The new legally required transparency as to the ultimate beneficial owners of an enterprise is an important additional action point in the M&A practice after completion of an acquisition (“post-closing action”). What? Belgian Companies, (international) non-profit organisations, foundations, trusts and legal entities that are comparable to trusts, have the following new obligations under the Belgian “Law of 18 September 2017 on the prevention of money laundering and terrorism financing and on the restriction of the use of cash”: The Law adds to the Belgian Companies Code (Articles 14/1 and 14/2) and to the Belgian NPO and Foundations Law[1] (Articles 58/11…
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The draft of the new Companies and Associations Code (CAC) includes a new governance model for public limited companies (‘naamloze vennootschappen’, abbreviated into ‘NVs’). Henceforth, companies will have the choice between three governance models: the already existing monistic model; the sole director model; and the dualistic model consisting of a management board and a supervisory board. The new CAC also broadens the possibilities for appointing the managing director and defining his/her/its powers. Monistic governance model – weakening of the ad nutum withdrawal Publicly listed companies governed in accordance with the monistic model are managed by a traditional board comprising at…
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The acquisition of a company often implies that the transferor must resign from his office as (managing) director of the company/companies he is transferring. This resignation must be published in the Annexes of the Belgian Official Gazette, but this fact is sometimes overlooked by the company (under control of the buyer), which may lead to an important time gap between the resignation and its official publication. The bill on the new Companies and Associations Code provides an answer by allowing the former directors themselves to publish their resignation in the Annexes of the Belgian Official Gazette. Even if the company…
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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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The “geschillenregeling” (forced sale proceeding) is a special procedure in corporate law in which a shareholder can oblige another shareholder to sell shares (i.e. a put obligation) or purchase shares (i.e. a call obligation) if there are ‘justified reasons’. Although in practice this procedure is often used when a (serious) conflict between shareholders has arisen, there are some flaws in its practical application. Perhaps one of the greatest shortcomings is the setting of the price of the shares concerned, in particular the low predictive value of the valuation exercises that are normally carried out by a court expert under supervision…
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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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