Shareholders' Rights & Shareholder Activism 2021 Comparisons

Main Types of Commercial Companies in Luxembourg

• Private Limited Liability Company (Société à responsabilité limitée, or Sàrl);
• Simplified Private Limited Liability Company (Société à responsabilité limitée simplifiée, or SàrlS);
• Public Limited Liability Company (Société anonyme, or SA);
• Simplified Public Limited Liability Company (Société par actions simplifiée, or SAS);
• European Company (Societas Europaea/Société Européenne, or SE);
• General Partnership (Société en nom collectif, or SNC);
• Corporate Partnership Limited By Shares (Société en commandite par actions, or SCA);
• Common Limited Partnership (Société en commandite simple, or SCS);
• Special Limited Partnership (Société en commandite spéciale, or SCSp).

The most frequently used types are the Sàrl and SA. SCA, SCS and SCSp are also quite often seen, in particular in the fund industry. However, from a corporate-law perspective, An SCA generally follows rules applying to an SA (subject to a few particulars), and an SCS and SCSp are tailor-made vehicles with only a limited legal framework. Accordingly, in this guide, the focus will be on the SA and the Sàrl, and a few precisions will be given for other forms where relevant.

Criteria to Invest in a Luxembourg Company

Generally speaking, foreign investments in Luxembourg companies are not restricted, even if a bill of law is currently in discussion. In particular, from a Luxembourg corporate-law perspective, there are no nationality, residency requirements or qualification criteria to form or invest in a Luxembourg company.

In principle, ordinary shares issued by Luxembourg companies do not provide for differences between information, political or economic rights of shareholders, but it is possible to provide for specific rights attached to certain categories of shares in the articles of association of the company, for instance:

• preferred shares – those shares would receive preferential economical rights with respect to the distribution of dividend or liquidation proceeds;
• redeemable shares – the articles of association may provide for the right of the company to redeem its own shares;
• tracking shares – it is possible to provide for tracking shares for which the right to profits (by way of distribution of a dividend or liquidation proceeds) will be linked to the profit stemming from a specific investment;
• non-voting shares – they are only possible for an SA, an SCA and an SAS; for other companies, all shareholders are entitled to a vote; for certain decisions (amendment to the rights attached to the non-voting shares, dissolution of the company, etc), the voting right attached to the non-voting shares will be restored;
• beneficiary shares (parts bénéficiaires) – those shares are not part of the share capital, but are securities issued by a Luxembourg company; they can be issued in exchange for a contribution or for no contribution and the economic and political rights attached to those preference shares may be freely tailor-made (voting right or no voting right, etc).

Under Luxembourg law, the holders of shares of the same category should be treated equally. This principle does not apply to holders of shares belonging to different categories.

With respect to an SCA, an SCS and an SCSp, it is mandatory that, under law, shares be divided between limited partners’ shares and unlimited partners’ shares.

Luxembourg law permits the issue of dematerialised shares. In an SA and an SCA, shares may be in registered form or bearer.

Commercial companies such as SAs and Sàrls are mainly governed by the Law of 10 August 1915 on commercial companies (as amended, the “Company Law”). The Luxembourg Civil Code, some extracts on companies of the Criminal Code, as well as Grand Ducal regulations, are also basic grounds. They set out all the essential rules from the creation to the end (liquidation/dissolution) of a company.

Other essential non-codified statutes add mandatory rules that companies must comply with, for instance, the amended Law of 24 May 2011 regarding the exercise of certain shareholder rights at general meetings of listed companies (as amended by the law of 1 August 2019, the “Shareholders’ Act”). The Shareholders Act's aim was inter alia to increase activism and grant shareholders more powers and rights. Above all, it reinforced their access to information (see 1.7 Access to Documents and Information) and the exercise of their voting rights (see 1.4 Main Shareholders' Rights).

Therefore, the primary source of law when it comes to shareholders' rights is legislation. Yet, case law can also have a major role in the involvement of the shareholders' rights – also considering that certain recent changes in law are directly inspired by regular case law (eg, grounds for cancelling a shareholders’ meeting).

