admin – RJ Gaito Law Firm https://rjgaito.com International Business Law Firm Sat, 10 Jan 2026 09:22:47 +0000 en-US hourly 1 https://wordpress.org/?v=6.9.4 Private Equity Year in Review 2025 and Considerations for 2026 https://rjgaito.com/private-equity-year-in-review-2025-and-considerations-for-2026/ Sat, 10 Jan 2026 09:22:47 +0000 https://rjgaito.com/?p=2174

Ronnen and Martin provide a detailed insight and review of the latest on Private Equity in Luxembourg during an interview with Lexology.
Their interview can be read in detail by downloading the full interview and covers key points that should be considered by private capital actors.

Key Points of Private Equity in Luxembourg:

WHAT TRENDS ARE YOU SEEING IN OVERALL ACTIVITY LEVELS FOR PRIVATE EQUITY BUYOUTS AND INVESTMENTS IN YOUR JURISDICTION DURING THE PAST YEAR OR SO ?

Following strong years from 2017–2022 that were underpinned by technology and real estate transactions, post-pandemic inflationary pressures, interest rate rises and the war in Ukraine have had an impact on deal volumes and reduced valuations. The cost of debt financing deals has been a key factor in deal flows. A vibrant Luxembourg real estate sector is now experiencing a sharp downturn and clients who have used venture debt have come under significant pressure. However, in mid-2024, the European Central Bank (ECB) started to cut interest rates, which boosted deal activity and improved the exit environment.

In 2025, it seems that the private equity landscape is rebounding from a challenging 2024. The trend demonstrated an uptick in technology, media and telecommunications transactions and, notably, software, software as a service and AI-related transactions. Private credit funds experienced significant growth and renewable energy firms wishing to optimize their group activities to position themselves for growth in the coming years have remained active. An uptick in activity in the M&A and IPO space was followed by continuous growth of private debt fund activities among private equity funds seeking to deploy capital into new investments and to exit investments within their existing private equity portfolios.

Luxembourg itself is not a large market in terms of target businesses for private equity (PE) investors, and we see only a small number of Luxembourg headquartered businesses being acquired by PE. Luxembourg is rather used as a fund and investment platform domicile for making acquisitions.

We see a variety of strategies being pursued, with not only traditional majority buyouts (a lot of the time with founders and management remaining as minority investors), but also some firms have launched separate funds to pursue minority stakes. This latter strategy does come with some different concerns, however, because the PE stakeholder will not have a significant influence over how the investment is funded. With this inflexibility, due to the majority investor holding the pen on how the deal is structured, some degree of work can be necessary for the minority investor – that is, our client – to ensure the investment remains viable in terms of tax leakage and internal rate of return metric. Recently, we have witnesses carve out transactions that enable the PE fund to gain complete control of the purchased business.

A recent keynote transaction – one of the largest carve-out transactions in Luxembourg’s history – involved assisting a PE fund specializing in buy-outs in the formation, consolidation and integration of the carved-out entity into a consolidated multinational company.

We assisted a PE fund specializing in the funding space to acquire a portfolio of claims from a Luxembourg-based litigation funder. The transaction involved several EU jurisdictions and the United States. This transaction required an interplay of tax, M&A, credit and enforcement considerations within a cross-border context.

Another notable deal was leading the construction of a pan-European and Latin American solar energy project finance platform and a subsequent debt raising transactions required for capitalizing the transactions.
These transactions required the coordination of lawyers and tax advisers in various jurisdictions with over 50 legal entities involved. It required an intensely interdisciplinary transaction team with deep knowledge of group reorganisations, M&A, equity and debt financing and deep understanding of the energy and software industries as well as understanding of international arbitration. It demonstrated our capabilities in cross-border transactions and business operations, as well as dispute resolution capabilities.

M&A deals are inevitably cross border in nature, because you have investors in a variety of jurisdictions, the fund and investment platform in Luxembourg, the top of the target group in another jurisdiction and in the majority of cases the target will operate in more than one jurisdiction.

When it comes to tax, this presents challenges in terms of how the investment is funded – that is, how much equity versus how much debt – and elicits all sorts of questions in terms of how much debt would it be appropriate to be borne by the target entities. This is of course primarily a business decision, but causes tax issues in all of the relevant territories in terms of whether any debt that is advanced is done so at an arm’s-length basis.

In addition, there are various rules introduced within the European Union designed to limit the tax deductibility of interest on debt, introduced as part of the EU Anti-Tax Avoidance Directive (ATAD).

Also included in this package of ATAD rules are those that target instances where there is a disparity in how a debt is viewed, resulting in different tax treatments in different jurisdictions.

During 2022 through mid-2024, the tightening of the monitoring conditions and the extra cautious approach of traditional banking lenders have resulted in a contraction in the availability of credit. It is now a general consensus in the market that private credit is the flavour of the day. With secured transaction, lenders, including Luxembourg lenders, are highly sensitive to the borrower’s repayment capacity and quality of the collateral. Debt documents are increasingly demanding, and a high degree of collateral and parent guarantees are needed. Lenders are more weary of ‘liability management’ exercises and inter-lender competition and tightening covenants, and attempt to ensure tighter segregation of their collateral.

In addition, the market requires elaborate covenants and contractual protections for creditors, which can help them identify issues with a company’s balance sheet before it runs into serious problems. Lenders are not satisfied with a single point of enforcement and require collateral at many levels of the structure.

We are also seeing more and more fintech companies enter the private debt space generally targeting smaller SMEs including sole traders. In those instances, loans are typically smaller in size and unsecured.

Since June 2024, the ECB has been engaged in cutting rates and it is likely to stimulate the availability of credit and, more generally, deal activity.

From a tax perspective, the main issues facing private equity transactions are the ATAD rules, and for larger deals, the Pillar Two rules.

The ATAD rules relating to the tax deductibility of interest seek to restrict tax deduction by reference to the yardstick of a business’s earnings before interest, taxes, depreciation and amortisation. Therefore, if a deal is debt funded and interest on that debt is being incurred by the business acquired by PE, you might have a situation where interest is not deductible against profits, but the corresponding interest income (for the borrower) is being taxed in the hands of the investors. This does have the effect of there being careful consideration as to the amount of debt that is used to acquire a target.

The second strand of the enacted ATAD rules with an effect on PE concerns hybrid situations. This relates to situations where a debt instrument or an entity within the overall investment structure (from the investor down to the target group) receives a different treatment from different taxing jurisdictions.

For example, whether the terms and conditions of the debt make it appear to be a debt or more like equity in nature, or whether an entity is viewed as being a flow-through for tax purposes.

Since a consistent approach by each country’s tax system does not exist, when it comes to debt the lending country might treat what is legally a debt as equity, and the borrower may treat it as debt. This means that interest is treated as interest by the borrower, which is generally tax deductible, but the lender may treat it as an equity return, resulting in a more beneficial tax treatment.

The rules relating to entities target similar issues. These new rules mean that a lot more work needs to go into assessing whether there is an unintended breach; for example, resulting from the nature and location of establishment of investors – that is, there is no ‘motive test’ that can be used to say that no tax benefit was being sought, and the breach of the rules is just an accident of the composition of the investor population.

The Pillar Two rules seek to apply a global minimum tax of 15 per cent on enterprises operating in more than one jurisdiction. The rules add yet another layer of complexity to an already complicated interplay of national tax rules in the jurisdictions in which a target business operates. Importantly, the rules are based on the financial statements of a group, not their tax-adjusted profits, so it is vital that groups consider what is disclosed in their consolidated accounts (eg, tax losses should be disclosed otherwise they may be ignored for determining whether a group has paid sufficient tax in a particular jurisdiction).

The incumbent government is vocally in favour of private equity, which it sees as one of the pillars of growth for the country. We have seen Luxembourg grow as a location for investment funds over the years, and it has been for many years the second largest location for investment funds globally, after the United States. Historically, this position was based on retail funds, but now the alternative funds sector is similar in size to the retail sector in terms of assets under management.

