On 27 March 2024, Belgian Parliament adopted the law in respect of digitalisation of the Justice Department and miscellaneous provisions (the Law) which was published in the Belgian Official Gazette on 29 March 2024 and entered into effect on 8 April 2024. Among various other legislative amendments, the Law introduces a new article 7:151/1 in the Belgian Companies and Associations Code (BCAC), requiring approval from the general meeting in case of a transfer of significant assets by listed companies.
The Law follows a proposal from the Belgian Financial Services and Markets Authority (FSMA) to that effect to increase minority shareholder protection and brings Belgian company law more in line with that of its neighbouring countries where shareholder involvement was already required for asset transfers (e.g., the Netherlands, France, Germany and the United Kingdom).
Previously, the board of directors of listed companies was exclusively competent to decide on transfers of significant assets in most cases. There were exceptions in certain specific situations where such transfers exceeded the company’s object or amounted to a liquidation, or when a listed company was the target of a public takeover bid, or in case of a contribution or transfer of a universality. Generally speaking, however, the general meeting of shareholders had no powers when significant assets were transferred even though such transfers may have a material impact on the future activities of listed companies.
Conditions
With the entry into force of the Law, all transfers of at least 75% of the total assets of a listed company must be approved by the general meeting. To determine whether a transfer meets the materiality threshold, it must be checked against the company’s most recent published annual accounts or, as the case may be, consolidated annual accounts.
The Law also extends this requirement to non-listed subsidiaries, wherever they are located, of a Belgian listed company, which cannot transfer assets with a value exceeding 75% of the total assets of the listed parent company on a consolidated basis, without approval from the general meeting of the listed parent company. It is to be noted that in respect of non-listed subsidiaries, the Law refers to a threshold of more than 75%, while in respect of the listed company itself it refers to 75% or more.
To avoid circumvention of the requirement to obtain general meeting approval by adopting a staggered transfer approach, the Law determines that all transactions by a listed company and its non-listed subsidiaries which took place in the past twelve months and which were not approved by the general meeting of the listed company, must be added to the contemplated transfer to determine whether the 75% threshold of the (consolidated) assets of the listed company is met or exceeded. Based on the argument that the 75% threshold is sufficiently high, the Law does not provide any exemption for transfers of assets in the ordinary course of business.
The Law delegates authority to the King (by Royal Decree), following advice from the FSMA, to further specify the method to be applied to calculate the 75% threshold.
Exception
The requirement to obtain the approval of the general meeting of the listed company is not applicable to transfers of significant assets to a subsidiary of the listed company unless the natural or legal person exercising the direct or indirect control over the listed company, directly or indirectly through another person than the listed company, holds a participation of at least 25% in the capital of the relevant subsidiary or which entitles it to at least 25% of the profits in the relevant subsidiary. This exception is inspired by the exception that applies to the related party transaction procedure in the BCAC.
Procedure
If a transfer of significant assets must be submitted to the general meeting of a listed company, the management body of the listed company must justify the proposed transfer in a comprehensive report which must be provided to the listed company’s shareholders, holders of profit certificates, convertible bonds, subscription rights or certificates. If no such report was prepared, the resolution of the general meeting is null and void.
In case significant assets would be transferred to a related party, the Law determines that the related party transaction procedure of article 7:97/7:116 BCAC, is also applicable to the management body’s proposal of the asset transfer to the general meeting, despite the board of directors no longer being the competent corporate body to take the decision to transfer the significant assets.
As the Law does not impose any specific quorum or majority requirements that must be obtained at the general meeting, an ordinary majority is sufficient to approve the transfer of significant assets that is subject to the Law.
Disclosure and effect towards third parties
The decision of the general meeting to transfer 75% or more of a listed company’s assets must be filed with the clerk’s office of the competent enterprise court and published in the Annexes to the Belgian Official Gazette.
As mentioned above, the Law clarifies that absence of approval by the general meeting does not impede or prevent the management body’s powers of external representation in respect of the significant asset transfer. In other words, third parties acting in good faith may rely on the management body’s powers of external representation and the validity of the transfer, even if the general meeting’s consent has not been obtained.
Food for thought
Security rights
It is interesting to consider, although the Law does not address this, how the granting of security rights by listed companies or their non-listed subsidiaries should be treated in light of the general meeting approval requirement. Such security rights may indeed result in the transfer of 75% or more of the assets of a listed company upon enforcement.
The Law requires the general meeting to approve transfers of significant assets. In the case of security rights, assets would only be transferred upon enforcement although the listed company’s creditor will expect the security rights to be enforceable against third parties upon their creation without the need for further shareholder approval.
A position, similar to what is the case for change of control related rights granted to third parties in article 7:151 BCAC, that general meeting approval is sought when the security rights are granted and does not need to be repeated upon enforcement appears reasonable, although the Law is silent on this issue.
The specific confirmation in the Law (see also below) that the absence of approval by the general meeting does not impede or prevent the management body’s powers of external representation may provide some comfort to secured creditors acting in good faith, provided it is reasonable for them to consider they had no knowledge of the fact that the secured assets represent 75% of more of the assets of the company (taking into consideration any past transfers they would be aware of).
Lookback period
Furthermore, it remains to be seen how listed companies and legal practitioners will need to determine the lookback period of twelve months. Does this period start upon signing or closing of the significant asset transfer agreement? Do only asset transfers that have been signed during the lookback period need to be taken into account or also those that were signed prior to and closed during the lookback period.
Based on article 5.82 of the Belgian Civil Code, signing of the relevant transfer agreement appears to be the most logical reference point.
Conclusion
The Law brings important changes to Belgian company law where the board of directors previously reigned supreme in respect of most transfers of assets. (Minority) shareholders will now enjoy additional protection as they will need to consent to asset transfers that may have a significant impact on a listed company’s future performance or activities.
As with most new legislation, practical consequences and implications of various provisions of the Law will become clearer as legal practice starts applying the new Law and additional guidance will hopefully be given, in particular by Royal Decree further specifying the calculation method for the 75% threshold. The application of the Law to security rights and the determination of the lookback period are two other areas that will be interesting to watch over the coming months and years.
