Advisory Board

  • Cai Hongbin
  • Peking University Guanghua School of Management
  • Peter Clarke
  • Barry Diller
  • IAC/InterActiveCorp
  • Fu Chengyu
  • China National Petrochemical Corporation (Sinopec Group)
  • Richard J. Gnodde
  • Goldman Sachs International
  • Lodewijk Hijmans van den Bergh
  • De Brauw Blackstone Westbroek N.V.
  • Jiang Jianqing
  • Industrial and Commercial Bank of China, Ltd. (ICBC)
  • Handel Lee
  • King & Wood Mallesons
  • Richard Li
  • PCCW Limited
  • Pacific Century Group
  • Liew Mun Leong
  • Changi Airport Group
  • Martin Lipton
  • New York University
  • Wachtell, Lipton, Rosen & Katz
  • Liu Mingkang
  • China Banking Regulatory Commission (CBRC)
  • Dinesh C. Paliwal
  • Harman International Industries
  • Leon Pasternak
  • BCC Partners
  • Tim Payne
  • Brunswick Group
  • Joseph R. Perella
  • Perella Weinberg Partners
  • Baron David de Rothschild
  • N M Rothschild & Sons Limited
  • Dilhan Pillay Sandrasegara
  • Temasek International Pte. Ltd.
  • Shao Ning
  • State-owned Assets Supervision and Administration Commission of the State Council of China (SASAC)
  • John W. Snow
  • Cerberus Capital Management, L.P.
  • Former U.S. Secretary of Treasury
  • Bharat Vasani
  • Tata Group
  • Wang Junfeng
  • King & Wood Mallesons
  • Wang Kejin
  • China Banking Regulatory Commission (CBRC)
  • Wei Jiafu
  • Kazakhstan Potash Corporation Limited
  • Yang Chao
  • China Life Insurance Co. Ltd.
  • Zhu Min
  • International Monetary Fund