Furthermore, the Rules and Regulations of the Luxembourg Stock Exchange (LuxSE) regulates limited companies. Among these rules, there is the LuxSE's ten principles of Corporate Governance (the LuxSE principles), last amended in December 2017. These principles give information and guidelines to listed companies. Guidelines are only recommendations. However, the general principles set out in the LuxSE Principles are mandatory and every listed company must comply with those. Failing compliance, the "comply or explain" rule shall apply, and companies must then provide an explanation as to why they did not comply with the mandatory rules. They can face penalties if they do not comply and fail to provide a valid explanation.

Under the Company Law, shareholders have three main types of rights:

• political – the right to participate and vote at the occasion of decision taken by the shareholders of the company;
• economic – the right to receive distributions of dividends and liquidation proceeds from the company; and
• information – the right to receive information on the situation of the company, in addition to publicly available information.

As indicated in 1.2 Types or Classes of Shares, those rights are identical for all shareholders, unless they hold shares belonging to different categories and for which the articles of association have provided for specific rights.

The articles of association are normally publicly available. It is possible to provide specific rights to the shareholders in a separate agreement, but it will be enforceable only toward the parties to that agreement.

In addition to those rights provided by the Company Law, specific rights are granted to the shareholders of listed companies by the Shareholders’ Act: additional information, remuneration policy and reports regarding the directors, the ability to vote on related party transactions, etc.

Political Rights

All shares entitle their holders to a voting right proportional to their nominal value on the aggregate amount of the share capital, except for an SA, an SAS and an SCA, when:

• non-voting shares are created; and
• the articles of association state that each share grants to its holder one vote, even when the shares issued by the company have different nominal values.

It is possible for the articles of association to state that, for some or all decisions to be taken by the shareholders, the majority requirement will be increased to a certain level (even to the unanimity).

Shareholders may also individually waive their voting right or enter into voting agreements, under certain conditions, and those waivers and voting agreements may be enforceable toward third parties.

Beneficiary shares may be non-voting or have multiple votes.

Economic Rights

The articles of association may vary the economic rights attached to classes of shares within the limit that a shareholder would be (i) excused from sharing any shareholder liability and/or (ii) deprived of any economic right (prohibition of the leonine clauses).

The economic rights attached to beneficiary shares may be freely shaped.

Right to Information

The right to information provided by the Company Law is a minimum and it is not possible to limit this right, it is only possible to create an additional right to information.

The right to information attached to beneficiary shares is determined by the articles of association and, in principle, they are not entitled to any right to information.

Shareholders' agreements are commonly used in Luxembourg and enforceable under Luxembourg law.

These agreements enable the shareholders to set out their rights and obligations and to regulate, among others, the corporate governance of the company, the transfer restrictions of the shares, the profits entitlements, etc.

Except for rules which will be contradictory with mandatory Luxembourg laws and Luxembourg public order such as leonine clauses, there are no limitations on the enforceability of such an agreement.

Contrary to the Articles of Association, shareholders' agreements are confidential and not available to the public. There is no injunction to disclose them. This is the reason why it makes them so appealing for investors and shareholders, since they do not wish to see sensitive company information being openly readable by the public.

Due to their confidentiality, shareholders' agreements cannot be opposed to third parties.

The majority requirements for decisions taken by the shareholders are the following:

• for an SA:
1. for the amendment of the articles of association, the general meeting shall not validly deliberate unless at least 50% of the share capital is represented and, in order to be adopted, the resolutions must be carried by two thirds of the votes cast;
2. no quorum of presence and 50% of the votes cast for any other decision;
• for an Sàrl:
1. 75% of the share capital for the amendment of the articles of association; and
2. 50% of the share capital for any other decision;
• for all companies:
1. any increase of the increase of the shareholder's individual commitment requires the unanimity of the shareholders.

