Manager-Shareholder Conflicts (in Luxembourg): from a Shareholder’s Perspective

Conflicts between managers and shareholders are a regular occurrence. For shareholders it is of the utmost importance to have an effective strategy in place to overcome such conflicts.

The following recommendations represent a non-exhaustive list that should only be considered for unlisted companies and is focused on Luxembourg practice.1 References to a manager may also apply to a group of managers, and references to a shareholder may also refer to a group of shareholders.

Appointment and removal rights

Check the articles of association (hereinafter AoAs), shareholder agreement (hereinafter SHA), and management agreement for the appointment and removal rights of managers. It may be the case that the shareholder alone, or with other shareholders, can easily remove a manager. However, it may also be that the removal of a manager is difficult, because he or she is protected by a shareholder or group of shareholders whose approval is necessary for the removal. Equally, the AoAs and Luxembourg law might provide that a manager is only removable based on certain grounds. For example, unless stipulated differently in the AoAs, the manager of a société à responsibilité limitée or private limited liability company (SARL) can only be removed for a legitimate reason, such as misconduct.

Check financial information

Many manager-shareholder conflicts result from financial problems in the firm. For this reason, it is prudent for the shareholder to soonest obtain as detailed information as possible about the financial status of the business. Several options exist in this respect, and based on Luxembourg law, the shareholder has the right to obtain the annual accounts. AoAs or an SHA may provide more access, such as bi-annual or quarterly financial statements or financial information about specific group companies. They might also provide the right to send an independent accountant to check the accounts and books of the company. It may be that the shareholder has the right to appoint one or several managers of the company and must receive access to the financial information. Luxembourg law further provides for a procedure in which shareholders holding at least 10 percent of the corporate capital, or voting rights attached to the existing securities of the company, have the right to ask the management information about acts of management. Should the managers not provide a (sufficient) response within the period of one month, the shareholder can apply to the Luxembourg district court sitting on urgency matters, to appoint one or several experts to produce a report on such acts of management.

Manager liability provisions

A crucial topic in manager-shareholder conflicts is the topic of manager liability. Different provisions exist under Luxembourg law for the liability of managers, such as liability for misconduct of management, or liability for the violation of the AoAs or the Luxembourg company law. It is very important to determine with a legal expert, which liability provisions may apply as such provisions may have different consequences, including the possibility of a shareholder bringing a liability action against a manager before the Luxembourg district court.

Competence and powers

For a comprehensive overview and to develop an effective strategy, it is imperative to check the AoAs and SHA for the exact competences and powers of the manager. Can the manager block specific decisions at the level of the board of managers? Is the manager required to co-sign contractual documents? Has the manager possibly taken decisions or signed documents incorrectly and in violation of the AoAs, SHA or management agreement? Should the latter be assumed, it is vital to collect as much information or evidence as possible. Also, in relation to the SHA, it is crucial to ascertain to what extent, and in which circumstances, the SHA may be enforceable against the manager. This may only be the case if the manager has signed such an agreement or a deed of adherence.

Management agreement

Apart from the applicable AoAs and SHA, managers may likely be bound towards the company on the basis of a management agreement, which may stipulate in detail the rights and obligations of this position. It should, however, be taken into account that the management agreement is a private document between the manager and the company, and for this reason, the shareholder does not have the right to obtain such document. It may be different if the shareholder is also a manager of the enterprise or has appointed managers to the board.

Information about the manager

Generally, in a conflict situation, it is key to obtain as much information as possible about the manager, particularly in case of possible misconduct. For example, how many mandates in other company boards does the manager have? In case of a large number of mandates, this may have an impact on the question whether the manager had sufficient time to diligently act as manager for the business. Also, what is the manager’s expertise and is it appropriate to perform his duties and act conscientiously? And, how industrious was the manager overall; was he or she present at all, or at a majority of board meetings?

Availability of legal actions

If an amicable solution is not possible, or it may be feared that the company may suffer serious harm if the situation with the manager is not resolved, it may be important to determine which legal proceedings may provide a resolution. Under Luxembourg law, legal proceedings are possible for damages created by a manager. Yet, through the short-term urgency proceedings it may be possible to remove a manager and to replace him or her with a court-appointed provisional manager. To decide which proceedings may prove the most effective in a specific situation, the options should be examined with a legal advisor.

Contact legal advisor

In order to obtain an effective solution, it is advisable to discuss possible strategies and the situation in general with a legal advisor that is specialised in manager-shareholder conflicts.


Thomas Biermeyer

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