Legal Roundtable

  • Dimitry Afanasiev
  • Egorov Puginsky Afanasiev and Partners (Moscow)
  • William T. Allen
  • NYU Stern School of Business
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Johan Aalto
  • Hannes Snellman Attorneys Ltd (Finland)
  • Nigel P. G. Boardman
  • Slaughter and May (London)
  • Willem J.L. Calkoen
  • NautaDutilh N.V. (Rotterdam)
  • Peter Callens
  • Loyens & Loeff (Brussels)
  • Bertrand Cardi
  • Darrois Villey Maillot & Brochier (Paris)
  • Santiago Carregal
  • Marval, O’Farrell & Mairal (Buenos Aires)
  • Martín Carrizosa
  • Philippi Prietocarrizosa & Uría (Bogotá)
  • Carlos G. Cordero G.
  • Aleman, Cordero, Galindo & Lee (Panama)
  • Ewen Crouch
  • Allens (Sydney)
  • Adam O. Emmerich
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Rachel Eng
  • WongPartnership (Singapore)
  • Sergio Erede
  • BonelliErede (Milan)
  • Kenichi Fujinawa
  • Nagashima Ohno & Tsunematsu (Tokyo)
  • Manuel Galicia Romero
  • Galicia Abogados (Mexico City)
  • Danny Gilbert
  • Gilbert + Tobin (Sydney)
  • Vladimíra Glatzová
  • Glatzová & Co. (Prague)
  • Juan Miguel Goenechea
  • Uría Menéndez (Madrid)
  • Andrey A. Goltsblat
  • Goltsblat BLP (Moscow)
  • Juan Francisco Gutiérrez I.
  • Philippi Prietocarrizosa & Uría (Santiago)
  • Fang He
  • Jun He Law Offices (Beijing)
  • Christian Herbst
  • Schönherr (Vienna)
  • Lodewijk Hijmans van den Bergh
  • De Brauw Blackstone Westbroek N.V. (Amsterdam)
  • Hein Hooghoudt
  • NautaDutilh N.V. (Amsterdam)
  • Sameer Huda
  • Hadef & Partners (Dubai)
  • Masakazu Iwakura
  • TMI Associates (Tokyo)
  • Christof Jäckle
  • Hengeler Mueller (Frankfurt)
  • Michael Mervyn Katz
  • Edward Nathan Sonnenbergs (Johannesburg)
  • Handel Lee
  • King & Wood Mallesons (Beijing)
  • Martin Lipton
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Alain Maillot
  • Darrois Villey Maillot Brochier (Paris)
  • Antônio Corrêa Meyer
  • Machado, Meyer, Sendacz e Opice (São Paulo)
  • Sergio Michelsen Jaramillo
  • Brigard & Urrutia (Bogotá)
  • Zia Mody
  • AZB & Partners (Mumbai)
  • Christopher Murray
  • Osler (Toronto)
  • Francisco Antunes Maciel Müssnich
  • Barbosa, Müssnich & Aragão (Rio de Janeiro)
  • I. Berl Nadler
  • Davies Ward Phillips & Vineberg LLP (Toronto)
  • Umberto Nicodano
  • BonelliErede (Milan)
  • Brian O'Gorman
  • Arthur Cox (Dublin)
  • Robin Panovka
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Sang-Yeol Park
  • Park & Partners (Seoul)
  • José Antonio Payet Puccio
  • Payet Rey Cauvi (Lima)
  • Kees Peijster
  • COFRA Holding AG (Zug)
  • Juan Martín Perrotto
  • Uría & Menéndez (Madrid/Beijing)
  • Philip Podzebenko
  • Herbert Smith Freehills (Sydney)
  • Geert Potjewijd
  • De Brauw Blackstone Westbroek (Amsterdam/Beijing)
  • Qi Adam Li
  • Jun He Law Offices (Shanghai)
  • Biörn Riese
  • Jurie Advokat AB (Sweden)
  • Mark Rigotti
  • Herbert Smith Freehills (Sydney)
  • Rafael Robles Miaja
  • Robles Miaja (Mexico City)
  • Alberto Saravalle
  • BonelliErede (Milan)
  • Maximilian Schiessl
  • Hengeler Mueller (Düsseldorf)
  • Cyril S. Shroff
  • Cyril Amarchand Mangaldas (Mumbai)
  • Shardul S. Shroff
  • Shardul Amarchand Mangaldas & Co.(New Delhi)
  • Klaus Søgaard
  • Gorrissen Federspiel (Denmark)
  • Ezekiel Solomon
  • Allens (Sydney)
  • Emanuel P. Strehle
  • Hengeler Mueller (Munich)
  • David E. Tadmor
  • Tadmor & Co. (Tel Aviv)
  • Kevin J. Thomson
  • Barrick Gold Corporation (Toronto)
  • Yu Wakae
  • Nagashima Ohno & Tsunematsu (Tokyo)
  • Wang Junfeng
  • King & Wood Mallesons (Beijing)
  • Tomasz Wardynski
  • Wardynski & Partners (Warsaw)
  • Rolf Watter
  • Bär & Karrer AG (Zürich)
  • Xiao Wei
  • Jun He Law Offices (Beijing)
  • Xu Ping
  • King & Wood Mallesons (Beijing)
  • Shuji Yanase
  • OK Corporation (Tokyo)
  • Alvin Yeo
  • WongPartnership LLP (Singapore)

Founding Directors

  • William T. Allen
  • NYU Stern School of Business
  • Wachtell, Lipton, Rosen & Katz
  • Nigel P.G. Boardman
  • Slaughter and May
  • Cai Hongbin
  • Peking University Guanghua School of Management
  • Adam O. Emmerich
  • Wachtell, Lipton, Rosen & Katz
  • Robin Panovka
  • Wachtell, Lipton, Rosen & Katz
  • Peter Williamson
  • Cambridge Judge Business School
  • Franny Yao
  • Ernst & Young

Monthly Archives: September 2015

BRAZILIAN UPDATE – New Brazilian Anti-corruption Law and Regulations

Contributed by: Francisco Müssnich, Barbosa, Müssnich & Aragão Advogados (Brazil)

Editors’ Note: This update comes from Francisco Antunes Maciel Müssnich (founding partner) from Barbosa, Müssnich & Aragão Advogados. Francisco Müssnich is a member of XBMA’s Legal Roundtable, and a leading expert on Brazilian corporate and M&A matters. This paper was jointly authored by Adriana Dantas and Anna Carolina Malta from Barbosa, Müssnich & Aragão Advogados.

