On 1 May 2019 the new Code of Companies and Associations (the "New Code") came into effect. Our corporate experts have highlighted the main changes from a corporate and finance perspective in our video animation available here and publications available here.
The impact of the New Code is however not limited to corporate and finance aspects. The New Code may also affect your HR practice, specifically with respect to the social status and termination arrangements of company representatives.
The New Code gradually applies and, in summary, three important dates should be distinguished:
As of 1 May 2019 already, newly established companies (i.e. after 1 May 2019) and companies who specifically opted-in had to be compliant with the New Code;
As of 1 January 2020, all mandatory provisions of the New Code apply. Companies who amend their bylaws after 1 January 2020 should also be fully compliant with the New Code as of the moment their amended bylaws enter into force;
On 1 January 2024, the New Code will become applicable in its entirety. Companies will have to bring their bylaws in line with the New Code by this date at the latest.
1. Social status: no employment contract for directors and members of the management bodies
The New Code explicitly provides that directors ("administrateurs/ bestuurders") cannot exercise their mandate under an employment contract in their capacity as director. The same applies for members of the management board ("conseil de direction/directieraad") and of the supervisory board ("conseil de surveillance/raad van toezicht") in case of a two-tier structure of the SA/NV. The impact of these provisions in practice depends on the mandate:
For directors of an SA/NV, nothing changes as they could not carry out their mandate under an employment contract either before the entry into force of the New Code.
The New Code might however impact directors of a BV/SRL (formerly managers ("zaakvoerder/grant") of an SPRL/BVBA). Before the adoption of the New Code, case law accepted that managers of an SPRL/BVBA could carry out their mandate under an employment contract when specific conditions were fulfilled. As the New Code now explicitly provides that directors of a BV/SRL cannot exercise their mandate under an employment contract, a status change may be required following the application of the New Code.
The social status of current members of the executive committee in an SA/NV ("comit de direction/directiecomit") within the meaning of Article 524bis of the old Companies Code (the "Old Code") may be impacted as well:
Before the adoption of the New Code, the social status of these members was unclear. Belgian legislation provided that company representatives ("mandataires de socits/ venootschapsmandatarissen") were deemed to perform their mandate as self-employed, but proof of the contrary was permitted. For the INASTI/RSZV, members of the executive committee were not per se considered as company representatives. In practice, members of the executive committee often performed their mandate under an employment contract.
The New Code has abolished formal executive committees, except for companies in the financial sector. If a company now opts for a two-tier structure, most management powers of its former executive committee will belong to the management board. As the New Code prohibits the performance of such management board mandates under an employment contract, persons who were previously members of the executive committee and who had an employment contract in this capacity may thus have to switch to a self-employed status. The latter does not apply to companies who opt for the onetier structure and have an informal executive committee only.
Finally, it is important to note that directors and members of the management board or supervisory board in an SA/NV may still have an employment contract with the company in addition to their self-employed position, provided that:
(i) they perform another function that is clearly distinguishable from their mandate (e.g., a technical or operational function), and;
(ii) the employee function is performed under the authority of a body of the company or another person (i.e., in a "subordinated relation").
For example: a managing director entrusted with the day-to-day management ("gedelegeerd dagelijks bestuurder"/ "administrateur dlgu la gestion journalire") could thus still combine his directors' mandate as a self-employed with his day-to-day management function as an employee as is often the case in practice.
In light of the above changes, it is recommended to check the status (employee/self-employed) of the members of the management bodies of the company and amend existing employment/management contracts or conclude new ones (if needed). Company representatives should furthermore ensure accurate affiliation to the INASTI/RSVZ.
2. Impact on termination
2.1. Optional "ad nutum" revocability for directors of an SA/NV possibility to provide for termination arrangements
Before the adoption of the New Code, directors could always be revoked "ad nutum". This means that the shareholders' meeting is able to terminate the mandate of a company representative at any time, without any justification or special majority. This rule was considered to be of public order (i.e., no derogation possible) for directors of an SA/NV but could be derogated from in other company forms. In an SA/NV, it was thus not allowed to provide that a director would be terminated with a notice period or severance payment, as this would jeopardize the ad nutum revocability.
Constructions to provide for termination arrangements were sometimes still in place in practice, for example, through employment or consultancy contracts for distinct functions, suspended employment contracts or promises that the parent company would bear the termination costs.
Under the New Code, the ad nutum revocability becomes optional for directors or members of the supervisory board of an SA/NV. This will hence enable termination arrangements. The New Code specifically provides the following:
If nothing is provided in the bylaws, the ad nutum revocability remains the principle but a notice period/severance payment may be decided by the shareholders' meeting on a case by case basis at the time of the termination;
If the bylaws confirm the ad nutum revocability, the company has to respect it at all times and it is not possible to provide for a notice period/severance payment at the time of the termination or otherwise;
The bylaws can specifically provide that directors may only be terminated with a notice period/severance payment, which will then be reflected in the management agreement.
2.2. Immediate termination of directors of an SA/NV for "legitimate reasons"
To balance the protection of directors against the company's interests, the New Code introduces the possibility for the shareholders' meeting to terminate the directors' mandate at any time without notice or severance payment for "legitimate reasons" (regardless of contrary provisions in the bylaws/management agreement).
This concept already existed for the (former) SPRL/BVBA, but is now also introduced in the SA/NV. Examples of "legitimate reasons" given in the preparatory works are tax fraud or criminal offences. Directors may object that such legitimate reason exists and claim reinstatement in their mandate or an indemnity for their dismissal before the enterprise courts.
Although the New Code does not provide for a specific period to terminate the mandate (formalities are not provided either), it is recommended to act quickly after the company has become aware of the legitimate reason that it wishes to invoke.
If the individual also has a function under an employment contract, it should be assessed whether the legitimate reason can be invoked to terminate the employment contract for serious cause. The employment law formalities should then obviously be respected.
3. Listed companies
The New Code has changed certain rules regarding the remuneration of directors and executives of listed companies. For example, it is now always prohibited to grant variable remuneration to independent directors. More new rules will very soon be introduced in the New Code following the implementation of the second shareholders' rights directive (SRD II). These changes will mainly relate to the remuneration report and the remuneration policy.
The new Corporate Governance Code, which has been applicable since 1 January 2020, also contains new recommendations regarding the remuneration of directors and executives.
The specific details of these rules and recommendations regarding listed companies are not addressed in this alert, but do get in touch in case of questions or for a brainstorming.
For further information please contact:
Nele Van Kerrebroeck Managing Associate Tel: +32 2 501 9066 Mob: +32 472 364912
or your usual Linklaters contact.
Thierry L'Homme Senior Counsel Tel: +32 2 501 9186 Mob: +32 479 878690
For general enquiries please contact Linklaters LLP Rue Brederode 13 B - 1000 Brussels Tel: (+32) 2 501 94 11 Fax: (+32) 2 501 94 94
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