

situation found to exist within such time-limit as it may specify. Article 63 shall

apply to the persons responsible for the administration or management of the

mixed financial holding company. Where a credit institution or investment firm

established under Luxembourg law is at the head of the financial conglomerate,

the CSSF shall, by registered letter, call upon it to rectify the situation found to

exist within such time-limit as it may specify. In addition, the CSSF shall inform

the other competent authorities concerned of its findings.

Where the CSSF is informed of such findings by another competent authority

acting as coordinator, it shall, in so far as may be necessary, call by registered

letter upon the credit institutions and investment firms established under

Luxembourg law which form part of the financial conglomerate to rectify the

situation found to exist within such time-limit as it may specify.

The CSSF and the other competent authorities involved shall, where appropriate,

coordinate the supervisory measures which they take

Part III - Relevant provisions of the Civil Code

Capitalization of interest

Article 1154: “The interest falling due can produce interest, either pursuant to a

judiciary claim, or pursuant to a special agreement, insofar as, either in the claim

or in the agreement, the claimed interest apply on interest falling due for a whole

year at least”.

Action oblique

Article 1166: “However creditors can exert any rights and actions belonging to

their debtor, with the exception of those exclusively attached to the person”.

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Actio pauliana

Article 1167 (law 4th February 1974) : “They may also, in their own name,

challenge the acts made by their debtor in fraud of their rights”.

Tort liability

Article 1382: “Any action of man which causes a damage to someone else

requires the one in guilt of having committed this damage to compensate it”.

Assignment of debt

Article 1690 (law 21 December 1994): “The transferee is vested vis-à-vis

third parties subject to the notification of the transfer to the debtor.

However, the transferee may also be vested pursuant to the acceptance of the

transfer made by the debtor.

The notification and the acceptance of the transfer are effected either pursuant to

a public deed or a private deed. In the latter case, if a third party challenges the

date of notification or acceptance of the transfer, the evidence of such date can be

brought by any means”.

Part IV - Relevant provisions of the Labour Code

Article L. 414-4 (1): “The employer shall provide to employees‟ representatives

all information which may enlighten them about the functioning and the running of

the company, including recent and probable development of the undertaking‟s

activities and economic situation. Such information shall be done on a monthly

basis for companies where the employees are represented by a work council. In

the other companies, the information is provided during meetings [of staff

delegates] with the directors of the company [..].”

Article L. 414-4 (4): “The employer shall inform and consult employees‟

representatives on any decision likely to lead to substantial changes in work

organization or contractual relations, including the provisions relating to collective

dismissals and protection of employees‟ right in the event of a transfer of

undertaking.”

Part V - Relevant provisions of the Commercial Code

Article 495 (law of 21 July 1992): “in case of bankruptcy of a company, either

any legally appointed or de facto manager, either apparent or hidden, either

remunerated or not, either a natural person or a legal body, may be personally

declared bankrupt, if he/she/it has:

- undercover of the company, committed commercial acts in a personal

interest;

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- disposed of the corporate assets as his/her/its own assets; or

- continued abusively, in his/her/its personal interest, a deficit exploitation

which was necessarily leading to the cessation of payments of the

corporate body.

The liabilities of the manager‟s bankruptcy comprises, in addition to his/her/its

own liabilities, the liabilities of the company.

The date of cessation of payments is the same date as determined by the

judgment which declares the company‟s bankruptcy.

Article 495-1: “Where the bankruptcy of a company reveals an insufficiency of

assets, the court may order, to the request of the liquidator, that the debts shall

be borne, in part or in full, jointly or not, by the managers of the company, either

legally appointed or de facto managers, either apparent or hidden, either

remunerated or not, against whom evidence of gross and characterized faults

having contributed to the bankruptcy has been demonstrated.

Part VI - Relevant provisions of the Income Tax Law

Article 56 (shortened): The tax authorities may determine the operation income

on a lump-sum basis, in a situation where a transfer of result occurred due to

direct or indirect particular economic relationships existing between the taxpayer

and a non-resident person

Art 164 (3): “Hidden distribution of dividends shall be included in the taxable

basis. Among others, hidden distributions do exist if direct or indirect advantages

are granted by a company to a shareholder, which would otherwise not have been

granted absent the shareholding relationship”.

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ANNEX B Examples of transfer of assets agreements

Disclaimer: all examples of transfer of assets’ agreements below are given for

information purposes only and, subject to the exclusive use in relation to this

questionnaire, cannot be disclosed, used or transmitted in part or in full without

the prior express written agreement of Wildgen.

Annex B-1: Interest-free shareholder loan agreement

Annex B-2: Loan assignment agreement

Annex B-3: Receivables pledge agreement

Annex B-4: Guaranty on first demand

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Annex B-1: Interest-free shareholder loan agreement

Page 97 of 132

Dated as of [***]

INTEREST-FREE LOAN AGREEMENT

Between

[AAA] Sàrl

as the Borrower

and

[AAA] L.P.

as the Lender

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This Interest-free Loan Agreement (the “Agreement”) is dated on the date stated at the

beginning of this Agreement and is made

BETWEEN THE FOLLOWING PARTIES (the “Parties”) :

[AAA] Sàrl, a company organised under the laws of Luxembourg and having its

registered office at [***], registered with the Luxembourg trade register under number

[***], acting as the borrower (the “Borrower”);

AND

[AAA] L.P., a limited partnership formed under the laws of [jurisdiction], acting as the

lender (the “Lender”), acting by its general partner [AAA] Limited, a company

incorporated in [jurisdiction], having its registered office at [***].

RECITALS:

A. The Borrower is firmly engaged in the process of acquiring (the “Transaction”),

together with other investors, the [***] company and its subsidiaries (the

“Target”).

B. Pursuant to the Bid Instructions for the Transaction, the preferred bidder is

required to make payment of a deposit equal to 5% of the bid price, calculated

according to its pro rata share, as a performance deposit into the account of the

target.