Highlights:

  • The Brazilian Anti-Corruption Law established sanctions on legal entities involved in corrupt and other illegal acts. Fines that range from 0,1% to 20% of the annual gross revenue and prohibition from receiving credit from public banks are among the sanctions established.
  • The law provides for the strict liability of the legal entities and for successor liability in case of mergers and acquisitions.
  • The adoption by the legal entities of an effective compliance program that comprises internal mechanisms and procedures of integrity, audit and incentives for the reporting of irregularities will be taken into consideration by Brazilian authorities when imposing sanctions.
  • Federal Decree 8,420/15 establishes the criteria to assess compliance programs, which may reduce the penalties imposed by Brazilian authorities.
  • The Office of the Executive Comptroller (CGU – Controladoria-Geral da União) has published Directives and Normative Rulings that address several subjects related to the Anti-Corruption Law: (i) evaluation of compliance programs; (ii) administrative proceedings phases and leniency agreements; (iii) criteria for calculating the monetary fine; (iv) public registries that shall publish the sanctions imposed; and reinforcement of CGU’s investigation structure, allowing it to be more effective in its operations and in the fight against corruption. 

 

MAIN ARTICLE

On January 29, 2014, Federal Law 12,846 (“Anti-corruption Law”) entered into force. The Anti-corruption Law provides for the administrative and civil liability of legal entities involved in acts against the national or foreign public administration.

The Anti-Corruption Law seeks to fill a gap in Brazil’s legal system by addressing corruption and corruption-related practices with more effective legal mechanisms, such as severe sanctions assessed based on a strict liability concept.

The law expands on certain requirements imposed by the U.S. Foreign Corrupt Practices Act (“FCPA”), and companies doing business in Brazil should closely analyze the differences between the two laws.

The Anti-Corruption Law was designed to address corruption in business transactions carried out by Brazil-based entities, as well as foreign entities that operate through an office, branch or representation in Brazil. Corruption is defined as “to promise, offer or give, directly or indirectly, an undue advantage to a public official or to a third party related to him/her”. Notwithstanding the focus on corruption, the Anti-corruption law prohibits several “acts against national or foreign public administration”, such as:

  1. to hinder of investigations or inspections carried out by public entities;
  2. to thwart or defraud, by means of an adjustment, arrangement or any other method, the competitiveness of a public bidding procedure;
  3. to fraudulently obtain an undue advantage or benefit from an amendment to or extension of an administrative contract, without authorization under the law, or from the notice of public bidding or the related contractual instruments; and
  4. to manipulate or defraud the economic-financial balance of an administrative contract.

The commitment of any of these acts subjects a legal entity to the imposition of severe sanctions. At the administrative level, companies are exposed to fines ranging from 0,1% to 20% of their gross annual revenue, and special public disclosure of the decision in means of communication widely distributed. Federal Decree 8,420/15 establishes objective criteria for fixing the fine. Several factors trigger the increase or reduction of the percentage applicable to calculate the fine. The percentage shall be increased, for instance, in case of (i) continuity of the acts (1 to 2%), tolerance or knowledge of the legal entity’s management (1 to 2.5%) and based on the value of the agreements held with the public administration (1 to 5%). On the other hand, factors that may reduce the percentage of the fine are, for example, (i) cooperation of the legal entity with the investigation (1 to 1.5%), (ii) self-disclosure (2%), compliance programs (1 to 4%). Also, CGU Internal Ruling No. 1/2015 established the criteria to calculate companies’ gross annual revenue.

In case a civil judicial proceeding is initiated, legal entities may be compelled to forfeit assets and rights obtained by means of corrupt practices, their business activities may be suspended, they may be prohibited from receiving incentives, subsidies, subventions, donations or loans from public entities, and they may even be compulsorily wind up. Besides, the Anti-corruption Law created the National Registry of Punished Companies (CNEP in the Portuguese acronym) which will consolidate all sanctions applied.

The Anti-Corruption Law also introduces new risks in merger and acquisitions transactions involving Brazilian companies. It provides for successor liability – liability for the payment of the fine and full compensation of the loss suffered by the public entity is transferred to the merged or acquiring company after the merger or acquisition. Thus, anti-corruption due diligence is increasing in Brazil and is becoming an even more usual practice. Since companies can be liable for the acts of third parties committed for the company’s benefit, anti-corruption due diligence on third parties is also a concern of many companies that do business in Brazil.

