On December 4, 2023, the Belgian Authorities filed a draft regulation with the Chamber of Representatives containing “provisions concerning digitization of justice and miscellaneous provisions Ibis” (the “Invoice”). With the Invoice, the Authorities seeks to introduce a shareholder approval requirement for transfers of great belongings by listed corporations, thereby aligning Belgian firm regulation with a few of our neighboring jurisdictions corresponding to France and the U.Okay. Whereas the Invoice has not been adopted by Parliament but, constructing on the sooner contributions by Stijn De Dier and Tom Vos on this weblog,[1] this publish discusses various sensible difficulties raised by the Invoice in its present kind and affords some preliminary insights on how the brand new requirement might be utilized in follow.
The Belgian Code of Firms and Associations (the “CCA”) presently requires the board of administrators of a listed firm to hunt shareholder approval for selections that will impression the corporate’s belongings in a restricted variety of conditions solely (e.g.,for company reorganizations corresponding to mergers, (partial) demergers, and many others.). Shareholder approval is presently not a requisite if a part of the corporate’s belongings is transferred by a “easy” asset switch that doesn’t contain one of many company reorganization procedures of the CCA. Recognizing that such asset transfers can essentially alter the corporate’s enterprise, shareholders might be confronted with a fait accompli for which the regulation hardly affords them any safety. This occurred for instance with Nyrstar. In June 2019, the board of Nyrstar accredited the switch of nearly the entire firm’s belongings for one symbolic euro, leaving its shareholders with an empty shell. To counter any such conditions and to provide (minority) shareholders a say in selections that will profoundly impression the corporate, the Invoice introduces a brand new article 7:151/1 to the CCA.
The proposed article 7:151/1 CCA requires boards of listed corporations to hunt shareholder approval for transfers representing greater than 75% of the corporate’s belongings on a stand-alone or consolidated foundation. To keep away from synthetic or strategic splitting up of transfers that will in any other case exceed the edge, all transfers within the prior twelve months needs to be taken into consideration to calculate whether or not the 75% threshold is met (the so-called “look-back interval”).
The precise % of the edge, nevertheless, nonetheless stays a subject for dialogue. In the course of the Parliamentary proceedings, sure MPs have raised the concept of reducing the edge to e.g., 25%, and the Authorities, in its explanatory memorandum, additionally said that the 75% threshold may doubtlessly be lowered sooner or later. Thus, whereas the impression of the Invoice could also be restricted if a threshold of 75% is adopted, a decrease threshold (now or sooner or later) may impression listed corporations in a way more vital approach. Our observations ought to notably even be learn in that gentle.
Whereas the Invoice seems easy, its utility is much much less so. Aside from the shortcomings of the Invoice referred to within the earlier contributions of Stijn De Dier and Tom Vos, this publish raises various extra factors. We middle these round three themes: (I) which “transfers of belongings” are to be taken into consideration for the needs of article 7:151/1 CCA, (II) how ought to the edge be calculated, and (III) what’s the temporal scope of article 7:151/1 CCA?
I. What constitutes a “switch of belongings”?
The central idea of the proposed article 7:151/1 CCA is the idea of a “switch of belongings” which determines each the scope of utility in addition to the scope of the look-back interval. However, within the absence of additional specification, the idea leaves various open questions which may give rise to sensible difficulties.
A. Any switch, even within the abnormal course
Primarily based on the present phrasing of the Invoice, the idea of “switch of belongings” covers any and all transfers of belongings. That is awfully far-reaching, as it might indicate that additionally transfers executed within the abnormal course of enterprise of an organization, such because the sale of its completed items stock, may fall throughout the scope of article 7:151/1 CCA and needs to be aggregated for the appliance of the look-back interval. It’s not solely impracticable for corporations to repeatedly monitor any and all transfers for this function, however it could additionally downright preclude sure corporations with a excessive stock turnover from pursuing their day-to-day enterprise: as soon as gross sales within the final twelve months would attain the statutory threshold of article 7:151/1 CCA, any additional abnormal course transactions by the corporate would require shareholder approval (whereas maybe slightly unlikely at a 75% threshold, the probability would enhance if a decrease threshold had been to be adopted). This can’t have been the intent behind the Invoice.
It will due to this fact be prudent to supply an exemption for any transactions executed within the abnormal course of enterprise, and to exclude them from the calculation for functions of the look-back interval.
