An extract from The Corporate Governance Review, 10th Edition

Shareholders

i Shareholder rights and powers

The basic rule is that each share of the same value carries one vote. If the shares do not have the same value or if there is no value mentioned, the shares carry voting rights in proportion to the capital they represent, with the share with the lowest value carrying one vote. Fractions of votes are not taken into account.

The BCCA introduces a new multiple voting rights regime. For listed companies, this regime is restricted and only offers the possibility for the issuance loyalty shares with double voting rights (i.e., maximum 2 votes per share). The BCCA utilises an 'opt-in' system for companies wishing to avail themselves of the loyalty share regime. One vote per share remains the default system.

It requires a change to the company's articles of association, which needs to be approved by a two-thirds majority in the general assembly. Notably, this threshold is lower than the majority required for any other type of change to the articles of association.

The regime applies only to shares that have been registered in the name of the same shareholder for a continuous period of at least two years. The two-year period starts on the day on which the registered shares are registered, even if that registration took place before the statutory provision introducing the double voting right was adopted and before the company was listed. Every share that is converted into a dematerialised share or whose ownership is transferred loses double voting rights.

However, the transfer of shares as a result of succession, liquidation of matrimonial property regime or transfer, for pecuniary interest or free of charge, to the benefit of a beneficiary does not result in the loss of the double voting right and does not interrupt the required two-year period. The same applies in the event of transfer of shares between companies that have been controlled by the same shareholder ('intragroup transfers'), or in the case of joint control, by the same shareholders, natural or legal persons, or between one of these companies and these controlling shareholders. Controlling shareholders often have the right to appoint a majority of the company's directors, so that they de facto influence the management of the company.

Any powers not granted by law or the company's articles of association to the general meeting of shareholders are reserved to the board of directors. A number of decisions are reserved by law to the general meeting and cannot be delegated to the board of directors, such as approval of the annual accounts and discharge of the directors and statutory auditor, the final appointment of directors and the statutory auditor, the initiation of claims by the company against the directors, dissolution of the company, or a merger or a division. In 2010, a number of decisions relating to the remuneration of executive managers and directors were also made subject to the approval of the general meeting.

In general, a validly adopted decision of the general meeting of shareholders is, by law, binding on dissenting shareholders or shareholders who did not attend the meeting. Any party that can prove standing, including a shareholder, may, however, seek to invalidate a decision of the general meeting on account of:

  1. a formal irregularity, provided this irregularity could have influenced the decision;
  2. a violation of the procedural rules of the general meeting or the passage of a resolution on an item that was not on the agenda, provided there is fraudulent intent;
  3. an ultra vires act or abuse of power;
  4. the exercise of suspended voting rights, if this influenced the adoption of the decision; or
  5. any other reason set out in the BCCA.

In addition, dispute resolution procedures are available to shareholders pursuant to which they can be obliged to sell their shares or purchase the shares of other shareholders in the event of a serious conflict among them (Articles 2:60 to 2:69 BCCA, or the involuntary dissolution of the company can be requested as a last resort (Article 7:230 BCCA).

One or more shareholders who, individually or collectively, hold 10 per cent of the share capital can also request the board of directors and the statutory auditor to call a general meeting. It is generally accepted that these shareholders also have the possibility to determine the agenda for the meeting. In accordance with Article 7:130 of the BCCA, shareholders holding at least 3 per cent of the share capital of a listed company have the right to submit proposals regarding items on the agenda and propose resolutions (this does not apply to meetings held on second call: i.e., meetings called because the required quorum was not met at the first meeting).

Shareholders also have the right to ask the directors (and the statutory auditor) questions during general meetings or in writing before the meeting (to be answered at the meeting). The directors or the statutory auditor, as the case may be, have a duty to answer these questions. There is, however, an exception to this rule: directors and the statutory auditor can refuse to answer a question if doing so would cause harm to the business of the company or violate their or the company's duty of confidentiality. Questions should relate to items on the agenda or to a report prepared by the board of directors or the statutory auditor. Questions on the same topic may be consolidated and answered together.

