M&A and investments
The new Companies Code introduces several changes that might have an impact on M&A practice, whether from a pure organizational point of view or on the content of certain typical M&A provisions.
Publicity in the share register
Under the new regime, compulsory entries in a company’s share register include:
- the number of shares issued in total as well as the number of shares per category, and the rights attached thereto; and
- the restrictions on the transfer of shares provided by the bylaws.
Restrictions on transfers provided in a shareholders’ agreement may (but need not) be recorded in the register. In the event of a discrepancy, the bylaws shall prevail. This change is important from an organizational point of view since practitioners will now have to be more comprehensive in their entries made in the share register in M&A transactions. If an investor has negotiated various rights attached to its/his/her shares, those will have to be described in the share register.
Restrictions on the transfer of shares no longer to be justified at all times
The rule that restrictions on the transfers of shares (e.g. lock-up clause) must be justified at all times by the interests of the company is no longer applicable. Such restrictions must now serve a “legitimate interest” (which at least should justify the duration of the restriction) and the validity is only assessed when agreeing such clause (and not at any time).
This will allow shareholders to be more comfortable when imposing a “lock-up clause” in their shareholders’ agreement. It also brings about much-needed certainty around this type of clause.
In addition, the new Companies Code expressly provides that the transfer of shares in violation of duly published statutory limitations are not enforceable vis-à-vis the company and third parties, even when the transferee of the shares has acted in good faith.
Deal financing – financial assistance
In some deal structuring, the target company is asked to provide financial assistance through the advance of funds, loans or securities to help a prospective purchaser finance the purchase or subscription of the target company’s shares.
This assistance was to a certain extent allowed under the old Companies Code, provided that the target company complied with a specific (and burdensome) procedure. Under the new Companies Code, failure to comply with such procedure is no longer subject to criminal sanction. Moreover, the special report of the board (detailing the rationale, conditions, risks and importance of the financial assistance for the company) no longer has to be published in the Belgian Official Gazette (available online to third parties), allowing more “privacy” regarding the transaction. Finally, under the new procedure, the target company’s unavailable reserves may be reduced in proportion to the decrease in the advanced amounts.
Joint and several liability for non-released shares
While the joint liability of both transferor and transferee for payment of non-released shares was regulated for an SA/NV, this was not the case for an SRL/BV (previously an SPRL/BVBA). This led to divergent views in legal literature and case law, and hence legal uncertainty about the parties’ obligations.
The new Companies Code now clearly provides that as long as an SRL/BV share is not fully paid, both seller and purchaser are jointly and severally liable vis-à-vis the company and third parties for the non-paid portion until full payment of the share. This provision of the new Companies Code is mandatory, so that any provision to the contrary will be deemed null and void.
Frustration doctrine and MAC clause
It is worth noting in this section that, following reform of the Belgian Civil Code, Belgian law now introduces the doctrine of frustration (hardship or théorie de l'imprévision / imprevisieleer), enabling a party to ask the other party to renegotiate or terminate an agreement where an unforeseen event occurs after the conclusion of the agreement, without breach by either party, and rendering the contractual obligation impossible or difficult to perform.
Until now, this doctrine was not accepted (or at least strongly debated) under current Belgian law and case law. To deal with such risk, acquisition agreements often included a Material Adverse Change (MAC) clause, protecting the purchaser from significant changes that could arise and reduce the value of the target company or its assets and activities. MAC clauses usually allowed the purchaser to either walk away from the deal or ask for an indemnity or an adjustment to the purchase price.
With the reform, even if no MAC clause is provided for in the agreement, the parties can renegotiate or terminate an agreement under the frustration doctrine. If the parties wish to be more specific or clearly restrict what constitutes an unforeseen event rendering the obligation “impossible or difficult to perform”, it is still advisable to have a MAC clause in the acquisition agreement.
Your key contacts
- Arnaud Van Oekel, Brussels
- Carl Leermakers, Brussels
- Cedric Guyot, Brussels
- Jean-François Goffin, Brussels
- Stéphane Collin, Brussels
- Vincent Dirckx, Brussels
- Virginie Frémat, Antwerp