BELGIAN UPDATE – New Procedure on Mergers and Demergers
- On 28 January 2012 a new law came into force relating to the merger and demerger procedure under Belgian law. The new law simplifies the existing procedure by reducing the administrative reporting and documentation requirements to an absolute minimum while safeguarding the interests of shareholders and other parties.
- This simplification implements the European Directive 2009/109/EG of the European Parliament and of the Council dated 16 September 2009, amending Council Directives 77/91/EEC, 78/855/EEC and 82/891/EEC, and Directive 2005/56/EC as regards reporting and documentation requirements in the case of mergers and divisions.
- A company that wishes to absorb another company in which it holds at least 90% of the votes, may squeeze out the minority shareholders.
The Act of 8 January 2012 modifying the Belgian Companies’ Code (the “BCC”) concerning reporting and documentation requirements in mergers and demergers (the “Act”) came into force on 28 January 2012 and applies to mergers and demergers for which the proposals are filed with the Clerk’s office of the Commercial Court from that date. The Act implements the European Directive 2009/109/EG of the European Parliament and of the Council dated 16 September 2009 (the “Directive”), whose implementation deadline was 30 June 2011.
The main purpose of the Act is to reduce the administrative burden of Belgian companies involved in merger and demerger procedures by limiting paperwork to the minimum required to safeguard the interests of the shareholders and other parties. To this end, shareholders can, among other things, unanimously waive certain documentation and reporting requirements and/or consent to more flexible information requirements.
The new rules apply mutatis mutandis to mergers and demergers (splits or scissions). Our comments summarize the most important modifications to the merger procedure by way of an absorption (the most commonly used in reorganization or restructuring processes in Belgium).
Regrettably, the Act did not change the procedure for cross border mergers (regulated on the European level in the Directive 2005/56/EG and implemented into Belgian law by the Act of 8 June 2008), save for the filing and publication requirements. Therefore, the following overview only relates to Belgian domestic mergers.
New reporting, documentation, publication and information requirements
- New filing and publication requirements (Article 693 BCC)
- Before the Act: the merger proposal had to be filed at least six weeks (mandatory waiting period) before the date of the extra-ordinary shareholders’ meeting convened to decide on the merger and a notice of such filing had to be published in the Belgian Official Gazette.
- After the Act: the merger proposal has to be filed and published at least six weeks (mandatory waiting period) before the date of the extra-ordinary general meeting of shareholders convened to decide on the merger. Instead of a mere notice of filing, an extract from the merger proposal or a hyperlink to the company’s website on which the merger proposal has been made available has to be published.
- Comment: according to a strict interpretation of the current wording of this provision, the mandatory waiting period of six weeks has in practice been extended to at least eight weeks as the commencement date of the waiting period is deferred to the publication date instead of the filing date and there is a delay between filing and effective publication. This could not have been the intention as the six week period already included a safety margin of two weeks for the publication and therefore extended the four week period required by the Directive. However, until the Act is clarified on this point, this eight week period will have to be taken into account. The Act does not specify the content of the extract. It is assumed that the entire merger proposal or at least an extensive summary of it must be published.
- Possible waiver of certain reporting requirements (Article 694 and 695 BCC)
- Before the Act: the management bodies of the merging companies were required to draw up a special report in relation to the merger setting out, among other things, the status of the assets and liabilities, the rationale and implications of the merger, the valuation method and the proposed share exchange ratio. Moreover, the statutory auditor of each of the companies involved was required to draw up an audit report concerning the merger, setting out, among other things, an assessment of the proposed valuation method and the resulting share exchange ratio. Only the requirement for the statutory auditors’ reports could be unanimously waived by the shareholders of the respective merging companies.
- After the Act: the special management reports on the proposed merger are no longer required if all shareholders of the respective merging companies (and holders of other securities with voting rights) unanimously waive the requirement. If the shareholders of the merging companies (and holders of other securities with voting rights) unanimously decide to waive the requirement of the statutory auditors’ special reports on the merger, the absorbing company must comply with the particular reporting requirements concerning contributions in kind (i.e. a special report by the management body on the contribution and a valuation report by the statutory auditor).