The same exemption already exists within the related-party transaction process (article 7:97 CCA). As well as, this strategy was additionally adopted by the U.Okay. regulator the place the regime on the switch of great belongings solely applies to “transactions which might be outdoors the abnormal course of the listed firm’s enterprise and should change a safety holder’s financial curiosity within the firm’s belongings or liabilities”.[2]
B. Intra-group transfers
Moreover, and once more not like the related-party transactions process and as is the case the U.Okay.[3], the Invoice doesn’t embrace an exemption for intra-group transfers between a listed firm and its subsidiaries. Such transfers merely relate to the interior group of the group and no asset or worth is being transferred to a celebration not beneath the management and (oblique) possession of the shareholders. An exemption (and exclusion from the calculation of the look-back interval) would due to this fact even be applicable for these intra-group transfers. Comparable to what’s presently already the case for the related-party transactions process (article 7:97 CCA), particular consideration can be required for subsidiaries that aren’t wholly-owned by the listed firm.
C. No de minimis exception
As talked about beneath A. above, the idea of transfers captures any and all transfers. This suggests that, for functions of the look-back interval, all transactions within the final twelve months previous to the asset switch in query – regardless of their (in)significance – would have to be aggregated with the worth of the proposed switch to find out whether or not the edge requiring approval is reached. It will not be practicable, nor in keeping with the ratio legis, that consent from the shareholders assembly would have to be hunted for minor transactions (and end result within the firm incurring the prices associated to the group of a shareholders’ assembly).
We imagine it might make sense to introduce an exemption for de minimis transactions, much like the de minimis threshold of 1% of internet belongings relevant to the related-party transactions process (article 7:97 CCA). The precise quantity of such de minimis threshold is a coverage query, however a threshold between 1% and 5% of whole belongings would appear affordable.
This de minimis threshold ought to function at two levels. First, transactions under the de minimis can be exempt for the shareholder approval requirement, which means that even when the de minimis transaction would lead the corporate to journey the edge, no shareholder approval would have to be sought. E.g., if the corporate already executed a number of transfers previously twelve months for 74% of the full belongings and subsequently enters right into a 1% transaction, this de minimis transaction may happen with out shareholder approval.
Second, to keep away from a very complicated calculation course of for corporations and given the restricted worth of such de minimis transactions, it’s equally truthful to exclude them from the calculation of the look-back interval. De minimis transactions that occurred within the final twelve months wouldn’t be aggregated for functions of the look-back interval.
D. Solely asset disposals
It’s clear that the proposed article 7:151/1 CCA solely applies to disposals (vervreemdingen/cessions) by listed corporations, and to not acquisitions. Whereas this could not come as a shock provided that the Invoice is especially a response to the abovementioned Nyrstar case, it’s an fascinating selection by the legislator, as e.g., in France and the U.Okay. the regulator selected to additionally seize acquisitions by the principles on shareholder approval for vital transactions. One may argue each methods.
On the one hand, the ratio legis of the Invoice is to provide shareholders the chance to vote on selections that may have a fabric impression on the long run and the continuation of the corporate’s enterprise.[4] Towards this background, a distinction in remedy of acquisitions and disposals just isn’t apparent as acquisitions may equally impression the corporate’s future enterprise.
However, having to hunt shareholder approval for acquisitions may have antagonistic penalties. To call a number of:
- The extra requirement may negatively impression the competitiveness of Belgian corporations in auctions processes for the acquisition of belongings, as it might require them so as to add a further situation precedent to their supply. Sellers will undoubtedly dislike the elevated deal uncertainty related to the shareholder approval requirement.
- It may stifle IPOs on the Belgian market. In an surroundings the place Belgian IPOs are already changing into more and more scarce, this extra burden for listed corporations could dissuade promising corporations which might be growth-oriented from itemizing, because it may hamper their flexibility and agility in M&A tasks.
The selection to not embrace acquisitions thus is a matter of coverage, and one that may be supported from a enterprise perspective.
II. How ought to the edge be calculated?
The Invoice presently contemplates introducing a 75% threshold to ensure that asset transfers to be thought of “vital”, i.e., shareholder approval can be required as soon as the switch of belongings represents 75% or extra of the corporate’s whole belongings.