The government has positively encouraged the growth of middle-office, and where possible front-office, functions in the country, building on the back-office functions that historically took place here. This has resulted in a number of key global players locating significant functions in Luxembourg.

Given the fact that there are a limited number of publicly traded companies in Luxembourg shareholder activism is not a prominent issue in Luxembourg and derivative suites or proxy wars are uncommon. In general, dissenting shareholder rights are limited and in this respect we recommend that investors conduct thorough due diligence and carefully negotiate their shareholder rights in the company’s articles, shareholders’ agreement or the relevant fund documents.

In our experience, the level of exits is currently quite low compared to pre-pandemic years. The profound impact of tightened monetary policies has had an impact on exits. However, 2025 has demonstrated an uptick in exit activity and helped PE to make progress on the existing backlog of maturing companies.

Bearing in mind that the Luxembourg market tends to serve an international deal structuring platform and, unlike larger economies where significant private equity transactions take place, our data and experience show that exits are primarily effected via traditional acquisitions or otherwise trade sales, and leveraged M&A or public listings are the exception.

A recent transaction was the the acquisition by Montagu, a leading PE fund, of Multifonds, a global provider of investment accounting and transfer agency software, in a carve-out transaction.

Another recent transaction was Luxembourg’s satellite operator SES’s acquisition of rival operator Intelsat for US$3.1 billion. It represents a further consolidation in the satellite industry and Luxembourg’s determination to remain a leading player in the space industry.

Other recent transactions underpin the high interest that the Luxembourg banking sector continues to attract despite significant regulatory headwinds and increased compliance requirements. Among these transactions are Banque Havilland selling its institutional banking business to Banco Inversis, which belongs to Spain’s Banca March with a strategy of supporting Spanish and Latin American clients in Luxembourg, as well as the merger of Fideuram Bank Luxembourg (a wholly owned subsidiary of Intesa Sanpaolo) with Compagnie de Banque Privée Quilvest.

These transactions signify the resilience of the banking sector and its long-term prospects as an international banking sector.

Depending on the type of sponsor, investors have had the upper hand for a while, with the proliferation of new fund sponsors on the market. But over time this has been exacerbated to some degree as investors, given market conditions over the past couple of years, seem to be considering at much more length where they choose to deploy their money. According to S&P Global, following three years of consecutive drops in fundraising activity, the first half of 2025 exhibited an improvement in global fundraising, following a drop in recent years in the setup of new funds formation, the improved M&A and exit conditions is anticipated to improve the fund formation environment. Larger investors are also looking more and more to directly invest in deals rather than allocating commitments to funds. The challenges of the past three years resulted in fundraising cycles’ lengthening, with first closings being pushed back in some cases. There is a lot of pressure on the management fees or priority profit share that PE firms can include in the fund terms. The days of 2 per cent as standard are long gone.

Typically, the process entails the general partner (GP) or the fund sponsors defining the terms and conditions of the fund, planning for the most adequate fund structure, meeting with the investors and negotiating funding commitments, preparing for due diligence and ultimately negotiating the fund’s limited partnership agreement, and, if relevant, drafting the fund’s offering memorandum and closing.

In a Luxembourg context, the critical decisions are determining the most suitable structure and the vehicle selection. The significant factors that the fund promoters will usually have to determine are whether to establish the fund as unregulated vehicles, either as unregulated Luxembourg limited partnerships (LPs) or a corporate form of partnership customarily used for the funds that are characterised as a ‘sub-threshold fund’ or LPs appointing an alternative investment fund manager (AIFM) or, alternatively, as reserved alternative investment funds. These are only a few possible structures, but given the many other options and variations available, there are numerous permutations available depending on the particular circumstances, which clearly marks Luxembourg out as a unique and complete private equity fund ecosystem.

Other key terms we regard as industry standard are those related to governance of the fund that relate to GP removal, key person removal, most favoured nation clauses and fee clawbacks. Post-Brexit, we have seen a tendency to move away from standard English law as the governing law and relying on Luxembourg law with an arbitration clause of use of the Luxembourg courts. In this context, given that the documents are usually in English, we put a particular emphasis on the mechanism for enforcement of the provisions so that tribunals can provide the parties with the expected remedies.

Supervision of private equity sponsors is very much harmonised by EU legislation, and sponsors are subject to a whole plethora of legislation the most prominent of which are the Alternative Investment Fund Managers Directive (AIFMD), securities marketing regulations, the Markets in Financial Investments Directive and, since 2021, disclosures that are required under the Sustainable Finance Regulation as well as extra-statutory guidelines such as those issued by the European Securities and Market Authority.

The marketing and pre-marketing of funds as well as on going reporting obligations are supervised and enforced by the Luxembourg Financial Sector Supervisory Commission (CSSF). The CSSF is positioned as one of the leading financial regulators both within the European Union and internationally, closely monitoring and supervising the sponsors and players in the Luxembourg market, and issues guidelines for managing and conducting activities in the Luxembourg market. The CSSF seems determined to preserve Luxembourg’s stellar reputation and continuously monitors the compliance obligations by all actors in the Luxembourg financial market.

Concrete examples of such supervision relate to pre-marketing of funds by AIFMs in which the CSSF strictly enforces the AIFMD rules on pre-marketing and emphasises the need for a notification letter when conducting such activities. Reporting under Annex IV in respect of article 3(3) of the AIFMD for sub-threshold funds is also strictly supervised and therefore the sub-threshold has the effect of imposing a significant reporting and risk analysis burden on many sponsors and actors.

The AIFMD has been in force in domestic law since 2013, and Luxembourg was one of first member states to adapt to the directive’s requirements, so the effects of the directive have already been felt for a decade and much could be discussed about its effects in general in a Luxembourg context. This regulatory framework has facilitated cross border business
with its passporting regime and harmonisation throughout the European Union; however, it needs to be vigilantly observed by market players. The requirement to appoint an external AIFM has introduced obligations for service providers such as the engagement of depositories, risk management functions and auditors, some of which may be questionable in the context of professional investors.

Inevitably regulation entails a cost and therefore it has increased the cost of doing business, specifically cross-border business. AIFs are not only faced with the higher costs but also with increased administrative burden. In addition, professional investors, which would usually require less protection, who wish to invest in AIFs on their own initiative are now required to observe the regulatory framework. Consequently, the European Union had to find innovative solutions and invigorate a potentially stifled high-growth investment environment. This produced the EuVECA and ELTIF for investment in small and medium-sized enterprises in the European Union, which have thereby somewhat mitigated the effects of the AIFM.

The draft third anti-tax avoidance directive, which would target the use of what are described as ‘shell companies’, has been abandoned due to political pressure from various member states who viewed the proposal as over-reach. It seems likely that a watered-down measure may be introduced as part of the Directives on Administrative Cooperation (DAC) between member states programme.

Nonetheless, being able to demonstrate an economic and commercial rationale for the existence of companies within a structure remains highly relevant. Connected to this is the announcement of the introduction of a new law regarding the tax treatment for individuals resident in Luxembourg who receive carried interest. There are no details available at present as the legislative process is at an early stage, but it is expected that carried interest will be subject to tax at a much lower rate than regular employment income.

A more immediate consideration is the implementation of the Pillar Two rules, or Global Anti-Base Erosion rules (GloBE). These rules, which have been adopted by over 130 countries, seek to impose a global minimum tax rate of 15 per cent at a jurisdictional level. The rules are complex (and we will not seek to detail them here) and rather than trying to accommodate the disparate tax rules around the globe, they use an accounts-based approach to determine whether a particular jurisdiction’s profits have been under-taxed. The US publicly pushed back on these proposals with potential retaliatory measures, but eventually reached an agreement with the G7 on the Pillar Two measures, which effectively means that the measures would not apply to US companies. It is not clear how the rest of the countries that had or were in the process of implementing Pillar Two will react, since the US/G7 agreement effectively carves out the principal targets of Pillar Two (ie large technology companies).

