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
  • CapitaLand Limited
  • Martin Lipton
  • New York University
  • Wachtell, Lipton, Rosen & Katz
  • Liu Mingkang
  • China Banking Regulatory Commission (CBRC)
  • Dinesh C. Paliwal
  • Harman International Industries
  • Leon Pasternak
  • Bank of America Merrill Lynch
  • Tim Payne
  • Brunswick Group
  • Joseph R. Perella
  • Perella Weinberg Partners
  • Baron David de Rothschild
  • N M Rothschild & Sons Limited
  • Dilhan Pillay Sandrasegara
  • Temasek Holdings
  • 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
  • China Ocean Shipping Group Company (COSCO)
  • 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
  • Royal Ahold (Amsterdam)
  • Hein Hooghoudt
  • NautaDutilh N.V. (Amsterdam)
  • Sameer Huda
  • Hadef & Partners (Dubai)
  • Masakazu Iwakura
  • Nishimura & Asahi (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
  • Mannheimer Swartling (Stockholm)
  • 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

Belgium

BELGIAN UPDATE – M&A Outlook (2016)

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 Steven of Loyens & Loeff’s tax department and Steve Callens, Robrecht Coppens, Mathias Hendrickx and Elke Ghesquière of Loyens & Loeff’s corporate and M&A department.

Executive Summary: A review of M&A in Belgium in 2015 and outlook for 2016.

Main Article:

1          Legal Environment

1.1       General

The general legal environment for public and private M&A remained very stable throughout 2015. In 2014, Belgian tax payers (private individuals) feared that in the course of 2015 the tax regime with respect to capital gains on equity investments might be changed. Exempted gains would become taxable, so they thought. Reality has been different. So far the tax exemption has not been affected, although it must be said that a few striking M&A transactions (Omega Pharma and IVC), in which important capital gains were realised, gave rise to new debates on the subject. The government did in fact change the tax regime of income from capital by way of interests or dividends in the context of a so-called ‘tax shift’ but the capital gains rules have been left unaltered. As things have developed, there is no expectation that the capital gains regime will change in the immediate future.

1.2       Statutory law

Corporate

On the corporate side no major legislative changes are to be reported. A reminder on the subject of the abolition of bearer securities:

Abolition of bearer securities – further developments

The law of 14 December 2005 on the abolition of bearer securities provided that the issuer had to proceed, before 30 November 2015, with the auction sale of all remaining securities that are represented by bearer securities but have not been converted into registered or dematerialised securities. The auction had to take place under the auspices of Euronext Brussels. Bearer security holders were only entitled to claim the auction proceeds, not the securities themselves. In December 2015, bearer securities that were not sold, had to be registered with the Deposito- en Consignatiekas / Caisse des Dépôts et Consignations (a governmental institution) and will have to remain there until 31 December 2025 unless they are validly reclaimed by the legitimate holder. After that, the issuer may repurchase the securities if it notifies its intention to repurchase no later than 31 December 2025. In the event of such repurchase the proceeds from the repurchase will go to the Belgian State. Absent such notice, the State will receive title to the securities.

Vulture Funds

A law of 12 July 2015 severely restricts the ability of funds that invest in sovereign debt to enforce their rights on the relevant debtor States or to obtain freezing orders against them, regardless of the law applicable to the relationship between creditor and debtor.

Case-law – Corporate

It is impossible in this newsletter to summarise all court decisions published in 2015 that may impact on Belgian M&A transactions. Here is a short summary of a few highlights (some reported case-law is older but was published in 2015):

Non-compete covenants

The Court of Cassation (in two judgments of 23 January and 25 June 2015) has taken important decisions on non-compete covenants:

  • A non-compete covenant that is not limited in time, as to its object (i.e. business scope) or as to the relevant territory, is contrary to public policy.
  • If the contract validly allows for partial nullity, e.g. if it provides that in the event of nullity only the excessive part will be declared invalid, the trial court may reduce the impact of the non-compete covenant to what is valid.

In the first matter at hand the non-compete was for 17 years, which the trial court judged excessive. It therefore decided that the clause failed entirely. The Court of Cassation holds that there was no need for nullity of the entire covenant, but that its effect could be reduced to what was valid under the circumstances.

In the second matter the non-compete had no territorial restriction (Belgium and abroad). The trial court judged that this was excessive and decided that the covenant failed entirely. The Court of Cassation reiterates that the trial court had the power to reduce the covenant’s effects to what could be a valid restriction.