One or more shareholders owning at least 95 per cent of the securities to which voting rights are attached can initiate a squeeze-out to obtain 100 per cent of all voting securities or securities that allow their holders to acquire voting securities.

ii Shareholders' duties and responsibilities

The 2020 Code stipulates that, in companies with one or more controlling shareholders, the board should endeavour to have the controlling shareholders make considered use of their position and respect the rights and interests of minority shareholders. The board should encourage the controlling shareholders to respect the 2020 Code. In addition, it is recommended to enter into a relationship agreement with the majority shareholders.

The 2020 Code also specifically mentions some best practices with regards to institutional investors. Namely that the company should discuss with institutional investors the implementation of their policy on the exercise of institutional investors' voting rights in the relevant financial year and ask institutional investors and their voting agencies for explanations on their voting behaviour.

Furthermore, the board should encourage shareholders, and in particular, institutional investors, to communicate their evaluation of the company's corporate governance prior to the general shareholders' meetings and at least through participation in the general shareholders' meeting. The general rule of law that minority shareholders can seek to invalidate a resolution of the general meeting on the grounds of abuse of majority still applies, of course. Such a request must be made within six months of the time the resolution became enforceable against the shareholder or was notified to the shareholder. Pursuant to this principle, a resolution can be invalidated if the voting rights were not exercised in the company's interest or the voter abused his or her rights, meaning the voting rights were exercised in an obviously unreasonable manner.

iii Shareholder activism

The general meeting of shareholders normally determines the remuneration of directors, but not of executive managers (except for the approval of severance pay in certain cases), so it does not have a complete say on pay. The general meeting of shareholders has the power to vote separately on the remuneration report in which the remuneration policy is described, but there are no legal consequences if it rejects the report.

If one or more shareholders do not agree with the board's management of the company, there is judicial relief available to them.

The BCCA does not contain express rules on the invalidation of resolutions by the governing body (i.e., the board of directors); however, based on general rules of law, the courts tend to accept that resolutions of the board of directors can be declared null and void at the request of any interested party (including a shareholder).

In general, the grounds for invalidating resolutions of the board of directors are the following:

  1. violation of the convocation formalities or procedural requirements for the meeting;
  2. violation of rules of law or the articles of association (e.g., an ultra vires act);
  3. resolutions that are obviously in violation of the company's interests; and
  4. resolutions adopted fraudulently.

Directors can be held liable, in accordance with the BCCA, for shortcomings in their management of the company, breach of rules of law or the articles of association and, in certain cases, violation of their general duty of care (the relevant standard is how a reasonably prudent director would have acted under the same circumstances). The general meeting of shareholders has the power to initiate proceedings on behalf of the company against one or more directors on the above-mentioned grounds. Such a decision should be approved by a majority of votes cast. No action can be taken if the general meeting has already discharged the directors. There is also a possibility for minority shareholders to initiate the same proceedings on behalf of the company if they represent at least 1 per cent of the voting securities or hold at least €1.25 million of the company's capital on the day the general meeting voted to discharge the directors. Minority shareholders that validly approved the discharge cannot bring such proceedings.

At the request of one or more shareholders holding at least 1 per cent of the total voting rights or securities that represent at least €1.25 million of the company's capital, the court may also appoint, if there are indications that the interests of the company are seriously jeopardised or could be jeopardised, one or more experts to verify the company's books and accounts and the actions of its corporate bodies.

In certain cases, one or more shareholders can also request the appointment of a temporary administrator to manage the company in lieu of the board of directors.

The BCCA provides for the possibility to solicit proxies for certain shareholder meetings. This solicitation should, however, comply with the requirements of the BCCA. A public solicitation of proxies (i.e., when advertisements or intermediaries are used or if more than 50 shareholders are targeted) should be approved by the FSMA and a number of requirements should be met. Proxy solicitation is mostly done by associations that defend (minority) shareholders' rights.

Several associations that defend (minority) shareholders have campaigned to involve as many shareholders as possible in certain proceedings (e.g., the Fortis case in 2008, the case against the National Bank of Belgium in 2010, the Lernout & Hauspie case, the Madoff case and the Lehman Brothers case).

