Clause de changement de contrôle… ou non?

Intuitu Personae Agreements with continuing performance of rights and duties: Assignment- but no Change of Control- clause?

Rules governing agreements with continuing performance of rights and duties concluded between companies which do not contain a change of control clause, but only an assignment provision, have a very different scope of application. Pursuant to a non-assignment provision, a party is required to obtain the prior written consent of the other party if the agreement is assigned, transferred or otherwise disposed of by it to one of its subsidiaries or affiliates.  What happens if such agreement is indirectly transferred, as a result of a subsequent sale of the shares of the company that is a party to such agreement?

In principle, the lack of a change of control clause implies that the shares of a company can be freely transferred, since the agreement is concluded with a company notwithstanding its shareholding. However, pursuant to a general principle under Belgian law that contracts have to be executed in good faith, prohibiting any form of abuse of rights, the question of whether the lack of the contractual right to terminate the agreement in case of a change of control can be considered as a full authorization to indirect transfer of such agreement has to be examined.

Such “indirect transfer” of the agreement may occurin one of two ways.

Firstly, it may be assigned by a party to one of its “affiliated companies” as such concept is legally defined under Belgian law, such operation being thereafter followed by the transfer of the shares of such affiliated company to a third party. Since the agreement does not involve one discrete act, butrather involves a succession of acts , and creates rights, duties and obligations to be executed over an often long period of time as from its signature, if the agreement isassigned to an affiliated company, any further sale of such affiliated company’s shares to a third party would necessarily result in an implicit transfer of the agreement.

Indeed, during the life of the agreement there will be a transfer to a company which is not longer a subsidiary or an affiliate company. Since such sale of shares (and the consequent infringement of the assignment provision) would be accomplished without requiring the prior consent of the other party to the agreement, such party will most likely to object and seek an early termination of the agreement for a breach of its terms and conditions (in addition to any other legal remedy that it may seek).

Secondly, it is not an agreement which is assigned, rather the shares of a party to such agreement are sold to a third party. Even if the agreement is not directly assigned as such (but is indirectly transferred as a result of the shares sale), the other party will most likely (have a right to) object to such indirect transfer of the agreement on the basis of the “intuitu personae” character of the agreement, since it is the trust put by one party in the other party that is the very specific and personal element, in absence of which the agreement would not have been concluded.

Consequently, if the other party can demonstrate that the only reason for the transfer of the shares was to circumvent the prohibition on transferring the agreement without a prior written consent, this might in certain conditions be seen as an abuse of right or lack of good faith in the performance of a contract.

Therefore, the assignment of such specific contractual relation by one party without the prior consent of the other party may give rise to termination of the agreement by such other party on the same basis.

Finally, the application of article 556 of the Company Code should not be forgotten when a change of control clause leads to termination of an agreement . Indeed in such case the provision has to be authorized by an extraordinary general meeting of shareholders in order to be valid.