C. In order to allow the Borrower to meet its performance deposit‟s requirements,

the Lender hereby intends to lend to the Borrower an interest-free aggregate

amount of USD [***], in the terms and conditions set forth herein (the “Loan”).

NOW IT IS HEREBY AGREED AS FOLLOWS:

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1. DEFINITIONS

1.1 In this Agreement the following words and expressions shall have the following

meanings:

“Business Day” means any day on which commercial banks

are open for business in [foreign jurisdiction]

and Luxembourg, excluding Saturdays and

Sundays.

“USD” means United States Dollars, the lawful

currency of the United States of America.

1.2 In this Agreement, any reference to a particular agreement or other document

shall be construed as a reference to the version of such documents which is

binding and enforceable on the date hereof, as such document may be novated,

assigned, amended and supplemented from time to time hereafter.

2. THE LOAN

2.1 The Lender agrees to lend to the Borrower, and the Borrower agrees to borrow

from the Lender a loan (the “Loan) in the principal amount of the USD amount

set forth in the second column of Schedule A hereto (the “Principal Amount”),

subject to the terms and conditions of this Agreement.

2.2 The Parties may determine to extend further loans denominated in USD principal

amount, in which case the Principal Amount of the Loan shall be deemed to

include the principal amounts of such further loans provided by the Lender to the

Borrower.

3. INTEREST

No interest shall accrue on the Principal Amount of the Loan.

4. TERM / REPAYMENT

4.1 The term for the repayment of the Loan is the tenth anniversary date of this

Agreement (the “Term”).

4.2 Notwithstanding Section 4.1 above, the Parties can mutually agree to make

partial, in one or more occasions, or full prepayments of the Loan.

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4.3 Notwithstanding Sections 4.1 and 4.2 above, the Parties can mutually agree to

extend the Term.

5. PAYMENTS

5.1 All payments to be made by the Borrower to the Lender hereunder shall be made

to the account and at the time specified by the Lender, in immediately available,

freely transferable funds. All such payments shall be made in USD. For

accounting purposes, all such payments shall also be converted in euro amount

according to the USD/EURO exchange rate as shown on Bloomberg page FXC at or

about 9:00 a.m. Luxembourg time prior to (i) the relevant repayment date or (ii)

any other Business Day on which a payment takes place.

5.2 If a date on which any amount under this Agreement is due and payable is not a

Business Day, the date for payment of such amount shall be deferred to the next

succeeding Business Day.

5.3 All sums payable to the Lender hereunder shall be paid in full without set-off or

counterclaim, and free and clear of and without any deduction or withholding on

account of any present or future taxes, levies, imposts, duties or other charges

whatsoever, except such deductions or withholdings as are required by applicable

law. The Borrower shall obtain and provide to the Lender any such receipts as the

Lender may reasonably request for taxes paid by the Borrower in connection with

any such deductions or withholdings.

6. EVENTS OF DEFAULT

The full outstanding amount of the Loan shall become immediately due and

payable upon written notice from the Lender to the Borrower, upon the

occurrence of any of the following events:

(a) the Borrower failing to repay all or any of the Loan when required to do so

in accordance with the terms of this Agreement; or

(b) the Borrower having committed or caused an event of default under any

other loan or financing arrangements the Borrower has entered or will

enter into; or

(c) the Borrower having applied for a suspension of payment (sursis de

paiements) or a judicial composition (concordat), being declared bankrupt

(déclaration en faillite), being dissolved (dissolution), liquidated

(liquidation), ceasing to exist or taking any steps which may result in the

Borrower ceasing to exist.

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7. NOTICES

All notices, requests, claims, demands and other communications hereunder shall

be delivered in person, or by registered letter, postage prepaid and return receipt

requested, or by facsimile, to the following:

if to the Lender:

to: [AAA] L.P.

address: [***]

facsimile: [***]

attn.: [***]

if to the Borrower:

to: [AAA] Sàrl

address: [***]

facsimile: [***]

attn.: [***]

8. MISCELLANEOUS

8.1 This Agreement shall be binding upon and inure to the benefit of the Parties and

their respective successors and permitted assigns. Neither Party may assign any

of its rights or obligations hereunder without the prior written consent of the other

Party.

8.2 This Agreement shall be governed by and shall be construed in accordance with

the laws of Luxembourg.

8.3 Any dispute arising under or in connection with this Agreement shall be settled by

the competent courts in Luxembourg.

8.4 This Agreement is written in the English language and will be executed in as many

counterparts as there are parties hereto, each of which shall be deemed an

original when executed, but all counterparts together shall constitute the same

document.

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IN WITNESS WHEREOF this Agreement has been executed by the parties hereto on the

date first above written,

The Lender:

[AAA] L.P.

By:

Capacity: Director

The Borrower

[AAA] Sàrl

By:

Capacity:

Director

Page 103 of 132

SCHEDULE A

Lender

USD Principal Amount

[AAA] L.P.

[***]

TOTAL

[***]

Page 104 of 132

ANNEX B-2: Loan Assignment Agreement

Page 105 of 132

THIS AGREEMENT is entered into on the date stated on the front page thereof and is

made

BETWEEN

[AAA] (“AAA”), a company formed under the laws of [jurisdiction], having its registered

office at [***],

on the first part, hereinafter referred to as the " Assignor 1”;

[AAA 2] (“AAA 2”), a company formed under the laws of [jurisdiction], having its

registered office at [***],

on the first part, hereinafter referred to as the " Assignor 2” (and together with Assignor

1, the “Assignors”);

AND

[BBB] (“BBB”), a company formed under the laws of [jurisdiction], having its registered

office at [***],

on the second part, hereinafter referred to as the "Assignee";

AND

[CCC] Sàrl, a company organised under the laws of Luxembourg and having its

registered office at [***], registered within the Luxembourg trade register under number

[***],

acting as the borrower and/or the Assigned Debtor (the “Borrower” and/or the

“Assigned Debtor”);

The Assignors, the Assignee and the Assigned Debtor are hereinafter referred to together

as the "Parties" and each individually as a “Party”

