Key takeaways

• Liability management exercises (the LMEs) have reached Europe. For financial institutions, asset managers, engaged in capital solutions, and noteholders financing European groups, the location and robustness of the single point of enforcement matters as much as covenant blockers and the resilience of the primary finance documents.

• The Double LuxCo remains the prevailing answer in European cross-border financings: a Luxembourg law share pledge (coupled with receivables and account pledges) at the top of the structure, enforceable on contractually agreed triggers, out of court and without judicial authorisation.

• When operating companies enter foreign insolvency or restructuring, enforcement at the Luxembourg level holds if COMI substance, documentation and enforcement mechanics have been maintained with the downside in mind.

• Obligor inclusion and exclusion decisions work both ways: an entity excluded for insolvency-jurisdiction reasons is, by construction, outside the covenant net and a potential LME vehicle.

1. Context

Drop-downs, uptiers, double dips and pari-plus structures, long a feature of the US market, are now being executed by European debtors, often under New York law documents or through English law intercreditor mechanics. Selecta, Hunkemöller, Altice and Ardagh confirmed in 2025 that non-participating lenders can be subordinated out of court, with materially impaired recoveries.

For lenders to European groups whose operational assets sit across France, Spain, Germany, the Netherlands or Italy, a distinct exposure arises before any LME analysis: each of those jurisdictions offers debtor-friendly restructuring tools: sauvegarde, pre-concurso, StaRUG, WHOA, concordato, capable of imposing a moratorium and displacing creditor control precisely when enforcement is needed.

The market response was to move the point of enforcement out of those jurisdictions altogether, through the Double LuxCo structure. The LME era does not diminish that logic; it demands that the structure be calibrated further.

2. The Double LuxCo structure

Two Luxembourg holding companies are interposed above the borrower or target: LuxCo 1 holds LuxCo 2, which holds the group. The financing is secured by a Luxembourg law pledge granted by LuxCo 1 over the shares of LuxCo 2, along with pledges of receivables and accounts, all governed by the law of 5 August 2005 on financial collateral arrangements (the Collateral Law). The second LuxCo ensures that pledgor, pledged company and enforcement all sit in a single jurisdiction.

Key features for lenders:

• Insolvency remoteness. Security falling within the scope of the Collateral Law is enforceable notwithstanding Luxembourg or foreign reorganisation measures or winding-up proceedings. The 2023 Luxembourg restructuring law expressly preserved this immunity for the purposes of Luxembourg restructuring proceedings.

• Contractual freedom on triggers. Enforcement may follow any agreed "enforcement event":  the secured debt need not be due, payable or in default.

• Out-of-court enforcement. Appropriation (including at a value determined post-appropriation) and private sale, as the most used options, without court involvement.

• Speed. In a prepared scenario, enforcement can complete within days; in known precedents, within 24 hours with proper advance planning.

• Voting rights (so-called soft enforcement). Voting rights attached to the pledged shares can vest in the secured parties on defined events, without full enforcement, neutralising a hostile board at holding level.

• Narrow challenge grounds. Luxembourg courts confine successful challenges to enforcement to fraud, bad faith or abuse of rights.

The absence of any judicial gateway is worth pausing on, because it is not universal. In several jurisdictions favoured for European share pledge enforcements, enforcement runs through the courts, and recent LME litigation shows what that can cost. In the Selecta restructuring, the Dutch share pledge was enforced through a court-authorised private sale. In June 2026, the Netherlands Commercial Court of Appeal allowed minority noteholders, who had not been summoned to the authorisation hearing, to appeal that authorisation, more than a year after the shares had transferred.

A Luxembourg enforcement presents no equivalent surface: there is no hearing to which interested parties must be summoned, and no court permission capable of being reopened on procedural grounds. Taken together with the narrow challenge grounds, this delivers a level of predictability at the Luxembourg level that few enforcement regimes match, which is why, in a properly built structure, the analysis should concentrate not on the enforcement mechanics themselves but on the cross-border considerations that follow.

3. The stress test: operating-level insolvency

Four areas determine whether the structure performs when the group underneath is in restructuring. They operate as successive lines of defence: keeping the LuxCos themselves out of foreign proceedings (3.1); ensuring that, even where the group is in foreign proceedings, any contest over the collateral is fought in Luxembourg (3.2); addressing the residual reach of foreign regimes over the LuxCos or over the debt itself (3.3); and being ready to execute (3.4).

3.1 COMI protection

The architecture rests on the LuxCos' centre of main interests remaining in Luxembourg. The registered-office presumption under the EU Insolvency Regulation is rebuttable, and distressed debtors know it. The attention points fall into substance housekeeping and items to be reflected in the finance and collateral documentation.

Substance measures: shareholders' register kept in Luxembourg; board and preferably shareholder meetings held in Luxembourg; majority of managers professionally resident in Luxembourg, with management decisions taken from Luxembourg; in higher-risk situations, an independent director whose consent is required for material actions, including COMI-relevant corporate actions.

Documentary measures:

• Information undertakings, ensuring any steps (or preparatory steps) to move COMI come to the lender's attention early;

• Repeating representations that the LuxCo maintains its COMI and central administration (administration centrale) in Luxembourg and has no establishment elsewhere;

• Events of default, linked to COMI misrepresentation and to corporate decisions capable of affecting COMI: changes of managers, articles, registered office or nationality, or preparatory steps towards any of them.

