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Corporate Finance & Transactional - 12 May 2022

Bill of law 7999 aimed at setting up an aid scheme in the form of guarantees for the Luxembourg economy in context of Russia's invasion of Ukraine


The military aggression against Ukraine by Russia has many economic repercussions. The energy market has been significantly impacted with increases in electricity and gas prices in the EU. The impact has also been felt on financial markets, in particular with liquidity problems.

In order to ensure access to liquidity to business undertakings established in Luxembourg which are affected by the economic consequences of Russia's military aggression against Ukraine, a bill of law (Projet de loi N°7999 visant à mettre en place un régime d’aides sous forme de garanties en faveur de l’économie luxembourgeoise à la suite de l’agression de la Russie contre l’Ukraine) (hereinafter the “Bill of Law 7999”) has been introduced in Luxembourg with the aim to ensure that the banks continue to grant loans to the impacted business undertakings by introducing a system of State guarantees on new loans. This aid scheme corresponds to the temporary crisis framework for State Aid measures proposed by the European Commission to support the economy following the aggression against Ukraine by Russia.
The Bill of Law 7999 allows the State to guarantee loans granted by credit institutions between 1 May 2022 and 31 December 2022, in favour of the undertakings that have liquidity needs due to the economic consequences of Russia's aggression against Ukraine.

Main eligibility criteria for such loans are as follows:
  1. the State guarantee is available only for business undertakings which are affected by the economic consequences of Russia's military aggression against Ukraine and which have liquidity problems;
  2. the loan must be granted by the credit institutions between 1 May 2022 and 31 December 2022;
  3. the guarantee is available only for investment and/or working capital loans with a maximum duration of six years;
  4. the overall amount of loans per beneficiary shall not exceed:
    • 15 % of the beneficiary’s average total annual turnover over the last three closed financial years ; or
    • 50 % of energy costs over the 12 months preceding the month when the application for the aid is submitted to the State Treasury;
It should be noted that :
  • business undertakings will be able to benefit from the State guarantee for different loans obtained from different credit institutions provided the overall loan amount per beneficiary does not exceed one of the aforementioned thresholds,
  • for recently incorporated business undertakings, the threshold shall be calculated based on the effective duration of its existence at the time of notification addressed to the State Treasury by the credit institution regarding the granting of the loan eligible for the State guarantee;
5. the loan agreement must include a clause setting forth that the amount is immediately due in the event of detection, after the granting of the loan, of non-compliance with the specification consisting of all the conditions referred to in this Bill of Law 7999, in particular due to the provision, by the borrower, of intentionally erroneous information to the credit institution or to the State Treasury;

6. the guarantee may not exceed 90% of the loan principal;

7. no State guarantee shall be granted to business undertakings subject to EU restrictive measures.The credit institution that wishes to grant a loan with the State guarantee will have to notify the State Treasury of the granting of this loan via a system made available by the State Treasury. An agreement will be concluded between the State and the credit institution. The State guarantee must be granted no later than 31 December 2022.

The Bill of Law 7999 currently provides that the State guarantee shall not be enforceable by the credit institution in the event of a credit event occurring within two months of the disbursement of the loan.

According to the Bill of Law 7999, the total budget for guarantees cannot exceed 500 million euro.
It should be noted that under certain conditions this aid scheme may also apply to undertakings that have already been granted aids in the context of the Covid-19 crisis.
The following undertakings are excluded from the scope of application of the Bill of Law 7999:
  • undertakings which are already subject to an insolvency procedure;
  • undertakings whose main activity consists in the promotion, ownership, rental and trading of real estate;
  • undertakings whose main activity is the holding of participations in other companies.
The Chambre des Métiers et the Chambre de Commerce have already approved the Bill of Law 7999.
CONTACT US
Jean-Paul SPANG, Partner
Jean-Philippe DRESCHER, Partner
Delphine TEMPÉ, Partner
Renata JOKUBAUSKAITE, Partner

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Stefanie KREUZER, Senior Associate
Charles OIKNINE, Senior Associate
Teolina TENTCHEV, Senior Associate
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Muriel ABOGO ZE, Associate
This ePublication is for general guidance only and does not constitute definitive advice.
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