Share price in forced sales or purchases of shares

Recent case law provides more guidance regarding the valuation of shares in the context of a forced sale or purchase of shares in order to settle lasting disputes between shareholders.

The Antwerp Commercial Court (30 May 2014) held that a shareholder which wants to leave the company has to prove that its rights and interests are seriously harmed by the other shareholders’ conduct (serious cause) and that it cannot reasonably be expected to remain on board as a shareholder.

The President of the Antwerp Commercial Court (section Hasselt) (6 June 2014) held 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 trial court must not take into account the consequences of the serious cause on the value of the shares. Likewise, the court should not take into account the parties’ behaviour. This is a confirmation of previous case-law.

In a more recent judgment the Court of Cassation (20 February 2015) took a more explicit stance. The Court decided, 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 use of a cut-off date other than the transfer date may be a valid way for the judge to carry out this neutralisation. The consequence of this is that the cut-off date for the share valuation may be set prior to the share transfer date. Based on this case-law trial courts 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 Court of Cassation (30 January 2015) decided that credit facilities, loans or security interests will only be caught by the legal restrictions on financial assistance if they must be refunded or returned. Non-refundable payments will normally fall outside the scope of the financial assistance rules (but security interests remain caught by the rules).

Duration of a pre-emption right

It is open for debate whether a contractual pre-emptive right which is not limited in time may be terminated unilaterally by either party based on the mandatory law principle that no party may incur obligations for eternity. The Ghent Court of Appeal decided (11 December 2013, published in 2015) however that such a right is not terminable, on the grounds that its duration is deemed limited to 99 years and is thus for a fixed period of time. In addition, the Court held that a pre-emption right is normally not concluded intuitu personae and is therefore assignable to third parties.

Notification requirements for parties acting in concert

Belgian transparency rules oblige parties that acquire/dispose of shares in a listed company beyond certain thresholds to proceed with a notification. In a judgement of 21 February 2014 (published in 2015), the Court of Cassation clarified this requirement for parties acting in concert that meet the thresholds on a consolidated basis.

Tax – Legislative Changes

The Belgian government adopted several tax related measures in the course of 2015 both in the framework of the “Tax shift” agreement and the annual budgetary control. The following legislative changes adopted in 2015 may have a direct or indirect impact on M&A transactions in Belgium :

  • The Belgian government has introduced various measures with the overall purpose of reducing the cost of labour in Belgium. In this respect, the employer social security contributions will gradually decrease from 33% to 25%, the lump sum amount of deductible business expenses for employees will gradually increase, the tax brackets in personal income tax have been reorganized in view of increasing every employee’s net income, the income threshold for the tax free amount will substantially increase in the coming years and the current exemption of wage tax for night and shift work is increased up to 22.8%.
  • The ordinary (withholding) tax rate on income from movable property (i.e. interest, dividends, royalties, share repurchase bonuses and liquidation bonuses … ) has been increased from 25% to 27% as from 2016. The scope of application of the ordinary rate is also extended.
  • The Belgian government has introduced a “speculation” tax of 33% on capital gains made by private individuals on listed shares and certain derivatives within 6 months of their date of acquisition. Capital losses remain non tax deductible (subject to certain limited exceptions). The tax applies as of 1 January 2016.
  • The government has introduced 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 introduced 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 has been introduced. The tax is calculated on their turnover.

Tax – Other developments

The following developments that occurred in the Belgian and international tax environment in 2015 may have a direct or indirect impact on M&A transactions in Belgium :

  • 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 international tax environment is changing rapidly and substantially. The G20 and the OECD have been taking actions to avoid or mitigate base erosion and profit shifting (BEPS). Lots of new developments in the BEPS project are following up on each other. In this respect, the OECD issued a package of 13 reports on 5 October 2015 which includes new or reinforced international standards as well as concrete measures to help countries tackle BEPS. Some of the revisions are immediately applicable such as the revisions to the OECD Transfer Pricing Guidelines, while others require changes that can either be implemented via tax treaties or in domestic law. The recent developments in the field of transfer pricing with as global purpose the aligning of profit allocation with value creation are becoming increasingly relevant in the M&A context, both in the field of tax due diligence as in tax structuring. Next to this, initiatives are also being taken on a EU level. Reference can be made to the EU anti-BEPS Directive, of which a first draft was published on 15 December 2015, including among others a new general anti-abuse rule, CFC rules and interest deductibility limitation rules. Also, the transparency measures taken both on EU level and OECD level will have a large impact on multinationals and the way they do business.

