What measures should be taken to best prepare for a corporate reorganisation?
In a first step, a macro action plan should be drawn up, setting out the general principles of the reorganisation. Subsequently, such macro action plan should be validated from a legal, tax, financial, social, regulatory, accounting and operational point of view. In this phase it is important to undertake a thorough due diligence of the entities involved in the reorganisation to identify those matters that will require specific attention.
Once the due diligence has been completed and the macro action plan has been validated and finalised, a micro action plan should be prepared, detailing all specific actions that need to be taken to implement the reorganisation (including allocation of responsibility and setting of deadlines).
Belgian labour laws provide for an extensive set of regulations in terms of information and consultation, which will depend on the type of corporate reorganisation and on the impact of the reorganisation on the employees. The timing and content of the information and consultation requirements will vary depending on myriad circumstances, for example the type of reorganisation, the employee headcount of the concerned company, the presence of an employee representative body, the number of employees affected by the reorganisation, the sector of industry to which the concerned entity pertains, etc. Most legal information and consultation requirements regarding employee representatives or employees (or both) must moreover be completed before a final decision is taken concerning the reorganisation. A particular point of attention will therefore be the content of the communications on the intention to proceed to the reorganisation, both internally and externally, to avoid triggering the information and consultation requirements at too early a stage.Employment issues
What are the main issues relating to employees and employment contracts to consider in a corporate reorganisation?
Most issues are, of course, related to reorganisations that have a significant impact on the terms of employment of (some) employees. Whether or not this will be the case from an employment law perspective mainly depends on the structure of the reorganisation, namely, whether it is a share deal or an asset deal, and whether it entails a collective dismissal or a plant closure (or both) as defined in the law.
Mostly, no material issues arise in the event of a mere share deal, since such a transaction would in principle have no impact on the terms of employment of the employees, as the identity of the employer would remain the same.
However, particular rules apply if a business or parts of a business are transferred to another entity by way of an asset deal. If such a deal entails the transfer of a ‘going concern’, in other words the operations of the business involved in the reorganisation would effectively be continued or resumed post-completion by the acquirer with primarily the same or similar activities, and the new employer has the possibility of continuing its operation in a sustainable way after the completion of the reorganisation, all rights and obligations resulting from the existing employment contracts at the date of completion of the reorganisation will automatically be transferred to the acquirer, with the exception of the employees’ rights to benefits under complementary pension, life, death or invalidity schemes outside the statutory Belgian social security schemes. These rights will, however, still automatically transfer: (i) in the event of a transfer of all assets and liabilities of the business concerned in the reorganisation; or (ii) if the concerned complementary schemes were formalised in a collective bargaining agreement.
Changes to the key employment conditions of the concerned employees are legally restricted, and employees affected by a transfer of business in the sense of CBA No. 32-bis can only be dismissed for organisational, technical or economic reasons. Preliminary information and consultation obligations will, however, be triggered regarding employee representative bodies as soon as the local management of the concerned entity is aware of the pending reorganisation. These obligations should, moreover, be completed as soon as possible - in any event prior to any definitive decision being taken (or made public) in relation to the reorganisation.
If the corporate reorganisation will entail a collective dismissal or a plant closure (or both), a specific set of laws must be complied with, including but not limited to information and consultation obligations, which can be triggered as soon as it becomes apparent that the business concerned has an intention to proceed to a collective dismissal. Mostly, employee representatives will insist on negotiating a social plan setting out the terms of dismissal of the concerned employees, even though this is not always legally mandatory.
What are the main issues relating to pensions and other benefits to consider in a corporate reorganisation?
Corporate reorganisations typically have no material impact on pensions or other benefits from a legal perspective. Nonetheless, any such benefits should be assessed with a view to the legal nature of the particular agreement they are based on (eg, collective bargaining agreement or individual employment agreement, as well as the respective scope of application).
In the case of a transfer of business in the sense of CBA No. 32-bis, the rights and obligations resulting from the employment relationships of the employees are automatically transferred to the acquirer. This includes benefits in kind and group insurance benefits, such as complementary pensions, which are confirmed in the individual employment contracts or in collective bargaining agreements.
Otherwise, group insurance benefits will only automatically transfer to the acquirer pursuant to CBA No. 32-bis if the transfer concerns a transfer of all assets and liabilities of the transferring business.
If the group insurance benefits do not transfer by operation of law in application of CBA No. 32-bis, the acquirer will, however, still need to grant the concerned employee a benefit in kind with at least similar value to the one linked to participation in the group insurance scheme set up by the transferor prior to the transfer, but - in theory anyway - this new benefit in kind could take another form.
