What is the impact of the new Belgian Companies and Associations Code on M&A transactions?
The new Belgian Companies and Associations Code (BCAC) provides for some changes that might impact M&A transactions, although most of these novelties are rather of technical order and are therefore not likely to significantly affect the M&A practice.
Strengthening of the enforceability of share transfer restrictions clauses
The BCAC provides that restrictions on the transferability of shares stipulated in the articles of association are enforceable toward the purchaser, regardless of its good or bad faith. Hence, any transfer of shares violating such statutory restrictions will not be effective against the company and its shareholders.
In order to enhance the knowledge of contractual transfer restrictions by third parties (and therefore their enforceability towards these third parties), contractual share transfer restrictions will have to be recorded if requested by at least one party to the contract.
The BCAC furthermore increases legal certainty concerning the validity of provisions restraining the transferability of shares in an NV/SA (e.g. lock-up clause): under the new rules, such clauses will be valid if they are justified by a “legitimate interest” at the time of agreeing on such a clause. It is therefore no longer required that the clause be justified at all times by the corporate interest. In addition, lock-up clauses for an undefined period of time will no longer be invalid but can be terminated by either party with reasonable notice. The rules on pre-emption rights and approval rights have not been significantly amended.
Mandatory entries in the share register
The BCAC introduces new obligations to be taken into account when preparing (or examining) the share register of the target company. The new Code significantly extends the information which will be legally required to be included in share registers. The share register will have to mention, amongst others, the aggregate number of shares issued (divided by classes as the case may be), together with the voting and economic rights attached to these shares. As mentioned above, statutory restrictions on the transferability of shares will have to be recorded in the share register while contractual restrictions will have to be recorded if requested by at least one party to the contract.
Transfer of partially paid-up shares
The new Code extends the existing regime applicable to NV/SA in case of transfer of not fully paid-up shares to the BV / SRL: both seller(s) and purchaser(s) are jointly and severally liable towards the target company and third parties for the portion of the shares that is not fully paid-up at the time of the transfer.
Flexibility in financing the deal
The financial assistance restriction prevents companies from advancing funds, granting loans or security in view of financing the acquisition of its own shares by a candidate purchaser, subject to certain “safe harbour” exceptions rarely used in practice given the applicable burdensome and restrictive conditions.
The existing financial assistance regime continues to apply under the BCAC (also to the BV / SRL) but infractions will no longer be punished by criminal sanctioned. The BCAC furthermore softens some of the conditions for the “safe harbour” exceptions (including abolishment of the obligation to publish the full report of the management body), which might result in an increased use of the “safe harbour” regime.
Another simplification introduced by the new regime is the abolishment – for non-listed companies – of the requirements for specific shareholders’ approval and publication of “change of control clauses” having an impact on an NV / SA’s financial situation (such as early reimbursement clauses in finance documents triggered by a change of control).
Enhanced legal certainty for certain exit mechanisms
The BCAC significantly reduces the scope of the unauthorised “leeuwenbeding” / “clause léonine”.
Under the BCAC, only clauses fully excluding a shareholder from participating in the profits will qualify as unauthorised clauses. It will however be allowed to contractually exempt a shareholder from participating in the losses. This enhances the legal certainty of clauses quite often used in M&A/Venture Capital practice, such as a put option granted to a shareholder allowing that shareholder to transfer its shares at a price at least equal to the initial acquisition/subscription price.
Simplified corporate approvals
The BCAC also simplifies corporate approval processes by allowing board decisions to be made by unanimous written resolutions without the need to be justified by urgency. This is a welcome change that will facilitate board approvals to be obtained on the closing date - all directors being not always physically present or available on closing.
Wim Vande VeldePartner Attorney at Law
Wim Vande Velde is a local partner in the Corporate and M&A Practice Group in Belgium. He has extensive experience in national and international M&A transactions for both listed and non-listed companies, as well as in corporate restructuring.T: +32 2 743 43 96 E: firstname.lastname@example.org