WITNESSETH:

(A) On or about the same date hereof, the Assignee has purchased from the Assignors

[***] shares of the share capital of the Assigned Debtor;

(B) In addition to and in proportion with the aforementioned transfer of shares, the

Assignee is willing to acquire from the Assignors, which accept, debt rights held by

the Assignors against the Assigned Debtor;

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(C) The [EUR***] shareholder loan dated [***] (the “Shareholder Loan”), being part

of the aforementioned debt rights, the Assignors are willing to transfer and assign to

the Assignee their Shareholder Loan‟s rights of a principal amount of [EUR***] (the

“Transfer”), in the proportions per Assignor and per Assignee as set forth in

Schedule 1 (the “Transferred Shareholder Loan Amounts”);

(D) In full compliance with Article 1690 of the Luxembourg Civil Code, the Assigned

Debtor wishes to formally and expressly accept the Transfer of the Transferred Loans

made between the Assignors and the Assignees and therefore wishes to be a party to

this Agreement.

NOW THEREFORE, IN CONSIDERATION OF THE PREMISES AND THE MUTUAL

COVENANTS CONTAINED HEREIN, IT IS AGREED BY AND BETWEEN THE

PARTIES HERETO AS FOLLOWS:

1. PREMISES

The above recitals constitute an integral and essential part of this Agreement.

2. DEFINITIONS

In addition to the other terms defined in other clauses and premises of this

Agreement, the following words and terms shall have the following meanings if

and when written with capital letters (the terms defined in singular to have the

same meaning when used in plural and vice versa):

“Agreement” means this loan assignment agreement and its schedule and

includes any instrument supplemental to this Agreement;

“Business Day" means any calendar day (other than a Saturday or a Sunday) on

which banks are open for business in Luxembourg;

“EMU Legislation" means legislative measures of the European Council for the

introduction of, changeover to, or operation of, a single or unified European

currency;

“Euro" or "Euros” or “EUR” means the single currency introduced pursuant to

the EMU Legislation;

3. TRANSFER

Subject to the terms of this Agreement, the Assignors hereby assign to the

Assignees, who hereby accept, the Shareholder Loan together with all rights and

obligations attached thereto, with effect as of the date hereof, in the principal

amount of the [EUR***] amount, and in the proportions per Assignor and per

Assignee as set forth in Schedule 1 (the “Shareholder Loan Transferred

Amount(s)”).

Further to the Transfer, the Funds shall remain holders of the Shareholder Loan in

the principal amounts as set forth in Schedule 2 (the “Funds’ Shareholder Loan

Remaining Principal Amount(s)”).

4. DECLARATIONS

The Assignors certify, represent and warrant:

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that they are the sole and legal owner of the Shareholder Loan and the

attached rights;

that there are no other limitations on the transferability of the Shareholder

Loan than those resulting from the assigned Debtor‟s articles of

association and the Shareholder Loan; and

that the Shareholder Loan and the attached rights are free of any charge

or encumbrance whatsoever.

In compliance with Article 1690 of the Luxembourg Civil Code, the Assigned

Debtor (i) expressly declares to consent to the partial assignment of the

Shareholder Loan, in the conditions set forth by this Agreement, and (ii)

acknowledges the transfer of the debt incurred under this Agreement.

5. TRANSFER PRICE

The assignment of the Shareholder Loan is irrevocably made for an aggregate

total consideration of [EUR***].

The Assignors hereby declare that the Transfer Price has been entirely satisfied on

or before the date hereof.

6. INTEREST ACCRUED UNTIL TRANSFER

The Parties agree that any and all interest accrued on the Shareholder Loan

before and until the Transfer shall be due to and kept exclusively by the

Assignors. The Assignees expressly waive any rights thereon, and if any related

sums are or will be paid by the Assigned Debtor to the Assignees, the Assignees

undertake to transfer immediately, without prior notice, any and all these sums to

the Assignors.

7. WARRANTIES

The Assignees warrant that they have full and complete knowledge of the

Shareholder Loan Agreement, the articles of incorporation and the financial

condition of the Company at the date of this Agreement.

8. FEES AND EXPENSES

The Parties agree that the Assigned Debtor shall pay all fees and expenses in

relation with this Agreement and the related transactions.

9. PARTIAL INVALIDITY - AMENDMENTS

Should any provisions of this Agreement be declared invalid, illegal or unenforceable,

such invalidity, illegality or unenforceability shall not affect the validity, legality or

enforceability of the remaining provisions of this Agreement, which shall remain in full

force and effect.

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This Agreement may only be amended by a written instrument executed by all the

Parties hereto. Therefore the tolerance also reiterated of any defaults or delayed

performance of this Agreement shall not be interpreted as a tacit revocation of the

provisions hereto.

10. APPLICABLE LAW AND JURISDICTION

This Agreement shall be exclusively governed by and construed in accordance

with Luxembourg law.

Exclusive jurisdiction is given to the Courts of Luxembourg-City and any claims

arising under this Agreement must be submitted to the Courts of Luxembourg-City.

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IN WITNESS WHEREOF the Parties to this Agreement have caused this Agreement to

be duly executed and signed on the date first written above.

