Disclosure and publication requirements for sub-group consolidation exemptions in Luxembourg

Consolidation plays a key role in the financial management of a group of companies. Consolidated accounts group and synthesize accounting information, giving shareholders and third parties important financial information.

Every Luxembourg société anonyme, société en commandite par actions, société par actions simplifiée, société à responsabilité limitée and every company referred to in points 2 and 3 of the second subparagraph of Article 77 of the amended law of 19 December 2002 on the Trade and Companies Register and the accounting and annual accounts of companies must draw up consolidated accounts and a consolidated management report if:

• it has a majority of the shareholders’ or members’ voting rights in an undertaking; or
• it has the right to appoint or remove a majority of the members of the administrative, management or supervisory body of an undertaking and is at the same time a shareholder in or member of that undertaking; or 
• it 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 shareholders’ or members’ voting rights in that undertaking.

Some parent companies may look for possible scope exclusions or exemptions from preparing consolidated accounts such as exemptions for companies held by regulated entities, small group or PE/VC (held for sale) exemptions or the so-called “sub-group” exemptions.

 

Sub-group exemptions

Luxembourg is a hub and an attractive place for holding companies being the mother undertaking of group companies and a subsidiary of a wider group.

The exemptions known as the “sub-group” exemptions apply to Luxembourg parent companies that are also subsidiary companies (the parent/subsidiary company) and that are included – they and their direct and indirect subsidiaries – in consolidated accounts of a larger group of companies prepared by a parent company with direct or indirect control over them.

Article 1711-5 and 1711-6 of the Company Law - known as the “EU sub-group exemption” - covers cases where the Luxembourg parent/subsidiary company is included in the consolidated accounts prepared by a parent company from an EU Member State.

Article 1711-7 of the Company Law - known as the “non-EU sub-group exemption” - concerns cases where the Luxembourg parent/subsidiary company is included in the consolidated accounts prepared by a parent company from a third country where the consolidated accounts and, where appropriate, the consolidated management report are drawn up in accordance with the provisions of Luxembourg law or in an equivalent manner.

 

Disclosure and publication requirements

All sub-group exemptions are subject to several conditions detailed by the relevant Company Law provisions. Among those conditions there are two disclosure/publication requirements:

• the notes to the annual accounts of the exempted company must include a reference to the exemption from the obligation to draw up consolidated accounts and a consolidated management report and disclose the name and registered office of the parent company that draws up the consolidated accounts; and
• the consolidated accounts of the parent company and the consolidated management report plus the report by the person or persons in charge of auditing those accounts are published for the exempted company in the manner provided for in Article 100-13 of the Company Law.

Articles 1711-5 to 1711-7 of the Company Law are explicit on these requirements and the Commission des Normes Comptables (CNC Q&A 17/014) has also confirmed them: “It should be noted that in order to validly benefit from the exemption provided for in Article 314/315 or 316 of the Company Law1, the company must, in particular, file the consolidated accounts of the consolidating parent company with the Trade and Companies Register for discharge purposes”.

In practice, many Luxembourg companies relying on the sub-group exemption do include the required language in their accounts' notes but they frequently fail to publish the actual consolidated accounts and related reports of the higher-tier parent company.

 

Potential sanctions

One could argue that, in failing to comply with all the publication requirements and limiting disclosure to mentioning the exemption and the name of the consolidating parent company in the stand-alone accounts, companies are not exempt from their consolidation obligations.

The consequences for not complying with these requirements can be very high given the potential sanctions.

Article 441-9 (2) of the Company Law states, inter alia, that the board members can be held jointly and severally liable to the company and third parties for all losses resulting from a breach of the Company Law. Furthermore, the public prosecutor could, although the risk might be limited in practice, seek the judicial dissolution of a Luxembourg company for serious breach of the Company Law.

Finally, it is important to remind the terms of article 1500-2 of the Company Law which provides for criminal offences, inter alia, to managers and directors who have not submitted annual accounts and consolidated accounts to the general meeting within six months after the end of the financial year and/or who have not had these documents published.

 

Conclusion and future considerations

Making use of existing technologies, the Company Law could provide an alternative to the obligation to publish the consolidated statements and reports of the parent company in the Luxembourg Trade and Companies Register such as the insertion, in the notes to the accounts of the exempt company, of a hyperlink or other “clickable“ text to access the relevant documents.

The Luxembourg Bill N°8370 to implement the EU Corporate Sustainability Reporting Directive (CSRD) into Luxembourg law introduces a new electronic format for the publication of the consolidated management report and the consolidated information on sustainability but does not amend the aforesaid provisions of the Company Law on the publication requirements of the consolidated accounts and reports.

Thus, for now, the publication of the parent company’s consolidated accounts and reports remains a requirement.

 

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¹ Former numbering of articles 1711-5 to 1711-7 of the Company Law.