In broad terms, the directive targets the oft-discussed subject of ‘substance’ – that is, the level of business rationale and presence of a particular company in the jurisdiction in which it is established. There are various tests to consider, but broadly speaking a company must have its own decision makers, who are not entirely drawn from unrelated businesses (third-party service providers), and should have their own premises in the territory they are in.

Failing the various tests could result in the loss of the benefit of other European directives, such as the Parent-Subsidiary Directive and the Interest and Royalties Directive.

It remains to be seen how this will play out in practice, because each directive only provides a ‘minimum standard’, and each country will interpret the rules laid down in the directive according to their own legislative traditions and can choose to impose more draconian rules than are required by the directive.

However, private equity firms are already reacting to the directive, because in assessing the tests in the directive, it is necessary to look to the previous two years to make that assessment. Work is already being done to benchmark firms’ adherence to the rules, as they might be interpreted currently, but this is in the absence of any transposition legislation from member states and no official interpretation of the transposition laws.

A more immediate consideration is the implementation of the Pillar Two rules, or Global Anti-Base Erosion rules (GloBE). These rules, which have been adopted by over 130 countries, seek to impose a global minimum tax rate of 15 per cent at a jurisdictional level. The rules are complex (and we will not seek to detail them here), and rather than trying to accommodate the disparate tax rules around the globe they use an accounts based approach to determine whether a particular jurisdiction’s profits have been under-taxed.

Since November of of 2023, Luxembourg has a new government that is very pro-business with the next prime minister likely to be Luc Frieden, a highly qualified and experienced politician, statesman and former finance minister, who understands the world of private equity and its importance to Luxembourg. The party to which he belongs, and who leads the government coalition, is generally considered to be economically more liberal than their coalition partners, who formerly led the country’s governing coalition for nearly 10 years. We are likely to see a pragmatic business environment that will promote the Luxembourg private equity sector and cross border business being transacted via Luxembourg. While Luxembourg’s neighbours are experiencing an economic down turn and therefore are increasing taxes, Luxembourg is likely to maintain its fiscal stability and budgetary discipline and consequently remain an AAA jurisdiction.

Private credit funds will remain an opportunistic approach taken by private equity to deploy their fund resources in the wake of the void left by traditional credit institutions.

A major development recently is the move by private equity promoters to expand their potential investor base. Traditionally this has been composed primarily of institutional and specialist investors, including endowments and ultra-high net worth individuals. However, there have been recent moves to expand this traditional investor base to more ‘retail’ type investors, who would have historically found the potential returns particularly attractive, but would not have had any means of accessing this area of the market. This ‘retailisation’ of a historically closed market clearly entails the consideration of many areas of complexity to be able to offer these products to this section of the investor population, while safeguarding the investors’ interests.

We see green energy, private and environmental, social and governance strategies as a major area of interest of PE funds supporting global growth of expanding energy companies, alternative assets and credit portfolios, tech driven by AI and cybersecurity, healthcare and e-commerce driven investments will also be the subject matter of opportunistic deals.

However, industry leaders such as Bain & Company foresee the fundraising environment outlooks as challenging and requiring private equity firms to adjust to a new environment that is nimbler and investor focus and, needless to say, track record will be a key consideration. Bain & Company have indicated that 2025 has demonstrated an improved fundraising data; however, with political instability, protracted war in Ukraine and US tariff disrupting global trade, we are not yet out of the woods.

With the support of Clarus Risk (www.clarusrisk.com).

The Inside Track

WHAT FACTORS MAKE PRIVATE EQUITY PRACTICE IN YOUR JURISDICTION UNIQUE ?

Luxembourg is one the world’s leading jurisdictions for structuring private equity and venture capital funds; it provides a complete and closed-ended ecosystem for structuring those investments without the need for the use of other jurisdictions. The jurisdiction provides an unparalleled choice of legal vehicles that enable cross-border deal structuring, complemented by a banking and digital payments infrastructure.

The political stability of Luxembourg, the professionalism of its regulators and local service providers are determining factors in its success as a private equity hub.

According to the Luxembourg Private Equity and Venture Capital Association and the CSSF (as of June 2024), the Luxembourg market hosts more than 300 authorised AIFMs and management companies and 685 registered AIFMs having a total of €1.3 trillion of private equity, infrastructure and debt assets under management, as well as a large number of depositories and professional services firms. This concentration of services and expertise in one location creates an outstanding ecosystem for fund and asset management.

When choosing counsel for complex matters, it is important to understand whether the firm can:

  • demonstrate experience in a cross-border environment;
  • think strategically about the client’s business and offer the most appropriately tailored solution for that particular client, including, but not limited to, non-legal issues, the most important of which are the client’s banking facilities and international payment infrastructure; and
  • understand if the same counsel can defend the tax and legal structure that it has put in place in an international context.

In the current environment, we have been confronted with the need to coordinate multiple jurisdictions for tax and legal matters and bring into play our entire capabilities in tax, corporate structuring and governance, M&A, venture capital, venture debt and project debt financing, banking relationships and international arbitration, including, but not limited to, investor state arbitration taking place before the International Centre for Settlement of Investment Disputes tribunal at the World Bank.

PROFILES

About

Ronnen J Gaito is the founder of the law firm of RJ Gaito SARL (2011). He is a member of the Luxembourg Bar, a solicitor in England and Wales, a New York attorney and the Luxembourg chapter chair of the international section of the New York State Bar Association. Ronnen’s practice focuses on advising clients on structuring Luxembourg investment vehicles, private equity and venture capital transactions, mergers and acquisitions, joint ventures, corporate finance (debt and equity offering), fund formation, corporate governance matters as well as post-transaction cross-border dispute resolution and litigation. Ronnen’s most recent experience has involved extensive structuring of worldwide investment structures for renewable energy firms and preparation of their international debt financing and private equity acquisition. In addition, his work has extended to group reorganisations for the purpose of optimising exit strategies and initial public offerings (IPOs), debt facilities and negotiations of complex technology licensing agreements. He provides extensive Luxembourg law advice for major international law firms.

Martin Hollywood has over 29 years’ experience working in the area of international tax gained within a Big Four environment, focusing mainly on alternative investment funds. He has advised many of the largest global private equity players on the market, advising on the structuring of investment funds and holding platforms, and on the various stages through the life-cycle of a fund, from the structuring of investment acquisition – including management incentive programmes, co-investment and participation by business founders – through the holding period, including liquidity events, refinancing, emergency financing and partial disposals – to the final exit, whether through a sale to a secondary PE buyer, a strategic investor or by way of IPO. Martin is the tax director at RJ Gaito, where he continues to be involved in the structuring of transactions.

Our experience:
RJ Gaito is celebrating 14 years in business; our firm has acted for and against major corporations, entrepreneurs, as well as private clients in the various jurisdictional levels of the Luxembourg courts system commencing in the lower courts up to the Luxembourg Supreme Court (“la cour de cassation”), including current proceedings now pending with ICSID.

Our firm has obtained freezing orders over various asset classes, acted in emergency proceedings, and enforced foreign judgments in Luxembourg. We assisted equity investors, debtors and creditors in complex distressed debt matters and, over the years, we were successful in multi-million Euro/United States Dollar recoveries for creditors and equity investors.

Ronnen J. Gaito Martin Hollywood
gaito@rjgaito.com martin@rjgaito.com
40 rue Glesener
L-1630 LUXEMBOURG

Tel. (352) 20 600 333
Fax. (352) 20 600 334
Mob. (352) 621 32 37 34
e-mail: info@rjgaito.com
https://www.rjgaito.com

]]> Unprecedented €746,000,000 Amazon fine for GDPR breaches confirmed by the Luxembourg Administrative Court https://rjgaito.com/fines-and-penalties-imposed-on-amazon/ Mon, 14 Apr 2025 16:54:20 +0000 https://rjgaito.com/?p=2125

April 15th, 2025

Luxembourg Administrative Court confirms an unprecedented €746,000,000 and a daily penalty of €746,000 inflicted on Amazon by Luxembourg’s national data protection authority.

