On 6 October 2015, the Committee on commercial and economic law of the House of Representatives, together with the Minister of Justice and a number of experts, discussed proposals for far-reaching modernisation of Belgian company and association law. The report of that session has been published recently.
Background
The Michel federal coalition agreement of 9 October 2014 and the policy statement of Minister of Justice Koen Geens dated 17 November 2014 already indicated that initiatives would be taken, within the current term, in order to make company law more attractive for Belgian and foreign companies (see Eubelius Spotlights March 2015).
The Belgian Centre for Company Law ("BCV"/"CDS"), which was founded by 14 corporate law professors from practically all Belgian law faculties, and with which a number of other academics have meanwhile associated themselves, put forward, in a symposium on 28 March 2014, a series of proposals for a substantial reform of company and association law. That symposium constituted the start of a public consultation, on the basis of a questionnaire, and extensive discussion with various interest groups and experts. The process resulted in a policy note, which was submitted to the Minister of Justice in July 2015 (the policy note can be consulted via: http://www.bcv-cds.be, in Dutch and French).
On 6 October 2015, in the presence of the Minister of Justice and a number of experts from the BCV/CDS, the Committee on commercial and economic law of the House of Representatives debated the key points of the proposals for a substantial reform of Belgian company and association law, on the basis of the policy note. In the meantime, the report of that session has been made public (Parl. Doc. House of Representatives 2015-2016, 54, no. 1500/001, only in Dutch and French).
Key points of the proposed reform
Revision of the basic principles of company and association law. The historical distinction between commercial and civil acts, which has become out of date (inter alia since the introduction of the Economic Law Code), is abolished. As a consequence, the distinction between civil and commercial companies will disappear, along with the rule that not-for-profit associations ("VZW"/"ASBL") are only entitled to exercise (lucrative) commercial activities incidentally, and not principally. In future, both companies and associations will be able to carry out economic activities without any restriction. In that regard, any undertaking could, in principle, be declared bankrupt, although this would require amendment of the bankruptcy law. Companies do still require a contribution from the shareholders, and they remain committed to the distribution of economic benefits to the shareholders. As for associations, a strict prohibition of direct and indirect distributions is in order. To the extent that the statutory purpose (profit vs. non-profit) still bears any significance, disregarding it no longer leads to nullity of the operation, but – as is presently the case for exceeding the objects clause of the articles of association – the company is effectively bound, except in case of (objective) bad faith of the third party.
Fundamental alteration of the conflict of laws rules applicable to companies. In order to determine the applicable company law ("lex societatis") in a cross-border context, the connecting factor of the main establishment (real seat doctrine) is abandoned, and is replaced by the country of incorporation (incorporation doctrine). As a result, Belgian company law can be exported, and conversely, Belgium becomes more attractive as country of incorporation for foreign companies. Also, a procedure is finally put in place for cross-border transfers of seat, which is modelled on the procedure applicable to the SE (European public limited liability company), but with a right of exit for the minority shareholders.
Limitation of the number of company forms to four basic types. The general partnership ("maatschap"/"société simple"), the public limited liability company ("NV"/"SA"), the private limited liability company ("BVBA"/"SPRL") and the cooperative company with limited liability ("CVBA"/"SCRL") will continue to exist and will now be the only types of company. Less used and overlapping company forms, and variations of these, such as the partnership limited by shares ("Comm.VA"/"SCA"), the cooperative company with unlimited liability ("CVOA"/"SCRI"), the European cooperative partnership ("ESV"/"GIE"), the agricultural company ("LV"/"Soc.Agr."), the Starter private limited liability company ("S-BVBA"/"SPRL-S") and the company with a social purpose ("VSO"/"SFS"), will disappear, as they are caught under one of the four basic types. In future, there will no longer be any provisions common to all types of company, considering that each will be subject to a specific and separate regime. The current Book II of the Companies Code will thus be repealed.
- The general partnership ("maatschap"/"société simple") becomes more than ever the generic company form. It can have silent partners, and it can be permanent or temporary (so that there is no longer any need for the silent partnership or the temporary partnership). The general partnership will be able, subject to certain formalities, to acquire (imperfect) legal personality (so that there is no longer any need for the unlimited partnership ("V.O.F."/"SNC"), the limited partnership ("Comm.V"/"SCS") and, along the same lines, the European cooperative partnership ("ESV"/"GIE") and the agricultural company ("LV"/"Soc.Agr."). The legal regime of the general partnership and its variations is modernised, but without making any fundamental changes. The general partnership under which a business is conducted (including the general partnership used for exercising a liberal profession, but not the general partnership used only for wealth planning purposes) is governed by company law, and the partners are subject to unlimited joint and several liability.