In addition, shareholders holding a certain percentage may exercise the following rights, pursuant to the Company Law:

• shareholder(s) may request the convening of a meeting of the shareholders when they hold at least:
1. for an SA – 10% or more of the share capital; and
2. for an Sàrl – 50% or more of the share capital;
• shareholder(s) holding at least 10% of the share capital may request that one or more additional items be put on the agenda of any general meeting, and may also request the general meeting of the shareholders to be postponed;
• shareholder(s) holding at least 10% of the share capital of an SA, an SAS or an SCA may bring legal action on behalf of the company against the directors for fault in their management (action ut singuli); and
• shareholder(s) holding at least 10% of the votes and/or the share capital may ask specific questions to the board regarding specific transactions involving the company and its subsidiaries and, if they are not satisfied by the answers, they may request the appointment of an expert to investigate those transactions.

It is possible for the articles of association to state that, for some or all decisions to be taken by the shareholders, the majority requirement will be increased (but not reduced) to a certain level (even to the unanimity).

All shareholders of an SA are entitled to be provided with the following information before each general meeting:

• the annual accounts, the list of the members of the board(s) and the list of the company’s auditors;
• the list of sovereign debt, shares, bonds and other company securities making up the portfolio;
• the list of shareholders who have not paid up their shares, with an indication of the number of their shares and their domicile;
• the management report of the board;
• the auditor’s report; and
• in the case of amendments of the articles, the text of the proposed amendments and the draft of the restated articles.

The shareholders of an Sàrl are only entitled to receive the financial documents to be approved at the occasion of the annual general meeting of the shareholders approving the annual accounts.

The shareholders may also consult the shareholder register of the company, when the shares are in registered form.

As presented in 1.4 Main Shareholders’ Rights, specific information rights are granted to the shareholders of listed companies.

The shareholders' meeting shall have the widest powers to adopt or ratify any action relating to the company.

In addition, certain matters are reserved by law to the approval of the shareholders, such as the appointment and removal of the board members, appointment or revocation of company auditors, the amendment of the articles of association, the approval of the annual accounts, distribution of the profits of the financial year, and the liquidation.

The approval must be given through resolutions of the shareholders' meeting or to the extent permitted by law by written resolutions of the shareholders.

The articles of association, as always, can go beyond the law and require the approval of the shareholders for additional matters that are not reserved to the shareholders by law.

Shareholders' Right to Call a Meeting of Shareholders

Shareholder(s) may request the convening of a meeting of the shareholders when they hold at least:

• for an SA – 10% or more of the share capital; and
• for an Sàrl – 50% or more of the share capital. 

Shareholders' Information before Meetings and Convening Notices

The shareholders are convened in accordance with the articles of association.

Shareholders of an SA are convened by means of notices filed with the register of commerce and companies and published on the Recueil électronique des sociétés et associations and in a newspaper published in Luxembourg at least 15 days before the meeting.

The convening notices shall be communicated to registered shareholders by post at least eight days before the meeting by registered letter, unless the addressees have individually agreed to receive the convening notices by way of another means of communication, such as email.

Shareholders should have all necessary and essential information regarding the subject of the meeting and the agenda before the meeting.

Virtual/Remote Votes/Meetings

The articles of association may allow the holding of shareholders' meetings by way of video conference or by way of telecommunication means permitting the identification of the shareholders. These electronic means shall satisfy technical characteristics which ensure an effective participation in the meeting, the deliberations of which shall be online without interruptions.

In addition, in view of the current exceptional situation related to COVID-19, governmental measures have been taken to maintain the good governance of companies. They shall be applied at least until 31 December 2021. These measures are as follows; it is recommended to use:

• remote voting in writing or in electronic form, allowing the identification of the persons concerned and provided that the full text of the resolutions or decisions to be taken has been published or communicated to them; or
• videoconferencing; or
• any other means of telecommunication allowing the identification of those persons; or
• written circular resolutions; or
• an intermediary appointed by the company.

