Transactions Blog

The Belgian Official Gazette of 18 January 2012 includes the publication of the Act of 8 January 2012 modifying the Companies Code pursuant to Directive 2009/109/EG regarding reporting and documentation requirements in case of mergers and demergers (the “Act”). This Act modifies the procedure applicable for merger and demergers.

Intervention independent expert

Until now, the following reports of an independent expert (i.e. the company’s statutory auditor or an external auditor or accountant) were required:

•  For mergers: a report on the merger proposal (the “merger report”), but this merger report could be waived by unanimous decision of the shareholders. Based upon unclear drafting of the law, there was however some discussion in legal practice as to whether in case of such waiver, it was required to provide for a report on the capital increase by contribution in kind at the level of the acquiring company (the “contribution report”)
•  For demergers: a report on the demerger proposal (the “demerger report”), which could be waived by unanimous decision of the shareholders and a report regarding the capital increase by contribution in kind in the receiving companies (the “contribution report”), which could not be waived.

The requirements for both mergers and demergers have now been aligned and clarified.

For both mergers and demergers:

• The (de)merger reports can be waived by unanimous decision of the shareholders.
• In case of such a waiver, a contribution report at the level of the acquiring company / receiving companies will be required.

In other words: the intervention of an independent expert will be required both for mergers and for demergers, either to draft a (de)merger report on the (de)merger proposal or to draft a contribution report on the contribution in kind.

It is to be noted that the foregoing does not apply to simplified mergers (between a parent company and its 100% subsidiary). There, the situation remains unchanged: no expert’s report at all is required.

Other important changes

Besides the above, other important changes are made to the company law procedure applicable for mergers and demergers, such as:

• if all shareholders agree, the special report of the board of directors on the merger can be waived;
• if all shareholders agree, no intermediary statement of assets and liabilities is required anymore;
• if all shareholders agree, the intermediary information duty (in case of important changes to the assets and liabilities of the companies involved between the date of the (de)merger proposal and the extraordinary general shareholders meeting) can be waived;
• an extract of the (de)merger proposal must be published in the Belgian Official Gazette (instead of a mere notification) or a hyperlink to the website of the company where the full text can be found.

Entry into force

The new procedure applies for all (de)mergers for which the (de)merger proposal is filed after 28 January 2012.

For more information, please contact:

Karin Winters                                              
Partner                                                               
+ 32 2 710 74 04               
karin.winters@pwc.be  

Bart Vanstaen
Legal Counsel
+ 32 2 710 43 10
bart.vanstaen@pwc.be
       

Since 25 January 2010, it is possible to carry out all types of mergers without the intervention of an independent expert (i.e. the company’s statutory auditor, or an auditor/external accountant if no statutory auditor has been appointed).

Articles 695 and 708 of the Belgian Companies Code (“BCC”), modified following implementation of the European Directive 2007/63/EC, now provide that no independent expert’s report on the merger proposal is required, if all shareholders (and holders of other securities conferring the right to vote) of each of the companies involved in the merger, have so agreed.

Prior to such modification of the BCC, it was only possible to carry out a so-called “parent-subsidiary merger” without the intervention of an independent expert (i.e. a merger whereby the acquiring company already held all shares of the acquired company).

The report of the management bodies of the companies involved in the merger is however still required (articles 694 and 707). The new European Directive 2009/109/EC provides for the possibility to also abolish the requirement to draw up such report. For the time being however, this Directive has not yet been implemented in the BCC, and it is not yet clear whether the Belgian legislator will seize the opportunity to further reduce the burden of formalities for mergers.

For (partial) demergers, the intervention of an independent expert remains required, more in particular for the drawing up of the report with respect to the contribution in kind (articles 602 and 313 BCC). If all shareholders (and holders of other securities conferring the right to vote) of each of the companies involved in the (partial) demerger so agree, no additional independent expert’s report on the (partial) demerger proposal will be required.  This was however already the case prior to the recent modification of the BCC.

Karin Winters, Director Corporate & Commercial Law
Bart Vanstaen, Senior Legal Consultant

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 …