There are certainly many extensive articles and opinions on how the new company code, the Belgian Code of Companies and Associations (BCCA) (which entered into force since 1 May 2019) has reformed, simplified and made company law in Belgium more flexible.
Some of the flexibilities offered by the BCCA are the abolishment of the obligation to have two shareholders, flexible rules on financial assistance for management buyouts, and a cap on directors’ liability. These changes certainly attract (foreign) investors. In this September edition of our M&A series, we discuss the changes that are relevant to investors in the context of shareholders' agreements. The below demonstrates that the BCCA has certainly created much welcomed opportunities for investors, but also highlights the need to review existing shareholders’ agreements.
Classes of Shares
The BCCA provides tremendous leeway regarding shares which is new for the BV (private limited company), disconnecting the link between the investor’s contribution and the value of its shares, thereby allowing for shares to be issued without voting rights, multiple voting rights, and creating classes of shares. The novelty of the creation of classes of shares in the BV is often useful so that the rights of shareholders, e.g., founder and investors, can be distinguished. The only thing that parties and especially a controlling shareholder needs to be aware of when creating classes of shares is that if the rights of share classes are changed or impacted, directly or indirectly, the majority needs to be calculated in each class. This means that, if the concept of “changing the rights attached to shares” is defined broadly (which is yet to be seen), this could have the adverse effect of a minority shareholder blocking important decisions.
Furthermore, the BCCA loosens the leonine clause in a way that a shareholder- investor can now be excluded from any risk of loss of contribution. The lawmakers understood that a PE investor often wants to invest in the company and have an exit at the guaranteed price of its investment which is organised through put options in the shareholders’ agreement of which the validity is now certain.
Regarding the transfer of shares, new is that the restrictions laid down in the shareholders’ agreement can, at the request of a shareholder, be recorded in the shareholders’ register which is not open to public. In practice, transfer restrictions are not always recorded in the articles of association, which is public, parties wanting to keep the modalities of their cooperation secret. If these restrictions are reordered in the shareholders register and if a sale is performed in contradiction of the transfer restriction, then the sale cannot bind the company and the other shareholders regardless of whether the transferee is acting in good faith. Therefore, it is crucial to stipulate in the shareholders’ agreement that all shareholders’ restrictions must be recorded in the register which can now be in electronic form.
In the scenario in which the relationship between the shareholders themselves has gotten so bad that one of them takes legal action to seek forced exclusion/withdrawal, the BCCA states that the judge is bound by what is stipulated in the shareholders agreement provided that the parties have specifically stipulated that the purchase price valuation provisions apply in the event of forced exclusion/withdrawal. Given that the BCCA applies to exclusion proceedings that are brought as from 1 May 2019 (!), it is highly recommended that existing shareholder’s agreements are analysed, and parties enter into an addendum whereby such provision is added.