An Examination of GDPR Enforcement and Due Process

Introduction. In a significant legal battle concerning data protection and regulatory compliance, Amazon Europe Core Europe SARL (Amazon) has challenged the decision of the Luxembourg National Commission for Data Protection (CNPD) following a substantial fine imposed for alleged violations of the General Data Protection Regulation (GDPR). This article delves into the intricacies of the case, highlighting the legal arguments presented, the court’s reasoning, and the broader implications for data protection enforcement.

Background. The case emanates from a complaint lodged in May 2018 by the French advocacy association, La Quadrature du Net (LQDN) with the Commission Nationale de l’Informatique et des Libertés (CNIL) in France in relation to Amazon’s processing of personal data practices. In the context of the European cooperation governed by Articles 60 and 62 of GDPR, the Luxembourg CNPD was identified as the lead supervisory authority competent in accordance with article 56 of GDPR.

The CNPD undertook an analysis of Amazon’s compliance with GDPR in respect of gathering information via “cookies” to determine the relevant advertising based of its customers’ interest.

On 15 July 2021, the CNPD issued a decision against Amazon, imposing a fine of €746,000,000 for breaches of various GDPR provisions while requiring it to take corrective measures within 6 months of notifications, subject to a daily penalty of €746,000. Subsequently, Amazon lodged an appeal with the administrative court on 15 October 2021, seeking both the annulment of the CNPD’s decision and a suspension of its enforcement pending the appeal’s outcome.

CNPD’s Findings. Primarily, Amazon’s practices were failing to comply with the most basic principle of GDPR being a lawful basis for processing of personal data under article 6 of GDPR; furthermore, failures to comply with transparency obligations, and violations of data subjects’ rights, particularly Articles 12 to 17, and 21 of the GDPR. The CNPD rejected Amazon’s use of article 6(1)(f) of GDPR being based on a “legitimate interests pursued by the controller or by a third party” as a lawful basis for processing.

Amazon failings. Transparency, complexity, impact on individuals, inadequacy of corrective measures.

Severity of Breaches: The CNPD emphasized the seriousness and duration of the breaches in its analysis, asserting that the violations persisted from at least May 25, 2015, until the start of the investigation. It also highlighted that the number of affected data subjects and the potential harm they could suffer were significant factors justifying the sanctions imposed.

In 2019, Amazon created a substantial number of advertising profiles as follows:

  1. 560,300,000 active European advertising profiles linked to terminal equipment associated with an authenticated visits to an Amazon site, with an additional 317,900,000 profiles that have been inactive for 9 months.
  2. 1,591,000,000 active profiles relating to non-authenticated visits to an Amazon site, with an additional 979,300,000 profiles that have been inactive for 9 months.
  3. 5,786,600,000 active profiles established based on unauthenticated terminal equipment that has not visited an Amazon site visit, with 7,813,900,000 profiles that have been inactive for 9 months.

Justification of Sanctions: The CNPD defended the imposition of a substantial fine, arguing that it was necessary to ensure compliance and deter future violations. The CNPD contended that the fine was effective, dissuasive, and proportionate based on the criteria established in Article 83 of the GDPR.

Quantum. Under GDPR (Article 83(4)) Amazon was exposed to a maximum of 4% of its worldwide turnover of its United State Parent, however the CNPD chose to impose a fine corresponding to 0.24% of the said turnover. We note that 0.24% corresponds to the current lower range of registration tax (droit d’enregistrement) for certain Luxembourg transactions.

Amazon’s Due Process Arguments. In its defense, and surprisingly, Amazon heavily relied on due process arguments rather than tackling the challenges that the CNPD posed to its “cookies” practices.

Amazon argued that the fines imposed by the CNPD were criminal in nature, thus entitling them to procedural guarantees under Article 6 of the European Convention on Human Rights (ECHR) and Article 47 of the Charter of Fundamental Rights of the European Union. They contended that the CNPD had failed to provide a fair trial, citing procedural flaws and insufficient reasoning in the CNPD’s decision.

Specifically, Amazon pointed out that the sanctions imposed under Article 83 of the GDPR are of general application, apply to any controller, and require a finding of guilt and liability. They noted that the amount of the fine was substantial (€746 million), and they argued that this fine represented a severe penalty, which reinforced their claim that the sanctions should be viewed as criminal.

In the context of arguing that the fines imposed by the CNPD were criminal in nature, which would require the associated procedural guarantees, including the principle of culpability, Amazon contended that the concept of culpability necessitates determining the degree of culpability—whether it was intentional, reckless, or negligent. Amazon asserted that conduct that does not reach the threshold of negligence should not serve as the basis for a criminal fine. Furthermore, Amazon maintained that the CNPD’s decision did not establish that it had culpably infringed the GDPR.

Amazon went on to claim that the administrative procedure lacked objectivity and impartiality, asserting that the CNPD’s structure created a conflict of interest, given that the same body conducted investigations and made adjudications. Additionally, the plaintiff criticized the CNPD for failing to allow access to crucial documents from other supervisory authorities, which they argued hindered their ability to defend against the allegations effectively.

Astonishingly, Amazon challenged the composition of the CNPD’s panel by arguing that one of the commissioners, had served beyond the maximum legal term of 12 years, which violated the provisions set out in the Law of 1st August 2018. Amazon contended that due to this unlawful duration of office, the panel was not competent to take the disputed decision, rendering the decision itself unlawful. They framed this situation as a “usurpation of power,” indicating that decisions made by a person whose term had expired would be considered void or non-existent.

Amazon further asserted that the independence of the CNPD was compromised because a commissioner serving beyond the legal limit undermined the institution’s integrity and independence, which is essential for ensuring fair and impartial adjudication. They cited that the irregularity in the composition of the panel violated their rights to a fair trial and defense.

Amazon’s defenses to it GDPR breaches.

The Luxembourg court recalled the CJEU’s ruling in Fashion ID (C-40/17) three cumulative conditions for being able to rely on “legitimate interest” (article 6(1)(f) of GDPR) as a lawful basis for data processing and notably i) the pursuit of a legitimate interest by the controller or by the third party or parties to whom the data is disclosed, ii) the necessity of the processing of personal data for the realization of the legitimate interest pursued, and iii) the condition that the fundamental rights and freedoms of the data subject do not prevail.

Legitimate interest. Amazon put forward four legitimate interests: (i) Amazon’s own interest in providing useful and tailored advertising to its customers enabling them to browse the vast catalog, (ii) the interest of brands, manufacturers, vendors and other businesses relying on the plaintiff to advertise their products online, (iii) the interest of website publishers relying on the plaintiff to generate revenue from the sale of their advertising space to advertisers and other interested buyers and finally (iv) the interest of the European community at large, materialized, according to Amazon, by the growth of the Internet economy in the European Union. It should be noted that the CNPD refused to take that final element into account.

Necessity. Amazon argued that it adopted multiple protection measures that determine that “there would have been no less intrusive means of achieving its legitimate interest effectively” and notably the following technical and organizational measures were undertaken: (i) opt-out option, (ii) pseudonymization of personal data, (iii) accessible information notices (iv) restrictions on the processing of personal data revealing certain categories of personal data (inter alia race, ethnic origin, political opinions), (v) “short storage” periods of a maximum of 13 months (vi) restrictions on contracts concluded with third parties, and (vii) a ceiling on the frequency with which a person would be exposed to a given advertisement.

Amazon further criticized the CNPD that it failed to take due account of the fact that it would have used only the minimum amount of data for its processing activity in the context of behavioral advertising; arguing that it eliminated over 99% of the available information on its customers’ purchasing behavior and integrated only the remaining percentage into the pseudonymized profiles.

With respect to “cookies” on third-party websites, Amazon argued that “as of December 2020, 99.5% of “cookies” displays by it on third-party websites would concern customers who had given their consent, so that for these advertisements, the company would no longer rely, as a legal basis for personal data processing, on the concept of legitimate interest within the meaning of Article 6(1)(f) of the GDPR.”

