Trends and climate
What is the current state of the M&A market in your jurisdiction?
After a number of years in which the Belgian M&A market has experienced a slump in deals due to the financial and subsequent economic and eurozone crises, the market appears to be gaining traction again. This may be linked to the fact that despite certain negative macroeconomic indicators (eg, the plummeting Chinese stock market and the crippled oil industry), economic indicators are signalling limited growth. With an anticipated 1.3% growth rate, the National Bank of Belgium appears to be cautiously positive about the Belgian economy. It is still unclear to what extent the March 22 terrorist attacks will impact the M&A market.
The key deals of 2015 were arguably the merger between retailers Delhaize and Ahold (expected to be completed mid-2016) and the acquisition of mobile operator Base by Telenet. Further, the sale of flooring giants IVC to Mohawk Group and Balta to Lone Star, both involving US purchasers, are also noteworthy.
With eight public takeovers announced over the past 12 months, the public M&A market also seems to be heating up. Particularly noteworthy was the bidding war between Fosun and Oddo & Cie relating to BHF Kleinwort Benson Group, which was eventually won by the latter. Another high-profile transaction with an impact on the Belgian market was the takeover of SABMiller by AB InBev. With a deal value of approximately €92 billion, this was the largest-ever transaction involving a Belgian bidder.
However, the number of private M&A transactions far outweighs the public transactions. In particular, the small and medium-sized enterprises segment of the market (ie, companies employing less than 200 employees) accounts for the majority of deals. Despite its relatively small size, the Belgian market is notoriously international, with most deals containing at least one cross-border element.
In 2015 the importance of private equity firms in M&A deals dropped slightly due to a decrease of first-time institutional buy-outs on the Belgian marketplace, but still represents nearly one-third of the announced deals. Another remarkable driver for the Belgian M&A market has been the increasing presence of private investors, exploring opportunities to reinvest the proceeds from the sale of family businesses (often through a family office or privately owned investment fund).
The Belgian banking market has been recovering, but banks remain reluctant to grant loans to businesses due to increased institutional supervision and strict capital requirements. Therefore, many players are seeking alternative financing possibilities (eg, vendor financing or equity capital).
Have any significant economic or political developments affected the M&A market in your jurisdiction over the past 12 months?
On January 1 2016 the Belgian government introduced a new speculation tax of 33%. The tax will be charged on gains realised on the sale of listed shares by private individuals acting outside their professional activity within six months of the last acquisition. This is likely to have an impact on the public M&A market.
Are any sectors experiencing significant M&A activity?
The manufacturing and fast-moving consumer goods sectors have experienced significant M&A activity. Traditionally, a substantial number of deals are completed each year in the IT and biotech industries.
Are there any proposals for legal reform in your jurisdiction?
The government is currently contemplating an overhaul of the Company Code. However, this project is still at an early stage and it is unclear whether any changes will actually be implemented. Nevertheless, the principle that no taxes are due on capital gains realised within the framework of the transfer of shares has been highly disputed in the wake of the sale of Omega Pharma to Perrigo. Proposals to remedy this have in general failed to attract sufficient political support. Nevertheless, the government did implement a capital gains tax on the sale of listed shares (see above).
What legislation governs M&A in your jurisdiction?
Mergers and acquisitions are governed by a wide range of EU, national and regional legislation, including contract, company and securities law. Of particular importance are the Belgian Company Code and Book IV of the Code of Economic Law on the protection of competition.
In relation to public takeovers, the Takeover Act of 2007, the Takeover Decree of 2007 and the Squeeze-Out Decree of 2007 are particularly relevant.
How is the M&A market regulated?
The Financial Services and Markets Authority (FSMA) supervises transactions relating to and information disseminated by listed companies. In case of a takeover bid, the FSMA supervises compliance with the applicable legislative framework. In addition, the FSMA may investigate possible cases of insider dealing or market manipulation and may impose penalties. The FSMA, together with the market undertaking, also hold control over the listing and delisting of securities. There is no specific supervisory body for the private M&A market.
Are there specific rules for particular sectors?
Specific rules apply in the case of a merger, demerger or transfer of insurers and credit institutions. Prior notification to the FSMA of a merger or a transfer of a credit institution is required. The merger or transfer of an insurer or reinsurer must also be notified to the National Bank of Belgium.
A change of control, merger or demerger in the energy sector should in some cases be notified to VREG, the Flemish electricity and gas market regulator to the extent Flanders is concerned. In Wallonia and Brussels, the Walloon Commission for Energy and BRUGEL are the respective supervising authorities.
