Belgium: Belgium Enacts Historic Corporate Law Reform

In Short

The Background: On February 28, 2019, the Belgian Parliament approved a historic company law reform.

The Result: The new Belgian Code of Companies and Associations ("BCCA") becomes applicable on May 1, 2019, with staggered effect. The reform impacts all Belgian legal entities, including nonprofit associations that are now governed by a separate law.

Looking Ahead: The BCCA will benefit Belgian companies by enhancing flexibility and making Belgium a more attractive place for companies to do business.

Introduction

The reform of Belgian company law was principally driven by the existing regime's unnecessarily strict, unclear, and complex features, which harmed Belgium's standing as a competitive and preferred place to do business compared to other European countries.

The BCCA modernizes Belgian company law by simplifying and clarifying rules, and introduces more flexibility.

This Commentary focuses on several topics expected to be of particular relevance for any company present in Belgium or contemplating future business activities in Belgium. The present discussion is limited to the most commonly used company forms—i.e., the joint stock corporation (Naamloze Vennootschap (NV) or Société Anonyme (SA)) and the private limited liability company, which the BCCA now renames as Besloten Vennootschap (BV) or Société à Responsabilité Limitée (SRL).

Entry into Force

The BCCA will apply with immediate effect to any company formed or incorporated on or after May 1, 2019, and any existing company that explicitly opts in to the new rules.

For all other companies existing prior to May 1, 2019, a transitional period will apply from January 1, 2020, until January 1, 2024, during which all mandatory BCCA provisions will apply, regardless of provisions to the contrary in their articles of association. All nonmandatory provisions will apply by default, but only to the extent that these are not contrary to their articles of association.

These existing companies must bring their articles of association in line with the BCCA no later than January 1, 2024. However, if any modifications to their articles of association are made during the transitional period, the entire articles of association must then comply with the BCCA. For instance, a capital increase or decrease during the transitional period will trigger the obligation to make the articles of association fully compliant with the BCCA.

The BCCA introduces important changes particularly in relation to the below areas:

Shareholders and Shareholder Meetings

Abolishing the two shareholder requirement. The BCCA will make it possible to have a sole shareholder in the NV/SA and the BV/SRL without losing the benefit of limited liability. Currently, in company groups, one share in Belgian entities is often assigned to another group entity in order to meet the two shareholder requirement under existing company law. This creates additional paperwork for shareholders' resolutions, dividend distributions, and corporate restructurings and sometimes leads to mistakes, when such single share is omitted in the group chart and other company documents.

Abolishing the one share, one vote rule. The strict "one share, one vote" rule is also dismantled, enabling multiple voting rights. This can be a useful instrument when establishing joint ventures or private equity structures in Belgium. Another innovation are the so-called "loyalty shares," whereby listed companies may grant a double voting right to shareholders that continuously hold registered shares for at least two years.

Protecting shareholders from company losses. The BCCA will also make it possible to fully exclude a shareholder from a company's losses. This change from the current regime will eliminate long-standing uncertainties as to the validity and enforceability of put option schemes to protect shareholders against downside risk.

Other lightened requirements. Further notable changes under the current regime include (i) lifting the obligation to invite the holders of nonconvertible bonds to shareholders' meetings, and (ii) allowing companies to include an official website and e-mail address in their articles of association and to send official shareholder notices and communications via e-mail.

Board of Directors and Directors' Liability

New governance structures. From a governance perspective, the BCCA will allow the appointment of a sole director instead of a board of directors, which will provide greater flexibility in decision-making in group companies. For an NV/SA, a "true" two-tier management will become possible, with a supervisory board nominated by the shareholders' meeting and a management board nominated by the supervisory board.

Expanded applicability of director liability. Under the BCCA, the rules on director liability have a broader scope and apply not only to directors who have been formally appointed, but also to persons who in fact act as directors of the company and to the daily managers. The authority of the daily manager(s) appointed by the board of directors will be slightly broadened, and it also will become possible to appoint such daily manager(s) in the BV/SRL.

Modified dismissal of NV/SA directors. Currently, there is a strict "ad nutum" dismissal rule, by which directors of an NV/SA can be dismissed at any time without cause and without notice or compensation. Under the BCCA, companies may deviate from that rule, such that notice periods and severance agreements can be freely negotiated with directors before or during their term.

Tightening conflict of interest rules. Conflict of interest rules are also strengthened. Presently, a conflicted director is subject to a disclosure obligation only whereas, under the BCCA, such director will be excluded from discussions and decision-making on matters for which he/she is conflicted.

Another practical improvement is that board of directors decisions may now be made by unanimous written consent.

New (but limited) liability cap. The BCCA introduces a liability cap for directors. This cap applies irrespective of the number of plaintiffs or the number of directors involved, as long as it relates to the same set of facts. Depending on the size of the company (determined on the basis of revenue and assets), the liability of its directors will be capped at EUR 250,000, EUR 1,000,000, EUR 3,000,000, or EUR 12,000,000. The cap does not apply if one or more directors have committed fraud, gross negligence, or repetitive minor misconduct. The specific directors' liability rules relating to withholding tax, value-added tax, or social security contributions are also not affected by the liability cap.