- Comment: at least one report drawn up by an independent auditor will be required. This also applies to the special management report.
- Possible waiver of other requirements (Article 696 and 697 §2 BCC)
- Before the Act: the management body was required to: (i) inform both the shareholders’ meeting of its company and the management bod(y)(ies) of the other merging company(y)(ies) about any significant changes in the assets and liabilities after the date of the merger proposal, and (ii) draw up interim financial statements as per a date not earlier than three months before the date of the merger proposal, if the most recent annual accounts were closed more than six months before the date of the merger proposal.
- After the Act: these requirements no longer apply if they are unanimously waived by all holders of voting rights. An additional exemption to the obligation to draw up interim financial statements exists for companies who have published semi-annual financial reports pursuant to article 13 of the Royal Decree of 14 November 2007 (only for listed companies).
- Alternative method of informing shareholders (Article 697 BCC)
- Before the Act: the management body was required to (i) provide the shareholders with the merger proposal, management report and report of the statutory auditor, (ii) draw up a merger file at the merging company’s statutory office (containing among other things the annual accounts and related reports over the last three financial years, the merger reports and interim financial statements, if any, (iii) give the shareholders the opportunity to obtain copies of such documents free of charge.
- After the Act: the shareholders can agree to rece copies of the documents sub (i) and (ii) by e-mail. The management body may also make the documents sub (ii) available on the company’s website, without charge, for a period of one month before and after the extra-ordinary meeting of shareholders convened to decide on the merger.
- Exception to the exclusive authority of the general meeting of shareholders (Article 699 BCC)
- Before the Act: a merger had to be approved by an extra-ordinary shareholders’ meeting, taking into account the quorum and majority requirements as for a modification of the articles of association or the corporate purpose (if applicable).
- After the Act: if a limited liability company (“naamloze vennootschap” / “société anonyme”) holds at least 90% of the voting rights in another limited liability company, approval by an extra-ordinary shareholders’ meeting of the absorbing company is no longer required if prior information requirements have been fulfilled. Nevertheless, one or more shareholders of the absorbing company who jointly hold at least 5% of the shares have the right to request an extra-ordinary shareholders’ meeting to reach a resolution on the merger.
- Comment: the Act does not specify what procedure is to be followed if no shareholders’ meeting is convened. One should assume that the board of directors will be authorised to take a decision on the merger instead of the shareholders’ meeting. However, as the approval of a merger by acquisition also entails a capital increase with issuance of new shares, we believe that this exception can only apply if the acquiring company’s articles of association confer authority on the board of directors to increase the company’ share capital within the limits of the authorised capital. This is the only circumstance under which the BCC provides an exception to the exclusive authority of the shareholders’ meeting to increase the share capital and to issue new shares.
The new rules apply mutatis mutandis to demergers (scissions). The former demerger procedure already permitted waiver of the reporting requirements. The Act adds a new exemption for demergers by way of an incorporation of new companies, whereby the shares issued in the newly incorporated companies are allocated proportionally to the shareholdings in the demerging company. The following requirements no longer apply in such case: the special report of the management body, the special report of the statutory auditor, the obligation to provide information about important changes to the demerging company and the drawing-up of interim financial statements. Furthermore, the exception to the exclusive authority of the shareholders’ meeting will also apply in the case of demergers if the acquiring companies hold 100% of the voting rights in the company that will be split.
Squeeze-out procedure in the case of merger by absorption
Finally, in case of a merger by absorption intended by a limited liability company that holds at least 90% of the voting rights in a limited liability company to be absorbed, the Act provides the possibility for the majority shareholder (i.e., the prospective absorbing company) to squeeze-out the minority shareholder(s).
Belgian companies and legal practitioners have welcomed the Act as it simplifies the merger and demerger procedure under Belgian law and limits the paperwork involved. However, as some of the new provisions lack clarity and detail interpretation problems may arise. The expectation is, therefore, that the legislation will be clarified on particular points.