The possibility of a one-to-one transfer of complementary pension or other group insurance benefits is, however, not always possible, and sometimes entails the acquirer setting up a ‘mirror plan’, which put simply is a new group plan copying the terms and conditions of the plan to which the transferring employees were affiliated on the date of completion of the reorganisation.Financial assistance
Is financial assistance prohibited or restricted in your jurisdiction?
Financial aid is permitted under Belgian law under certain conditions:
- the management body is responsible for the transactions, which have to be at arm’s length;
- the financial aid is subject to the prior approval of the shareholders’ meeting, deciding with a three-quarters majority;
- the management body needs to draft a special report, which is published in the annexes to the Belgian State Gazette;
- the amount of the financial aid needs to be available for distribution; and
- the amount of the financial aid needs to be entered in the balance sheet as an unavailable reserve.
Under the new Belgian Companies and Associations Code, the financial aid regime will become more flexible. Indeed, the special report of the management body will no longer need to be published and infractions in this respect will no longer be criminally sanctioned.Common problems
What are the most commonly overlooked issues or frequently asked questions in a corporate reorganisation?
An important point of attention is whether a business (to be divested or otherwise transferred for simplification purposes) qualifies as an actual ‘branch of activities’, as this may have important consequences for the corporate structuration of the reorganisation process. The question whether the assets characterise a branch of activities or a mere collection of assets depends mainly on whether the entity is technically and administratively independent and is capable of functioning on a stand-alone basis. For instance, if the assets are legally characterised as a branch of activities or a universality of assets, the group has the option of choosing between two different types of asset deals: transfer under the Belgian Companies Code; or transfer under general Belgian civil law concerning the transfer of assets (see question 5).
The price at which simplification transfers take place is also a common focus point, notably to avoid any transfer pricing issues, and advice is often taken as to what value should be used for each transfer.
Moreover, directors should consistently monitor their fiduciary duties towards the group but also towards each individual company involved in the process (as these interests are not always fully aligned) at all stages of the project.
Finally, due diligence investigations often show that the target companies have not accurately complied with their withholding tax obligations, and this issue needs to be addressed with proper measures in the framework of a reorganisation.
Accounting and taxAccounting and valuation
How will the corporate reorganisation be treated from an accounting perspective? How are target assets and businesses valued?
If all the relevant conditions and requirements in the Belgian Companies Code are respected (in case of a merger, demerger or another form of reorganisation under the continuity regime as provided for in the Code), the principle of neutrality can apply to mergers, demergers and spin-offs for accounting purposes, meaning that all assets and liabilities will keep their book value when being transferred to the acquiring company (no step-up). The same principle applies for corporate income tax purposes if all conditions for a tax-free reorganisation are fulfilled. If the above principle of neutrality does not apply, assets must in general be valued on the basis of their fair market value. There are no valuation methods that are prescribed in the accounting or tax legislation. However, the tax authorities will accept valuations on the basis of generally accepted valuation methods in the market. These methods may differ depending on the kind of assets to be valued.Tax issues
What tax issues need to be considered? What are the tax implications of carrying out a corporate reorganisation?
The concrete tax consequences of a reorganisation depend on the type of restructuring and on the underlying facts and circumstances. Such operation must therefore always be carefully planned.
There are specific rules providing for tax neutrality for certain types of corporate reorganisation: mergers, demergers, spin-offs, and contribution of separate business unit. In order to benefit from this tax neutrality the main purpose (or one of the main purposes) may not be tax avoidance. It is therefore important to demonstrate and to document in a proper manner that the reorganisation is mainly driven by legitimate (non-tax) business motives. It is possible to obtain a ruling decision relating thereto. Subject to certain additional conditions, this tax neutrality could also apply to cross-border corporate reorganisations.
If a reorganisation (for example a carve-out) occurs in order to facilitate a subsequent sale of shares, special attention must also be given to the general anti-abuse provision in Belgian tax law that could be invoked by the tax authorities to recharacterise this combination of transactions into a (taxable) straightforward sale of the assets (‘step-by-step’ doctrine).
Further, the following elements should also be considered:
- the consequences of the restructuring for the shareholders (eg, possible application of withholding tax or capital gains tax); and
- a tax-neutral reorganisation will affect the carried forward tax losses and other tax deductions that are available to the companies involved.
Special attention should be given to the indirect tax aspects (VAT, registration duties, etc) if the reorganisation includes the transfer of real estate in Belgium.