Types of acquisition
What are the different ways to acquire a company in your jurisdiction?
The acquisition of a company may be structured as a share deal, asset deal or combination of both.
A transfer of shares is the fastest and easiest way to transfer a business. The formalities for transferring shares are limited and, in principle, no taxes are due on the transfer. The downside of a share purchase is that all underlying assets and liabilities will be transferred without the possibility for the acquirer to pick and choose.
Another way to acquire part of a business is through the purchase of assets. The assets may be purchased individually or as a universality of goods or branch of activities.
If the ownership of assets is transferred on an individual basis, all legal formalities required for the transfer of such asset must be met. For example, the transfer of a contract requires the consent of the other contracting party. In the same vein, the transfer of real estate is subject to rather onerous and time-consuming formalities.
In case of a transfer of a universality of goods or branch of activities, all assets and liabilities that are part of the universality or branch are automatically transferred by operation of the law, provided that the specific requirements for these procedures have been fulfilled. The transfer is enforceable against third parties as from the date of publication in the Official Journal.
In general, an asset deal allows the buyer to ‘cherry pick’ the assets and liabilities (but significantly less so in the case of a transfer of universality or branch of activity). Consequently, the risks and potential liabilities assumed as a result of the acquisition are, in principle, limited to the acquired assets and liabilities. An asset purchase is often preferred within the framework of M&A cases involving distressed companies, where potential tax and bankruptcy liability issues may be at stake.
Due diligence requirements
What due diligence is necessary for buyers?
Although not mandatory, it is advisable for prospective buyers to perform due diligence over the target. Typically, parties perform due diligence into both legal and financial (including tax) aspects of the target.
The due diligence process usually includes management presentations and the review of specific documents and information through a data room. It may also include the disclosure of an information memorandum on the target.
What information is available to buyers?
The following information relating to Belgian companies is in the public domain:
- publications in the annexes to the Official Journal, including details of appointments and resignation of directors, people in charge of daily management, members of the management committee and, in some cases, proxyholders (but not shareholders);
- the company's articles of association, including details of the company's share capital, the number of outstanding securities and their nature and the existence of defensive measures (eg, poison pill mechanisms);
- extracts of specific shareholders' meetings and board decisions;
- annual reports;
- annual accounts, including report of the statutory auditor; and
- information on real estate owned by the company.
In relation to listed companies, certain additional information is publicly available:
- information on the main shareholders (generally those that own 5% or more, although the articles of association may provide lower thresholds) in the target;
- shareholding disclosures and dealings in securities by persons assuming managerial responsibilities within the company (eg, directors of such company and persons closely associated with them); and
- half-yearly financial information, as well as details of significant facts or decisions which, if made public, could significantly affect the market price of their securities.
What information can and cannot be disclosed when dealing with a public company?
Subject to its statutory information obligations, the target’s board of directors freely determines what information will be disclosed and under what conditions such disclosure will be made. In this context, the board must balance various interests, such as the corporate interest of the target, its contractual and legal confidentiality obligations, the equal treatment of its shareholders, the risk of insider dealing and competition concerns. A target board that is reluctant to disclose sensitive information to the bidder may organise vendor due diligence or third-party due diligence. In case of a public takeover bid, the Takeover Decree requires that the same information be provided to all competing bidders. The bidder must also avoid receiving insider information. If the bidder nevertheless obtains insider information, it must disclose this in the prospectus. Under the Financial Services Act of 2002 any “non-public information relating to the company or its financial instruments, that, if made public, could have a significant effect on the price of those financial instruments” is considered to constitute insider information.
How is stakebuilding regulated?
Subject to insider dealing restrictions and transparency requirements, prospective acquirers may accumulate shares in the target before the announcement of a public takeover bid.
The first exception prohibits a bidder that has non-public inside information on the target from acquiring or selling target securities until this information has been made public or until it no longer affects the price of the underlying securities.
The second refers to the disclosure and transparency requirements set out in the Act of 2007 and its implementing royal decrees, which originate from the EU Transparency Directive (2004/109/EC).
An acquisition of voting securities in a listed Belgian company must be disclosed to the Financial Services and Markets Authority and the target when the total stake of the acquirer represents, as a consequence of the transaction, 5% or more of the total voting rights exercisable at the time of the acquisition. Notification is also required when the shareholding crosses the threshold of 5% or any other multiple of 5% of the total voting rights as a result of an acquisition or transfer (including through a sale) of shares, a change of the breakdown of the voting rights (eg, capital increase or decrease) or an agreement to act in concert. Further, the target’s articles of association may provide for additional thresholds (1%, 2%, 3%, 4% and 7.5%).
