New Belgian Code of Companies and Associations: some points of attention from an HR perspective
The new Belgian Code of Companies and Associations (BCCA) entered into force on 1 May 2019 for companies incorporated after said date.
For the existing companies at aforementioned date, the BCCA will enter into force as of 1 January 2020, unless they decide to voluntarily opt in to the rules before 1 January 2020. They moreover have the obligation to update their bylaws according to the terms of the BCCA prior to 1 January 2024. Our corporate colleagues have issued several newsletters concerning this important legal reform. We kindly refer to these newsletters if you would like to find out more about the BCCA.
Below, we will however focus on some items of the reform which may have an impact from an HR-perspective within the most commonly used limited liability companies (hereinafter referred to as the LLC), i.e. public limited liability companies (NV/SA) and private limited liability companies (BV/SRL).
As a rule of thumb under the former Belgian corporate laws, a director mandate within an NV/SA was revocable at all times, without notice or indemnity. This is called the ad nutum revocability of mandates.
For the mandates of managing director or of members of management committees (directiecomité, comité de direction), it was possible to determine deviating terms of discharge of their mandates in the bylaws or appointment decision, for example by imposing the obligation to respect a notice period and/or to pay a severance indemnity.
This was however not possible for director mandates, which were previously only revocable ad nutum by the company, with no legal possibility to provide for deviating terms of discharge by the company.
Under the BCCA, the aforementioned management committee will be abolished.
In an NV/SA, one will however be able to choose to implement a two-tier governance structure, comprising of a supervisory board (raad van toezicht, conseil de surveillance) and a management board (directieraad, conseil de direction) (please refer to the Governance in Public Limited Liability Companies newsletter of our corporate colleagues) which creates a proper dual governance structure similar to but more elaborate than the situation of the management committee under the former Belgian corporate laws. The decision to implement the dual governance structure will no longer be made by the board of directors of the company but requires an amendment of the articles of association through a decision of the shareholders of the company. Important to note is also that, contrary to what was the case with the previous management committee, the composition of the supervisory board and management board must be strictly distinguished; as such, members of the one board cannot be a member of the other one as well.
Further, the BCCA changes the rules in relation to the ad nutum revocability of director mandates as it allows derogation from it.
For directors who were not appointed in the articles of association, the BCCA does not entail much change in terms of ad nutum revocability: this principle remains applicable, unless specific arrangements are confirmed in the bylaws or appointment decision.
Like before, directors that have been appointed in the articles of association can however only be dismissed by a decision of the shareholders amending the articles of association, or for a legitimate reason (see further below).
For both types of LLC: introduction of (relatively) new concept of discharge for legitimate reason
If the bylaws or the appointment decision provides for specific terms of discharge, the director mandates can nevertheless still be terminated effective immediately, without notice or indemnity, for a legitimate reason.
This is relatively new concept in Belgian company laws: relatively, because a similar notion already applied to directors appointed in the articles of association of a BVBA/SPRL (which are to change into BV/SRL), and new because this notion did not exist yet for the other types of director mandates within LLCs.
The BCCA however does not define what is to be considered as a legitimate reason, nor does it impose specific formalities (merits, timing, etc.) to lawfully invoke a legitimate reason.The preparatory works of the BCCA vaguely refer to e.g. a serious criminal offence which relates to the professional cooperation between the mandate holder and the company, or tax fraud.
It is possible to specifically define this notion in agreement with the mandate holder, or in the appointment decision. That being said, though, we will in any event need to wait on the case law on this topic to have better view on what can be lawfully considered as such a legitimate reason.
Companies could however strengthen their case by providing for examples of circumstances which would justify a discharge for legitimate reason in the appointment decision or in the consultancy or management agreement with the mandate holder.
- Update the bylaws, to confirm the application of the ad nutum revocability principle (even if such an explicit reference is not legally required), or to confirm the specific terms of discharge of the corporate mandates (which can also be individually determined in the appointment decision respecting at all times the terms of the bylaws).
- Compare terms of discharge with the terms of the mandate holder's consultancy or management agreement: synchronizing the terms of termination of the consultancy/management agreement with the terms of discharge confirmed in the bylaws or appointment decision will be essential to avoid additional dismissal burden.
Self-employed director mandate
Since the implementation of the new BCCA, it is (finally!) legally confirmed that director mandates in LLCs must be executed on a self-employed basis by the mandate holder. These cannot be executed as being a regular employee.
For directors of an NV/SA this does not change much, as this principle already applied to all of them. The same basically applies for directors of a BVBA/SPRL, but before the BCCA, some authors argued that it remained theoretically possible to execute their mandates under a regular employment contract..
For members of management committees (directiecomité, comité de direction) within an NV/SA , however, the situation was a bit more ambiguous: before, some argued that the activities linked to the membership to a management committee could, under some circumstances, be executed in the framework of an employment contract.
The BCCA explicitly confirms that director mandates within an NV/SA and a BV/SRL must be executed on a self-employed basis.
If an NV/SA chooses to implement a two-tier governance system (see above), the members of the management board and supervisory board must execute their mandates within these boards on a self-employed basis.
Therefore, if such an NV/SA wishes to appoint members of its previous management committee into its supervisory board or management board, it must first ensure that they execute their mandates on a self-employed basis by the time the BCCA is applicable to the company.
Does this mean that a director mandate holder within an LLC cannot be bound by a regular employment contract?
The answer is no.
Indeed, a director mandate holder can still be bound by a regular employment contract to execute tasks which are strictly distinguished from his or her activities in the capacity of director mandate holder (e.g. tasks of technical nature), but only if:
- There is a subordination link between the employee and the company, i.e. the company can validly execute employer's authority over the employee during the execution of the tasks under his or her employment contract. This will for example in principle not be possible if a regular employment contract is signed with the sole director of a BV/SRL or an NV/SA; and
- Salary must be paid to the employee in compensation for executing his or her employment contract. This could then for example be combined with a non-remunerated director mandate.
Action points in case of combination between an employment relationship and a director mandate:
- Verify if the employee's tasks and obligations under the employment relationship are strictly distinguished from those he or she executes in the capacity of director mandate holder, and update terms accordingly.
- Where appropriate, we recommend to explicitly confirm that the mandate is executed on a non-remunerated basis, to avoid confusion between the employee's salary entitlements under his or her employment relationship, and fees he or she would receive in consideration of his or her director mandate.
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.