Cross-border mergers are now regulated in Belgium further to the adoption by the Chamber of the Miscellaneous Provisions Act (the “Act”), which is aimed inter alia at implementing Directive 2005/56/EC on cross-border mergers of limited liability companies (the “Cross-border Directive”) into Belgian law. The Act entered into force on 26 June 2008.
Old Rules
Before the Act came into force, cross-border mergers were not organised under Belgian law. Legal writers were divided on the feasibility of cross-border mergers notwithstanding adoption of the Belgian Private International Law Code in 2004, which stipulates that mergers of legal entities are governed, for each of them, by the law of the State to which they belong before the merger. In a 13 December 2005 judgment known as the “Sevic judgment”, the European Court of Justice had also confirmed the principle of the freedom of movement and establishment of companies, allowing cross-border mergers[1], but the effects of such a merger remained uncertain under Belgian law.
Scope of the New Act
The Act introduces a new chapter V bis into the Belgian Companies Code, dealing with cross-border mergers and assimilated operations. The laws governing the tax consequences of cross borders mergers are currently in process.
Companies Entitled to Merge
The Belgian cross-border merger procedure applies to all legal entities that can merge at Belgian level, while the directive concerns only limited liability companies. The scope of the Act is therefore wider than that of the Cross-border Directive. A limited partnership (“société en commandite simple”), for example, can therefore validly merge with a foreign company if the latter’s national law allows so.
Public investment companies with variable capital and companies in liquidation are expressly excluded from the scope of the cross borders merger regulation.
Permitted Operations
In accordance with the terms of the Cross-border Directive, the Act only deals with three forms of merger: (i) merger by absorption, (ii) merger by incorporation of a new company and (iii) merger by absorption of a wholly owned subsidiary (this being defined as an assimilated operation). The Act does not regulate (i) (partial) demergers, (ii) contributions of a line of business or (iii) contributions by way of universal transfer.
Belgium has used the opportunity provided by the Cross-border Directive to allow remuneration in cash exceeding 10% of the par value. Cross-border companies can validly merge notwithstanding a cash consideration exceeding one tenth of the par value of the shares allotted by the company resulting from the cross-border merger or, in the absence of a par value, of the fractional value, provided the legislation applying to at least one of the foreign companies allows so.
I will address in a next posting the formalitites that need to be fulfilled …
1 In SEVIC, the European Court of Justice held that the refusal of a national commercial court to register a cross-border merger may constitute a violation of the freedom of establishment.