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 also failed to implement proper measures 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, and notified under, the 1986 BIT. On 30 April 2015 the tribunal declined jurisdiction.

2          M&A Business Environment

2.1       General

2015 has been a grand cru for Belgian M&A, particularly for private deals. The headline deals of 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. AB Inbev’s announced acquisition of SABMiller is one of the deals that internationally have attracted enormous interest; it is by far the largest transaction with a Belgian bidder.

Public vs. Private

Although M&A activity targeting Belgian listed companies was quiet in H1 2015, activity picked up in the second half of the year when no less than six public takeover offers were notified to the FSMA against just one in the first half. Five of the H2 2015 transactions aimed at taking the target company private and the sixth involves the conditional voluntary takeover offer by AB InBev for “NewCo” in the framework of the takeover of SABMiller as the largest transaction ever recorded involving a Belgian bidder, valuing SABMiller at EUR 92 billion.

In addition to the public takeover offers discussed below, in 2015 Greenyard Foods listed on Euronext Brussels created a food and vegetable giant by merging with unlisted companies Peatinvest and Univeg; Picanol and Tessenderlo Chemie, both listed on Euronext Brussels, announced their intention to merge but these plans have faced some serious headwind following resistance by the companies’ major shareholders; Delhaize and Ahold announced their high-profile merger which now seems to be taking final form following publication of the merger proposal on 26 January 2016; and 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.

The proportion of public M&A transactions in relation to the number of the known private transactions remains small (ten public deals were announced (5.15%) vs. 184 known private deals (94.85%)). This is proportionately slightly higher than the public (4%) to private (96%) ratio in 2014 although in absolute numbers the amount of public deals has more than doubled.

2016-02-10_17-41-08

Public Takeovers

In 2015, seven public takeover offers were notified to the Financial Services and Markets Authority (FSMA) and published on its website.

Groupe one point / Vision IT Group

Unconditional mandatory public takeover offer 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 offer was completed on 21 August 2015 and Vision IT Group was delisted on 24 August 2015.

Shareholder Consortium / Antigoon Invest

Public squeeze-out by a consortium of shareholders, for all outstanding shares in Antigoon Invest NV, a Belgian public limited liability company, whose shares were traded on the Euronext Brussels Free Market segment. The offer was completed on 14 October 2015 and Antigoon Invest was delisted the following day.

Fosun International / Oddo & Cie / BHF Kleinwort Benson

Conditional voluntary public takeover offer by Billion Eastgate (Luxembourg) S.à r.l., an indirect wholly-owned subsidiary of Fosun International Limited, for all outstanding shares in BHF Kleinwort Benson Group NV, a Belgian public limited liability company, whose shares are traded on NYSE Euronext Brussels, which was withdrawn following a mandatory counterbid by Oddo et Cie, a French company. The acceptance period runs from 27 January 2016 until 10 February 2016 inclusive.

Saverco / CMB

Conditional voluntary public takeover offer by Saverco NV, a Belgian limited liability company, for all outstanding shares in Compagnie Maritime Belge (CMB) NV, a Belgian public limited liability company, whose shares were traded on Euronext Brussels. The offer was completed on 21 December 2015 and CMB was delisted the following day.

Perennitas / Pairi Daiza

Conditional voluntary public takeover offer by Perennitas SA, a Belgian limited liability company, for all outstanding shares in Pairi Daiza SA, a Belgian public limited liability company whose shares are traded on the Alternext market of Euronext Brussels. A prospectus has yet to be published.

AB InBev / SABMiller

On 11 November 2015, AB InBev and SABMiller announced that they had reached an agreement on the takeover of SABMiller, an English company listed on the London Stock Exchange and the Johannesburg Stock Exchange, by AB InBev, a Belgian public limited liability company, whose shares are traded on Euronext Brussels and the NYSE. The takeover process will involve three steps: (i) a UK scheme of arrangement under Part 26 of the UK Companies Act 2006 between SABMiller and its shareholders, (ii) a Belgian law voluntary cash takeover offer by AB InBev for all of the shares in a Belgian company to be formed for the purpose of the Transaction that will be held by the SABMiller shareholders following completion of the UK Scheme, and (iii) a Belgian law reverse merger between AB InBev and Newco pursuant to which Newco will be the surviving entity. The transaction is currently going through the various regulatory clearance stages and is expected to complete in the second half of 2016.