Court Findings. The administrative court examined the admissibility of the appeal and the substantive arguments raised by Amazon. The court noted that the CNPD had sufficient grounds for its decision and that the imposition of a fine was legally justified under the GDPR. It was also found that the CNPD had adequately explained the reasoning behind the fine, which was deemed proportionate and necessary given the extent of the violations. Amazon was not successful in any of its arguments.

The court did not accept Amazon’s claim that the penalty imposed by the CNPD was a criminal sanction. It concluded that the nature of the violations and the penalties under the GDPR were administrative in nature, which meant that the CNPD was not classified as a judicial body under Article 6 of the ECHR. The court found that while the penalties could be severe, they were consistent with administrative enforcement rather than criminal law. It emphasized that the CNPD had the discretion to impose fines and that such administrative fines do not necessarily carry the same procedural guarantees as criminal penalties. The court also noted that the CNPD’s actions were within the framework of the GDPR and Luxembourg law, which allows for such administrative penalties without requiring the same guarantees as criminal law.

The court ultimately dismissed the Amazon’s plea regarding the breach of principles of due process and the right to a fair trial. It noted that Amazon had been given ample opportunity to present its case and that the CNPD’s decision had met the necessary legal standards of reasoning.

The court found that Amazon acted negligently in breach of several articles of the GDPR, specifically Articles 6, 12 to 17, and 21. The court noted that the breaches were duly established and indicated that the company had not adopted sufficient corrective measures to comply with the requirements of the GDPR.

Court’s attitude towards Amazon mitigating protective measures.

Pseudonymization. The court found that pseudonymization did not sufficiently mitigate the breaches that were established against Amazon. The court emphasized that the breaches of the GDPR were serious, affecting a large number of individuals and persisting over several years, which outweighed the mitigating circumstances presented by Amazon.

Opt-out mechanism. Did not fully comply with the requirements of Article 21 of the GDPR. Specifically, the court noted several criticisms regarding the mechanism:

  1. Limited Scope: The opt-out mechanism did not cover certain treatments, such as personalized recommendations. It was pointed out that individuals wishing to stop the processing of their personal data for personalized recommendations had to take additional steps beyond simply opting out of behavioral advertising.
  2. Accessibility: The court mentioned that the accessibility of the opt-out mechanism via the “AdChoices” icon was inadequate, as the icon was small and did not provide clear information about the possibility of accessing the web page to exercise the right to object.
  3. Retention of Choices: The court highlighted that the opt-out mechanism did not retain the choices made by the data subjects effectively. If a data subject exercised their right to opt-out and then logged in from a new device or after deleting cookies, the preferences page would revert to indicating that they wished to receive behavioral associated advertising.
  4. Delay in Data Deletion: The court also pointed out that the company did not delete personal data as soon as possible following the opt-out exercise, which is a requirement outlined in Article 17 of the GDPR.

Overall, the court concluded that the opt-out mechanism was insufficient and did not meet the established requirements.

Information received from third parties’ website. The court found that the Amazon failed to comply with its obligations under Articles 12 to 14 of the GDPR, specifically regarding transparency and providing information to data subjects. The court noted that Amazon’s notices did not adequately inform data subjects about the categories of third parties receiving data or the specific details of those third parties. For example, it was held that the references to third parties were too vague, stating merely that personal data were transmitted to “advertisers, publishers, social networks, search engines, ad publishing companies” which did not meet the requirement for specificity as outlined in the GDPR.

Moreover, the court emphasized that Amazon’s notices did not clearly indicate the sources of demographic data collected from third parties, failing to provide sufficient detail regarding the types of data and the third parties involved. This lack of specificity in informing data subjects about third-party involvement and the nature of data collection was a crucial factor in the court’s conclusion that Amazon did not meet its transparency obligations under the GDPR.

Limitation on retention period. The court dismissed Amazon’s argument regarding the limitation on the retention period for personal data. It stated that Amazon did not assert, and that it did establish that it deletes the personal data at issue as soon as possible following the exercise of the opt-out by the person whose data was collected and processed. The court noted that the company’s explanations were limited to arguing that such deletion would have no tangible impact on the data subjects and that it would no longer provide personalized behavioral advertising once the right to object had been exercised, which was deemed irrelevant concerning the right to erasure. Consequently, the court found that the breach of Article 17 of the GDPR still existed at that time.

In its assessment of Amazon’s practices, the court noted that, with regard to the nature, volume and retention period of the personal data collected and processed by the applicant, Amazon has failed to establish the necessity of the processing of the said personal data, as carried out by it in practice, in the context of its behavioral advertising or otherwise “cookies” practices.

Quantum. The court upheld the fine imposed on Amazon by the CNPD, declaring that the main action brought by amazon was unjustified. The court found that the CNPD had properly established the breaches of the GDPR and that the fine of €746,000,000 was effective, proportionate, and dissuasive.

The court rejected Amazon’s claims that the fine was disproportionate and emphasized that the CNPD had taken into consideration all relevant factors set out in Article 83(2) of the GDPR when determining the amount of the fine. It noted that the breaches had affected a significant number of individuals over several years and that the fine was within the permissible limits set by the GDPR.

Furthermore, the court found that Amazon had acted negligently in relation to the processing of personal data and that the CNPD’s decision to impose the fine was justified. The court also dismissed Amazon’s arguments regarding the need for additional reasoning related to the fine and the daily penalty payments associated with corrective measures.

Our take. Notwithstanding Amazon’s extensive attempts to use procedural tactics to thwart the CNPD’s fine, the most bizarre of which, in our view, was the use of the ECHR, Amazon failed to establish the basic premise of GDPR being the need to have a lawful basis for processing of personal data. Amazon could have easily resorted to “consent” as a lawful basis for processing but chose not to; in this respect, we take the view, that Amazon was not just “negligent” (using the court’s words), it was reckless in that it took risk with its approach to what constitutes a lawful basis of processing and stretched the definition to a breaking point practices. Historically, Amazon built a significant customer base by way of “cookies” and third party “cookies”, third-party web referrals which generate significant traffic to its site(s). Amazon failed to adapt to a post GDPR world where enforcement was stricter with more draconian measures available to data protection authorities to enforce data privacy and deter misconduct. In this context, we note that in our newsletter of October 2018 we highlighted the high potential for litigation following the implementation of GDPR.

The Luxembourg’s court’s affirmation of the CNPD’s authority to impose significant fines reflects a robust commitment to upholding data protection standards in the EU. After lengthy proceedings that lasted close to 4 years amazon was defeated on all grounds.

Furthermore, although the Luxembourg Administrative Court responded thoroughly to procedural fairness and due process arguments, Amazon ought to have “read the writing on the wall” following the €35,000,000 fine imposed on it by the CNIL and focus its efforts on a revised compliance program.

Amazon indicated its desire to appeal the case, and the administrative court approved suspending the imposed fine, we take the view that, unless Amazon can demonstrate a lawful basis for processing, its appeal is unlikely to be successful.

Conclusion. The legal dispute between Amazon and the CNPD illustrates the ongoing tension between commercial objectives and the strict framework of GDPR compliance. The case provides a good illustration of the strict and rigorous analysis that data controllers need to undertake prior to processing personal data. In addition, the case highlights the current challenges of using the digital advertising technology of “cookies” personalization use cases depend on third-party cookies. If a user opts out of this tracking application, e-commerce actors lose the ability to track them across platforms, and subsequently, deliver tailored ads. The current trend in the market is to abolish third-party cookies so e-commerce actors will no longer be able to track users across different websites.

]]> RJ Gaito Award 2024 https://rjgaito.com/rj-gaito-award-2024/ Wed, 18 Sep 2024 11:29:13 +0000 https://rjgaito.com/?p=1982
IFLR1000 2024 Recognised Firm

RJ GAITO law firm, Luxembourg, celebrates multiple rankings in IFLR1000

Luxembourg, September 13th 2024 — RJ GAITO law firm proudly announces its remarkable achievements in the IFLR1000 2024 rankings. The firm has been awarded 2 rankings on the prestigious platform, being recognised for M&A and Restructuring & insolvency, which affirms its status as a leader in the Luxembourg legal market.
Clients of RJ GAITO law firm echo this sentiment, highlighting the firm’s impactful work: “In term of professionalism – they are really one of a kind. their ability to provide an advise on multiple matters in a timely manner, their ability to make an in-depth analysis of the legal matters and at the same time always to keep a macro vision of the situation, they have a lot of experience and are able to solve almost every legal problem and to think out of the box.”