This unique feature was intended to become the main argument to attract new companies to Belgium. However, at the last minute an amendment was introduced and approved excepting "gross negligence and repetitive minor misconduct" from the cap. In practice, this negates much of the relevance of the liability cap, which was intended to serve as a main element in attracting new companies to Belgium.

In tandem with the introduction of the liability cap, the BCCA prohibits companies from limiting or excluding the liability of their directors and from providing them with indemnification. However, a parent company may continue to provide indemnification for these directors, and a company may still pay D&O insurance premiums for its directors and shareholders.

Capital and Distribution

Shift from "capital" to "equity" concept for BV/SRLs. The BCCA abolishes the "capital" concept in the BV/SRL. Now, "equity" (i.e., the difference between total assets and total liabilities) will become the relevant concept from a company law perspective. This will impact decision-making in distributions.

Prior to any distribution, the BV/SRL must now perform both of the following tests:

(i)       Under the net asset test, a distribution cannot be made if the company's equity would become negative due to such distribution.

(ii)      Under the liquidity test, after the contemplated distribution, the company must be able to pay its debts timely for at least a 12-month period, taking into account reasonably expected developments.

These new tests are a welcome change from the existing rules, as they bring corporate concepts more in line with economic reality.

As BV/SRLs will no longer have any capital, the requirement to accumulate a reserve equal to 10 percent of the share capital will also disappear. The existing capital and legal reserve will automatically be converted into a statutory unavailable reserve as of January 1, 2020.

Unchanged regime for NV/SAs. For NV/SAs, existing capital requirements and the net asset test will remain unchanged, in line with EU Directives. Thus, no distribution can be made if this would result in the equity falling below the sum of the statutory capital and the unavailable reserves. This evaluation is based on the last annual accounts. Although the NV/SA is not subject to a liquidity test as such, as part of its general duty of care, the board of directors must consider the company's viability company going forward and refrain from any distributions that might endanger it.

Greater latitude for interim and quarterly dividends. Another improvement is increased flexibility in terms of interim dividends decided upon by the board of directors. The board of directors of both NV/SAs and the BV/SRLs may distribute profits of the previous financial year, if the shareholders have not yet approved the accounts. Furthermore, interim dividends based on the profits of the current financial year will be less strictly regulated and will become possible in the BV/SRL as well. This opens the door to introducing quarterly dividends.

BV/SRL

Elimination of minimal capital requirement. By removing the "capital" concept, the "minimum capital" requirement of EUR 18,550 will disappear. Instead, to ensure that a BV/SRL is sufficiently capitalized at the time of its incorporation, the BCCA will require founders to establish a detailed financial plan justifying the amount of the initial funds, taking into account the contemplated activities over a period of at least two years. A similar requirement already exists under the current company law regime, but the financial plan will become more detailed and substantive (e.g., cash-flow projections).

In case of bankruptcy within three years of incorporation, the founders can be held liable for any losses that third parties incur. However, this will only be the case if such losses result from the company being "manifestly underfunded" for the ordinary conduct of activities contemplated at the time of incorporation.

Additional new features. BV/SRLs will also become more flexible, as it will be able to issue all types of securities, including warrants and convertible bonds, and its securities may be publicly listed.

A transfer of shares of the BV/SRL remains subject to prior consent of a specific majority of the shareholders as a default rule, but the articles of association can provide for free transferability.

Finally, the BCCA also introduces "daily managers" in the BV/SRL.

Conclusion

The BCCA simplifies and enhances the flexibility of Belgian company law, thereby improving the attractiveness of Belgium as a place of establishment for businesses. In the course of the next weeks, Jones Day will publish more detailed Alerts focusing on selected key changes relevant to our clients.

For further information on the BCCA, see our June 2018 Commentary " Loyalty Shares for Belgian Listed Companies: Fundamental Change on the Way"; our September 2018 Commentary " Greater Flexibility for Belgian Companies Issuing Bonds"; and our December 2018 Commentary " Greater Flexibility Slated for Equity Financing in Belgium."


Three Key Takeaways
  1. The BCCA modernizes Belgian company law by simplifying and clarifying rules and introducing more flexibility on both the shareholders' and directors' level.
  2. The capital concept is abolished in the BV/SRL, which will impact decision-making in distributions. Prior to any distribution, the BV/SRL must now perform both a net asset test and liquidity test. The BV/SRL will become much more flexible, as it will be able to issue all types of securities.
  3. 3.    The BCCA will apply with immediate effect to any company formed or incorporated on or after May 1, 2019, and any existing company that explicitly opts in to the new rules. For all companies existing prior to May 1, 2019, a transitional period will apply from January 1, 2020, until January 1, 2024.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Sign Up
Gain free access to lawyers expertise from more than 250 countries.
 
Email Address
Company Name
Password
Confirm Password
Country
Position
Industry
Mondaq Newsalert
Select Topics
Select Regions
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions