The extent of the obligation of a seller of non-fully paid up shares to pay up in full
Article 5:66 (besloten vennootschap or BV) and 7:77 (naamloze vennootschap or NV) of the Companies and Associations Code (CAC) provide for the joint and several liability of both the transferor and the transferee of non-fully paid up shares to pay up. This statutory provision is of mandatory law and does not allow the parties to contractually stipulate otherwise. The transferor is released from this joint and several liability only after five years have elapsed since the (opposability of the) transfer. If the transferor is held liable, he does have a recourse claim against the transferee (unless contractually stipulated otherwise). The liability consists in a liability for the amount for which the shares were not paid up, regardless of when the company’s debts arose. However, the provisions of the CAC only apply to transfers that took place after the entry into force of the CAC (January 1, 2020, or May 1, 2019 for companies incorporated after that date or existing companies
FDI Regulations – mandatory notification and screening of non-EU investments in Belgium – broader scope than you think!
Just over a year after the entry into force of the Belgian Cooperation Agreement of 30 November 2022 establishing a foreign direct investment screening mechanism[1] , we see that in practice, too little attention is (still) being paid to the broad scope of those so-called Foreign Direct Investment (FDI) regulations. Under those regulations, certain transactions must be notified prior to their realisation. Involved parties or advisers are sometimes unaware of this and erroneously assume that the regulations in question only apply to “larger” transactions or those involving non-EU companies. However, this is without taking into account the broadly formulated scope of the Cooperation Agreement. As a reminder: the Cooperation Agreement was concluded between the Belgian federal government and the various federated entities and created a screening mechanism that – formulated in general terms – allows control of non-EU investments in Belgium. The Cooperation Agreement aims to be able to identify and subject to certain conditions, incoming investment flows from outside
Why a seller should make sure that non fully paid-up shares are paid up before transfer
The Companies and Associations Code provides in Article 5:66 for private limited companies (“besloten vennootschap” or “BV”’) and Article 7:77 for public limited companies (“naamloze vennootschap” or “NV”) for the joint and several liability of both the transferor and the transferee for paying up not fully paid-up shares. This joint and several liability applies with regard to both the company (or the administrator (“curator”) in the event of bankruptcy) and to third parties (e.g. creditors). This legal provision is mandatory and does not allow parties to contractually determine otherwise. The transferor is only released from this joint and several liability after five years have passed since the (opposability of the) transfer. The company, the administrator or the creditors can therefore choose which of the two they will hold liable to pay in full: the transferor, the transferee or both jointly and severally. In case the transferor is held liable, he can seek recourse against the transferee (unless such was contractually
Carelessly formulated conditions precedent: undesirable effect on the transaction?
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 wants to make his acquisition (and payment) commitment subject to the condition of, for example, obtaining the required financing, a satisfactory outcome of the due diligence investigation still to be completed, obtaining a permit, the bank’s approval of the change of control, the approval of the competition authority, etc. However, conditions precedent are not to be taken lightly. Indeed, in
Exit guarantee for shareholders via put option, buyback of own shares or withdrawal?
Many shareholder agreements contain provisions setting out exit mechanisms allowing shareholders to exit the shareholding in the future, for instance when a shareholder is no longer operationally involved (hereinafter the “departing shareholder”), e.g. a put option (“verkoopoptie”), a withdrawal right (“uittredingsrecht”) or a mechanism of buyback of own shares by the company (“inkoop van eigen aandelen”). In case of a put option, the departing shareholder can oblige the other shareholders to purchase his shares and pay the purchase price. In the event of a withdrawal or buyback of own shares, the buyout will be funded by the company itself. Whether the funds for the buyout are provided by the co-shareholders (put option) or the company (buyback of own shares/withdrawal) will make little difference to the departing shareholder. However, the exit technique used may give rise to different tax consequences for the departing shareholder. In terms of taxation, the capital gain received by the transferring shareholder following the exercise of a
Do good agreements make good friends? About the validity of price determination clauses and good/bad leaver clauses, in particular in the context of the dispute settlement procedure
1. Many shareholders’ agreements (and some articles of association) include exit mechanisms in the form of call and put options. In the case of unlisted companies, these agreements are conceived as a regulation of corporate relationships, and mainly focused on terminating the shareholdership without requiring the intervention of the court or a third party-transferee. Financial investors, for instance, often negotiate for themselves a put option so that they will be able after a given period of time to valorize their investment, potentially at a guaranteed minimum price. Agreements between or with operationally active shareholders also often include options which, according to the agreements made, can be exercised on discretionary basis (i.e., without reason) or, most frequently, in given situations only, for instance in the event of serious shortcomings, a deadlock or the fact that a shareholder is no longer operationally active. In many cases, the option’s exercise price is made subject to the concrete circumstances giving rise to exercising the