In majority shareholding transfers, the acquisition agreement commonly includes the resignation of the board of directors and discharge of liability with respect to their mandate. By granting discharge the company approves the policies conducted by the board and waives its right to hold the directors liable for any management errors.
In accordance with the provisions of the Belgian Companies code, the company decides annually – upon approval of the financial statements – whether or not to discharge its board of liability. The discharge granted at the time of a share transfer usually does not coincide with approval of the financial statements. However, it is assumed that such early discharge does have legal effect and therefore implies a waiver of any liability claim.
To ensure that the interim discharge does not become an empty shell, the following needs to be considered:
- Only the general meeting of shareholders may waive a liability claim;
- In the event of interim discharge the company only waives its right to liability claims involving errors of which the general meeting was or ought to have been aware.
Therefore a clause in the acquisition agreement stating that the company or the buyers grant discharge does not suffice. An extraordinary general meeting must be called to approve the early discharge. This general meeting preferably takes place immediately after the execution of the agreement. The buyers may of course include a provision in the acquisition agreement that they shall approve the discharge at this general meeting or that they shall cause the company to grant discharge.
To avoid discussions at a later stage about whether or not the general meeting was aware of a certain error or not, it is advisable to attach to the minutes an interim accounting statement or a report in which the director provides a detailed explanation of how the mandate has been fulfilled. This will give him/her the certainty that their interim discharge cannot become invalid. A detailed report would have our preference since other than is the case with respect to discharge after approval of the financial statements, it is not sufficient that the effects of an error are incorporated into the interim accounting sheet; instead, the general meeting must have the opportunity to deduce the error from the submitted figures.
Finally we would like to point out that only the company waives its right to a liability claim. Third parties as well as individual shareholders who have not (validly) voted in favor of the discharge retain the right to file a liability suit. Insofar as feasible, it would be advisable to include in the acquisition agreement an obligation to indemnify and hold harmless in addition to the discharge arrangements. More specifically this applies to shareholders’ transfers in the scope of a previous conflict between the parties.
Caroline Hotterbeekx, intui law firm