Pursuant to the Act of 28 March 2014, class actions are now possible in Belgium. However, certain limitations apply. A class action may only be brought against a company, by a consumer, and for breach of a contractual obligations or a specific law. Thus, shareholders who would like to introduce a claim against (current or former) directors cannot bring a class action under Belgian law. Therefore, only investors that take part in the proceedings against a company have the right to claim damages.

iv Takeover defences

In general, the following measures can be taken by the target company to frustrate a takeover bid:

  1. Capital increase with the issuance of new shares: in principle, only the general meeting of shareholders is entitled to increase the company's share capital, unless the board of directors has been authorised to do so (pursuant to the BCCA). However, such an authorisation is not valid in the context of a takeover bid, during which the board, in principle, cannot increase the share capital by means of a contribution in kind or in cash with the cancellation or restriction of the shareholders' pre-emptive right. The general meeting may, however, authorise the board of directors to increase the share capital during the offer period by means of a contribution in kind or in cash with cancellation or restriction of the shareholders' pre-emptive right, provided:
    • the board has been specifically authorised to do so within the past three years;
    • the newly issued shares are fully paid up;
    • the number of new shares does not exceed 10 per cent of the number of existing shares; and
    • the subscription price is at least equal to the offer price.
  2. Acquisition of own shares by the company: in principle, the general meeting of shareholders must authorise the acquisition of own shares by the company unless the board of directors has been authorised to do so (pursuant to the BCCA). However, such an authorisation is not valid during a takeover bid, as from the time the company is notified of the bid by the FSMA. As an exception to this rule, the board may acquire own shares to avoid serious, imminent harm to the company, provided the articles of association so allow (for a maximum period of three years). In this case, other conditions governing the acquisition of own shares also apply.
  3. Poison pill: in general, certain advance measures are available to protect companies against potential takeover bids. However, pursuant to Article 7:151 of the BCCA, only the general meeting of shareholders (thus not the board) can grant rights to third parties liable to affect the company's assets or give rise to a debt or obligation on behalf of the company, when the exercise of the rights depends on the launch of a takeover bid or a change in control. To be valid, the resolution to this effect should be filed with the clerk's office (of the competent court) prior to the FSMA's notification of the bid to the company. During the offer period, only the target company's (general meeting of) shareholders can take decisions or execute transactions that could have a significant impact on the composition of the company's assets or liabilities or enter into transactions without effective compensation. Such decisions and transactions cannot, in any case, be made subject to the outcome of the bid. Decisions that have been sufficiently implemented prior to receipt of the FSMA's notification can be further executed by the board; however, the FSMA and the bidder should be immediately notified of any such decisions, which should also be made public.
  4. Issuance of convertible bonds or subscription rights (warrants): these instruments may be issued by the general meeting of shareholders and may, for example, be convertible or exercisable upon the launch of a takeover bid. It is also possible to create a pyramidal ownership structure or issue share certificates.

As a general rule, in keeping with the Takeover Directive, the target company's board of directors must act in the company's interest. It may, therefore, seek out an alternative bidder (or white knight). Belgian law specifically provides that the target company need not inform the FSMA of the fact that it is searching for an alternative bidder (while it should inform the bidder and the FSMA of any decision in relation to the issuance of shares or that is liable to frustrate the bid).

Belgium has opted out of the provisions of the Takeover Directive aimed at restricting the use of defensive measures by the board of directors. Nevertheless, companies with their registered office in Belgium whose shares are (at least partially) listed on a regulated market may voluntarily include such restrictions in their articles of association (i.e., opt in).