The legal due diligence investigation should be capable not only to identifying unlawful acts that have been committed, but also of pointing out vulnerabilities in companies’ internal procedures that require action to reduce the risk that improper or illegal conduct will occur.

Under the strict liability, the legal entity is liable for the performance of these acts in its interest or for its benefit and is subject to the imposition of a sanction, despite whether or not an employee acted in the scope of his employment, whether or not a third party committed the act, or whether or not the compliance program was effective.

The managers and administrators of the companies involved in corruption can also be held liable for their acts, but the liability regime applicable to natural persons is subject to the terms of the culpability of such persons (i.e. it is not a strict liability regime).

When determining the sanction, however, the existence and effectiveness of compliance programs will be evaluated by the sanctioning authority. The cooperation of the legal entity with the investigation conducted by Brazilian authorities will also be taken into account in the imposition of sanctions.

Federal Decree 8,420 issued this year established the criteria the compliance program should follow (16 elements listed) to allow the companies to claim for a reduction on the penalties determined in the Brazilian Anti-Corruption Law. Among the main elements that contribute to an effective compliance program (and make possible the reduction of fines), we can point out: (i) senior management’s commitment to the program, (ii) implementation of policies and procedures to mitigate identified risks, which must be reviewed periodically, (iii) due diligence checks on third party suppliers and also prior to any corporate transactions, (iv) periodic training programs, and (v) the independence of the internal structure responsible for the compliance program, which must not only be accessible by communication’s channel, but also shall have the power to investigate non-compliant conduct and impose disciplinary measures, if necessary.

Small and micro companies must also implement a compliance program, but they don’t have to implement all those elements and in Directive No. 2,279/2015, Brazilian authorities have indicated what could specifically contain in their compliance programs.

Also, in order to benefit from a reduction in the fine, companies must submit a Profile Report, containing a description of the company’s internal structure, its interaction with government agents, and its shareholders, and a Conformity Report, describing in detail how the compliance program functions. Therefore, the adoption of an effective compliance program that not just avoids illegal acts but that also includes procedures and mechanisms in support of an eventual investigation can also reward the legal entity.

The highest authority of the government entity affected by corrupt practices (Ministers of State, directors of regulatory agencies, chief executive officers of state-owned companies, etc.) has the power to bring Administrative Enforcement Proceedings (Processo Administrativo de Responsabilização – PAR) to investigate and punish offences under the Anti-corruption Law. On the other hand, CGU has concurrent jurisdiction to bring administrative enforcement proceedings, and exclusive powers to review enforcement proceedings brought by other government authorities to ensure they are conducted in conformity with the law. The CGU also has exclusive powers to enforce the Anti-corruption Law when foreign government officials or entities are involved.

According to the rules under Decree 8420/15, if corrupt practices under the Anti-corruption Law also constitute offences under the Government Contracting Law (Law 8666/1993) or other legislation and regulations on government bidding procedures and contracts, all the offences will be investigated and processed together.

Furthermore, legal entities’ administrative liability under the Anti-corruption Law does not exclude any civil and criminal liability that the legal entity (or the individuals that act on its behalf) may have for their corrupt acts.

The Office of the Brazilian Comptroller-General (CGU – Controladoria-Geral da União) has just published this September two new Directives, No. 2,154/2015 and 2,167/2015, that create 2 new agencies to support special operations and investigations. Those agencies are: Special Actions Group that was created in each CGU state regional offices to be responsible for special operations in each region, and Special Operations Coordination Group within CGU to coordinate the actions of the regional Special Actions Group. The objective is to reinforce CGU’s structure, allowing it to be more effective in its operations and in the fight against corruption.

It is worth noting that CGU has authority to enforce Anti-Corruption Law when the violations concern the Federal Administration. It has also jurisdiction to review administrative proceedings initiated under the Law to examine their legality or to correct any violation. CGU is also responsible for imposing the administrative penalty of debarment as established by Federal Law 8.666/93.