By setting a numerical threshold, the Invoice adopts a quantitative check as an alternative of a qualitative evaluation. It requires a comparability between (1) the transferred belongings (numerator) and (2) the corporate’s whole belongings (denominator).
As beforehand talked about, to keep away from circumvention, all asset transfers that occurred throughout the prior twelve-month interval however which didn’t obtain shareholder approval, needs to be aggregated with the belongings supposed to be transferred to be able to decide whether or not the 75% threshold is met.
A royal decree detailing how this threshold should be calculated, is anticipated to be issued. Nonetheless, within the absence of a draft decree, it but stays unclear how the 75% threshold needs to be utilized, which might have vital implications in follow.
A. What values needs to be in contrast?
First, one wants to find out the right way to worth the “transferred belongings” and the “whole belongings of the corporate”. Though not specified within the Invoice, the one sensible approach of doing this, is wanting on the respective e-book values on the corporate’s steadiness sheet and evaluating them:
| e-book worth of transferred belongings |
| whole e-book worth of the corporate’s belongings |
This strategy of evaluating e-book values can be the strategy of the U.Okay. Itemizing Guidelines[5] (the place it’s referred to as the “gross belongings check”) and the suggestions of the French Autorité des marchés financiers (“AMF”)[6]. Nonetheless, each jurisdictions additionally use extra, cumulative, exams, such because the earnings check, whereby the earnings generated by the transferred belongings are in contrast with the corporate’s whole earnings.[7]
B. Which monetary statements to make use of?
If the listed firm publishes consolidated annual accounts, the edge calculation must be carried out on the premise of each the consolidated and the stand-alone annual accounts. In any other case, the stand-alone annual accounts suffice.
The reference annual accounts are the “final annual accounts that had been made public”. In stipulating so, the Invoice deviates from the language typically utilized by the legislator when referring to annual accounts (“newest accredited” or “newest filed” annual accounts). Because of this, it stays unclear whether or not one ought to have a look at the newest accredited annual accounts, or whether or not after publication by a listed firm of its annual accounts on the web site (e.g., as a part of the convening discover) however previous to approval thereof by the shareholders’ assembly, these unapproved accounts ought to however already be used for the edge calculation.
It will appear that an strategy whereby the reference accounts have been accredited by the shareholders is preferable.[8] In any occasion, with each approaches the reference accounts could also be considerably outdated (as much as 18 months) and the knowledge contained therein could thus have develop into stale to a big extent.
On this respect, it’s exceptional that, for sure transactions that will have a smaller impression on the corporate (e.g., a capital enhance), the CCA requires that an advert hoc state of belongings and liabilities is ready and offered to the shareholders. We due to this fact imagine that corporations needs to be permitted, if not required, to attract up advert hoc interim accounts on the event of a switch if the board of administrators is of the opinion that materials occasions, outdoors of the abnormal course of enterprise, have occurred on account of which the newest (accredited) annual accounts are not consultant (e.g., if the corporate accomplished a big acquisition within the meantime).
C. How you can account for the look-back interval?
To find out whether or not the edge is met, a look-back interval of twelve months needs to be utilized. Such look-back interval will invariably cowl a number of monetary years. This raises a query as to how the related asset values, throughout monetary years, needs to be computed and aggregated.
Three approaches appear believable. As an example them, we’ll use the next fictional instance:
ListCo has a monetary 12 months ending on December 31. In August of FY X, ListCo sells belongings representing 60% of the e-book worth of the corporate’s belongings in accordance with the newest monetary accounts (FY X-1). Moreover, in October of FY X-1, ListCo already offered sure belongings. On the time, these belongings represented 12% of the e-book worth of the corporate’s belongings in accordance with the then newest annual accounts (FY X-2), however they symbolize 18% of the e-book worth of the corporate’s belongings in accordance with the now newest accounts (FY X-1). Ought to ListCo search shareholder approval?
A primary strategy can be to make use of the out there annual accounts (i.e., FY X-1) for the denominator (whole belongings), to find out the respective share of the belongings transferred in both monetary 12 months. This strategy displays a strict studying of the Invoice however would yield inherently insufficient penalties: it takes the primary switch into consideration for the numerator (belongings transferred), however on the similar time makes use of a denominator which post-dates the sooner switch and might be larger or decrease than earlier than such earlier switch. Certainly, the worth of any belongings transferred previous to the tip of the monetary 12 months will not be (absolutely) mirrored on the end-of-year annual accounts, because the proceeds paid is not going to impression the steadiness sheet by the identical quantity. This might be the case as a result of e.g., the proceeds generated will most frequently not be equal to the e-book worth of the belongings; a part of the proceeds could also be used to pay down debt, thus lowering the belongings in addition to the liabilities on the steadiness sheet and leading to a decrease steadiness sheet whole; and many others.