Finance & Industries / Spadel

Conditional voluntary public takeover offer by Finance & Industries NV, a Belgian limited liability company, for all outstanding shares in Spadel NV, a Belgian public limited liability company whose shares are traded on Euronext Brussels. Following the closing of the reopened acceptance period, the offeror failed to acquire the 95% of the Spadel shares required to be able to launch a public squeeze out. The offer was thus not successful and Spadel remains listed on Euronext Brussels for the time being.

Private Equity

In 2015 deals involving private equity represented 30% of the total number of transactions as opposed to 36% in 2014. This drop reflects the decreasing number of first-time institutional buy-outs on the Belgian marketplace, falling back 6% compared with 2014. The relative weight of secondary buy-outs and private equity exits remains stable. The vast majority of deals were trade sales among industry players – but the latter category also includes buy & build-transactions by private equity portfolio companies.

2016-02-10_17-42-57

In 2015, management was slightly more active as investors on the Belgian M&A market compared to previous years. The ratio of management buy-outs to other deals (8% management buy-out, 92% other deals) increased with 2% compared to 2014. Often backed by private equity funds, management was especially prone to investment during the second half of 2015.

2.3       Sectors

In 2015 industrial & manufacturing have been extremely active sectors in M&A transactions, accounting for 16% of the total number of deals. These sectors concerned only 10% of the total deals in 2014. The consumer goods, food & retail sectors remain traditionally very strong in Belgium and are joined at the second place by computer, software & IT (each representing 13% of the total M&A deals). M&A activity in the other sectors remained relatively stable compared to 2014.

2016-02-10_17-44-15

2.4       Geographical interest from investors

During 2015 investors from neighbouring countries have remained very active on the Belgian M&A market: similar to last year, 28% of the M&A deals feature a bidder from France, the Netherlands, Germany, Luxembourg or the UK. Interest from the UK in particular normalized to 8%, after a surprisingly low 3% involvement in M&A deals in 2014. Transatlantic deals remain an important component of the Belgian M&A market (9%), but suffer a significant fall back compared to last year (16%). Deals with Asian investors accounted for almost 4% of the total number of M&A deals, with only one single reported successful bidder originating from China.

The amount of domestic transactions has further increased to 40% since 2014, picking up significantly in the second half of the year. Most of the Belgian deals represent trade sales amongst industrial players and rarely count among the larger transactions.

2016-02-10_17-45-40

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.

BELGIAN UPDATE – Amended Procedure for the Liquidation of Belgian Companies

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. This article was co-authored by Robrecht Coppens, senior associate with Loyens & Loeff, who specialises in corporate law, with a particular emphasis on takeovers and M&A.

Highlights:

  • On 19 March 2012 the King ratified a new act modifying the Belgian Companies’ Code with respect to the procedure for the liquidation of Belgian companies. The Act comes into force on 17 May 2012.
  • The purpose of the Act is twofold: on the one hand, a series of procedural amendments for company liquidations which resolve certain difficulties and practical problems and, on the other hand, the introduction of a procedure for winding-up (dissolution) and liquidation of companies in one and the same notarial deed.

Introduction

In Belgium there are two ways of terminating a company: bankruptcy or winding-up. Under Belgian law, any company which (i) is in an on-going situation where it is unable to meet its debts (cessation of payments) and (ii) has lost the trust of its creditors (creditworthiness) is in a state of bankruptcy. Both conditions must be met.

The winding-up of a company can occur by a voluntary decision of an extra-ordinary general meeting (EGM), by a court decision upon a petition for judicial dissolution, or automatically by law (e.g. upon the expiry of a company’s term).

The liquidation of a company is the next step after a company’s winding-up. It implies that a liquidator (or several liquidators) sell the company’s assets, repay the debts and allocate any positive balance among the shareholders in compliance with the objectives prescribed by law or the company’s articles of association.

To give a complete picture, it should be noted that a company can be wound-up without being put into liquidation, as a result of certain reorganisation procedures under the Belgian Companies’ Code (the “BCC”), i.e. mergers and demergers. Such reorganisation procedures, however, fall outside the scope of the Act and, consequently, outside the scope of this contribution.

On 19 March 2012 a new act was ratified by the King modifying the BCC as regards the liquidation procedure for Belgian companies (the “Act”). The Act was recently published in the Belgian State Gazette on 7 May 2012 and is due to come into force on the tenth day after its publication, i.e. on 17 May 2012.