The Brazilian framework on anti-corruption law and enforcement is evolving, following trends and concepts adopted internationally. Brazilian authorities are conducting several corruption investigations, such as “Car Wash Operation” involving illegal acts committed in contracts with Brazilian State owned oil company, Petrobras, and “Zealots Operation” involving illegal acts committed in judgments of corporate tax proceedings. Severe sanctions, strict liability and several public bodies and entities responsible for investigating and deciding the acts committed, dramatically increase corruption- related risks. Consequently, companies doing business in Brazil should carefully measure corruption-related risk with a view of avoiding the exposure to local and foreign regulators. We are currently experiencing a time of act and strict enforcement of anti-corruption laws in Brazil and this tendency will likely consolidate in the future.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

U.S. UPDATE – The Long Arm of Governance Activism: U.S. Investors Look Abroad

Editors’ Note: This article was co-authored by Adam O. Emmerich and Sabastian V. Niles of Wachtell, Lipton, Rosen & Katz

Executive Summary: U.S. public pension funds – longstanding proponents of corporate governance and shareholder proposal-style activism in the U.S. – are now allocating increasing amounts of capital throughout the world, and increasingly considering whether and how to globally apply their strategies and tactics for increasing shareholder power, changing governance norms, influencing boards and management teams and driving the adoption of their preferred best practices.  Companies in all markets must accordingly study and prepare for changing governance expectations that may be suggested to them, as the long arm of U.S. governance activism is extended globally.

MAIN ARTICLE

As U.S. public pension funds – longstanding proponents of corporate governance and shareholder proposal-style activism in the U.S. – and other U.S. investors allocate capital throughout the world, they are increasingly considering whether and how to apply their strategies and tactics for increasing shareholder power, changing governance norms, influencing boards and management teams and driving the adoption of their preferred best practices across the full global footprint of their investments.  This phenomenon is illustrated by the ambitious plans of CalPERs, America’s biggest public pension fund, to extend their U.S. “focus list” of targeted companies globally and drive changes worldwide in investor rights, board membership and diversity, executive compensation and corporate reporting of business strategy, capital deployment and environmental, social, and governance practices.  CalPERs’ Investment Committee and Global Governance Policy Ad Hoc Subcommittee formally consider these matters later this week.

CalPERs experimented in 2015 with this new brand of global governance activism by selecting a particular non-U.S. market – Japan – to target.  Notably, one of the reasons cited by CalPERs for choosing Japan is the marked increase in foreign ownership of Japanese shares relative to the mid-1990s.  In fact, this phenomenon of companies having to confront a rapidly changing investor base increasingly populated by U.S. investors is by no means confined to Japan.  The measures applied by CalPERs to their selected Japanese companies would be familiar to U.S. companies: (1) correspond with the company; (2) seek in-person meetings with executive management; (3) seek in-person meetings with board members; (4) advocate that specific governance changes be adopted; (5) vote their shares, potentially against incumbent board members or otherwise in opposition to board and management recommendations; and (6) escalate their efforts if desired changes are not enacted.  While not, so far, deploying more aggressive tactics such as “naming and shaming,” leaks to the press, use of the media or other pressure and publicity tactics, CalPERs has been actively engaging with influential organizations in Japan throughout the process.  Examples of topics raised by CalPERs in these very early rounds of engagement in Japan include: increasing board independence, quality and diversity; defining narrower independence standards for directors; director biographies, skill-sets and expertise and disclosure thereof; changing director search and recruitment processes; and seeking comprehensive disclosure of cross-shareholdings.

Other U.S. investors that are well-known governance activists will increasingly adopt the same approach of engaging with non-U.S. companies directly, including at the senior executive and board level.  This is occurring in parallel with the globalization of hedge fund economic activism and the proxy advisory firms seeking revenue opportunities in non-U.S. markets, as illustrated by ISS recently expanding its coverage, staffing, voting recommendations and governance assessments beyond the Americas, further into Australia, Europe and Japan and newly into China, India and South Korea.