The convening and the agenda of a shareholders’ meeting is normally decided by the board. However, as indicated in 1.6 Rights Dependent upon Percentage of Shares, shareholder(s) may request the convening of a meeting of the shareholders on an agenda of their choice when they hold at least (i) 10% or more of the share capital for an SA and (ii) 50% or more of the share capital for an Sàrl. Otherwise, they have no right to require that a specific issue be considered or resolution be put forward.

The quorum requirements for general assembly of shareholders are the following:

• for an SA:
1. in the event of an amendment of the articles of association, shareholders representing at least 50% of the share capital must be present or represented, and if this quorum is not met, a second assembly must be convened and it may be held without any quorum requirement; and
2. for all other decisions, there is no quorum requirement; and
• for an Sàrl – shareholders representing at least 50% of the share capital in any case.

The majority requirements for decisions taken by the shareholders are the following:

• for an SA:
1. two thirds of the votes for the amendment of the articles of association; and
2. 50% of the votes for any other decision;
• for an Sàrl:
1. 75% of the share capital for the amendment of the articles of association; and
2. 50% of the share capital for any other decision; and
• for all companies:
1. any increase of the increase of the shareholders' individual commitment requires the unanimity of the shareholders.

Shareholders may participate and vote through a video-conference to the shareholders’ general meeting, if provided for in the articles of association.

For an Sàrl, shareholders may also approve resolutions through written resolutions, as long as the company has fewer than 60 shareholders and, for an SA, the sole shareholder may also approve resolutions in writing.

In principle, the management and the administration of a Luxembourg company lies with the management body thereof (eg, the board of directors/board of managers), not with the shareholders. That being said, a shareholder of an SA or of an Sàrl may be appointed respectively as a director or a manager of such a company, while the general partner of an SCA, an SCS and of an SCSp is also very often also appointed as the manager thereof. It is worth noting that there exist some specific provisions applying to an SCS and an SCSp, pursuant to which limited partners may not be involved in the management of such companies; if they fail to comply with this requirement, limited partners may lose the benefit of their limited liability.

Appointment and Revocation of Directors

In principle, members of the management of a company are appointed and revoked by the shareholders, acting collectively (ie, through the general meeting of shareholders) in accordance with the provisions of law and of the company’s articles dealing with those matters. This is subject to a few particulars/limitations, depending on the legal form of the company. For instance:

• there exists a possibility for the board of directors of an SA to co-opt a member thereof when a seat is vacant (that appointment is to be ratified at the time of the general meeting of shareholders);
• the management of an Sàrl can only be removed for legitimate reasons (unless otherwise provided for in the company’s articles of association) whereas in an SA, the members of the board of directors can be removed ad nutum by the shareholders (ie, without any reason or explanation).

Also, in the framework of co-investments/joint ventures, specific provisions pursuant to which members of the management body are to be appointed among lists submitted by the shareholders are often seen.

Accordingly, this is to be assessed on a case-by-case basis.

Shareholders' Right to Challenge a Board's Decision

Under Luxembourg law, there is no (per se) right for shareholders to challenge a management decision, at least where that decision is taken in accordance with the law and the company’s articles, and in the interest of the company. However, there exist certain action rights for the shareholders to trigger (directly or indirectly) the management’s liability (eg, in the case of a decision in contrariety with the company’s articles) and the articles may provide that certain management decisions require prior authorisation by the general meeting of shareholders (while any such limitation would generally not be enforceable towards third parties). 

Generally, and where legally required, the auditor (whether a statutory auditor (commissaire) or an independent auditor (réviseur d’entreprises)) is appointed/revoked by the shareholders acting collectively, through the general meeting of shareholders. That being said, there is no prohibition for the management to appoint an auditor by contractual means (eg, while there is no legal requirement for such an appointment).

In an SA, the shareholders do not have to disclose their interest in the company. In principle, the shareholders can be anonymous, as the transfer of shares and identity of the shareholders are not published. However, the identity of the subscriber of new shares issued in an SA through the shareholder meeting shall be recorded in the notarial deed, which is publicly available.