IFLR1000’s annual rankings identify the top law firms and lawyers in financial and corporate law globally, based on transactional evidence and client feedback. This recognition reflects RJ GAITO law firm’s ongoing commitment to excellence and its ability to deliver client satisfaction in the most complex legal challenges.

About RJ GAITO law firm: International independent boutique Luxembourg law firm, areas of expertise: Venture Capital, Private Equity, M&A, investment and fund structures, issuance of Employee Stock Option Plans for high growth companies, secured and unsecured debt, asset backed securities as well as bond issuance transactions.

]]> Litigation Speed Read: Luxembourg Arbitration Reform https://rjgaito.com/litigation-speed-read-luxembourg-arbitration-reform/ Thu, 18 May 2023 20:46:16 +0000 https://rjgaito.com/?p=1896

GENERAL GUIDING PRINCIPLES:

On 25th April 2023, a law came into force that reforms the Luxembourg New Civil Procedure Code in relation to arbitration (the “Law”). The Law aims to modernize and enhance the internal Luxembourg arbitration legal framework with a view to making Luxembourg a more attractive jurisdiction for international arbitration and relieving the pressure on the local Luxembourg courts.

The law mainly adapts the UNCITRAL model law and latest developments in French and Belgian law. Consistent with the UNCITRAL approach, the law reflects the understanding that parties to an arbitration agreement have made a conscious decision in favor of the finality and expediency of the arbitral process. Consequently, annulment of an arbitral award in the Luxembourg Court of Appeal is now restricted to procedural irregularities, violation of the right of defense and the public order.

The salient points of the Law are the following:

  • Jurisdiction. The arbitral tribunal has the power to determine questions of jurisdiction including but not limited to the existence and validity of the arbitration agreement. Where a matter is subject to an arbitration agreement, the Luxembourg courts may only accept jurisdiction where the arbitration agreement is null and void because the subject matter is not arbitrable or for any other reason the arbitration agreement is manifestly null and void.
  • Arbitration Agreements. Liberal interpretation of arbitration agreements with no need for a separate arbitration agreement; an arbitration clause would suffice; the parties to the arbitration agreement are very much free to regulate the place of the arbitration seat, number of arbitrators and arbitration procedures.
    With the objective of bringing efficiency to the legal process, and in the absence of contractual terms, the Law set a maximum time limit of six months to complete the arbitration proceedings although, it should be noted that, an extension to that period is possible in certain instances. In addition, the default number of the arbitral tribunal is three arbitrators.
  • Powers and procedures of the arbitral tribunal. Other than attachment orders (“saisie-arrêt) that may only be granted by the Luxembourg courts, the arbitral tribunal can grant interim and provisional measures.
  • Supporting judge. The Law creates a new dedicated role for a supporting judge (“juge d’appui”), who can resolve procedural difficulties in arbitration subject to the jurisdiction of the Luxembourg court. It should be noted that the judge’s jurisdiction is limited to cases where: “(i) where the seat of arbitration is Luxembourg, (ii) cases where the parties have submitted their arbitration to Luxembourg procedural, (iii) the parties have expressly given jurisdiction to the Luxembourg courts to hear disputes relating to the arbitration proceedings, or (iv) where there is a significant link between the dispute and the Grand Duchy of Luxembourg.”
  • Annulment and request for setting aside of an arbitral award. In the interest of creating efficiency in the judicial proceedings, set-aside proceedings are only possible in the Luxembourg Court of Appeal and limited to the following grounds: (i) wrongful determination by the tribunal of itself as having or not having jurisdiction, (ii) improper constitution of the tribunal, (iii) failure by the tribunal to comply with its assigned task, (iv) award contrary to public order (v) unreasoned award (can be waived by the parties), or (vi) violation of defence rights.
  • Request for revisions and withdrawals of awards. A request for reexamination of the arbitral award can be made to the arbitral tribunal in cases of: (i) fraud, (ii) withholding of crucial evidence, (iii) awards obtained based on false documentation, or (iv) awards based on testimonies which were adjudicated as false.
    It should be noted that any subsequent revision application needs to be litigated by the arbitral tribunal, and where the tribunal cannot be reconvened, brought before the Luxembourg Court of Appeal.
    It is also worth noting that a request for annulment and an appeal decision upholding enforcement does not have suspensive effect. However, the Court of Appeal, ruling as in summary proceedings, may stop or adjust the enforcement of the award if such enforcement is likely to seriously prejudice the rights of one of the parties.
  • Foreign arbitral awards. Foreign awards may not be set-aside in Luxembourg but at their seat of arbitration. Such awards are enforceable in Luxembourg subject to the so-called “exequatur” procedure and may only be challenged based on limited grounds.


Our take and practical considerations:

  • Considering the prominence of the Luxembourg financial market and the extensive use of Luxembourg vehicles, the Law provides an enhanced framework and certainty for international transactions. Whereas, in the past, parties have tended to have agree on Luxembourg to govern the substantial contractual obligation but chose a legal seat of arbitration outside Luxembourg, there is now scope to reconsider this approach and choose Luxembourg as well for the seat of arbitration. In addition, the established Luxembourg practice of enforcing agreements in accordance with their terms as well as the possibility to conduct the arbitration proceedings in English, makes the seat of the arbitration in Luxembourg an ever more coherent choice.
  • We advise parties choosing arbitration to draft clear and detailed arbitration clauses and to avoid use of implied terms in order to avoid creating grounds to contest the meaning of the clause causing delays and uncertainty in the arbitration process.
  • Finally, in the parliamentary preparatory work, the Luxembourg Chamber of Commerce (2021) went one step further in proposing the introduction of a state court adjudicating in English, stating that this will give the impetus for Luxembourg to become a prominent place for arbitration. This, in our view, will catapult Luxembourg law to be a force to be reckoned with in the financial and legal market.


Our experience:
RJ Gaito is celebrating 12 years in business; our firm has acted for and against major corporations, entrepreneurs, as well as private clients in the various jurisdictional levels of the Luxembourg courts system commencing in the lower courts up to the Luxembourg Supreme Court (“la cour de cassation”), including current proceedings now pending with ICSID.

Our firm has obtained freezing orders over various asset classes, acted in emergency proceedings, and enforced foreign judgments in Luxembourg. We assisted equity investors, debtors and creditors in complex distressed debt matters and, over the years, we were successful in multi-million Euro/United States Dollar recoveries for creditors and equity investors.

Ronnen J. Gaito Gwendoline Bella
gaito@rjgaito.com gwendoline@rjgaito.com
40 rue Glesener
L-1630 LUXEMBOURG

Tel. (352) 20 600 333
Fax. (352) 20 600 334
Mob. (352) 621 32 37 34
e-mail: info@rjgaito.com
https://www.rjgaito.com

]]> RJ Gaito and Baker & Hostetler are representing a Luxembourg investor in an Energy Charter Treaty claim against the Republic of Slovenia before the International Centre for Settlement of Investment Disputes (ICSID). https://rjgaito.com/luxembourg-investor-in-an-energy-charter-treaty-claim/ Thu, 29 Dec 2022 15:04:46 +0000 https://rjgaito.com/?p=1886

RJ Gaito and Baker & Hostetler are representing a Luxembourg investor in an Energy Charter Treaty claim against the Republic of Slovenia before the International Centre for Settlement of Investment Disputes (ICSID).

On behalf of our client Towra S.A.-SpF, we recently filed a request for arbitration against the Republic of Slovenia with the World Bank’s International Centre for Settlement of Investment Disputes (ICSID).