The Act

Since the ‘Act of 2 June 2006’, intended to improve the liquidation procedure, certain provisions in the law were not clear or feasible or were subject to misinterpretation. The first goal of the Act, therefore, has been to amend such provisions and to clarify the law on certain points. The Act also puts an end to differences of interpretation among legal scholars. We will not go into further detail on this as it does not materially affects the procedure.

The second goal of the Act has been to introduce a simplified liquidation procedure. As opposed to the incorporation of a company in Belgium, the standard procedure for winding-up and liquidation of a company is a relatively cumbersome and time consuming (and therefore costly) procedure. The reason for this is that the ‘Act of 2 June 2006’ placed the liquidation procedure under judicial control, i.e. at two moments in the procedure, a court decision must be obtained: the first, to have a liquidator appointment or approved and the second, to secure the court’s consent to the proposed distribution scheme.

This standard procedure was in reaction to previous abuses by some liquidators and exclusively benefited the company’s creditors. This is also the reason why such procedure should remain the standard procedure for most companies. For some companies, however, e.g. non-active or dormant companies, small or medium sized companies which are to be terminated due to the retirement or passing of the sole shareholder, etc. this lengthy procedure seems a bit disproportionate.

The Act, therefore, introduces the possibility of winding-up and liquidating a company in one and the same notarial deed subject to certain strict conditions but without the need for court intervention (the “Simplified Liquidation”). This practice already existed before the Act and was based on a circular letter of the Minister of Justice dated 14 November 2006. Because there was no legal basis for this practice in the BCC, a majority of notaries refused to follow this procedure. Some notaries did follow it, however, and this created a considerable degree of legal uncertainty. After six years, the legislator finally responded by implementing the Act.

Simplified Liquidation

Based on the Act, Simplified Liquidation is now possible, provided that the following cumulative conditions are fulfilled:

  1. No liquidator is appointed;
  1. Based on a recent statement of assets and liabilities, the company has no liabilities at all at the time the company is wound-up;
  1. All shareholders are present or represented at the EGM at which the resolution for winding-up is adopted;
  1. The EGM unanimously approves the winding-up and immediate closing of the liquidation of the company;
  1. The remaining assets are allocated to the shareholders.

Pursuant to this procedure the company is wound-up and, assuming the company has no liabilities, there is no need for any further liquidation procedure, and thus no obligation to appoint a liquidator. Immediately following the decision to wind-up the company, the ‘liquidation’ of the company is closed. The remaining assets of the company will be distributed to the shareholders.

The second condition, however, is a somewhat problematic condition for two reasons. First, the legislator refers to ‘liabilities’ instead of ‘debts’. However, accounting entries such as ‘share capital’ and ‘reserves’ are also recorded on the liability side of financial statements. Supposedly, the legislator means ‘no debts’ instead of ‘no liabilities’. Secondly, liabilities which are not recorded in financial statements (e.g. deferred tax liabilities, pending litigation claims, future guarantee obligations, etc.) seem not to be included in the condition’s scope. The legislator does not specify how such future liabilities have to be treated.

One possible solution is an explicit statement in the notarial deed to the effect that not only the assets but also the future liabilities, if any, are distributed to the shareholders. As the legislator remains silent on this point, we assume that notarial practice will adopt this as a protection mechanism for future creditors.

Another potential problem could be the organisation by the directors of a so-called factual liquidation to anticipate and avoid the rather complicated and lengthy (standard) liquidation procedure and prepare the company to comply with the conditions for a Simplified Liquidation. The directors could be tempted to sell the assets and repay the debts before the winding-up, i.e. without complying with the standard BCC procedure. However, as directors are required at all times to act in the company’s best interest, in accordance with its corporate objects and in continuity, this could trigger directors’ liability as being contrary to the law.

It should be noted, however, that there is an important difference between directors’ liability and liquidators’ liability. Liquidators, unlike directors, are liable towards third parties and shareholders for the performance of their duties and for any shortcoming in their management.

Conclusion

The Simplified Procedure is a positive development which is in keeping with the tendency towards simplification and clarification of Belgian corporate law. However, it is likely that the time and cost savings of the Simplified Procedure will encourage many to arrange company liquidations to take advantage of those benefits and, in particular, avoid court supervision designed to safeguard the interests of creditors. It is to be hoped that the conditions of the Simplified Procedure will be properly applied and that abuse will not erode the protection of creditors interests nor make the standard procedure redundant.

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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