Vol 22 (2025) - Issue 3

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Differentiated Treatment of Creditors under Luxembourg’s New Restructuring Law

Synopsis
As Thomas Jefferson once said, 'there is nothing more unequal than the equal treatment of unequal people'. This wisdom holds true in the business world, where the diverse interests of creditors must often be balanced, especially in the context of corporate restructuring.
Luxembourg's legislator has long taken care to ensure that creditors' claims are handled according to a hierarchy that sometimes favours weaker parties, such as employees, particularly in bankruptcy or reorganisation scenarios.
On 7 August 2023, Luxembourg implemented the Directive (EU) 2019/1023 on preventive restructuring frameworks through the 'Law on the Preservation of
Enterprises and Modernisation of the Bankruptcy Act' (hereafter the 'Restructuring Act'). This law aims to enhance the restructuring framework to provide businesses in financial distress with the tools to survive, preserve jobs, and maximise value for creditors. The law became effective on 1 November 2023 and provides a court-led restructuring process (réorganisation judiciaire) designed to allow businesses facing financial difficulty to reorganise while maintaining business continuity.
For the purposes of this article, any reference to restructuring procedures refers exclusively to court-led restructuring (réorganisation judiciaire), and does not include out-of-court restructuring (réorganisation par accord amiable).

The initiation of a court-led restructuring procedure may be granted for one of the following objectives:
– The granting of a stay of individual enforcement actions to facilitate negotiations and the conclusion of an out-of-court agreement between the debtor and two or more creditors;
– The approval by creditors of a restructuring plan prepared by the debtor, who may be assisted by a judicial representative (mandataire judiciaire);
– The sale, through a judicial decision, of all or part of the debtor's assets or business activities to one or more third parties.

In practice, during the first few months following the implementation of the Restructuring Act, questions have arisen regarding the classification of creditors and the possibility of differentiating their treatment under the restructuring plan.
This article focuses on the classification of creditors under the Restructuring Act, exploring the possibility of differentiated treatment, and outlines the process for the adoption and approval of a restructuring plan, including through cross-class cram down mechanisms.