Shareholders of an Sàrl must disclose their interest in the company as part of the company's constitution and/or acquisition of shares. Indeed, the shareholders' identity is published and included in the excerpts of the RCS and the Luxembourg electronic gazette (Recueil Electronique des Sociétés et Associations) relating to the company.

In addition, beneficial owners of Luxembourg companies shall be registered with the Luxembourg beneficial owners register, which is publicly available except in certain circumstances.

In public companies, such as an SA, shares are in principle freely transferable.

Conversely, in an Sàrl, the transfer of shares to third parties requires the approval of the other shareholders representing at least 75% of the share capital (this can be reduced to 50% of the share capital in the articles of association).

Specific transfer restrictions may be included in the articles of association or contractual agreements between the shareholders, such as lock-up provisions, pre-emption rights, right of first offer, right of first refusal, tag-along/drag along rights, etc.

Transfer restrictions are enforceable provided that they are not contrary to Luxembourg mandatory law (eg, inalienability clauses shall be limited in time, and in an SA where the restriction results from an approval clause or a clause providing for a pre-emption right, the application of such clauses may not result in the extension of the non-transferability by more than 12 months from the application for approval or the invitation to exercise the pre-emption right, etc).

Shareholders are entitled to grant security interests such as share pledges over their shares, provided that the legal or statutory transfer restrictions are complied with.

Shareholders in both an Sàrl and an SA are generally entitled to the proceeds remaining after the company has been liquidated (either through a voluntary liquidation or a court liquidation), in proportion to their respective shareholding in the company. However, the articles of association may provide for a different split regarding the entitlement to any such liquidation proceeds.

Shareholders of both an Sàrl and an SA may pass a shareholders’ resolution to liquidate the company that requires a majority of 75% of votes cast (the articles of association may also deviate from this rule and provide for the requirement of a unanimous resolution). The articles of association may also provide for other circumstances under which the company may be liquidated, such as, for example, the failure to reach the company’s purpose or the ending of the term of the company (if provided for in the articles of association), or if the net assets of the company fall under a certain threshold.

Shareholders may also request the liquidation of the company before a court, provided certain legal conditions are satisfied.

In an insolvency situation (faillite), the bankruptcy trustee has control over the management and liquidation of the bankruptcy estate. Creditors, directors and shareholders have, in principle, no control over the trustee’s appointment and its management of the liquidation of the bankruptcy estate.

In a bankruptcy, the order of priority payments during a bankruptcy proceeding is as follows:

Creditors of the bankruptcy: these are bankruptcy expenses (the bankruptcy receiver's fees and/or procedure costs) and have a preferential status over all other claims.

Preferred creditors of the bankrupt estate: preferred creditors include:

• preferred creditors by law (créanciers privilégiés), such as employees in respect of certain debts owed to them and tax authorities; and
• creditors with a non-bankruptcy proof of contractual or judicial security (créanciers ayant une sûreté conventionnelle ou judiciaire), ranking behind preferred creditors by law.

Ordinary unsecured creditors (créanciers chirographaires): these are paid pro rata out of the remaining assets, if any.

Shareholders are treated as subordinated creditors unless they have other contractual arrangements in place as creditors (Luxembourg law does not recognise the concept of equitable subordination) and receive any surplus from the liquidation (boni de liquidation), if any, in proportion to their shareholding.

Except for holding physical meetings, there have been no substantial changes to the above-mentioned rules as a result of the COVID-19 pandemic and the resulting economic crisis.

Luxembourg Company Law does not provide for specific provisions in relation to shareholder activism. Doctrine defines “activism” as the behaviour of investors by using their position as shareholders of a given corporation, which may affect the practices within that corporation. This could be a means for shareholders to influence the strategy, the financial performance or the governance of the corporation, after an initial position taken by the management of the company.

The general provisions of Company Law as well as securities law bind companies and activist shareholders. As mentioned in 1.7 Access to Documents and Information, each shareholder, upon request, must be provided with information at the general meeting of shareholders by the board of directors on the company's affairs, to the extent that such information is provided in the Companies Law and is necessary for an assessment of one or several items put on the agenda for that general shareholders' meeting.