The shareholdings of affiliates and parties acting in concert with the acquirer are included to determine whether a threshold has been reached. There are certain exemptions from the disclosure obligation (eg, for market making and trading book exemptions).
The disclosure notification must be made by the acquirer as soon as possible, and in any case no later than four trading days from the date of the event triggering the disclosure obligation. The target must publish the information contained in the notification within three trading days of the day of receipt. Failure to follow the disclosure obligations set out above is a criminal offence and could also result in civil penalties, such as the suspension of the voting rights attached to the relevant securities.
What preliminary agreements are commonly drafted?
Letters of intent
A letter of intent is used in the majority of transactions. The level of commitment of the parties to deal completion may differ. However, parties should take into account the fact that an agreement has in principle binding force as soon as the parties agree on:
- the price (or the calculation of the price); and
- the object of the transaction.
Parties may nevertheless deviate from this rule but should include this explicitly in the letter of intent.
Typically, a letter of intent contains a number of binding clauses (eg, clauses on exclusivity and confidentiality), as well as non-binding clauses and assumptions or conditions that should be fulfilled to allow for the deal to go through.
Often the potential buyer will request exclusivity for one to three months. This clause is typically inserted into the letter of intent, but parties may also enter into separate agreements on exclusivity. In principle, a transfer in breach of such agreement may not be unwound, but the seller may be held liable for damages. A court will unwind the transaction only if it has been established that the third-party acquirer was aware of the exclusivity agreement and the fact that the transfer would be a breach of such agreement. In that case, the third-party acquirer may also be held liable for damages.
Depending on the sensitivity of the transaction, the parties may also enter into a non-disclosure or similar confidentiality agreement. This is sometimes part of a letter of intent, but parties often execute a non-disclosure agreement at an earlier stage of the negotiations.
Most agreements typically provide for standard exceptions such as disclosure required by law or with the prior approval of the other party.
A party may claim damages if the other party breaches the confidentiality undertaking. As it may be difficult to prove damages resulting from such breach, contractual lump sum indemnities are often provided. However, due to the difficulties related to establishing a breach of the undertaking, enforcement is rare.
What documents are required?
In addition to any preliminary agreements, the main acquisition document is the share or asset transfer agreement. Depending on the deal structure, additional documents (eg, service level agreements, shareholders’ agreements or supply agreements) may also be necessary.
Which side normally prepares the first drafts?
It is market practice for sellers to prepare a first draft of the transaction documentation. However, depending on the nature of the transaction and understanding between the parties, alternative arrangements may be made.
What are the substantive clauses that comprise an acquisition agreement?
A typical acquisition agreement includes:
- the object of the transaction:
- in case of a share deal, in principle this is straightforward since it concerns only the transferred shares and all related rights; and
- in case of an asset deal, this is somewhat more complex as parties must define in detail which assets and liabilities are transferred and the ones that should be excluded from the scope of the transaction;
- the purchase price, including mechanisms to calculate the purchase price, deferred payments or earn-outs and escrow provisions;
- conditions precedent for closing (in case of separate signing and closing);
- buyer and seller covenants, including pre-closing covenants for the interim period between signing and closing and post-closing covenants;
- representations and warranties;
- specific indemnities and indemnification mechanisms for breaches of covenants and representations and warranties; and
- general (often standard) provisions relating to notices, confidentiality, termination, assignment, costs, governing law and dispute resolution.
What provisions are made for deal protection?
A no-shop clause or a break fee may be inserted in preliminary agreements to safeguard the deal. However, particularly in the case of public takeover bids, it may be delicate to include these clauses as it could be argued that they are not in the target’s interest. In any case, it is common to insert a non-compete clause prohibiting the seller from entering into competing activities after closing, as well as a non-solicitation provision that prohibits the seller from recruiting personnel or key persons from the target after closing. The average term of these clauses is around three years.
What documents are normally executed at signing and closing?
In the case of a separate signing and closing, the share purchase agreement and board documents are typically signed at signing, while the closing memorandum, share register, minutes and ancillary agreements are typically signed at closing.
When the parties execute a closing memorandum, they will confirm:
- the satisfaction of the conditions precedent;
- respect of the relevant covenants between signing and closing;
- the proper implementation of the closing actions or formalities; and
- the transfer of the title and risk to the shares or assets.
Are there formalities for the execution of documents by foreign companies?
Under Belgian law, there are no specific formalities for the execution of documents by foreign companies. However, in some cases parties may request a copy of the articles of association or the bylaws of the foreign company, as well as an extract from the relevant commercial or trade register confirming the signatories’ authority. In addition, legalisation or an apostille might be required for the use of foreign documents in Belgium. Further, parties sometimes require a legal opinion confirming the incorporation and existence of the foreign company as well as the capacity of the signatories of the transaction documentation.
Are digital signatures binding and enforceable?
To the extent that certain conditions are fulfilled, digital signatures may offer valid proof of the execution of an agreement.
Foreign law and ownership
Can agreements provide for a foreign governing law?
In principle, parties may agree that a share purchase agreement relating to the transfer of shares in a Belgian company be governed by foreign law. However, the parties should ensure that the formalities for the transfer of shares in a Belgian company are met. Further, in the case of public takeover bids, certain Belgian regulations are mandatory.
In addition, difficulties may arise where the transaction documentation is governed by foreign law and the parties chose a foreign court as the relevant forum. The foreign court may be unfamiliar with particular issues that are to be interpreted from a Belgian law perspective, such as:
- the impact of environmental or tax issues;
- the management of the company;
- the meaning and scope of the warranties; or
- the meaning of certain terms used under the transfer agreement that are defined by reference to the relevant Belgian law concepts.
Therefore, in order to avoid difficulties, it is market practice that Belgian law governs the share purchase agreement for an acquisition by a foreign entity of a Belgian target.
What provisions and/or restrictions are there for foreign ownership?
Belgium’s open economy usually welcomes investors and is typically considered to be one of the most flexible countries for foreign investment in Europe. In principle, no general regulations or restrictions apply to foreign investments. However, in certain regulated industries, a notification to or the authorisation by the relevant regulator may be required.
Valuation and consideration
How are companies valued?
Many elements are taken into account to valuate companies. While some indicators offer more certainty than others, it is undeniable that the valuation of a company depends first and foremost on the particular situation of the company and the industry in which it operates.
In most cases, the company’s financial situation will be analysed and a business plan considered. A strengths, weaknesses, opportunities and threats (SWOT) analysis is also often carried out. The potential added value of replacing management or, on the contrary, retaining key personnel may be taken into account. In addition, existing agreements, synergy opportunities, future growth potential and the specificities of the sector will also influence the valuation of the company.
What types of consideration can be offered?
Cash, securities or a combination of both can be offered. In the case of public takeover bids, in some circumstances a cash alternative should be offered to the security holders.
What issues must be considered when preparing a company for sale?
When preparing a company for sale, it is recommended to identify the aspects of the deal that the seller considers most important, to decide on the type of deal (share or asset deal) and to valuate the target.
Further, in certain circumstances, vendor due diligence may be organised. Vendor due diligence helps to identify and respond to potential deal issues and, as a result, minimises any surprises arising from the buyer’s due diligence. It is also typically used in auction processes (with a view to attracting potential buyers who do not need to fork out important expenses) and allows the seller to develop an appropriate negotiation approach.
What tips would you give when negotiating a deal?
Depending on the type and complexity of the transaction, it is recommended to obtain professional advice at an early stage of the negotiations in order to avoid typical legal and other pitfalls.
When preparing negotiations, it is important to identify each party’s priorities and interests. It may also be helpful to reflect on the ultimate goal of the transaction and the alternatives that are available to each party.
Further, setting up a clear and tight timeline may ensure that no valuable time is lost during the transaction process. In addition, the communication streams must be organised from the outset in order to optimise the process.
Are hostile takeovers permitted and what are the possible strategies for the target?
Hostile takeovers are allowed in Belgium but do not often occur. The vast majority of takeovers in Belgium are recommended deals.
This is explained by the fact that Belgian companies are generally owned by one controlling shareholder or group of shareholders (eg, a family). In such case, prior written approval of the controlling shareholder will be required. In addition, the Takeover Act allows the target’s board of directors to contemplate measures in order to safeguard the corporate interest and frustrate a hostile bid.
The articles of association or a shareholders' agreement may contain restrictions to the transfer of shares. The restrictions may be embodied by pre-emption, first refusal or approval clauses, standstill provisions or tag-along rights. These restriction clauses must always be in the company’s interest and limited in time. However, such clauses may in any case not block the transfer of securities for more than six months.
The articles of association may, within certain limits, also allow the board of directors to take various defensive measures to frustrate takeovers, such as the increase of the share capital under the authorised capital procedure or the acquisition of the company’s own shares without the prior approval of the shareholders. The board requires the prior approval of the shareholders’ meeting to do this, which could be valid for up to five years.
The board of directors of the target must always exercise its powers in the company’s best interest.
