​ POA for a Luxembourg Branch: Is there an obligation to put in place a aPower of Attorney (“PoA”) in favour of the legal representative of a branch of a Management Company (branch based in EU and ManCo based in Lux) for him to have the authority to execute all documents for the day-to-day activities of the branch?

Answer:

Under Luxembourg law, a branch must notably have a management headed by an agent representing the central administration but who has sufficient power to benefit from a certain degree of operational independence. Powers of delegation would usually be described in the Company’s constitutional documents.
 
As the branch does not have separate legal personality, a power of attorney from the company to the legal representative is typically required. The power of attorney may take many forms (e.g. separate power of attorney, contract, delegation of authority in the minutes of the relevant governing body’s meeting, power given in the articles of association etc.). Prior to providing such powers, it would be good governance that the management body performs, and documents, a ‘fit and proper’ test on the person to whom powers will be granted.
 
The power of attorney would typically cover (i) the scope of powers of the representative including any limitations, (ii) remuneration (if any) of the representative, (iii) duration of the delegation, and (iv) liability of the representative. The representative should regularly update the relevant governing body of the company (typically the board of managers/directors) of the activities carried out for and behalf of the branch. As the branch does not have separate legal personality, the company remains liable for all of the branch’s activities. 
 
Note that there may be formalities to comply with to establish a branch in other EU jurisdictions and regulatory requirements to consider on a case-by-case basis.

​ ​Does an INED in a Luxembourg fund is a conflict of interest if he/she invest in Fund?                                                                                     
If yes, which mitigation measures should be put in place and are there some specific measures in link with the sector of activity?

Answer:

Article 441-7 of the Companies Act dated 10 August 1915 provides that “any director that has a direct or indirect interest of a financial nature conflicting with that of the company in relation to a transaction falling within the scope of the powers and duties of the board of directors must advise the board thereof and cause a record of his/her statement to be included in the minutes of the meeting. He/she may not take part in the deliberations.
At the next general meeting, before casting any vote on any other resolution, any transactions in which any of the directors may have had an interest conflicting with that of the company shall be reported.
By way of derogation from the first subparagraph, where the company consists of a single director, the transactions entered between the company and its director having an interest conflicting with that of the company shall only be mentioned in the minutes.
Where, because of a conflict of interest, the number of directors required by the articles of association to decide and vote on the relevant matter is not reached, the board of directors may, unless the Articles of association provide otherwise, decide to defer the decision on that matter to the general meeting of shareholders.
The preceding paragraphs shall not apply where the decisions of the board of directors or the sole director relate to standard business carried out under normal conditions.”

The provisions apply to directors of an S.A. - similar provisions exist for other company types such as the S.à r.l. (Article 710-15(6) of the companies act). 
A case-by-case analysis is required to determine in each circumstance if there is a direct or indirect financial interest opposite to that of the company and whether the transaction is ordinary business entered into under normal conditions. 
For example, the Director holding investments in a fund may not be completely objective & independent, should the Board be called to decide to FV down a security or gate or liquidate a fund.

In terms of market practice, the case referred is generally treated as constituting a potential conflict of interest. 
In principle a Board should establish a Conflict-of-Interest policy dealing, inter alia, with such cases. 
The policy should cover elements such as

• Is a Director allowed to invest in the Fund on whose Board she/he sits (including the case in which the investment predates the appointment to the Board) ?
• If yes, are there pre-trading rules/processes to be complied with (such as pre-trade clearance, minimum holding periods, restrictions to prevent insider trading, etc)
• The level of disclosure that is deemed appropriate to ensure transparency (recurrent declaration of holdings and trades, disclosure to shareholders)
• The exercise of the Director’s vote on matters that may directly influence the fund valuation.  
  

​ ​Is it market practice to include an indexation clause in a directorship agreement? If yes, would you have any suggestions of how it should be phrased?

Answer:

It is not current practice to subject fees to the cost of living or any other indexation mechanism.The level of fees to be charged is a function of many factors including the size of a company, complexity of operations and regulations, professional risks, inflation, time spent, etc. This is why the engagement/appointment letter (which hopefully exists for every mandate) should clearly specify that fees should be subject to a periodic review taking into account changes in these aforementioned factors.  

ILA recommends that the Board’s effectiveness should be assessed through a regular evaluation process. This process includes a review of the Directors’ fees to ensure that they continue to be adequately remunerated. 

In summary, we believe there must be a clear undertaking and process for Directors fees to be reviewed in light of changes of numerous factors including inflation.  We do not believe the inclusion of an indexation clause is necessary or even helpful.

​ ​Would you have a recommendation based on market practice if and how "commission d'apporteur d'affaire" could be invoiced once the mandate is granted?

Answer:  

Should such a commission be paid; the governance desk is of the opinion that it is not necessarily a conflict of interest not any dependance issue. They would however recommend disclosing the arrangement to the respective board.

​ ​​Is there a possibility and is it common practice to request fit and proper assessment by the CSSF prior to the application for a specific mandate?