The Assignors

[AAA 1]

By: [***]

Capacity: [***]

[AAA 2]

By: [***]

Capacity: [***]

The Assignee

[BBB]

By: [***]

Capacity: [***]

The Assigned Debtor

[CCC] Sàrl

By: [***]

Capacity: [***]

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Schedule 1

Transferred Shareholder Loan Amounts

Assignee

Transferred

Shareholder Loan

Amounts from

Assignor 1

(EUR)

Transferred

Shareholder Loan

Amounts from

Assignor 2

(EUR)

Total

Shareholder Loan

Amounts

(EUR)

[BBB] [***] [***] [***]

TOTAL [***] [***] [***]

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Schedule 2

Funds’ Shareholder Loan Remaining Principal Amount(s)

FUNDS Shareholder Loan Remaining Principal

Amount(s)

EUR

Assignor 1 [***]

Assignor 2 [***]

Total [***]

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Annex B-3: Receivables pledge agreement

Page 113 of 132

[Date]

RECEIVABLES PLEDGE AGREEMENT

BETWEEN

[AAA]

as the Pledgor

AND

[BBB]

as the Pledgee

IN PRESENCE OF

[CCC]

as the Pledged Third Party

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This Agreement is entered into on the date stated on the front page thereof and is made

BETWEEN

(1) [AAA], a Luxembourg société anonyme, having its registered office at [***],

registered within the Luxembourg trade register under number [***]

Hereinafter referred to as “[AAA]” and/or the “Pledgor”

AND

(2) [BBB], a company organized and registered under the laws of [***], registered

within the trade register of [***] under number [***]

Hereinafter referred to as “[BBB]” and/or the “Pledgee”

AND IN THE PRESENCE OF

(3) [CCC], a Luxembourg société anonyme, having its registered office at [***],


Hereinafter referred to as the “[CCC]” and/or the “Pledged Third Party”

RECITALS:

(A) WHEREAS, [***];

(B) WHEREAS, pursuant to this Agreement, the Pledgor unconditionally agrees to

pledge, for the sole benefit of the Pledgee, ALL AND THE ENTIRETY OF the Pledged

Claims.




1. DEFINITIONS AND INTERPRETATION

1.1. Definitions

In this agreement and the Recitals, the following words and expressions shall (unless the

context requires otherwise) have the following meanings:

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“Agreement” means this pledge agreement.

“Business Day” means a day, other than a Saturday or Sunday, on

which banks are open to the public in Luxembourg-

City, Paris and London.

“Enforcement Event” means an event of default committed by the Pledgor

under the [*** Agreement] in respect of its

obligations owed to the Pledgee where the Pledgor is

in default to pay to the Pledgee in respect of any

claims or loss payable pursuant to the [***

Agreement], including any such default due to or

under circumstances of any insolvency or similar

situation (moratorium, gestion contrôlée, etc.)

possibly incurred by the Pledgor.

“Information Notice of

Pledge”

means the information notice of pledge in the form

enclosed hereto as Schedule A.

“Law on Financial

Collateral

Arrangements”

means the Luxembourg law of 5 August 2005 on

financial collateral arrangements.

“Parties” means the parties to this Agreement, namely the

Pledgor and the Pledgee.

“Pledge” means the first priority continuing security interest

granted by the Pledgor to the Pledgee on the Pledged

Claims and created pursuant to Article 2 of this

Agreement.

“Pledged Claims” means all the present and future claims for money

due, or any other claim receivables regardless of the

nature thereof (including all principal payments,

interest payments, default interest, commissions,

expenses, costs, indemnities, fees and any other

amounts due thereunder), whether actual, future or

contingent, whether owed jointly or severally, and

whether subordinated or not, owed by the Pledged

Third Party to the Pledgor under the [***

Agreement], together with, to the largest extent

permitted by law, any accessory rights or actions,

including any such security interest or rights, under

whatever law, attaching to such claims or granted to

the Pledgor as security for such claims as well as all

substitutions and replacements thereof wherever

located, all attachments, accessions and additions

thereto, whether now owned or hereafter acquired,

together with any and all proceeds and products of

the foregoing.

“Security” means a mortgage, charge, pledge, lien or other

security interest or preferential arrangement of any

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kind securing any obligation of any person or legal

entity (including any promise, mandate, undertaking

or similar arrangement to create such security

interest in the future) or any other agreement,

arrangement or right arising by operation of law

having a similar effect

“Security Assets” means the Pledged Claims.

“Secured Obligations” means any and all present and future obligations,

liabilities and indebtedness of any nature of the

Pledgor, from time to time owing to the Pledgee

under or in connection with the [*** Agreement].

“Security Period” means the period beginning on the effective date of

the [*** Agreement] and ending on the date upon

which any and all Secured Obligations which have

arisen have been unconditionally and irrevocably

discharged in accordance with the terms and

conditions set forth in the [*** Agreement] and to

the full satisfaction of the Pledgee.

1.2. Construction

Unless a contrary indication appears, any reference in this Agreement to the

“Pledgor”, the “Pledgee” or the “Pledged Third Party” shall be construed so as

to include its successors in title, permitted assigns and permitted transferees.

Words denoting the singular shall include the plural and vice versa, words

denoting one gender shall include all other genders and words denoting persons

shall include firms and corporations and vice versa.

Any reference in this Agreement to any statutory provisions shall be construed as

a reference to the statutory provisions as the same may from time to time be

changed by any statutory modification or re-enactment thereof or any statutory

instrument, order or regulation made thereunder or under any such re-enactment.

References to any document or agreement shall be construed as a reference to

that document or agreement as the same may from time to time be amended,

modified, barred, supplemented or novated.

2. PLEDGE

2.1. Creation of the Pledge

As first priority continuing security for the full payment, discharge and

performance of the Secured Obligations as they fall due (whether at stated

maturity, by acceleration, by liquidation or otherwise), the Pledgor agrees to

pledge and hereby pledges to the Pledgee all of the Pledgor‟s title and interest in

the Pledged Claims and hereby grants to the Pledgee a first priority security

(gage) over such Pledged Claims.

The Pledgee accepts and acknowledges the Pledge.

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It is expressly agreed between the Parties that this Agreement is governed by and

is made in accordance with the Law on Financial Collateral Arrangements.

2.2. Perfection of the Pledge

For the perfection of the Pledge, the Pledgor undertakes at its own expense, to promptly

after the execution of this Agreement and in any event within any applicable time limit,

do any and all lawful acts, take any all lawful steps and whatever action necessary or

desirable, in respect of the perfection and of the establishment of the present Pledge,

according to any applicable law and especially the Law on Financial Collateral

Arrangements, and thus ensure that this Pledge is, and will continue to be, a validly

created and enforceable first priority pledge over the Pledged Claims.