In this regard, a company may provide in its articles of association that:

  1. during the offer period, the board of directors (or the body to whom the relevant powers have been delegated) may not take any action (other than seeking alternative bids) liable to result in frustration of the bid without the prior consent of the general meeting of shareholders;
  2. any decisions taken prior to the offer period that are not yet fully implemented and that could frustrate the bid can only be further implemented with the prior consent of the general meeting of shareholders (except for those taken in the ordinary course of business);
  3. restrictions on share transfers expressed in the articles of association or a shareholders' agreement shall not apply to the bidder during the acceptance period or after the bid if the bidder holds at least 75 per cent of the target's share capital;
  4. restrictions on voting rights expressed in either the articles of association or a shareholders' agreement shall not apply at a general meeting held during the offer period for the purpose of adopting measures to frustrate the bid or after the offer if, as a result of the offer, the bidder holds at least 75 per cent of the target's capital; and
  5. provisions of the articles allowing a shareholder to appoint or remove a director shall not apply at the first general meeting called by the bidder after the offer, provided the bidder holds at least 75 per cent of the target's capital as a result of its bid.

If the rights set out in (c) to (e) cannot be exercised, reasonable compensation should be paid to their holders.

The company may also stipulate in its articles of association that such provisions shall only apply to the extent the bidder or the company controlling the bidder is subject to the same restrictions on the application of defensive measures (the reciprocity rule).

The use of staggered boards as a takeover defence is not relevant in Belgium, as a director of a public limited company can always be removed at will by the general meeting of shareholders.

v Contact with shareholders

The basic rule is that the company should treat all similarly situated shareholders equally.

The Royal Decree of 24 November 2007 regulates periodic (annual and semi-annual) and occasional information (i.e., inside information) to be disclosed by listed companies, in addition to the mandatory disclosures set out in the BCCA (e.g., annual accounts and annual reports). Periodic information should be disclosed quickly and on a non-discriminatory basis so that it can reach as many people as possible, and disclosure should take place, insofar as possible, simultaneously in Belgium and other member states of the EEA. The company should use media that are expected to ensure disclosure in all member states of the EEA. Any inside information should be disclosed as simultaneously as possible to all categories of investors in the member states where the company has requested or agreed to trade its financial instruments on a regulated market.

The 2020 Code stipulates that the board should ensure an effective dialogue with shareholders and potential shareholders through appropriate investor relation programmes, in order to achieve a better understanding of their objectives and concerns. Feedback of such dialogue should be given to the board, on at least an annual basis. Individual meetings with institutional investors are also encouraged to receive explanations on their voting behaviour. It is indeed common practice for companies to hold individual meetings with their controlling shareholders, institutional shareholders, or both. However, the information disclosed in these meetings should be information that is already public or that is made public at the same time, to avoid the unequal treatment of shareholders.

Each director has a duty to keep information about the company confidential unless required to disclose it pursuant to a statutory or ethical duty. This duty also extends to companies' shareholders. Some scholars argue, however, that directors representing a controlling shareholder can consult with that shareholder on decisions to be taken by the board of directors and the position the director will adopt in future deliberations, unless the board of directors specifically decides otherwise. This does not mean that the directors can inform the person they represent of information he or she can then use for his or her own purposes (e.g., to determine whether to sell or purchase shares).

In addition to this general duty of confidentiality, it is also forbidden for anyone in possession of inside information (e.g., directors) to, inter alia, disclose such information to anyone else except in the normal course of business or in the performance of his or her professional duties.

The general rule is that inside information should be immediately disclosed. However, a company can decide, at its own risk, to postpone the disclosure of inside information if the disclosure could harm the company's legitimate interests, provided that the delay in disclosure does not mislead the public and confidentiality can be guaranteed. If inside information is disclosed in the normal exercise of the discloser's profession, function or work, the information should simultaneously be made public unless the person to whom the inside information is disclosed is bound by a duty of confidentiality (e.g., the printer or the communications department). If the disclosure of inside information is postponed, the company should take the necessary measures to, inter alia, bar access to this information to all persons who do not need it to exercise their functions.

Based on the foregoing, in our opinion, directors cannot disclose inside information to a shareholder further to a confidentiality agreement. The only exception to this rule is if a third party or a shareholder requests information from the company to determine, for example, the appropriateness of making a public offer, in which case the board of directors can grant access to the information in question if it enters into a confidentiality agreement that includes a standstill clause (i.e., no transactions in the company's shares until the information has been made public) and provided disclosure is in the company's interest.