The arbitration, Towra SA-SPF v. Republic of Slovenia (ICSID Case No. ARB/22/33), which concerns Slovenia’s expropriatory and discriminatory treatment of Towra’s investment in Slovenian lignite producer Premogovnik Velenje, d. o. o., in breach of the Energy Charter Treaty (ECT). ICSID, part of the World Bank Group headquartered in Washington, D.C., is the world’s leading arbitral institution for settlement of disputes between States and foreign investors.

To vindicate our client’s treaty rights in this international forum, RJ Gaito has joined forces with colleagues and friends from the International Arbitration and Litigation practice at Baker & Hostetler including Carlos Ramos-Mrosovsky and Oren Warshavsky in New York and Paul Levine in Washington, DC.

Ronnen J. Gaito, founding partner, commented:

For the past 12 years our firm has advised sophisticated international clients on investments around the world. This case demonstrates our broad international reach, the strength of our international partnerships, and our ability to defend our clients’ interests on a global stage.

]]> EU accedes to the Hague judgement convention of 2 July 2019 https://rjgaito.com/eu-accedes-to-the-hague-judgement-convention/ Mon, 24 Oct 2022 08:29:28 +0000 https://rjgaito.com/?p=1869

Overview

The EU formally acceded to the convention of 2 July 2019 on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters in August 2022 (the “Convention”).

The Convention will enter into force on 1 September 2023.

To date, the Convention has been signed by Uruguay, Ukraine, Israel, Costa Rica, Russia, and the United States; only the Ukraine and EU (except for Denmark) have ratified the Convention.

Recognition and enforcement of foreign judgement in civil or commercial matters

The main objective of this Convention is to facilitate and secure cross-border relations by harmonizing the circulation of judgments on a global scale.

Although the Convention shall apply to the recognition and enforcement of judgments in civil or commercial matters, a certain number of exceptions have been set under the Convention, for example, family law, insolvency, freight and passenger transport, slander, arbitration, restriction of competition matters. These exclusions render the Convention of a more restricted application than Regulation EU n°1215/2012 of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters within the EU (“Brussels I Recast”).

Under the Convention a judgment refers to any type of judicial decision rendered on the merits of a case regardless of it being referred to as a judgement.

We note that, under article 4 of the Convention, a foreign judgment shall only be recognized or otherwise receive “full faith and credit” if two conditions are met:

  • The decision produces an effect in the State of origin; and
  • The decision is recognizable and executable in the State of its origin and provided that the conditions set forth under articles 5 and 6 of the Convention are complied with.

It should be noted that a judgement is eligible for enforcement under articles 5 and 6 provided one of 13 grounds is complied with.

It should be further noted that decisions regarding real estate rights will only be recognized and executed if that decision has been rendered by the jurisdiction where the real estate is situated.

Refusal to recognize and execute a decision

Under articles 7, 8 and 10 of the Convention, the requested State has a right to refuse the recognition and the execution of a judicial decision for the reasons listed exhaustively by the Convention (for example, fraud, incompatibility with public order, the documents introducing the procedure have not been properly served and conflict with another decision). In our view, some elements in the said articles could render the execution of a decision complex given that it may require the judge of the requested State to analyze the decision taken by a foreign judge under a foreign law. In effect, from a Luxembourg perspective, those provisions could further complicate our current full faith and credit proceedings (a.k.a “Exequatur”).

Procedure

While providing mutual recognition of judgments, the Convention maintains each contracting State’s internal procedures for recognition, which in Luxembourg is the so-called Exequatur procedure.

Possible derogation

We note that, the Convention permits the possibility for the contracting States to derogate from one or several provisions of the Convention.

(Articles 14, 17 to 19, 25 and 30)

Our Take

In our view, although the Convention is well intended it remains of limited benefit.

As mentioned, a contracting State’s right to derogate from certain provisions, the pre-existing conditions for enforcement, and the matters which are expressly excluded detract significantly from its attractiveness.

Furthermore, the procedure of recognition and execution remain those applicable in each State, and therefore any local complexities, as the case may be, remain in place. In this respect, in Luxembourg, the procedure of Exequatur will apply to all States other than those being party to the Brussels I Recast and the Lugano Convention.

We note that, an Exequatur procedure entails substantial costs, is lengthy as well being subject to the right of appeal.

Therefore, in our view, enforcement, and recognition of decisions within the EU under the Brussels I Recast and the Lugano Convention will remain far easier, quicker, and ultimately, cheaper.

Contact:

Ronnen Gaito: gaito@rjgaito.com

Gwendoline Bella: gwendoline@rjgaito.com

40 rue Glesener
L-1630 Luxembourg
Tél. (352) 20 600 333
Fax. (352) 20 600 334
https://www.rjgaito.com
]]> RJ Gaito and Ben Ami, Bigon & Co advises Solaer Renewable Energies Ltd on their international expansion and Project Financing https://rjgaito.com/rj-gaito-and-ben-ami-bigon-co-advises-solaer-renewable-energies-ltd-on-their-international-expansion-and-financing/ Wed, 17 Aug 2022 09:58:26 +0000 https://rjgaito.com/?p=1845

Luxembourg law firm RJ Gaito, Israeli tax law firm – Ben Ami, Bigon & Co (@Ben Ami, Bigon & Co) and Martin Hollywood (@Martin Hollywood) of PWC advised Solaer Renewable Energies Ltd (@Solaer renewable energy Ltd) on the implementation of their Luxembourg and international project finance platform.

Following the implementation of the investment platform, RJ Gaito acted for Resolar SARL in the conclusion of a credit facility with KommunalKredit Austria AG for the financing of Solaer’s projects in Italy, Spain and Chile.

The transactions were led by partner Ronnen J. Gaito (corporate M&A, reorganization, and financing), Senior Counsel, Harry Ghillemyn (financing) and Valerie Herriot (corporate and finance).

Gilad Ben Ami (@Gilad Ben Ami) and Ran Bigon (@Ran Bigon) of Ben Ami, Bigon & Co, in Israel, and Martin Hollywood of PWC in Luxembourg led the tax matters.

In Spain, Alvaro Mateo Sixto, leading the team with Juan Pérez, Inés López Seco of Gómez-Acebo & Pombo (Corporate, M&A and financing).

Toni de Weest Prat and Jordi Ruis of Broseta for Spanish tax aspects.

In Italy, Marzio Cianci, leading the team with Benedetta Frizzi and Bernasconi Tommaso.

In Chile, Benjamín Pérez of Guerrero Olivos.

Ronnen J. Gaito, Gilad Ben-Ami and Ran Bigon commented “We are delighted to have been able to advise on these highly sophisticated transactions which reflect our firms’ capabilities in tax, M&A, cross border group reorganizations and finance practices. This matter is a further demonstration of our sophisticated international practices and our ability to support our clients’ international growth.”

Alon Segev, CEO of Solaer, commented “I thank the RJ Gaito and the Ben Ami, Bigon & Co teams for their outstanding work, they brought to our team exceptional cross-border capabilities and provided us with a turn-key solution for supporting our international growth.”

About Solaer Renewable Energies – https://www.solaer.co.il/

Solaer Renewable Energies Ltd is an Israel-based renewable energy project builder and operator. The company initiates, builds and operates currently solar systems in Israel, Spain Italy and Chile with a project pipeline of 3,800 MW.

]]> Luxembourg further strengthens its attractiveness for International Lenders and Credit Institutions https://rjgaito.com/luxembourg-further-strengthens-its-attractiveness-for-international-lenders-and-credit-institutions/ Wed, 10 Aug 2022 18:20:00 +0000 https://rjgaito.com/?p=1819

Highlights and Market Outlook

The Luxembourg law of 5 August 2005 on financial collateral arrangements (the “Law”) has served as a highly effective mechanism for structuring credit transactions and collateral arrangements that are primarily structured at the level of Luxembourg holding companies and their subsidiaries. The Law is perceived by the market to protect creditors rights and is updated on a regular basis to keep pace with an ever-evolving restructuring market.

The current amendments to the Law entered into force on 24 July 2022 and further strengthens creditor protection as well as further enhances the attractiveness, versatility, and flexibility of the Luxembourg investment platform for cross border investments for debt and equity transactions and, more particularly in a context of distressed debt reorganizations.

