CMS Expert Guide to cash pooling in Belgium

Although there are no specific provisions in Belgian law governing cash pooling agreements, a cash pooling arrangement could trigger the application of the Belgian corporate law provisions on social interest, capital maintenance, directors’ obligations and corporate capacity.

Under Belgian law, directors must exercise their function in accordance with the interests of the company. Should they fail to consider the company’s interests, they may be held personally liable. 

In various cases, however, the Belgian courts have been willing to balance the interests of the company against those of the group as a whole and, increasingly, case law and literature recognises the concept of the “interests of the group”. According to this concept, an individual group company is not to be treated in isolation without regard to the links which unite it with other companies in the group. 

Whilst there is no strict legal definition of “interests of the group”, a definition has been roughly outlined in case law and doctrine, and was confirmed by a judgment of the Court of Appeal of Brussels dated 29 June 1999. This judgment (which in fact related to a criminal law matter) outlines the circumstances in which a group company may incur a financial detriment to ensure the best possible coordination of the group’s activities and the best possible results for the group as a whole. The case established that a group company can provide financial support to another group company which finds itself in financial difficulty, provided that such support is justified taking into account the interests of the group as a whole and does not endanger the existence of the company providing the support and is only provided temporarily. 
However, the principle of “interests of the group” is subject to the following limits: 

• the group cannot forfeit one of its subsidiaries in the sole interests of the group;  
• the group cannot impose a long-term imbalance between the respective commitments of the companies in the group;  
• the group must be well organised and structured and its members must have common financial and commercial objectives. 

Furthermore, it remains at all times essential to maintain the balance between the interests of the group and those of the company providing the financial support.

If the company does not have a corporate purpose that allows it to incorporate this mechanism, it will have to amend its corporate purpose in accordance with the procedure set out in article 7:154 of the Belgian Companies and Association Code. Thus, an amendment of the object of the company can only be successful if the shareholders present at the extraordinary general meeting represent at least half of the capital and if the amendment receives at least four fifths of the votes cast. The presence of an accountant is no longer necessary to complete the procedure of modification of the corporate purpose.

Article 7: 228, first alinea of the Belgian Company and Association Code provides that if the net assets of a company fall to a level below half its share capital, a shareholders’ meeting must be convened by the directors within two months of their becoming aware of this fact, to consider whether the company should be put into liquidation. If the directors fail to convene a meeting within the requisite time period, they will be responsible for losses to creditors which arise from transactions they enter into with the company after the latest date on which the meeting should have been called. The damage suffered by third parties is deemed to flow directly from this failure, unless evidence can be provided to the contrary. This is a significant risk that Belgian directors need to consider. 

The same rules apply when the net assets of a company fall to a level below a quarter. In this case, the dissolution will take place when it is approved by a quarter of the votes cast at the meeting in accordance with article 7:228, fourth alinea. 

Article 7:229 of the Belgian Company and Association Code applies when the net assets of a company fall below the legal minimum of EUR 61,500. In such circumstances, any interested party can make an application to the court under this article for dissolution of the company. The court can grant the company a period in which to increase its assets to the legal minimum. The obligation of the directors to convene a general meeting pursuant to article 7:228 applies not only at the time the annual accounts are prepared but endures throughout the financial year – for example, on preparation of the interim accounts. However, this does not impose an obligation on the directors to take positive steps to check at any particular time whether or not the net assets of the company have fallen below the relevant thresholds. As mentioned above, the directors of a Belgian company need to ensure that, when entering into a cash pooling arrangement, the balance is maintained between the interests of the company on the one hand and the interests of the group on the other. The interests of the company and the group will cease to be balanced if the Belgian company finds itself in either of the situations referred to in articles 7:228 and 7:229 of the Company Association Code. In several cases, the courts have been of the opinion that in such circumstances, the interests of the Belgian company must not be compromised for the benefit of the interests of the group.

Those rules only apply for the public limited liability company. Since 2019 and the amendment of the Belgian Company and Association Code, the presence of “capital” is no longer a mandatory requirement for the private limited liability company, nor for the cooperative company. This requirement has been replaced by “sufficient initial capital” as mentioned in articles 5:3 and 6:4 of the Belgian Company and Association Code. Although the “capital” requirement has been deleted, the same procedure exists for private limited liability companies as provided by article 7:228 of the Belgian Company and Association Code, but based on the net assets of the company – and no longer on the “capital”. 

The articles of association of a Belgian company should include the object of the company. The authority of the company’s board of directors is limited by such corporate objects, i.e. the board of directors may only act on behalf of the company if its actions fall within the scope of the company’s objects. If the board takes any action that is outside the scope of the company’s objects, the directors may be held liable to the company and third parties. 

Under Belgian law, cash pooling activities need not be expressly included in the company’s objects. However, it is necessary that the object clause should allow the company to lend and borrow monies to and from other companies, and (if applicable) grant guarantees. 

If the Belgian company contributes to the cash pool (rather than simply benefiting from funds contributed by others), it is absolutely necessary that the cash pooling agreement should specify the interest rate at which the Belgian company contributes such funds. This interest rate should not be lower than the official interest rate, since an interest rate which is lower than the official rate might not be considered to be in the corporate interests of the Belgian company. 

The directors of a Belgian company have a specific duty to preserve the company’s assets and to refrain from entering into transactions that may adversely affect the financial viability of the company or its assets. 

The directors of a Belgian company must therefore carefully evaluate all possible consequences of the company’s participation in a cash pooling arrangement in order to ensure that they comply with this duty. In particular, the directors must consider – with reference to the contractual structure of the cash pooling arrangement – the extent of the risk that the Belgian company will be unable to recover sums it has contributed to the cash pool.

Since 2020, article 198/1 of the Belgian Income Tax Code provides for debt-to-equity rule. 
Exceeding borrowing costs are deductible only up to the highest of 

(i) 30% of the taxpayer’s fiscal EBITDA or 

(ii) EUR 3 million.

The exceeding borrowing costs that could not be deducted in the current taxable period can be carried forward for an unlimited time. Furthermore, upon certain conditions, taxpayers belonging to the same group also have the possibility to transfer unused EBITDA capacity to other group companies.