If the target is a listed company, its shareholders may decide to prohibit frustrating actions and/or apply the breakthrough rule to limit the defensive measures that may be used by the target towards takeovers. In this context, the target's articles of association may for example contain the following provisions:
- prior authorisation of the shareholders' meeting for the target board during the bid before taking any action which may result in the frustration of the bid;
- during the bid, unenforceability of:
- restrictions on the transfer of securities granting voting rights (or access to voting rights); and
- certain voting and other rights provided for in the target's articles of association or in contractual agreements between the target and the target's shareholders (the breakthrough rule); and
- the reciprocity exceptions, according to which a Belgian company with articles of association including rules prohibiting frustrating actions or the breakthrough rule may disapply them if the bidder (or anyone that controls the bidder) is not subject to similar rules.
Finally, the target’s board of directors must inform the Financial Services and Markets Authority and the bidder of its views on the bid through a memorandum in reply, which is to be attached to the bid prospectus.
Warranties and indemnities
Scope of warranties
What do warranties and indemnities typically cover and how should they be negotiated?
Belgian civil law does not always provide adequate protection to a purchaser with regard to the company’s organisation and underlying assets, particularly in the case of share deals. Therefore, depending on the type of deal, the framework investment or share purchase agreements typically provide for tailored contractual representations and warranties.
The seller usually gives a set of representations and warranties and explicitly states that these statements are true (and sometimes also complete, accurate and not misleading, depending on the transaction). The specific set of representations and warranties given by a seller depends on the nature of the transaction and is subject to negotiations between the parties.
The representations and warranties usually relate to the following issues:
- corporate matters, such as the existence and organisation of the target, shares and shareholders’ agreements;
- annual accounts and financing;
- real property and movable assets;
- environmental matters;
- IP rights used or owned by the company;
- data protection;
- employment; and
- intra-group arrangements.
In case of a separate signing and closing, the seller is sometimes required at closing to repeat the set of representations and warranties given at signing and to confirm that these are still true (and, as the case may be, complete, accurate and not misleading).
Limitations and remedies
Are there limitations on warranties?
Limitations on warranties
The seller may make certain disclosures in order to limit its contractual liability under the representations and warranties. The format and scope of these disclosures are subject to negotiations between the parties. The most common method is the disclosure through the organisation of due diligence, which includes setting up a data room containing all relevant documents and information in relation to the target.
Alternatively, the parties may opt for a separate disclosure or a disclosure letter in which the seller discloses any specific issues it is aware of. However, this is less common in Belgium.
Other limits that are typically used are time limitations, de minimis limitations and/or baskets and caps.
Qualifying warranties by disclosure
The representations and warranties may be qualified as only being to the seller’s best knowledge. As a result, facts and circumstances that the seller, which acts in good faith, could not reasonably have known are excluded from the scope of the representations and warranties. The scope of this limitation largely depends on how the term ‘to the best knowledge’ is defined in the transaction documents.
When negotiating the terms and conditions relating to the representations and warranties, the buyer may aim at broadening the scope of the representations and warranties by, for example:
- negotiating that the representations and warranties are not only given to the seller's best knowledge, but also to the best knowledge of any director, executive or employee of the target; or
- including a reference to the term ‘reasonable knowledge’, implying that the relevant persons are deemed to have knowledge of any fact that a reasonably diligent person in the same circumstances could be expected to know or discover during a reasonably comprehensive investigation.
What are the remedies for a breach of warranty?
Subject to the contractual limitations, the aggrieved party may seek indemnification from the other party in case of a breach of the representations and warranties.
Alternatively, depending on the nature of the breach and the wording of the transaction documents, the buyer may also have the right to terminate the relevant agreement. This is particularly relevant in case of a breach of a warranty in the period between signing and closing that results in a condition precedent not being satisfied.
Are there time limits or restrictions for bringing claims under warranties?
It is common practice to limit the time within which aggrieved parties may bring claims under the representations and warranties. While this time limit usually depends on the size and the nature of the transaction, the average time limit is considered to be one to three years.
Tax and fees
Considerations and rates
What are the tax considerations (including any applicable rates)?
The standard company tax rate for Belgian companies and branch offices is 33.99%. A progressive tax rate (ranging between 24.25% and 34.5%) applies to companies with a taxable income that does not exceed €322,500 (subject to various conditions).
However, the actual tax rate is typically lower due to the effect of various tax reductions, such as:
- exempt foreign profits under double taxation treaties;
- dividends-received deductions;
- deductions for patent income;
- notional interest deductions; and
- tax-loss carry forwards.