On the governance front, these dynamics will require companies in all markets to, at a minimum: (1) carefully evaluate the demands of U.S. corporate governance activists and deal effectively with their requests for meetings; (2) consider changes that will actually improve governance and create sustainable value; (3) resist changes that they believe will not be constructive; and (4) study the approaches that have been developed by U.S. companies, investment bankers and law firms to deal effectively with activists.  As the long arm of U.S. governance activism is extended globally, we encourage investors and proxy advisory firms to avoid imposing one-size-fits-all approaches across jurisdictions; consider local norms, customs and country- and company-specific circumstances (and accept those where appropriate); and in all cases engage constructively and pragmatically.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

BELGIAN UPDATE – M&A Outlook (First Half of 2015)

Editors’ Note:  Peter Callens is a partner with Loyens & Loeff and a member of XBMA’s Legal Roundtable.  Mr. Callens is renowned for his national and international corporate practice, with a focus on M&A and transactions in various sectors of industry. Mr. Callen authored this article along with his colleagues Natalie Reypens and Aldo Engels of Loyens & Loeff’s tax department and Robrecht Coppens, Mathias Hendrickx, Henri Nelen, and Elke Ghesquière of Loyens & Loeff’s corporate and M&A department.

Highlights:

  • Toward the end of 2014, the Belgian M&A market became increasingly active.  Due to several factors such as a weaker euro, fear on the part of business owners for a tax shift and greater willingness of the banks to finance acquisitions, the positive trend of enhanced M&A activity continued in H1 2015.
  • Private equity investment accounted for 25% of the number of deals, with some 11% of secondary buy-outs.  The great majority of deals were trade sales among industry players (62% of the deals).  There has been a significant drop in private equity investments as compared to last year.
  • In H1 2015, consumer goods, foods and retail, and industrial/manufacturing have been highly active sectors in M&A transactions, accounting for 40% of the total M&A deals.  General services, and computer technology and software also played an important role in these transactions (respectively 12% and 10% of the total M&A deals).
  • During H1 2015, interest by US and French investors in Belgian companies remained high. Together the investors from neighbouring countries represented almost half of all M&A deals (49%).
  • It is remarkable that no reported bidders come from China, as some announced enhanced M&A activity in Western Europe from that country. In contrast to last year, in the first half of 2015 no reported bidders were Japanese, Canadian, or Indian.

Main Article: 

 

1          Legal Environment

General

The general legal environment for public and private M&A remained stable throughout H1 2015.  In 2014, there was a certain expectation that for Belgian individual tax payers exempted returns from equity investments would henceforth be taxed.  However, the political discussions about the introduction of taxation on returns on equity investments are still ongoing and there seems to be quite some disagreement on the issue among the members of the current coalition government.

Statutory Law

No major legislative changes are to be reported.  It is noteworthy, however, that in accordance with article 11 of the law of 14 December 2005 on the abolition of bearer securities, all securities that are still in bearer form will have to be sold by their issuer at auction through Euronext Brussels before 30 November 2015.  The bearer certificate holders will only be entitled to claim the proceeds resulting from the auction, not the securities (shares) themselves.  As from 1 December 2015, any securities that have not been sold will have to be registered in the Deposit and Consignation Office (a government owned institution) until when it appears that someone lawfully claims the securities.

International: Bilateral Investment Treaties – Panama

The government has reached consent to ratify the BIT between the Belgium-Luxembourg Economic Union (BLEU) and Panama.

Case Law – International Investment Arbitration – China

Ping An, a Chinese investor in Fortis Bank, saw its investment drop dramatically in 2008.  Ping An argued that Belgium failed to provide a stable and secure business environment for their investment and equally failed to implement proper measures, protections and solutions to prevent and resolve the Fortis liquidity crisis.  The question for the arbitral tribunal was whether the 2009 BIT could apply to existing pre-1 December 2009 disputes based on breach of the 1986 BIT and notified under that BIT. On 30 April 2015, the tribunal decided that the claim was inadmissible for lack of jurisdiction.

Case Law – Corporate

It is impossible in this newsletter to summarise all court decisions published in the course of the first half of 2015 that may have an impact on M&A transactions in Belgium.  Here is a short summary of a few highlights:

  • Non-compete clauses

The Belgian Court of Cassation (23 January 2015) confirmed the prevailing view that a 17 year non-compete clause between two companies in an M&A context is excessive.  More importantly, the Court of Cassation added that if the non-compete clause fails, this will lead to the nullity of the non-compete clause.  The nullity will, as a rule, not be extended to the entire agreement.