The Pledgor further undertakes to reiterate at its own expense, promptly any formalities

and/or other lawful acts, steps and actions referred to in sub-clause 2.2.1. to preserve or

otherwise protect the priority of the Pledge granted by it pursuant to clause 2.1.

The Pledgor shall immediately upon fulfilment of such formalities send a copy of any

relevant documents thereof by fax and by registered letter to the Pledgee.

Without prejudice to the above provisions in sub-clauses 2.2.1. and 2.2.2., if the Pledgor

fails to do so, the Pledgee may notify this Pledge to such relevant persons to render the

Pledge valid and enforceable and it shall have specific mandate to carry out all formalities

necessary to render this Pledge valid and enforceable with respect to third parties

(opposabilité aux tiers). The Pledgor further irrevocably authorises and empowers the

Pledgee, and any of its successors, transferees or assigns or any nominee or agent

designated by the Pledgee or its successors, transferees or assigns, without notice to or

assent by the Pledgor, to act in its own name or in the name of the Pledgor, and on

behalf of the Pledgor, to do all lawful acts and take any lawful steps it deems necessary

or appropriate in respect of (i) the Pledge created hereby or otherwise and (ii) the

perfection of the present Pledge according to any applicable law, and the reasonable

expenses of the Pledgee incurred in connection therewith, shall be payable by the Pledgor

and shall be part of the Secured Obligations. To the extent permissible by law, the power

of attorney set out herein is irrevocable and shall be valid for as long as this Agreement

remains in force.

The Pledge created hereby shall not be affected in any way by any variation, extension,

waiver, compromise or release of any or all of the Secured Obligations or of any security

from time to time therefore. To the extent it can be avoided by any action of the Pledgor

or otherwise, the Pledge created herein shall not be affected by any change in the laws,

rules or regulations of any jurisdiction or by any present or future action of any

governmental authority or court.

2.3. Dispossession and opposability

In compliance with Article 5(3) of the Law on Financial Collateral Arrangements,

the Parties agree that (i) the dispossession of the Security Assets by the Pledged

Third Party, as debtor of the pledged Receivables and (ii) the opposability of this

Pledge to the Pledged Third Party are realized by the acceptance by the Pledged

Third Party of this Agreement.

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3. Restrictions and Further Assurances

3.1. Security

Except with the Pledgee„s prior written consent, the Pledgor shall at no time

create, permit or suffer to exist any other Security over the Pledged Claims.

3.2. Disposal

The Pledgor shall not, nor shall the Pledgor agree to, enter into a single

transaction or a series of transactions (whether related or not and whether

voluntary or involuntary) to sell, lease, transfer, assign, deliver or otherwise

dispose of the Pledged Claims.

3.3. Continuing Liability of the Pledgor

The Pledgor shall remain liable under the Retrocessional Agreement to observe

and perform all the conditions and obligations to be observed and performed

thereunder, all in accordance with and pursuant to the terms and provisions

thereof, and shall do nothing to impair this Pledge.

3.4. Further assurance

The Pledgor shall promptly do whatever the Pledgee requires:

- to perfect or protect the Pledge or the priority of the Pledge; or

- to facilitate the realisation of the Pledged Claims or the exercise of any

rights vested in the Pledgee,

including executing any transfer, charge, assignment or assurance of the Pledged

Claims (whether to the Pledgee or its nominees or otherwise), making any

registration and giving any notice, order or direction.

3.5. General undertaking

The Pledgor shall not do, or permit to be done, anything which could prejudice the

Pledge.

4. REPRESENTATIONS AND WARRANTIES

The Pledgor makes the following representations and warranties set out in this

Article to the Pledgee

4.1. Ownership of the Pledged Claims

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The Pledgor is the sole legal owner of, and has good and marketable title to the

Pledged Claims and has not otherwise disposed of or created any encumbrance or

interest (otherwise than pursuant to this Agreement) over any of the Pledged

Claims or any of its rights, title or benefits to or under the Pledged Claims and will

not do so if not previously approved in writing by the Pledgee.

4.2. Authority to pledge the Pledged Claims

The Pledgor has full power, authority and legal right to execute and deliver this

Agreement and to pledge all its Pledged Claims pursuant to this Agreement.

4.3. Validity and perfection of the Pledge

The Pledge creates a valid first priority security (gage) over the Pledged Claims

and the proceeds thereof in favour of the Pledgee in respect of all Secured

Obligations, subject to no prior encumbrance and to no prior agreement

purporting to grant to any third party an encumbrance on the property or assets

of the Pledgor that would include the Pledged Claims, without prejudice to

statutorily liens mandatory preferred by law.

The Pledgor undertakes to timely pay any debts potentially secured by statutory

liens mandatory preferred by law.

4.4. Place of principal management

It has its place of principal management and its center of main interests in

Luxembourg, in each case as such terms are defined in Council Regulation (EC) n°

1346/2000 of 29 May 2000 on insolvency proceedings or domestic Luxembourg

law.

4.5. Legality of Pledge

The Pledge pursuant to this Agreement is not contrary to any law or court order

applicable to the Pledgor and is not in breach of its constitutional documents or of

any agreement to which the Pledgor is a party.

4.6. Consents and authorisations

All necessary consents and authorisations for the execution of this Agreement

have been obtained by the Pledgor and are in full force and effect.

4.7. Repetition of representations and warranties

These representations and warranties shall be deemed repeated from time to time

as and when any property is added to the Pledged Claims.

5. RIGHTS of the PLEDGOR

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Until the occurrence of an Enforcement Event, the Parties hereto agree that any

payments permitted under the Retrocessional Agreement shall be distributed to

the Pledgor and not to the Pledgee.

Prior to the occurrence of an Enforcement Event the Pledgor will be entitled to

exercise the rights attached to the Receivables, provided that it shall not exercise

those rights in contravention of any term of the Reinsurance Agreement and the

Retrocessional Agreement or in any manner which could reasonably be regarded

to be in breach of the rights of the Pledgee.