In the current environment where the Directive (EU) 2019/1023 relating to “preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring and insolvency and discharge of debt” has not been fully implemented in all Member States, the EU lacks an effective and certain reorganization process and leaves creditors and debtors in an uncertain and vulnerable position, and as a result thereof, most pan-European financing, refinancing, private equity and restructuring matters involve a Luxembourg single point of enforcement given the enhanced legal certainty and clarity that the Law provides as well as its automatic recognition throughout the EU.

Key improvements to the Luxembourg Law on Financial Collateral Arrangements

Below you will find a short overview of the key changes to the Law:

a)Extension of scope beyond financial collateral to fungible precious metals

The Law applies now fungible precious metals, which category includes metals of the same nature, form, quality and deposited without identification with Luxembourg credit institutions or depositories of precious metals authorized in Luxembourg, such as gold.

b)Confirming market practice

  • Enforcement Event / Application of Proceeds

Confirmation that parties are free to define the collateral enforcement event which can be any event “whatsoever (quelconque)”. This confirms that in Luxembourg it is not necessary that the secured obligations be due and payable if parties so agree.

Note however that if the security is enforced in the absence of secured obligations that are due and payable, then the Law now specifies that the enforcement proceeds must be applied in discharge of the underlying secured obligations, unless the parties otherwise agree.

  • Financial Instruments admitted to trading

The Law now clarifies that the pledgee may sell the pledged financial instruments by carrying out a sale over any trading venue where the financial instruments are listed which includes any regulated market, multilateral trading facility or organized trading facility.

In absence of a specific agreement on valuation, the Law further specifies that the pledgee may appropriate the pledged financial instruments at their market price on the trading venue on which they are admitted to trading.

  • Insurance Claims

All rights resulting from the insurance contract documenting the pledged insurance claims, including the exercise of the repurchase right or demand payment from the insurance company for the amounts due may could be subject to a pledge.

  • Units or shares in undertakings for collective investments (UCIs)

It has been clarified that units or shares in UCIs may be appropriated:

a) at their market price in case these are listed on a trading venue; or
b)at the price set out in the latest published NAV to the extent such NAV is not older than one year. Under the previous version of the Law, an appropriation at NAV was only possible in case the UCI published the NAV on a regular basis

It is now also possible for the pledgee to redeem the pledged units or share at redemption price in accordance with the constitutional documents of the relevant UCI.

c)Modernization of Public Auction Regime

The involvement of the Luxembourg Stock Exchange to carry out the enforcement of collateral by public auction is abolished. The Public Auction Regime has been modernized and serves as a secondary default procedure which only applies in case the parties have not agreed otherwise. The Public Auction may be carried by a Luxembourg bailiff or notary, who will be responsible for giving publicity to the auction and verifying the identity and creditworthiness of the bidders. The new regime has specific requirements on price setting and, publication and overbidding and creates a more flexible system.

d)Transfer of Title for security purposes now possible in favour of a security agent, trustee or fiduciary

One of the major advantages of the Law is the possibility to grant financial collateral arrangements in the form of a pledge in favour of a third party (other than the pledgee). This feature was not open for transfer of title arrangements. The amended version of the Law now extends confirms that the title of transfer arrangements may be granted to a person acting in its own name but on behalf of the beneficiaries, a trustee or a fiduciary (which in the latter case must be a professional of the financial sector which includes automatically payment institutions and electronic money institutions).

e)Netting provisions shielded from foreign law reorganization measures, winding-up proceedings or similar

The protection granted by the Law to financial collateral arrangements against foreign (in addition to national) law reorganization and bankruptcy measures, winding-up proceedings or similar has now been extended to netting provisions.

]]> RJ Gaito builds out Finance & Restructuring practice with Harry Ghillemyn https://rjgaito.com/rj-gaito-builds-out-finance-restructuring-practice-with-harry-ghillemyn/ Mon, 21 Mar 2022 15:58:51 +0000 https://rjgaito.com/?p=1783 Luxembourg business law firm rj gaito welcomes Harry Ghillemyn who will be leading its Finance & Restructuring practice. Prior to joining the firm, Harry was a managing associate at Linklaters and counsel at Goodwin where he represented major private equity firms and credit institutions responsible for the firm’s debt, capital markets and restructuring offering. He brings a decade of high-end experience in the financial industry and focuses on capital markets, debt finance, digital assets, blockchain and fintech, restructuring and insolvency and space law and venture space financing.

“Harry is a high energy professional and his technical know-how, coupled with his business acumen, uniquely positions him to further build out our Finance & Restructuring practice in line with consistent high client demand for Luxembourg debt structures and products. Since our establishment we have achieved extraordinary results for our clients, both in our transactional and litigation practice. Our approach is to operate as a tight-knit task force and have a ratio of associates to partners significantly below that of other firms with the objective of delivering the most effective and sophisticated representation.” – Ronnen Gaito.

“The firm’s strong commercial dispute resolution practice brings significant added value to a restructuring practice as our clients’ challenges are addressed within the larger framework of their strategic, business, and financial goals. The team also has a unique insight into the digital assets industry and the space industry thanks to previous experiences at SES, Eutelsat and current involvement in space projects. Both sectors have become increasingly important for my clients.” – Harry Ghillemyn.

View Harry Bio

Ronnen Gaito
Harry Ghillemyn

]]> Luxembourg Regulator calls on supervised entities to enforce restrictive measures against Russia and Belarus https://rjgaito.com/luxembourg-regulator-calls-on-supervised-entities-to-enforce-restrictive-measures-against-russia-and-belarus/ Wed, 02 Mar 2022 20:26:25 +0000 https://quizzical-clarke.77-68-21-77.plesk.page/?p=1491

In light of ongoing events across Russia and Ukraine, several Western countries including the US, the EU, the UK and Switzerland have imposed new sanctions on Russia and Belarus related businesses significantly extending existing sanctions and export controls. The current sanctions include restrictions on several Russian financial institutions, regional embargoes, blocking measures, sovereign debt restrictions, commercial restrictions and measures targeting certain individuals and their assets.

This is a complex and rapidly evolving topic and further measures may be introduced in the coming days. The CSSF has called on supervised entities to enforce the sanctions, including any attempted transactions, and apply the greatest possible vigilance with respect to risks related to IT security and cyberattacks (currently only available in French:https://www.cssf.lu/en/2022/03/circular-letter-to-all-persons-and-entities-supervised-by-the-cssf/).

The impact of the sanctions cannot be underestimated considering the nine- and ten-figure settlements against non-U.S. entities engaged in trade with countries subject to U.S. embargoes. The global scope of certain measures requires careful consideration in a Luxembourg cross-border context.

How can our firm advise

We are tight-knit independent business law firm with a unique combination of regulatory and dispute resolution expertise, including sanctions related matters and their potential knock-on effects on Luxembourg incorporated institutions. We have successfully defended European institutions and their directors vis-à-vis US authorities for sanctions involving trade embargoes. We approach each matter with intensity, thoroughness and delicacy and have investigated the below topics:

  1. contractual review of main investor and/or finance documents assessing contractual liability risks for breach of contract
  2. assessment of risk of freezing orders and/or conservative measures taken in Luxembourg by disgruntled Russian counterparties as well as counterstrategy
  3. freezing orders and conservative measures taken over assets located in Luxembourg
  4. data leakage, cyberattack and consequent liability risk towards the relevant institution’s clients
  5. management liability assessment in light of criminal nature of infringement of some sanctions
  6. interplay of US sanctions and EU “blocking” measures

We track the evolvement of the sanctions and their impact on global players closely. Do not hesitate to get in touch should you require assistance.

Contact:

Ronnen Gaito         gaito@rjgaito.com
Harry Ghillemyn    harry@rjgaito.com

40 rue Glesener
L-1630 Luxembourg

Tél. (352) 20 600 333
Fax. (352) 20 600 334
Mob. (352) 621 32 37 34

e-mail: info@rjgaito.com

https://quizzical-clarke.77-68-21-77.plesk.page

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