  • Share price in forced sales or purchases of shares – no minority discount

Recent case law provides more guidance regarding the valuation of shares in the context of a forced sale or purchase of shares in situations of dispute between shareholders.

To avoid deadlock in case of lasting disagreement between shareholders, one of the shareholders may file an action in court to force the other shareholders to purchase its shares.  The Antwerp Commercial Court (30 May 2014) held that the shareholder who wants to leave a company has to prove that its rights and interest are seriously harmed by the other shareholders’ conduct (serious cause) and that it cannot reasonably be expected to remain a shareholder.

The president of the Commercial Court (6 June 2014) stated that the value of the shares must normally be determined on the date of the transfer of the shares.  The value of the shares should correspond to the price a third party would be willing to pay.

The Court of Cassation (21 February 2014) clarified that the judge must not take into account the consequences of the serious cause on the value of the shares and warrants.  Moreover the judge should not take into account the behaviour of the parties resulting from the proceedings.  In this judgement, the Court of Cassation confirms previous decisions.

In another judgment the Court of Cassation (20 February 2015) took a more explicit stance.  The Court took the view, first, that as a matter of principle, the valuation must be as per the transfer date (but there may be exceptions).  Second, the valuation must be corrected in order to neutralise the impact of the conflict on the value of the shares.  Third, the Court acknowledges that the use of a cut-off date other than the transfer date may be a valid way for the judge to neutralise the impact of the conflict on the value of the shares.  The consequence of this is that the cut-off date for the share valuation may be set before the share transfer date.  Following this new development in case law judges may exercise a more extensive power of appreciation to determine the value of the shares than was the case under previous case law.

  • Financial assistance

If certain conditions are met, Belgian company law allows a limited liability company to finance or guarantee operations effected in view of the acquisition of its shares by third parties.  The Belgian Court of Cassation (30 January 2015) decided that money drawdowns, loans or security interests will only be caught by the financial assistance prohibition if they must be refunded or returned.  Non-refundable payments will normally fall outside the scope of the financial assistance rules.

  • External representation of a company

The Court of Cassation had the opportunity to confirm its opinion on external representation of a company in two cases (13 December 2012 and 27 May 2013, published in 2015).  The main rule remains that a representative should declare that he or she acts on behalf of a company.  Absent this, it will be presumed that the obligation is personal to the signatory.  The Court pointed out that it is up to the judge to decide case-by-case whether a representative acted on behalf of the company or for his or her own personal purposes.

Tax – Legislative Changes and other developments

The following legislative changes and other developments in the Belgian tax environment that occurred in the course of the first half of 2015 may have a direct or indirect impact on M&A transactions in Belgium:

  • The Notional Interest Deduction (NID) which provides for deduction of fictitious interest on the adjusted equity of a Belgian taxpayer remains in place. This has been confirmed by the government on the occasion of the budgetary control of March 2015.  The NID rate for tax year 2016 amounts to 1.63% (and 2.13% for SMEs).
  • The Fairness Tax, which was introduced in 2013, is a separate tax of 5.15% on dividends distributed out of profits that were not effectively subject to the ordinary Belgian corporate income tax regime due to deduction of tax losses carried forward and notional interest. The compatibility of the Fairness Tax with the Constitution, double tax treaties and EU law was questioned from the beginning.  A request to annul the Fairness Tax was filed before the Constitutional Court on 31 January 2015.  The latter has raised a prejudicial question to the EU Court of Justice on 28 January 2015 with regard to one of the grounds for annulment.  It will at least take another year before a final decision with respect to the annulment of the Fairness Tax will be handed down.
  • The government has announced various tax incentives for start-ups: an individual tax reduction for investment in new companies, an exemption of payment of wage withholding tax, an investment deduction for investments in digital assets and an incentive for crowd funding.
  • In the framework of the implementation of the CJEU’s decision in the Tate & Lyle case the government has announced a withholding tax of 1.69% on dividends paid by Belgian companies to companies located in the European Economic Area, which hold a participation of less than 10% that has an acquisition value of more than €2.5M.
  • A special tax for companies active in the diamond sector will be introduced. The tax will be calculated on their turnover.