As well as, it might be inconceivable to remain throughout the confines of the newest annual accounts (i.e., FY X-1) to find out the a part of the numerator that pertains to prior transactions, because the belongings offered in these transactions would not be (absolutely) mirrored in these accounts.
Regardless of the issues recognized within the first strategy, the conclusion in our hypothetical can be that ListCo ought to search shareholder approval.
A second strategy can be much like the primary one, however with the distinction that the denominator can be adjusted for the impression of all transfers of the prior twelve months, i.e., by including the e-book worth of previous transactions again to the denominator (i.e., whole belongings) and subtracting any proceeds that will on the time nonetheless be on the steadiness sheet from such denominator). Whereas this strategy could also be significantly fairer than the primary strategy, it might be extraordinarily tough to implement in follow as it could not all the time be clear from the accounts how the transaction proceeds have been used. The instance just isn’t sufficiently detailed to concluded whether or not in our hypothetical shareholder approval can be required. Nonetheless, to use the look-back interval to our hypothetical, the e-book worth of the transaction that occurred in FY X-1 would have to be re-added to the FY X-1 annual accounts, neutralizing the actions on each the asset and legal responsibility facet of the FY X-1 annual accounts.
A 3rd strategy can be to calculate the edge by evaluating the transferred belongings to the corporate’s whole belongings as per the newest annual accounts on the time of every particular person switch (not simply the newest annual accounts on the time of the final switch). Subsequently, you’ll add the odds (pertaining to completely different monetary years) for every of those transactions to see whether or not the edge is reached. In our hypothetical, this is able to imply the next:
- Within the first transaction, ListCo offered 12% of its whole belongings as mirrored within the annual accounts of FY X‑2 (i.e., newest out there annual accounts on the time of the primary switch).
- Within the second transaction, ListCo offered 60% of its whole belongings as mirrored within the annual accounts of FY X‑1 (i.e., newest out there annual accounts on the time of the second switch).
- For the edge calculation, these percentages (though pertaining to completely different monetary years) needs to be aggregated and result in a complete of 72%.
Pursuant to this strategy, ListCo would thus not be required to hunt shareholder approval. However that isn’t the explanation why we imagine that is the higher strategy. We imagine this strategy, the place e-book values of the transferred belongings are in comparison with the related pre-transfer annual accounts, is preferrable as a result of it has the advantage of predictability, equity and ease.
In all eventualities, an extra complication could come up if a switch entails belongings which might be solely acquired after the tip of the earlier monetary 12 months and are already offered once more throughout the similar monetary 12 months (whether or not individually or as half of a bigger package deal of belongings). It’s not clear in such occasion how the e-book worth of those new belongings needs to be calculated as there are not any annual accounts wherein they’ve been mirrored. Once more, for these eventualities, an advert hoc steadiness sheet could also be an applicable resolution (cf. our suggestion above).
III. Temporal scope of utility
The Invoice additionally leaves some unclarity as to its precise utility in time, specifically in two respects: (A) it’s unclear when a “switch” is deemed to happen (signing or closing), and (B) the shortage of a statutory transition interval after the entry into pressure may create sensible difficulties.
A. Reference date for the “switch”
The Invoice views transfers as a one-off occasion occurring at a single time limit. Actuality, nevertheless, is usually extra convoluted. Asset (or, within the occasion of the switch of a subsidiary, share) buy agreements repeatedly foresee a bifurcation between the signing of the settlement and the precise closing of the transactions, e.g., on account of regulatory approvals to be obtained or practicalities to be accomplished earlier than the transaction might be consummated. From the phrasing of the Invoice, it’s unclear whether or not signing or closing needs to be considered because the second at which the edge check of article 7:151/1 CCA needs to be carried out.