The Second Shareholders’ Rights Directive has been implemented in the Luxembourg legislation by the Law of 1 August 2019 (the “Shareholders’ Act” referred to 1.3 Primary Sources of Law and Regulation). This law includes various amendments of the amended law of 24 May 2011 regarding the shareholders’ rights in general meetings of shareholders of listed companies. The new measures enhance and harmonise the corporate governance and increase transparency.

Although shareholders' activist campaigns in Luxembourg are very limited, there is a trend in Luxembourg for more transparency and increased shareholder rights, in particular in listed companies, due to the Shareholders’ Act.

There are few examples of shareholder activism in Luxembourg.

However, it is expected that, in the future, the number of activist campaigns will increase. Indeed, the aim of the Shareholders’ Act is to extend and strengthen shareholders' rights, particularly in listed companies and for minority shareholders. Reinforcing shareholders' engagement could lead to more shareholder activism in Luxembourg in the future.

Luxembourg companies do not face activism as much as, for instance, French companies. However, it should be noted that there are activist funds in Luxembourg. These do not target national companies but often target companies incorporated in other European countries.

For now, there are very few publicly available examples of shareholder activism in Luxembourg, eg, Arcelor in 2006–07, Deer Park Road’s investment in a Luxembourg-based company in 2017.

Common Strategies Used by Activist Shareholders

Depending on the type of industry, the type of shareholder and the goals to be achieved, activists may use different strategies to pursue their objectives.

• Activist shareholders' may target the company’s governance (eg, change of board members).
• They may form a coalition between shareholders to reverse the management of the company and implement their new suggestions. This is done without any legal scope, agreement or contract and is often criticised. Some would say that this type of shareholder is part of a "wolf pack".
• A well-known strategy is event-driven activism. The shareholders' aim is to take advantage and gain profits from operations such as a merger or the sale of a company. There have been multiple examples of this strategy in Europe and in the United States. In Luxembourg, the takeover of Arcelor by Mittal is also a well-known example. 
• Another strategy is to try to become a member of the board and to initiate a restructuring process within the company. This is also a popular strategy used by activist shareholders worldwide.
• They may also initiate litigation in order to put pressure on the company’s management and other shareholders.
• They may use tactics at a general meeting of shareholders.
• They can partner with aggressive bidders.
• They can use public critics in order to drive down stock prices.

The COVID-19 Pandemic's Impact on Shareholders' Activism

The COVID-19 pandemic has had no real impact on activism in Luxembourg, as activists are already very much limited in Luxembourg. The Shareholders' Act may have an impact on the increase of shareholder activism in Luxembourg (see 1.3 Primary Sources of Law and Regulation). The effect might have been slowed down by the pandemic, and may increase in the future once the pandemic is over.

In general, Luxembourg activists do not target particular industries or sectors.

Typically, the most active group of shareholders is activist hedge funds.

There is no available data on a percentage or proportion of public activist demands that were met in the last year. According to Activist Insight, 11 companies that were identified as vulnerable across 2020 in reports went on to be targeted.

Companies should identify the issues that may attract activists’ attention and ascertain the measures to minimise the risk of being targeted by an activist shareholder, such as:

• reviewing governance policies and board composition;
• maintaining good levels of shareholder engagement and continually communicating company strategy to shareholders;
• maintaining good levels of corporate governance and identifying any areas of vulnerability that activists may seek to challenge;
• monitoring the market for shareholder-activist activity;
• regularly evaluate strategic alternatives; and
• attract talent in investor relations and communication.

Except for some other forms of companies, an SA and an Sàrl have their own legal personality distinct from their shareholders under the Company Law and civil-law provisions.

There are only very limited circumstances in which a Luxembourg court will look past the principle of separate legal personality (or "pierce the corporate veil") to hold shareholders legally responsible for a company’s conduct.

Relevant examples of situations in which piercing is provided include the following:

• asset-stripping;
• priority treatment of affiliated creditors over other creditors, in the knowledge that the latter creditors are then left with no recourse;
• continuation of loss-inducing business, eg, when a shareholder (continuously) acts recklessly with regard to the creditors of the subsidiary.

