Insolvency proceedings in Luxembourg: employment contracts

Specific legal rules apply to employees when a company is subject to insolvency proceedings in Luxembourg (bankruptcy)

According to article L.125-1 of the employment code, employment contracts are terminated with immediate effect when the employer is subject to bankruptcy / insolvency proceedings in Luxembourg.

Except if the receiver (“curateur”) decides to continue the company’s business, the employee is entitled to receive:

• salary for the month during which the bankruptcy has occurred and the following month;
• an indemnity corresponding to 50% of the period of notice the employee would be entitled to in case of dismissal;

Such indemnities cannot exceed the sums the employee would have received in the case of a dismissal with notice period.

It should also be noted that when the employer is subject to bankruptcy / insolvency proceedings in Luxembourg, salaries corresponding to the period of 6 months before the bankruptcy must be paid prior to any other privileged claims, pursuant to article 2101 (2) of the Civil Code.

Furthermore, the employment fund (“Fonds pour l’emploi”) gurantees payment of the salaries for this period. Such guarantee is however limited to a maximum amount of 6 times the minimum salary.

All employees, including former employees of the company in bankruptcy who may have unpaid salaries can benefit from this guarantee. The receiver will be in charge of requesting application of the guarantee.