In non-distressed, sponsor-backed deals the full covenant suite is not market. Our minimum recommendation: include in the LuxCo's articles of association the requirement that a majority of managers be professionally resident in Luxembourg and that management decisions be taken from Luxembourg. Coupled with an undertaking in the facility not to amend the articles other than technically, this shifts control over the COMI into the lender's hands.

3.2 Location of the collateral: where any challenge must be brought

Assume the first line holds: the LuxCos stay out of foreign proceedings, while the operating companies do not. Enforcement of the pledge will then rarely go untested. The pledgor or sponsor may allege that enforcement was abusive or effected at an undervalue; other creditors of the group may assert that the transfer of the structure prejudices their recoveries; and the officeholder of an insolvent operating company, whose estate's value is directly affected by control of the group changing hands above it  may seek to unwind the security or the enforcement, whether through avoidance actions or by contesting the enforcement itself.

Collateral location determines where those disputes are fought and under which law. Shares in a Luxembourg company are deemed located at its registered office: Luxembourg is the lex rei sitae, and Luxembourg law governs the proprietary aspects of the pledge and its enforcement regardless of where group insolvency proceedings are opened: a position reinforced, within the EU, by Article 8 of the EU Insolvency Regulation (rights in rem over assets located in another Member State are unaffected by main proceedings opened elsewhere).  

The practical consequence: any challenge must be brought before a Luxembourg court, applying the narrow challenge Luxembourg grounds such as, for example, fraud, bad faith or abuse of rights.  

3.3 Extension of foreign jurisdiction

The residual exposure is foreign regimes reaching the LuxCos or the debt directly. Restructuring plans and WHOA proceedings can bind foreign companies on "sufficient connection" grounds, and guarantee structures can pull the LuxCos into a foreign proceeding as debtors in their own right.

Contractual mitigants exist (jurisdiction clauses, restrictions on LuxCo-level obligations and guarantees), but the materiality of the risk is jurisdiction-specific and should be tested with foreign counsel at structuring stage. In some cases, the cleanest answer is to exclude the relevant entity from the obligor group altogether, leaving it with no creditors in and no basis to be bound by the foreign proceeding.

The counterpoint deserves equal weight: a non-obligor, non-guarantor entity is outside the covenant net, and such entities are exactly the vehicles through which drop-down and Pluralsight-style transactions have been executed. A jurisdictional carve-out can become an LME carve-out. The exclusion should therefore be compensated in the documentation: asset-transfer restrictions and guarantor coverage tests calibrated to the excluded entity, blockers on unrestricted designation, and restrictions on structurally senior debt or minority equity issuance at that level.

One further exposure deserves mention: a foreign proceeding need not attack the collateral to impair the lender, it can act on the claim. A process with worldwide or in personam reach (a US Chapter 11 stay where the lender has US exposure; an English restructuring plan compromising the debt on sufficient-connection grounds) operates on creditors or on the secured obligations themselves, and a pledge is only as strong as the claim it secures. The governing law of the debt, the lender's own jurisdictional footprint and the group's connections to plan-friendly forums belong in the same structuring conversation with foreign counsel.

3.4 Enforcement readiness

The speed advantage in the enforcement scenario is realised only if prepared:

• Triggers drafted broadly including, where achievable, the opening of (or any petition or preparatory step towards) foreign and local restructuring proceedings at operating level, as stand-alone events independent of acceleration;

• Acceleration decoupled from enforcement post-2023, prudent drafting favours stand-alone enforcement triggers rather than triggers routed exclusively through acceleration;

• Valuation mechanics for appropriation pre-agreed (methodology or independent expert), insulating the enforcement from an abuse-of-rights challenge;

• Voting rights provisions switched on by the right events;

• Post-enforcement structure thought through in advance: change-of-control consequences at operating level (debt documents, licences, key contracts) mapped, and a warehouse or bidco vehicle ready to receive the shares;

• Logistics confirmed: register in Luxembourg, pledge recorded, execution sequence known to the lender's side.

4. Practical points for financial institutions and funds involved in financing European groups

1. On secondary purchases of distressed loans, diligence the Luxembourg layer as carefully as the credit: COMI substance and register location may have decayed since origination.

2. Where the full COMI covenant suite is not achievable, secure the articles-level residency and decision-making requirement, protected by a no-amendment undertaking; it survives waivers.

3. Treat every obligor-perimeter exclusion as two-sided and close the covenant loop through obligor-level undertakings in respect of the excluded entity.

4. Plan and prepare enforcement before it is needed: clean triggers, pre-agreed valuation, an appropriate warehouse structure ready to be implemented.

5. The 2023 Restructuring Law did not alter the fundamentals, but trigger drafting on new deals should reflect it.

For guidance on structuring cross-border financings through Luxembourg, from Double LuxCo design and collateral packages to COMI protection, enforcement triggers and pre-positioning for a distressed scenario, contact us to discuss how these considerations apply to your transaction. We regularly advise financial institutions, capital solutions funds, arrangers, noteholders and investors on Luxembourg aspects of cross-border financings, distressed loan acquisitions and enforcement planning, and work closely with leading restructuring counsel across jurisdictions to deliver enforceable, single-point structures.

Disclaimer: Library articles are provided for general information purposes only and do not constitute legal advice. Accessing or relying on them does not create a lawyer-client relationship. Readers should seek advice on their specific circumstances before acting.