In our view, the logical reply to that query is that signing needs to be the reference date. Deal certainty mandates that an organization is ready to assess, when it indicators the transaction settlement, whether or not it will likely be required to hunt shareholder approval for the switch or not. The interval between signing and shutting might be lengthy (as much as a 12 months or longer) and it might be subsequent to inconceivable for the board of administrators (and for the counterparty) to anticipate or estimate whether or not, on the time of closing, the transaction would meet the edge. On the time of singing, the corporate already (irrevocably) commits itself to execute the switch and thus it ought to know then the situations of its engagement.
The above, nevertheless, does elevate a further query: do transactions that closed throughout the look-back interval, however had been signed previous to the look-back interval nonetheless have to be aggregated for the look-back calculation?
So as to stay constant, we imagine that the look-back interval ought to apply solely to transfers signed within the final twelve months. Transfers that signed greater than twelve months in the past however closed throughout the look-back interval, ought to in such strategy not be aggregated to calculate whether or not the edge is met for a proposed switch. Aside from the consistency argument, we see two extra causes for such strategy: (i) the choice resolution would imply that the look-back interval would in impact be extended past twelve months for any switch that has a bifurcated signing and shutting, and (ii), extra importantly, this is able to create appreciable uncertainty pending closing, as (a) the e-book worth of the transferred belongings could change between signing and shutting if closing happens after new annual accounts grew to become out there and the reference accounts due to this fact change, and (b) for a lot of transactions, the timing of closing could solely be identified a number of days upfront, thus making it tough to foretell when negotiating a brand new switch whether or not the closing of a previous transaction should happen previous to signing of the brand new transaction. The latter may, e.g., be extremely related if a transaction was signed greater than twelve months in the past (thus not counting in direction of the look-back interval) however should shut earlier than signing of the brand new transaction. The query whether or not shareholder approval can be required could then rely totally on the precise sequencing of signing of the brand new transaction versus closing of the sooner (i.e., signing the brand new transaction first or closing the prior transaction first).
B. Lack of statutory transition interval
The Invoice presently doesn’t present for a particular statutory transition interval, which means that it might enter into pressure ten days after its publication within the Belgian Official Gazette. Because of the look-back interval, upon the entry into pressure of article 7:151/1 CCA, listed corporations could out of the blue be confronted with shareholder approval necessities for transfers that they’ve been negotiating for months and which might be on the verge of being signed. A sufficiently lengthy transition interval (or, alternatively, not less than a provision that the look-back interval ought to solely embrace transactions signed after the entry into pressure of the Invoice) deserves critical consideration.
IV. Some concluding remarks
To wrap up, we now have two extra observations.
- The Invoice presently foresees one common regime relevant to all listed corporations. The legislator could want to think about whether or not corporations in particular industries or circumstances (e.g., REITs, monetary establishments, corporations in extreme monetary misery, and many others.) and which can have atypical steadiness sheets or require the flexibility to take swift and/or drastic measures to conduct their day-to-day enterprise or guarantee their continued existence needs to be topic to the identical regime.
- Whereas a number of the concepts raised on this publish may be applied sooner or later royal decree that may element the edge calculation, most of those subjects would already warrant profound thought by Parliament within the legislative course of in direction of adoption of a ultimate model of the Invoice.
Along with the reader, we impatiently await the end result of the legislative course of on this respect.
Marijke Spooren
Ruben Foriers
Emmanuel Wynant
[1] S. DE DIER, Nieuw wetsontwerp stelt aanpassing governance van genoteerde vennootschappen in het vooruitzicht (Company Finance Lab, Dec. 14, 2023); T. VOS, De goedkeuring door aandeelhouders van de overdracht van significante activa (Company Finance Lab Dec. 21, 2023).
[2] FCA Handbook, LR 10.1.4.G, in addition to 10.1.3.R(5).
[3] FCA Handbook, LR 10.1.3.R(5).
[4] Explanatory Memorandum to Invoice, pages 43-44.
[5] FCA Handbook, LR 10 Annex 1, 2R.
[6] AMF, Les cessions et les acquisitions d’actifs significatifs (Suggestion, DOC n° 2015-05).
[7] FCA Handbook, LR 10 Annex 1, 4R; AMF, Les cessions et les acquisitions d’actifs significatifs, web page 3 (Suggestion, DOC n° 2015-05).
[8] The consolidated accounts will in any occasion not be accredited by the shareholders’ assembly (as no approval is required for the consolidated accounts by the CCA).
