The new Belgian Companies Code has clarified the employment status of and termination arrangements for directors and company officers. This article sets out the detail of the new provisions and gives a reminder of the general rules on company officers’ status.
By: Jan Van Gysegem
Firm: Claeys & Engels
Following the entry into force of the new Belgian Code of Companies and Associations (CCA), all company representatives, including directors of a public limited liability company (NV/SA), can now receive protection against dismissal (a notice period and/or indemnity in lieu of notice). The previous uncertainty as to whether members of a management committee (‘directie comité’ / ‘comité de direction’), which is also renamed the ‘management board’, are always self-employed or can exercise their mandate under an employment contract is over; the new CCA confirms they cannot work under an employment contract. A director cannot also simultaneously be a member of the management board. A permanent representative of a legal entity or director must be a natural person and may not at the same time fulfil a mandate in his or her personal name in the same management body.
Protection against revocation of mandate for company representatives
In Belgian company law, the principle applies that the mandate of a company representative who is given the confidence and power to manage the company’s assets can be terminated at any time, this is so-called ‘ad nutum’ revocability. For the director of an NV/SA, this principle was even considered to be of ‘public order, (that is, essentially mandatory). For all other company representatives this principle of ad nutum revocability had the status of supplementary law, meaning that a director of an NV/SA could be dismissed at any time, without a notice period or indemnity in lieu of notice. The shareholders’ meeting did not have to justify its decision, and no special majorities could be imposed for this dismissal decision.
This public order character of the ad nutum revocability of a director of an NV/SA was strongly criticised in legal doctrine and in practice gave rise to methods of protection for directors, such as suspended employment contracts, consultancy agreements with the director for ‘other’ tasks, and promises to pay termination compensation by a group company.
In the CCA, ad nutum revocability remains the principle, but this now has supplementary law status for all company mandates. For the managing director and the member of the management board, nothing changes here; they could already be given protection against dismissal by providing for a notice period or
indemnity in lieu of notice in the appointment decision or a management agreement. However this is now also possible for directors of an NV/SA, unless the bylaws stipulate that ad nutum revocability remains in force unchanged.
The CCA specifically provides that bylaws of the NV/SA may provide that a director’s mandate can only be terminated with a notice period or an indemnity in lieu of notice. Director’s protection against dismissal can therefore be embedded in the bylaws. With this protection against dismissal comes the introduction of ‘dismissal for a legitimate reason’ of the director. Until now, this was only foreseen for dismissal of the statutory manager in a BVBA/SPRL (private limited liability company). The shareholders’ meeting can terminate a director’s mandate at any time for legitimate reasons, without notice or indemnity in lieu of notice. If a director believes that there is no legitimate reason for the termination, he or she may contest this before the business court. If the reason is found not to be legitimate, the court will decide whether it is appropriate to reinstate the director or award compensation for the dismissal.
The preparatory work for the CCA gives as example of a legitimate reason a serious criminal offence in the professional sphere, or tax fraud. This will surely give rise to case law on the interpretation of the concept in concrete cases, similar to that for employees being dismissed for a serious cause.
In contrast to employment law, no strict deadlines or formalities are imposed for invoking a legitimate reason. However, it is advisable to act quickly in the event of acts or omissions that may constitute a legitimate reason and to submit the situation to the shareholders’ meeting with a view to a possible dismissal decision.
No employment contract for directors and members of the management board
Even before the new CCA it was clear for directors of an NV/SA: they could not exercise their mandate under an employment contract. This is partly because of the public order nature of the ad nutum revocability, which is not compatible with an employment contract.
Termination of an employment contract by the employer requires a notice period to be observed or the payment of an indemnity in lieu of notice. For a member of the management committee, the situation was less clear.
According to Royal Decree No 38 of 27 July 1967 on the social status of self-employed persons, company representatives are deemed to exercise an independent professional activity (although the contrary could be proved).
According to the National Institute for Social Security for the Self-Employed (ONSS in French, RSVZ in Dutch), a member of the management committee is not necessarily considered a company representative. This will only be the case if the management committee has sufficient and real decision-making and representation powers.
For a manager of a BVBA/SPRL, one could argue that he or she exercised the mandate under an employment contract, only in the situation where the company had created a board of managers, abolishing the sole decision-making power of the managers, and a certain hierarchy had been established within the board of managers.
The CCA now leaves no doubt. Directors of a BV/SRL (formerly managers of a BVBA/SPRL) and an NV/SA and members of the management board (of an NV/SA) cannot carry out such a mandate under an employment contract.
For directors of an NV/SA this does not change much, as they could not have an employment contract under the current law, but it may have an impact on the members of the new management boards (who will replace the current management committees). Members of the management board cannot exercise this mandate under an employment contract and, if they were employees, will therefore have to switch to an independent status.
Nothing changes for the person in charge of the daily management. He or she can exercise the mandate of day-to-day management under the new Act as a self-employed person or as an employee of the company. In addition, it is of course always possible that a director or a member of a management board also has an employment contract in addition to their mandate, but the employment contract must then relate to a function clearly distinct from the exercise of the mandate.
Entry into force
The CCA enters into force on 1 May 2019 for 'new' companies. New companies are all companies that acquire legal personality as from 1 May 2019. A company acquires legal personality as from the filing of the extract of the instrument of incorporation at the clerk’s office of the business court. For companies that already exist on 1 May 2019, the Code is applicable from 1 January 2020. These existing companies may decide to apply the provisions of the CCA before 1 January 2020; if not, the CCA will first be applicable to them on 1 January 2020.
Existing companies that want to use the new company law, and the associated possibilities and opportunities (as outlined above), can already adapt their bylaws to the new law as from 1 May 2019. A company that chooses this opt-in must fully comply with the rules of the CCA. There is thus no option to only comply with a few provisions. The new code will therefore become fully applicable from the date of publication of the amendment to the bylaws.
Be aware of the fact that, as soon as you amend the bylaws, even if it is for a minor amendment such as a change of name, the CCA will be fully applicable from then on.
A full analysis of the changes introduced by the new CCA is available here.