The company tax is payable in quarterly advance tax payments during the relevant accounting year. While these advance payments are not mandatory, a tax increase of 1.125% is applied if insufficient advance tax payments are made (whereby the tax increase is applied on 103% of the company tax due after deduction of the withholding taxes and other items that can be credited with the company tax due).
As a general principle, capital gains are treated as business incomes and thus taxed at the basic company tax rate. However, capital gains resulting from the sale of shares are exempt from this company tax. This exemption applies only in case the dividends on the shares qualify for the participation exemption and if the shares have been held in ownership for at least one year. However, even if both conditions are met, the capital gains realised by large and medium-sized companies will still be taxed at a reduced rate of 0.412%. In case the shares have not been held for more than one year, any added value arising from a share deal will be taxed at 25.75%.
If the capital gains do not qualify for the participation exemption regime, they will be taxed at the standard company tax rate of 33.99%.
VAT and transfer taxes
The standard value added tax (VAT) rate is 21%, with a reduced rate of 6% or 12% for certain goods and services.
There is no VAT or transfer tax due on the sale of shares in a Belgian company. However, VAT is due on the costs related to the transfer of shares, such as the fees of the Belgian financial intermediary which intervenes in the sale of the shares.
In the context of an asset deal, the applicable VAT and transfer tax rates will depend on the nature of the assets transferred and the region in which the assets (eg, real estate property) are located.
In addition, the seller must in principle pay VAT of 21% on the sale price of the assets concerned. However, the seller may benefit from a VAT exemption if the assets acquired constitute a universality of goods or a branch of activities of the target.
Provided that certain conditions are met, mergers, demergers, transfers of branches of activity or universal transfers or assets will be exempt from registration duties.
Further, a registration duty of 12.5% in the Walloon and Brussels regions and 10% in the Flemish region will be due on the acquisition of real estate.
Exemptions and mitigation
Are any tax exemptions or reliefs available?
Capital gains realised on the sale of tangible or intangible fixed assets that have been owned by the company for business purposes for more than five years are eligible for the tax deferral regime under certain conditions.
If reinvestment has occurred that fulfils the conditions, the capital gain realised by the taxpayer becomes taxable in proportion with the annual depreciation allowed for tax purposes on the fixed assets in which the reinvestment has been made.
What are the common methods used to mitigate tax liability?
It is common to include tax representation and warranties in the transaction documents.
What fees are likely to be involved?
Generally, legal fees should be foreseen for the following main phases of the transaction:
- carrying out legal due diligence;
- drafting the transaction documents and negotiations;
- closing; and
- post-closing completion of the transaction.
Fees are usually invoiced on the basis of an hourly rate and a fixed budget for a transaction is rare. The amount of hours spent on a transaction depends on the complexity of the case.
In addition to legal fees, the target and, in the case of public takeover transactions, the bidder, must in certain situations also foresee fees for financial advice.
Management and directors
What are the rules on management buy-outs?
There are no specific rules concerning management buy-outs under Belgian law. However, the Company Code provides exemptions to the requirements imposed on the company when financial support is offered to support a leveraged management buy-out. In order for the exception to apply, the company must offer financial assistance to staff members of the company or affiliated companies or companies where at least 50% of the voting rights are held by the employees in order to acquire shares of the company or certificates representing rights with regard to the shares. When the assistance is offered to companies, an additional requirement must be met and the acquired shares of the company (or certificates) will have to represent minimum 50% of the voting rights.
In any event, the general corporate principles (eg, the equal treatment of shareholders and the rules regarding conflicts of interest) remain applicable to management buy-outs.
In case of a public takeover, the relevant clauses of an agreement to which the bidder or its connected persons are party and that could have a substantial effect on the valuation of the bid must be discussed in the prospectus. Thus, the relevant clauses of the agreement between the bidder and the target’s management may have to be disclosed.
What duties do directors have in relation to M&A?
Merger or demerger
Pursuant to the Company Code, the board of directors of a company that is involved in a merger or demerger must prepare a merger or demerger proposal, which must at least discuss a number of important aspects of the proposed transaction. Further, the board of directors must prepare a special report in which it clarifies the proposed transaction from a legal and economic point of view. In addition, the statutory auditor must prepare a report on the proposed share exchange ratio.
The merger or demerger proposal and both reports will be presented to the shareholders in a general shareholders’ meeting, during which the shareholders vote on the approval of the proposed transaction.
Share or asset deal
In case of a share deal, the target’s shareholders will in principle negotiate the sale of its shares in the company directly with a candidate buyer. The involvement of the board of directors of the target will thus be rather limited. However, it is the board of directors that will eventually decide whether due diligence will be organised and what information will be disclosed during that due diligence process.