2          M&A Business Environment

General

Toward the end of 2014, the Belgian M&A market became increasingly active.  Due to several factors such as a weaker euro, fear on the part of business owners for a tax shift and greater willingness of the banks to finance acquisitions, the positive trend of enhanced M&A activity continued in H1 2015.  We have counted some 119 relevant deals on the M&A market in the course of the period under review.

The headline deals of H1 2015 were the sale of IVC by Mr. Filip Balcaen to Mohawk, the sale of Balta to Lone Star, the Delhaize-Ahold merger and the acquisition of Base by Telenet.

Public vs. Private

In H1 2015, M&A activity targeting Belgian listed companies has been relatively quiet.  The proportion of deals targeting listed companies in relation to the number of the known transactions targeting non-listed companies is small.  There was only one public deal (1%) and 116 known private deals (99%).  The ratio between the public deals and the private deals is similar to the ratio in 2014 (4% public deals and 96% private deals).  The financial press reported that Balta was keen to launch an IPO by the end of H1 2015, but its shareholders eventually opted for a private sale.

Private_v._Public_Deals

Public Takeovers

In the first half of 2015, only one public takeover offer was notified to the Financial Services and Markets Authority (FSMA) and published on its website.

Groupe OnePoint/Vision IT Group

This offer concerned an unconditional mandatory public takeover offer in cash by Groupe OnePoint S.A., a French company, for all outstanding shares in Vision IT Group NV, a Belgian public limited liability company, whose shares are traded on the Alternext market of Euronext Brussels and Euronext Paris.

The mandatory bid resulted from the acquisition by Groupe OnePoint of 54.24% of the shares in Vision IT Group by way of private transactions concluded in H1 2015.  The threshold for the obligation to launch a public takeover bid is reached if the acquirer acquires, directly or indirectly, more than 30% of the securities with voting rights.  The results of the bid confirm that Groupe OnePoint now owns 97% of Vision IT Group.  Groupe OnePoint is currently performing a squeeze out to acquire all remaining shares.  Any shares not acquired during the squeeze-out process will transfer to Groupe OnePoint by operation of law.

Private Equity

Private equity investment accounted for 25% of the number of deals, with some 11% of secondary buy-outs.  The great majority of deals were trade sales among industry players (62% of the deals).  An analysis of the results of this year and comparison to last year shows a significant drop in private equity investments: as opposed to 2014, in which 21% of the deals concerned PE investments, this number decreased to only 14% in H1 2015.  In addition to the decrease in PE investments, the ratio of PE divestments has increased (9% in 2014 and 13% in the first half of 2015).

Private_Equity_ Involvement

In H1 2015, management do not seem to have been very active as investors on the M&A market.  Management buy-outs do not account for more than 6% of the total number of deals.  The ratio of management buy-outs to other deals (6% management buy-out, 94% other deals) has remained the same as last year.

Deals_ with_ Management

Sectors

In H1 2015, consumer goods, foods and retail, and industrial/manufacturing have been highly active sectors in M&A transactions, accounting for 40% of the total M&A deals.  In 2014 consumer goods and food, and industrial/manufacturing concerned respectively only 19% and 10% of the total deals.  General services, and computer technology and software also played an important role in these transactions (respectively 12% and 10% of the total M&A deals).  Concerning computer technology, the graph indicates a 4% reduction compared to last year.

Belgian_M&A_2015_Sectors

Geographical Interest from Investors

During H1 2015, interest by US and French investors in Belgian companies remained high. Investors from neighbouring countries have also been very active on the Belgian M&A market. Together the investors from neighbouring countries represented almost half of all M&A deals (49%).

The graph demonstrates that the bidders on the Belgian M&A market remain mostly Belgian (28%). However, compared to last year, there is a decrease in the number of Belgian bidders (36% in 2014 and only 28% in the first half of 2015). By contrast, an increase of French (9% in 2014, 16% in the first half of 2015) and UK (3% in 2014, 9% in the first half of 2015) bidders is noticed.

It is remarkable that no reported bidders come from China, as some announced enhanced M&A activity in Western Europe from that country. In contrast to last year, in the first half of 2015 no reported bidders were Japanese, Canadian, or Indian.

Belgian_M&A_Origin_of_Bidders

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

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