Answer:

The application for Director on a board of a CSSF-regulated entity requires submission of a number of documents (declaration d’honeur, CV, ID, Casier Judiciaire, list of mandates, etc.). These are usually submitted by a law firm that handles the filing. The CSSF conducts a fit-and-proper test regarding the experience, expertise, and time capacity of the applicant director. The CSSF does not ‘approve’ but confirms ‘no objection’ to the appointment, to be done by the shareholders. Whether or not the applicant has no prior mandates on regulated entities has, to date, not been a consideration of the CSSF, as far as we know.

More and more, in accordance with best practices, we see boards adopt a procedure for admitting new directors. Some may have appointed a nomination committee. It is the board that makes the recommendation to the shareholders (and CSSF) who will/should have conducted their review of eligibility and fit.
The file for directorship can be handled by different parties such as the management company or law firm. Based on the information provided, we are unable to conclude who was in charge. 

We would recommend ascertaining the process whose decision it was to object. If exclusion criteria were determined by a filing entity or law firm, we find this out of order. If excluded by the board or an appointed committee, one could perhaps request a chance to present one’s credentials. After all, just that criterion doesn’t hold as it would mean board positions in regulated entities could only be filled by people who have already mandates on regulated entities. If our assumptions are right, a visit therefore to the CSSF might not be very conducive.  

​ ​​Please consider how AGM's of a Luxembourg Societe Anonyme can be validly quorate when a substantial portion (or majority) of its shareholders are subject to economic sanctions and not permitted to travel to Luxembourg to attend an AGM in person. 
In such sanction circumstances, are there any extraordinary regimes (for example similar to the Covid exemptions that applied until Dec 2022) to enable a Luxembourg SA to pass its annual accounts and respect the applicable AGM 6-month approval requirements?   
The same question applies to how to ensure a valid quorum of EGM's dealing with the replacement of directors.  
For example, would it be permissible to change the forum of an AGM to be validly held outside Luxembourg in a jurisdiction where there are no restrictions on the affected shareholders?

Answer:

The questions raised concern the validity of AGMs in certain specific circumstances. These questions are strictly legal and should be addressed to the company’s legal advisors. The ILA Governance Desk is not authorized to and does not provide legal advice. It can therefore not answer the questions submitted.

​ ​​Is there any specific formality to appoint an independent director during an AGM of a société anonyme, besides the agenda point of board members' (re)election, and the to-be independent director's name (along with the shareholder's candidates) in each shareholder's power of attorney appointing its representative for the meeting ?

Answer:

The agenda of the AGM should indicate the terms of the appointments (for example until the AGM convened to approve the annual accounts for the financial year ending on dd/mm/yy). If the Company is a regulated entity, the appointment would be subject to the Regulator’s non-objection. This applies equally whether or not the director is to be considered as independent.

​ ​​Can a Corporate governance Officer be appointed board member and would he/she be registered on the RCS?

Answer:

The role of CGO is currently not recognised by law. However, ILA is advocating in this sense. 
There is no reason why a CGO could not be appointed as a member of the board of a Luxembourg entity by the shareholders.  
There is a legal requirement to publish the names of all the members of the board of Luxembourg companies (see notably article 100-13 of the Luxembourg Companies Act dated 15 August 1915, as amended). It is therefore necessary to list the persons acting as members of the Board with the RCS (including the CGO as the case may be)

​ ​​In terms of governance, how do you position the RC  'Responsable de Contrôle'?

Answer:

The appointment of an RC for a Fund is a regulatory requirement and is seen by the competent authorities as an essential element of the organisation of the Fund.
When the RC is not a member of the Fund’s Board, a contract must be concluded between the Fund and the RC or his/her employer defining the services to be covered. In this respect, the RC is a service provider and therefore a third party to the Board / the Fund.

Please also refer to CSSF FAQ ( https://www.cssf.lu/wp-content/uploads/FAQ_Persons_involved-in-AML_CFT_for_a_Luxembourg_Investment_Fund_or_Investment_Fund_Manager.pdf) on these matters.

​ Is a Business Permit required for Independent Directors in Luxembourg? If so, which category should be chosen? and Is CCSS affiliation as an independent necessary, or not?

Answer:

An independent director is not required to obtain a business permit to exercise their mandate.

​ Newly appointed NED for a Luxembourg company, is there a model invoice for directorship fees?

Answer:

From a best practice perspective, we consider that an invoice should include as minimum requirements.

• Place and date of issuance and date (or period) of the service / supply
• Unique identifier (number or similar) for the invoice
• Supplier’s name, full address, RCS number and company form (if the invoice is issued by a company) and VAT number (if applicable)
• Customer’s name, full address, RCS number and company form (if the recipient is a company)  and VAT number (if applicable) 
• Nature of the service (that in the case of Director’s fees could also be referenced to the Directorship agreement)
• VAT rate and VATable amount, if applicable, or reference to the article of law if VAT is not applicable to the whole invoice or part of it