On 28 February 2019, the new Belgian Company Code was approved indefinitely by the plenary session of the Belgian Parliament. The new Company Code, which will enter into force on 1 May 2019, will introduce many new changes to the Belgian corporate landscape.
One of these changes concerns the new conflict rules on the forced transfer of shares, also known as the exclusion or retirement procedure.
Case law and practical difficulties in past years have led the legislator to change the three most important aspects of the procedure: (i) the court’s competence, (ii) the share price determination, and (iii) the reference date. These changes can be summarized as follows.
(i) Competence
Prior to the new legislation, the court’s competence was narrow and strict. Consequently, shareholders often had to commence different proceedings (even before different courts) to settle issues that were essentially part of the same overall dispute. The new legislation tries to remedy this issue, rendering the new conflict rules more time- and cost-efficient.
Firstly, the court that decides on the share transfer will also be able to decide on related claims (in the sense of article 30 Judicial Code), on the condition that the dispute relates to financial relations (“financiële betrekkingen”) or non-compete clauses. The law itself gives three examples of these financial relations, namely current accounts, loans and securities.
Secondly, the same court can settle disputes concerning the ownership of the shares.
Lastly, there is an indirect extension of the court’s competence based on article 19 paragraph 3 Judicial Code, which relates to provisional measures. Because, contrary to the previous legislation, the company itself is now a full party to the proceedings, parties can now ask for provisional measures in relation to that company.
(ii) Price determination
It was not clear whether the court could take into account price determination clauses in shareholder agreements to determine the price of the shares in the context of a forced transfer. The new legislation has settled this debate. These clauses are now binding on the courts, provided two conditions are satisfied:
The clause must be specifically related to the forced transfer of shares;
The application of the clause does not lead to a manifestly unreasonable price (“kennelijk onredelijke prijs”);
Companies should make sure the clause is drafted in such a way that it satisfies these conditions.
(iii) Reference date
The most important change of the new legislation concerns the “reference date”, i.e. the date on which the price of the shares is fixed in the context of a forced transfer.
In principle, the reference date is the date on which the transfer of the shares is ordered by the court. However, if the price of the shares on this reference date no longer reflects their actual value, as a consequence of circumstances before or after that date (e.g. shareholder disputes), the judge can shift the reference date.
The court can also make an equitable price adjustment if the price on the reference date would lead to a manifestly unreasonable result. Hence, the court now has two different tools to adjust the price and a lot of flexibility to achieve the most equitable outcome.
Concluding remarks
The new Belgian Company Code tries to put an end to discussions and uncertainty in shareholder disputes. The new Code has settled the most important issues by codifying existing case law.
Clearly, these reforms create more legal certainty. At the same time, however, they could create new legal uncertainties and give rise to new discussions in case law.
