The intention of a party that stipulates a condition precedent (“opschortende voorwaarde”) is clear: he wants to make the exigibility of his commitment subject to certain facts or acts, of which it is still uncertain at the time of signature whether they will occur. Making a commitment subject to the fulfillment of one or more conditions precedent, is in principle valid. In a transaction practice, this technique allows to already proceed with the signing of the agreement – and bind the parties – although certain essential steps have not yet been taken. Just think of a buyer of shares who…
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If the seller of the shares is a natural person who is married, the question arises whether he/she can negotiate and sign the transfer agreement on his/her own, or needs to inform his/her spouse of the planned transaction and obtain the spouse’s consent to achieve a legally valid purchase/sale of shares. Both in the hypothesis that it concerns shares that, pursuant to the matrimonial property law, belong to the personal property of the seller (for instance, shares that the seller has acquired with his own money or through inheritance or donation), as well as in the hypothesis that it concerns…
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As set out in a former blog article (“Non-competition clause in acquisition agreements: a necessity?” – Matthias Jans, 14 April 2016 – see link), the buyer of shares who wants to prevent that the seller conducts competing activities after the transfer, must explicitly include a non-competition clause in the share purchase agreement. Pursuant to the French d’Allarde Decree of 1791, the freedom of trade and industry prevails. This principle is now included in Book II of the Code of Economic law, Title 3 (Freedom of enterprise). As a non-competition clause restricts this freedom, the parties have to consider a certain…
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Shares that were not fully paid up at the time of issue can of course be transferred. But who is held liable for calls on these shares: the transferor or the transferee? The (old) Belgian Company Code included complex regulations for public limited companies (‘NV’ / ‘SA’): both the transferor and the transferee could be held liable up to the amount of the unpaid portion for the payment of company debts incurred before the transfer became effective, i.e. before registration in the share register if the claim is made by the company, or before publication of the list of shareholders…
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A takeover contract often goes hand-in-hand with surety from a third party to guarantee a specific commitment by the vendor or buyer (e.g. deferred payment of the price by the buyer, indemnification obligations of vendor, etc.). Because the commitment is created in relation to the guarantor and not in relation to the creditor, the surety guarantee is a unilateral contract. Precisely because of its unilateral nature, this surety is subject to the evidence regulations of article 1326 of the Civil Code (unless the surety relates to traders, artisans or farmers). The surety instrument must be written by the guarantor himself…
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An acquisition agreement often obligates the buyer of the shares to notify the sellers of any claims against the sellers arising from an infringement of the provided representations and warranties within a certain term (e.g. 2 months) after becoming aware of the fact causing the infringement. The reason behind this is that timely notification enables the sellers to take action to restrict the damage. A second purpose of imposing a term is to establish legal certainty between parties. Terms of 30 days, 2 months, etc., which at the time of the negotiations may have seemed long enough for the buyer,…
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In acquisition agreements, the value of a company is often based on a multiple of EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) or another parameter. If, in retrospect, the communicated figures appear to paint an overstated picture of the company, the indemnification mechanism will usually provide for compensation at a rate of EUR 1 in damages for each euro in deviation of the communicated net equity (or another formula whereby the adapted price equals the established lesser value). However if the correction involves a parameter to which a multiple was applied for price determination purposes, then that same multiple…
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Acquisition agreements may provide for either a fixed or a variable price. A variable price is valid only if it can be determined. Hence the parameters that serve as the basis for establishing the variable price must constitute objective criteria that do not require a new indication of intent from the parties. Acquisition agreements often contain an earn-out clause: (part of) the price is determined based on the profit earned by the company in the years following the acquisition. Usage of the earn-out clause is most common when the selling party retains an important role in the management of the…
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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…
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Companies may be transferred via asset deals or share deals. As one of their main concerns in such takeovers, buyers will want to have the opportunity – at least for a transitional period – to work towards actively retaining the company’s clients without being obstructed by the transferring party who (immediately) after the takeover, might resume their transferred activities and create a competitive business. The question arises whether under current legislation for sale of goods, buyers find sufficient protection against such actions and whether including a conventional non-competition clause in the acquisition agreement is required to achieve such protection. In…
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