In contrast, the decision to sell the company’s assets is made by the board of directors or, depending on the value of the deal, the managing director, of that company. However, when the transfer concerns a universality of goods, the approval of the shareholders will be required.
While the prospectus itself is prepared by the bidder, the board of directors of the target has the opportunity to intervene in the drafting process. On receipt of the draft prospectus from the Financial Services and Markets Authority (FSMA), the board has five business days to inform the FSMA whether it considers the prospectus to be complete or to indicate any gaps or misleading information.
Further, the board of directors of the target must submit a memorandum in reply with the FSMA. This memorandum in reply must discusses the board’s position with regard to the bid and its possible consequences on employment, taking into account the overall interests of the target, the shareholders, creditors and employees.
In case of a voluntary takeover by a bidder that already has control over the target, specific rules on price assessment must be applied. The independent directors of the target must appoint one (or more) independent expert(s) who must prepare a report in which they analyse the valuation of the securities concerned.
The board of directors must also ensure that the information and consultation rights of the employees of the company are respected.
Consultation and transfer
How are employees involved in the process?
As a general principle, the employees of a target have information and consultation rights in case of a structural change in the control over the company or a transfer of part of the business of the company.
The employer must notify the works council or, in its absence, the committee for prevention and protection at work or the trade union delegation, in good time and before any publication of the decision. The information provided must relate to the economic, financial and technical factors of the proposed transaction and the economic, financial and social implications thereof for the company and its employees.
The company must also consult the representatives of the employees in good time on the envisaged measures in relation to the employees. The consultation with the works council should not obstruct the negotiations or deal or affect the employer’s decision-making prerogative.
Violation of these information and consultation rights may lead to administrative or criminal penalties.
As soon as the bid has been announced by the Financial Services and Markets Authority:
- the target board and the bidder must inform their employees' representatives (or, in the absence thereof, the employees) (the employees’ representatives) of the bid;
- the employees' representatives of both the bidder and the target must receive a copy of the prospectus as soon as it is made public; and
- the target board must inform the employees' representatives of its opinion of the bid.
Unless unanimously decided otherwise by its members, the target's works council must convene a hearing to consult representatives of the bidder on:
- its industrial and financial policy;
- its strategic plans for the target and their possible impact on the workforce; and
- the operational sites of the target.
This hearing must take place no later than 10 business days after the opening of the bid. If the bidder's representatives do not attend the hearing, although duly convened, the bidder is prohibited from exercising the voting rights attached to the securities it has acquired in the context of the bid.
What rules govern the transfer of employees to a buyer?
Transfer of a business
On the date of transfer of a business, the employees of the target will be automatically transferred to the acquiring company with preservation of their rights and obligations resulting from the employment contract.
In principle, all employees belonging to the transferred business will be transferred, by operation of law, to the acquiring company. This means that the acquirer is not allowed to choose which employees will be transferred. In any event, the transfer of a business may not in itself be considered to be a justified ground for dismissal of an employee.
Further, the existing working conditions of the transferred employees may not be altered to the detriment of the employees by the acquirer. Such an alteration would be considered to be a unilateral modification of the employment conditions and could be considered to be a termination of the employee’s employment contract by the company.
On the transfer date, the transferring employer and the acquirer will be jointly and severally liable for the payment of any debts resulting from the employment contract that existed at the time of the transfer.
In case of a share sale, the target will remain the employer on implementation of the transaction. Thus, the employee’s situation will not be affected by the transaction. This means that the dismissal of one or more employees of the target will be subject to the general employment termination rules.
What are the rules in relation to company pension rights in the event of an acquisition?
Employees commonly participate in private pension schemes (group insurance or pension funds) established by the employer.
Transfer of a business
The benefits under a supplementary social welfare scheme (eg, a retirement, survivor’s or invalidity scheme) are not automatically transferred to the new employer. As a result, unless otherwise agreed between the target, the acquirer and the employees’ representatives, the acquirer is not required to proceed with such supplementary social welfare schemes on acquisition.
However, if these benefits are contained in a collective bargaining agreement, the acquirer must continue offering the same social welfare benefits.
In case of a share sale, the private pension schemes will remain in place.
Other relevant considerations
What legislation governs competition issues relating to M&A?
The competition aspects of mergers and acquisitions in Belgium are governed by Book IV of the Code of Economic Law and, at EU level, by the EU Merger Regulation (139/2004).