After the occurrence of an Enforcement Event all payments permitted under the

Retrocessional Agreement with respect to the Receivables shall be distributed to

the Pledgee.

6. Enforcement

6.1. Realisation of the Pledge

Following the occurrence of an Enforcement Event, which shall be notified by the

Pledgee to the Pledged Third Party without the right for the Pledged Third Party to

challenge such declared Event of Default, the Pledgee shall be entitled, without

prior notice (mise en demeure), to enforce the Pledge in the most favourable

manner provided for by Luxembourg law, in particular pursuant to Article 11 (3),

second sentence, of the Law on Financial Collateral Arrangements, namely to

require direct payment to the Pledgee by the Pledged Third Party of the Pledged

Claims. The Pledgee shall have the right to request enforcement of the Pledge

over all or part of the Security Assets in its absolute discretion. No action, choice

or absence of action in this respect, or partial enforcement, shall in any manner

affect the pledge created hereunder over the Security Assets, as it then shall be.

The Pledge shall continue to remain in full and valid existence until full

enforcement, discharge or termination hereof, as the case may be.

All moneys received from time to time by the Pledgee shall, after an Enforcement

Event, be applied as follows:

(i) in the payment of all costs, charges, losses, liabilities and expenses of and

incidental to the enforcement and the exercise of the Pledgee‟s rights,

including all outgoings properly paid by the Pledgee and liabilities incurred by

the Pledgee as a result of such exercise;

(ii) in or towards discharge of the Secured Obligations in accordance with the

Reinsurance Agreement; and

(iii) in payment of any surplus to the Pledgor or other person entitled thereto.

The Pledgor shall indemnify the Pledgee and every attorney appointed pursuant

hereto in respect of all liabilities and reasonable expenses incurred by the

Pledgee, any such attorney, in the execution of any rights, powers or discretions

vested in the Pledgee or any such attorney pursuant hereto, save for liabilities and

expenses arising from the gross negligence or wilful misconduct of the Pledgee or

any such attorney.

The Pledgee shall not be liable for any losses arising in connection with the

exercise of any of its rights, powers or discretions hereunder save for liabilities

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and expenses arising from the gross negligence or wilful misconduct of the

Pledgee.

6.2. Limitation to realisation

The Security Agent shall realise the Pledged Claims only to the extent necessary

to recover the Secured Obligations that are due and owing. To the extent that,

notwithstanding the reasonable efforts of the Pledgee to comply with the

provisions of the first sentence of this paragraph, the cash proceeds received by

the Pledgee in respect of any realisation of all or any part of the Pledged Claims

exceed the amount of the Secured Obligations due and owing at that time, such

excess proceeds shall be held by the Pledgee (acting reasonably) as collateral for

the Secured Obligations that would become due in the future, if any.

7. LIABILITY OF PLEDGEE

The Pledgee shall not be liable to the Pledgor or any other person for any costs,

losses, liabilities or expenses relating to the realisation of any Pledged Claims or

from any act, default, omission or misconduct of the Pledgee or its officers,

employees or agents in relation to the Pledged Claims, except to the extent

caused by its or his own gross negligence or wilful misconduct.

For the avoidance of doubt, the Pledgee shall not be liable vis-à-vis the Pledgor for

any loss, mis-delivery or damage attributable to any third party.

8. PLEDGEE’s Rights

The Pledgee shall have (either in its own name or in the name of the Pledgor or

otherwise and in such manner and on such terms and conditions as the Pledgee

thinks fit, and either alone or jointly with any other person) the rights set out in

this Agreement and, generally, the right to do anything else it may think fit for the

protection and enforcement of the Pledged Claims.

9. Saving Provisions

9.1. Continuing Security

Subject to Clause 10 (Discharge of Pledge) of this Agreement, the Pledge is a

continuing security and will extend to the ultimate balance of the Secured

Obligations, regardless of any intermediate payment or discharge in whole or in

part. No change or amendment whatsoever in and to the Secured Obligations and

to any document related to the Secured Obligations shall affect the validity and

the scope of this Agreement.

9.2. Reinstatement

If any payment by the Pledgor or any discharge given by the Pledgee (whether in

respect of the obligations of the Pledgor or any security for those obligations or

otherwise) is voided or reduced as a result of insolvency or any similar event:

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(i) the liability of the Pledgor and the Pledge shall continue as if the

payment, discharge or reduction had not occurred; and

(ii) the Security Agent shall be entitled to recover the value or amount of

that security or payment from the Pledgor, as if the payment, discharge

or reduction had not occurred,

it being understood that the Pledgor shall promptly do whatever the Pledgee

requires for such purpose, without prejudice to the Pledgor‟s other obligations

under this Agreement.

9.3. Waiver of defences

Neither the obligations of the Pledgor under this Agreement nor the Pledge will be

affected by an act, omission, matter or thing which, but for this clause, would

reduce, release or prejudice any of its obligations under the Retrocessional

Agreement or the Pledge (without limitation and whether or not known to it),

including:

(i) any time, waiver or consent granted to, or composition with, the Pledgor

or other person;

(ii) the release of any other person under the terms of any composition or

arrangement with any creditor of any member of the group to which the

Pledgor belongs;

(iii) the taking, variation, compromise, exchange, renewal or release of, or

refusal or neglect to perfect, take up or enforce any rights against, or

security over assets of, the Pledgor or other person or any non-

presentation or non-observance of any formality or other requirement in

respect of any instrument or any failure to realise the full value of any

security;

(iv) any incapacity or lack of power, authority or legal personality of or

dissolution or change in the members or status of the Pledgor or any

other person; or

(v) any insolvency or similar proceedings.

9.4. Immediate recourse

The Pledgor waives any right it may have of first requiring the Pledgee to proceed

against or enforce any other rights or security or claim payment from any person

before claiming from that Pledgor under this Agreement. This waiver applies

irrespective of any law or any provision of the Reinsurance Agreement or the

Retrocessional Agreement to the contrary.

