CNC adopts a stricter interpretation of the “held for sale” exclusion from consolidation

The CNC’s Q&A 25/036 sets out a stricter interpretation of the circumstances in which subsidiaries held for resale may be excluded from consolidated accounts under Luxembourg law. In essence, the CNC adopts a narrower reading of the exclusion of entities “held for sale”, focusing on investment structures with a genuine disposal rationale and a documented exit horizon.

This Q&A reflects the CNC’s interpretative guidance on the application of the relevant provisions, while acknowledging its practical importance for market participants and auditors; it does not, as such, create a new mandatory legal rule.

Q&A 25/036 expressly withdraws Q&A 09/002, replacing the previous interpretative framework with the approach described below. Existing analyses based on Q&A 09/002 should therefore be revisited.

Who is concerned

The guidance is primarily relevant to parent companies whose activity consists exclusively in raising funds from well-informed investors in order to provide investment management services and investing solely for capital appreciation and investment income. In practice, this is particularly relevant to private equity, venture capital, real estate, infrastructure, private debt and similar alternative investment structures pursuing resale or capital appreciation.

The Q&A expressly excludes groups holding participations for strategic, industrial or commercial purposes. 

Four cumulative conditions 

According to the CNC, reliance on the exclusion in this context requires four cumulative conditions to be met:

1. A genuine exit strategy must exist from the time of acquisition, be documented and be periodically reviewed;
2. The exclusion must be capable of applying, and in practice be applied, across all relevant subsidiaries, except, where applicable, to subsidiaries providing investment-related services, including to the parent company;
3. The fair value information must be disclosed in the notes to the financial statements;
4. The notes should also disclose significant events, guarantees and uncertainties relevant to the parent company’s financial position. 

The fair value requirement reflects the logic of investment structures, which typically manage assets on a fair value basis with a view to capital appreciation.

Red flags 

The Q&A suggests that the position is more difficult to defend where, for example:

• The holding period is open-ended or unusually long, potentially in the range of 10 to 15 years (although there is no strict legal maximum);
• The exclusion is applied selectively;
• There is no written exit strategy;
• The overall documentation is weak.

Cascade structures 

In a cascade structure, a Luxembourg company controlled exclusively by a parent operating in the alternative investment sector may also benefit from the “held for sale” exclusion, provided the four conditions described above are satisfied at the level of its parent company.

Two important limits apply:

1. Minority shareholders holding the relevant threshold (10% for an SA/SCA and 20% for an SARL and other legal forms) must not have requested the preparation of consolidated accounts within the prescribed period, and
2. In that case, the company may not claim the exemptions applicable to sub-groups by virtue of its inclusion/presentation at fair value in its parent company’s annual accounts.

What should groups do now 

• Revisit any current reliance on the exclusion
• Check whether the structure is genuinely organised around an investment and exit strategy, rather than long-term strategic ownership
• Verify consistent treatment across relevant subsidiaries
• Ensure the file contains sufficient evidence and disclosures 

Timing

The Q&A applies to any financial year already open for which the statutory deadline for filing the annual accounts with the RCS has not yet expired.

Key takeaway

For companies, this means that the exclusion from consolidation is still available, but it should no longer be treated as automatic. Substance, consistency, documentation and disclosures are now critical.

For more information, please contact your usual contact at Elvinger Hoss Prussen.