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Update
04.02.2025
On 19 December 2024, the Luxembourg Supreme Court ruled that Article 20(1) of the Law of 5 August 2005 on financial collateral arrangements (the "Collateral Law") must be interpreted to ensure the validity and enforceability of financial collateral arrangements under Luxembourg law in the context of insolvency proceedings opened in third countries, not just within the EEA. Although the Collateral Law has since been amended, this ruling further underscores the attractiveness of Luxembourg law in protecting creditors.

The case involved the execution of a pledge granted by a company from the Ivory Coast to a French company over assets held in a bank account with a Luxembourg bank. The debtor was declared insolvent in 2002 through insolvency proceedings in the Ivory Coast.

On 11 January 2024, the Luxembourg Court of Appeal dismissed the claim based on the territorial scope of the Collateral Law. The court interpreted 'foreign proceedings' within the law, by reference to the EU Collateral Directive, as only concerning insolvency proceedings in an EU member state, thereby excluding third countries such as the Ivory Coast.

Following this decision, in March 2024, the Luxembourg legislator swiftly amended the Collateral Law to introduce a new definition of 'national or foreign provisions' to include “the provisions of another State that is a contracting party to the European Economic Area Agreement, or of another State”. The legislator explicitly stated that the original intention of the Collateral Law was to cover all foreign insolvency proceedings, not just those of EEA member states. This amendment, which came into force with the law of 15 July 2024 on the transfer of non-performing loans, was intended as a clarification rather than an addition.

In parallel, the claimant filed an appeal to the Luxembourg Supreme Court in March 2024, arguing that the scope of protection under the Collateral Law should extend to include non-EEA member states. This argument was supported by the Public Prosecutor, who highlighted the Luxembourg legislator's intention to provide a higher level of protection to creditors, as evidenced by the recent amendment to the Collateral Law.

The Supreme Court agreed with this position and held that the term “foreign proceedings” refers to any third country other than Luxembourg.

While this position may not be surprising, it confirms the attractiveness of Luxembourg law for concluding collateral arrangements from a creditor's perspective, as well as the efforts of both the legislative and judicial powers in safeguarding this approach.

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