10. Discharge of Pledge

Subject to Clause 9.2. (Reinstatement) of this Agreement, if the Pledgee is

satisfied that all the Secured Obligations have been irrevocably paid in full and

that all facilities which might give rise to Secured Obligations have terminated, the

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Pledgee shall promptly at the request and cost of the Pledgor release and

discharge (as appropriate) the Pledged Claims from the Pledge.

11. Expenses

The Pledgor shall, within five (5) Business Days of demand, pay to the Pledgee the

amount of all costs, losses, liabilities and expenses (including legal fees) incurred

by the Pledgee in relation to this Agreement (including the administration,

protection, realisation, enforcement or preservation of any rights under or in

connection with this Agreement, or any consideration by the Pledgee as to

whether to realise or enforce the same, and/or any amendment, waiver, consent

or release of this Agreement and/or any other document referred to in this

Agreement).

12. Payments

12.1. Demands

Any demand for payment made by the Pledgee shall be valid and effective (but

only to the extent of any amount then due and payable) except in case of

manifest error.

12.2. Payments

All payments by the Pledgor under this Agreement (including damages for its

breach) shall be made to such account, with such financial institution and in such

other manner as the Pledgee may direct.

13. Waivers

None of the terms or provisions of this Agreement may be waived, altered,

modified or amended, except by an instrument in writing, duly executed by or on

behalf of the Pledgee and the Pledgor. This Agreement and all obligations of the

Pledgor hereunder shall be binding upon the successors and assigns of the

Pledgor, and shall, together with the rights and remedies of the Pledgee

hereunder, inure to the benefit of the Pledgee.

14. Assignment

The Pledgor may not assign or transfer all or any part of its rights or obligations

hereunder. The Security Agent and the Investors may assign all or any of their

respective rights hereunder. Any successor to or assignee of the Security Agent

and the Investors shall be entitled to the full benefits hereof.

15. Notices

All notices or other communications under or in connection with this Pledge

Agreement shall be given in writing, by fax or by registered letter. In case of

notices by fax, the transmission report shall constitute conclusive evidence of

receipt of the notification and of the contents of such notification.

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All notices from the Pledgee to the Pledgor shall be validly made to the last known

address of the Pledgor.

A notice given in accordance with the above but received on a day that is not a

Business Day or after business hours in the place of receipt will only be deemed to

be received on the next Business Day.

The addresses of each party to this Pledge Agreement (including the Pledged

Third Party for the needs of this clause) for all notices under or in connection with

this Pledge Agreement are:

In relation to the Pledgor:: [AAA]

Attn.: [***]

Address

:

[***]

Fax:

[***]

In relation to the Pledgee: [BBB]

Attn.: [***]

Address

:

[***]

Fax: [***]

In relation to the Pledged Third

Party:

[CCC]

Attn.: [***]

Address

:

[***]

Fax: [***]

or any other address or fax number notified by a party to this Pledge Agreement

for this purpose to the other parties to this Pledge Agreement by not less than five

Business Days‟ notice.

The notice periods mentioned in this Pledge Agreement start to run up from the

receipt of the notification.

16. INFORMATION NOTICE OF PLEDGE

Within five (5) Business days following the date of this Agreement, the Pledgor

undertakes to serve the Information Notice of Pledge, duly executed by an authorized

signatory of the Pledgor, to the Commissariat aux Assurances.

The Pledgor shall promptly give evidence to the Pledgee that the Information Notice

of Pledge has been addressed to the Commissariat aux Assurances and, upon receipt

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of the acknowledgement of receipt requested from the Commissariat aux Assurances,

the Pledgor shall promptly address a copy of such acknowledgement receipt to the

Pledgee.

17. Taxes and Stamp Duty

The Pledgor shall indemnify and keep indemnified the Pledgee against any and all

stamp, registration, VAT (Value Added Tax) and similar taxes or charges which may

be payable in connection with the entry into, performance or enforcement of this

Agreement.

18. Severability

Any provision in this Agreement that is prohibited or unenforceable in any jurisdiction

shall, as to such jurisdiction, be ineffective to the extent of such prohibition or

unenforceability, without invalidating the remaining provisions hereof, and any such

prohibition or unenforceability in any jurisdiction shall not invalidate or render

unenforceable such provision in any other jurisdiction.

19. Counterparts

This Agreement may be executed in any number of counterparts, and this has the

same effect as if the signatures on the counterparts were on a single copy of this

Agreement.

20. Headings

The Clause headings used in this Agreement are for convenience of reference only

and shall not affect the construction of this Agreement.

21. Governing Law

This Agreement shall be governed by, and construed in accordance with the laws of

Luxembourg, including in particular the Law on financial collateral arrangements.

22. Jurisdiction Clause

The Parties hereby irrevocably submit to the exclusive jurisdiction of the courts of the

City of Exclusive jurisdiction is granted to the Courts of Luxembourg City (Grand

Duchy of Luxembourg) and any claims arising under this Agreement must be

submitted to the Courts of Luxembourg City.

This Pledge Agreement has been entered into on the date stated at the beginning of

this Pledge Agreement and has been duly executed in as many original counterparts

as there are parties hereto

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The Pledgor

The Pledgee

[AAA] [BBB]

By: By:

Capacity: Capacity:

By signing hereunder for acceptance, the Pledged Third Party acknowledges and

accepts the existence of this Pledge Agreement and the security interest created

hereunder over the Receivables for the purposes of Article 5(3) of the Luxembourg

law of 5th August 2005 on financial collateral arrangements (loi du 5 août 2005 sur les

garanties financières), takes notice of the terms thereof, and undertakes to do any

actions necessary or useful so as to give full effect to this Agreement.