Provided that the transaction is not subject to EU merger control and the turnover thresholds in Belgium are reached, mergers, acquisitions and joint ventures that result in a sustainable change in the control over the companies concerned must be notified to and approved by the Belgian Competition Authority before implementation.
Concentrations are subject to Belgian merger control if they meet both turnover thresholds:
- the undertakings concerned have a combined turnover in Belgium of more than €100 million; and
- at least two of the undertakings concerned each have a turnover in Belgium of at least €40 million.
The fact that no involved company has its registered office or own assets in Belgium is irrelevant in assessing whether a concentration must be notified to the Belgian Competition Authority. As a result, foreign-to-foreign mergers or acquisitions of companies that have substantial sales in Belgium and that do not exceed the EU thresholds may be subject to Belgian merger control.
The parties must ensure that such approval is obtained before the implementation of the proposed transaction. As a result, merger approval is typically construed as a condition precedent to closing. As soon as the proposed concentration has been notified, the Belgian Competition Authority will assess whether the transaction could significantly impede effective competition on the relevant market. This may be the case when the proposed concentration could create or strengthen a dominant position on the market on the level of the company involved.
However, transactions between companies active on an EU or worldwide scale are likely to meet the European turnover thresholds. In that case, the parties must notify the proposed concentration to and obtain approval from the European Commission, which is exclusively competent to deal with concentrations with an EU dimension.
Are any anti-bribery provisions in force?
The Criminal Code criminalises public and private, as well as passive and active, bribery.
Active private bribery exists when a person proposes, directly or indirectly, to a director, proxy holder, agent or employee of a company or a physical person, an offer, a promise or an advantage of whatever nature for the person itself or a third party in order to perform or refrain from performing an act that falls within the scope of or that may be facilitated by that person’s function. In order to qualify as bribery, the act must occur without the approval of the board of directors, the shareholders’ meeting, the principal or the employer. In addition, the Criminal Code criminalises the situation where the director, proxy-holder, agent or employee requests or accepts, directly or indirectly, such advantage, of whatever nature (passive bribery).
If the person concerned performs public duties, which is interpreted in a broad way, the bribery (active or passive) will be qualified as public bribery, which may give rise to more severe penalties.
What happens if the company being bought is in receivership or bankrupt?
Companies that face financial difficulties that could threaten their continuity in the short, medium or long term may apply one of the three judicial reorganisation procedures contained in the Continuity of Enterprises Act 2009 (equivalent to the Chapter 11 procedure under US law).
The first type of judicial reorganisation concerns the reorganisation of the company by concluding an amicable settlement with the most important creditors. The second procedure concerns a reorganisation by way of a collective agreement with the distressed company’s creditors on the basis of a detailed reorganisation plan.
During the term of the first two types of judicial reorganisation, the board of directors remains competent to run and represent the company. As a result, it could envisage selling the activities or business, or part thereof, of the distressed company.
The third type of judicial reorganisation provides the possibility for the court to order the transfer of the company’s business with the purpose of safeguarding the continuity of that business. In that case, the court will appoint a judicial representative who will manage the transfer.
The transfer may occur either with the consent of the company or without the company’s consent at the request of an interested party if:
- the company is in a state of bankruptcy; or
- an attempted reorganisation has failed.
If several, comparable offers are received, the judicial representative must give priority to the offer that best preserves the company’s employment levels.
The position of the employees in the judicial reorganisation procedures is similar to their position in case of bankruptcy (see below). However, the acquirer’s choice whether to retain an employee must be justifiable by technical, economical and organisational reasons.
In case of bankruptcy, the court will appoint a trustee in bankruptcy. From the date of the bankruptcy order, the trustee in bankruptcy will acquire the control of the company and its assets from the board of directors of the company, and will act as the company’s representative.
The trustee in bankruptcy has the power to decide on whether to continue running the business or to sell the assets or the business of the company. A party that is interested in acquiring the business of a company in bankruptcy must contact and negotiate with the trustee in bankruptcy. In this regard, parties must take the specific timeline of the bankruptcy procedure into account. The acquisition of the business of the company, or part of it, will be valid only on the approval of the competent court.
The employees of a company in bankruptcy have the same information and consultation rights as in a merger or acquisition. In case of an acquisition of a company in bankruptcy, the acquirer is not obliged to take over all employees, but may decide which employees will be retained.
In case of bankruptcy, the acquirer may negotiate the employment conditions freely. However, the acquired seniority of the employee concerned must be taken into account when the formal notice period or the corresponding notice indemnity are determined. In addition, the acquirer will remain bound by any collective bargaining agreement concluded by the company.