Apart from the question of "piercing the corporate veil", it is possible for a shareholder or parent company to be held liable for the activities of the company in circumstances where the shareholder has been acting as a de facto director.

In addition to the remedies that are generally available in tort or contract, certain specific remedies are available to shareholders against the company, such as asking for the winding-up of the company in court, because of persistent disagreement between shareholders.

Shareholders can request the voidance of the company’s corporate resolutions. They can also bring an action for a wrongful act committed by the company.

Shareholders may seek the appointment of a custodian of the assets or a provisional director under urgent proceedings.

Directors/officers are agents of the company appointed by the general meeting of the shareholders, and are consequently liable to the company for the performance of their mandate and for any shortcomings in the performance of their duties.

Under Article 441-9 §2 of the Company Law, all members of the board of directors are jointly and severally liable to the company and third parties. The company and any third party, such as public authorities, creditors, employees or an individual shareholder (including a minority shareholder) of the company, may take legal action based on Article 441-9 of the Company Law.

Also, directors may be held liable for inobservance of the conflict-of-interest procedure if there is a detriment to the Company with a direct causal link to the violation of that procedure. The conflict-of-interest regime provides that “any director who has a direct or indirect financial interest in a [decision or] transaction by the board of directors which conflicts with the company's interests must advise the board of this and ensure that his declaration is recorded in the minutes of the meeting. He may not take part in the relevant deliberations”.

Luxembourg doctrine has clarified the scope of the rule by identifying and defining three cumulative criteria:

• operations by the board, ie, any action or decision to be taken by the board, which creates rights or obligations on the company;
• financial interest, ie, a sufficiently material benefit (direct or indirect) susceptible of economic valuation; and
• opposing, meaning that the material benefit of one is to the detriment of the other, even if that benefit may only be potential.

Under exceptional circumstances and in the event that the company is unable to function properly due to the inability of the directors appointed to manage the company, resulting in the company’s activities being paralysed by the dysfunctioning board of directors, a shareholder may file an application to be made to appoint a temporary director (administrateur provisoire).

Legal remedies for one shareholder against another are mostly based on a violation of a provision included in a shareholder agreement or based on an abuse of majority rights.

Luxembourg case law recognises the notion of “abuse of majority” when a decision of the general meeting of the shareholders has been taken against the corporate interest of the company, to the benefit of the majority shareholder(s) only, and is detrimental to the minority shareholder(s).

If a decision is taken due to the abusive action by a majority shareholder, an application to suspend and subsequently to annul the decision could be made by the minority shareholder.

If the shareholders of the company have a grave disagreement regarding the company and are no longer able to co-operate properly, an application to the court could be made by a shareholder for the dissolution of the company for reasonable grounds (justes motifs) citing the inability of the shareholders to agree on matters concerning the company.

Legal remedies offered to shareholders against auditors are very uncommon. In general, the company has the right to initiate an action against the auditors unless the shareholder has a specific loss that is distinct from the one suffered by the company. A potential action against the company’s auditors will also depend on the nature of the contract that has been entered into between the company and its auditors.

A shareholder may, however, initiate an action against the auditors based on other civil principles (such as the relative effect of contracts, actio Pauliana or tort liability principles).

Derivative actions do not exist under Luxembourg law.

There are many different factors to be assessed by a shareholder in litigation, including the objective to be reached, the length of the proceedings, the cost in litigating, the bad publicity and its effects on the stock price. In general, the factors to be considered need to be carefully considered and assessed with legal counsels before any action is taken.

Depending on the elements of the case, a shareholder may want to use legal action as a point of pressure in order to negotiate with the directors or with other shareholders, potentially in conjunction with other strategies (see 3.2 Legal Remedies against the Company).

Also, the shareholder will have to determine what he or she really wants to achieve before litigating. For example, some of the legal actions are very limited in their purpose and not all available remedies will be appropriate for the shareholder.