The Pledged Third Party

[CCC]

By:

Capacity:

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Schedule A. INFORMATION Notice of Pledge

To: Commissariat aux Assurances

Attn. [***]

[***] LUXEMBOURG

Luxembourg, on [date]

Dear Sirs,

In our capacity as a Luxembourg corporation subject to the supervision of the

Commissariat aux Assurances, we are pleased to inform you that pursuant to a pledge

agreement attached dated [date] (the “Pledge Agreement”), we have pledged the

Receivables (as defined in the Pledge Agreement) owed or to be owed to the Pledgor (as

defined in the Pledge Agreement) by the Pledged Third Party (as defined in the Pledge

Agreement) in favour of [BBB], acting for and on behalf of [BBB], as Pledgee for the

payment of the Secured Obligations.

This notice is addressed to the Commissariat aux Assurances for information purposes

pursuant to Article 5 of the Pledge Agreement.

All capitalized terms in this Notice have the meaning given to them in the Pledge

Agreement.

We hereby kindly request you to acknowledge receipt of this Notice of Pledge by

addressing us in return a copy (by email attachment, fax or courier to the address below)

of this Notice of Pledge duly filled with the handwritten word “Acknowledged”, together

with the signature of an authorized signatory of the Commissariat aux Assurances:

We, Commissariat aux Assurances, hereby acknowledge

receipt of this Notice of Pledge:

To: [AAA]

Attn.: [***]

Address [***]

Fax [***]

Email address [***]

We thank you in advance for your kind cooperation.

Yours truly,

[AAA]

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By:

Capacity:

Annex B-4: Guaranty on first demand

Page 129 of 132

[Date]

GUARANTEE ON FIRST DEMAND

BETWEEN

[AAA]

as the Guarantor

AND

[BBB]

as the Guarantee Beneficiary

IN PRESENCE OF

[CCC]

as the Guaranteed Third Party

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This agreement is entered into on the date stated on the front page hereof and is made

BETWEEN

(4) [AAA], a Luxembourg société anonyme, having its registered office at [***],


Hereinafter referred to as “[AAA]” or the “Guarantor”

AND

(5) [BBB], a company organized and registered under the laws of [***], registered

within the trade register of [***] under number [***]

Hereinafter referred to as “[BBB]” or the “Beneficiary”

AND IN THE PRESENCE OF

(6) [CCC], a Luxembourg société anonyme, having its registered office at [***],

registered within the Luxembourg trade register under number [***],

Hereinafter referred to as “[CCC]” or the “Guaranteed Third Party”

RECITALS:

(A) WHEREAS, pursuant to [***];

(B) WHEREAS, [BBB] wishes to be provided with a guarantee for the debt held

against [CCC] under the [***] Agreement;

(C) WHEREAS, [AAA] intends to provide this guarantee to [BBB] pursuant to this

Agreement.




4. DEFINITIONS AND INTERPRETATION

In this agreement and the Recitals, the following words and expressions shall (unless the

context requires otherwise) have the following meanings:

“Agreement” means this agreement

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“Guarantee” means the guarantee on first demand created by this

Agreement

GUARANTEE

This Guarantee is a personal, unconditional and irrevocable commitment of the

Guarantor to the sole benefit of the Beneficiary, pursuant to which the Guarantor

hereby guaranties the obligations borne by [CCC] vis-à-vis [BBB] under the [***]

Agreement, in the event of a default of payment committed by [CCC].

This Guarantee is fully autonomous and independent from the [***] Agreement. In

this respect, the Guarantee shall remain effective notwithstanding any claim that

may be brought by [CCC] and/or [AAA] in respect of the application, validity or

otherwise of the [***] Agreement.

GUARANTEE PERIOD

This Guarantee becomes effective on the effective date of the [***] Agreement and

shall end on the date upon which any and all obligations owed by [CCC] vis-à-vis

[BBB] which have arisen have been unconditionally and irrevocably discharged in

accordance with the terms and conditions set forth in the [***] Agreement. For the

release of this Guarantee, the full discharge of any payment due under the [***]

Agreement shall be confirmed by the Beneficiary to the Guarantor, such

confirmation not to be unreasonably withheld by the Beneficiary upon termination of

the [***] Agreement.

LIMITATIONS

With respect to the scope of this Guarantee, it is expressly agreed that the

Guarantor shall not be required to pay to the Beneficiary amounts exceeding its total

financial commitment under the [***] Agreement. However, in any case, this

limitation shall not be construed as implying the right for the Guarantor to raise any

other direct or indirect defences or exceptions whatsoever in relation to the [***]

Reinsurance Agreement.

5. PROCEDURE

The Beneficiary shall invoke this Guarantee by notifying the Guarantor stating that

the Guaranteed Third Party is in default of its contractual obligations vis-à-vis the

Beneficiary, specifying the amount claimed. The notice to the Guarantor shall be

sent by way of registered letter to:

Addressee: [AAA]

Attn.: [***]

Address [***]

In the event of a change of address of the Guarantor, the Guarantor is required to

promptly notify the Beneficiary of such change.

Page 132 of 132

6. Governing law and jurisdiction

This Guarantee is governed exclusively by Luxembourg law. It is expressly agreed

that this guarantee on first demand is not a collateral guarantee (cautionnement) in

the meaning of Articles 2011 sq. of the Luxembourg Civil Code.

Exclusive jurisdiction is granted to the Courts of Luxembourg City (Grand Duchy of

Luxembourg) and any claims arising under this Agreement must be submitted to the

Courts of Luxembourg City.

This Agreement has been entered into on the date stated at the beginning of this

Agreement.

The Guarantor

The Beneficiary

[AAA] [BBB]

By: By:

Capacity: Capacity:

By signing hereunder for acknowledgement purposes, the Guaranteed Third Party

acknowledges the existence of this Agreement and the Guarantee created hereunder,

takes note of the terms thereof, and undertakes not to do any actions which would

have as effect to detriment the full effectiveness of this Agreement

The Guaranteeed Third Party

[CCC]

By:

Capacity:

Documents

Annex 1-2 National report - European Commission · 5. RIGHTS of the PLEDGOR .....119. Page 4 of 132 6. Enforcement ... 7. LIABILITY OF PLEDGEE