- The public limited liability company ("NV"/"SA") becomes the natural company form for large businesses (albeit without quantitative constraints), and the mandatory legal form for listed companies. In that regard, the regime for companies making a public call on savings ("NV die een publiek beroep doet of gedaan heeft op het spaarwezen"/"SA faisant ou ayant publiquement fait appel à l'épargne") and the regime for listed companies, which partially overlapped, are simplified. The company making a public call on savings (art. 438 Companies Code) disappears, but the rules that were applicable to it are maintained and extended to all listed companies. A flexible procedure for the delisting of companies is introduced. Henceforth, the NV/SA can have a single shareholder (like the BVBA/SPRL). The management of the NV/SA is also made more flexible. Thanks to the possibility of having a single director (i.e. the repeal of mandatory collegiality) and the introduction of employment protection (i.e. the abolition of the mandatory ad nutum revocability of directors' mandates in the NV/SA), the NV/SA becomes a true alternative to the partnership limited by shares. In listed companies, if the sole director is a legal person, it will itself need to have a collegial board of directors, and any governance requirements will have to be complied with at that level, as is already the case in practice. The NV/SA is left with the choice between the current monistic management system (a board of directors) and a more genuine dual system (instead of the current, ambiguous regime of the executive committee). The daily management body disappears. The power to issue multiple-vote shares is introduced; in listed companies, this is limited to an optional extra vote granted to "loyal" shareholders. Modification of the articles of association would become feasible with a 2/3 majority, instead of the current 3/4 majority, provided that 3/4 of the existing shareholders agree to this. For the rest, the regime of the NV/SA is not fundamentally changed (e.g. in relation to capital protection, transfer of shares, etc.). Finally, individual improvements are made to the rules on non-voting shares, change of control clauses, conflicts of interest, etc.
- The regime of the BVBA/SPRL becomes much more flexible, in line with the European trend. Unlike with the NV/SA, in relation to which the rules of the Second Directive remain applicable, the rules on legal capital and capital protection, which have come under attack in recent years, can in principle be repealed (in the most flexible transition scheme, the legal capital of existing companies could be maintained). The statutory requirement mandating sufficient net assets, sanctioned by founders' liability, lives on and is supported by a more elaborate financial plan, the minimum content of which is prescribed by law. The obligation to justify and value contributions in kind continues to exist, with some minor changes. On the other hand, some rules must be redefined completely. Distributions are now the object of a two-pronged test: a balance sheet test (to be performed by the general meeting of shareholders) and a liquidity test (to be performed by the board of directors). Furthermore, the rules on the acquisition of own shares, financial assistance and the "alarm bell" procedure must be disentangled from the particularities of the legal capital regime. The repeal of the capital requirement for the BVBA/SPRL necessitates an effort to identify alternative forms of creditor protection, such as a stricter regime of directors' liability. In line with company law, accounting law and tax law will undergo minor, rather technical changes as a result of the abolition of the concept of the legal capital. The rights and obligations of shareholders, traditionally linked to the capital, will in future be determined solely on the basis of contracts – with, of course, the necessary accountability, transparency and approvals. The regime of voting rights is made more flexible. Also with regard to management, flexibility is key. The BVBA/SPRL, which in principle has a single director, will be allowed to choose among all the options which are available for the NV/SA. The BVBA/SPRL still has a closed nature in principle, but the shareholders can opt for the free transferability of shares, similarly to the NV/SA. Not only does the dispute settlement scheme, which is very popular in practice, remain intact in the non-listed NV/SA and the BVBA/SPRL, but a system of voluntary exit and forced exclusion, at the company's expense, is also instituted with regard to the BVBA/SPRL, following the model of the cooperative company; for those scenarios where there is no market for the shares, this can in some cases provide a solution. The BVBA/SPRL, as so redefined, presents itself as the natural choice for small and medium-sized businesses. By providing a straightforward standard model (possibly coupled with a statutory model of articles of association), which leaves many options open to those looking for more sophistication, the proposal is to turn the BVBA/SPRL into a more user-friendly instrument. The absence of any requirement to have more than one shareholder makes the single-shareholder BVBA/SPRL superfluous. The abolition of the legal capital requirement in the BVBA/SPRL means the end of the Starter BVBA/SPRL, which failed to gain traction.
- The cooperative company with limited liability regains its singularity due to the statutory anchoring of the cooperative principles; for the rest, its regime fits closely with that of the BVBA/SPRL. Henceforth, several aspects of the cooperative company with limited liability translate the cooperative principles underlying its functioning (although it is still not mandatory to be recognised by the National Council for Cooperation). Therefore, and unlike the BVBA/SPRL and the NV/SA, the cooperative partnership with limited liability will necessarily have multiple partners. Moreover, the far-reaching flexibility of the cooperative company with limited liability enables it to integrate the specific characteristics of companies with a social purpose. The possibility of softening the "profit distribution purpose" in the (recognised) cooperative companies with limited liability would suffice to this end. The cooperative company with limited liability is particularly suited as a company form to meet the needs of the social economy. The cooperative company with unlimited liability is abolished, since it can be caught under the umbrella of the general partnership.
The law applicable to associations is integrated in a single Companies and Associations Code. This only requires minor adjustments, since in practice the regimes of companies and associations are already heavily streamlined, but the integration grants associations a better footing, as, on the one hand, the rules applicable to associations without legal personality (de facto associations) can be further elaborated, and, on the other hand, the provisions common to all company forms with legal personality (the current Book IV of the Companies Code) are made applicable, where appropriate, to associations with legal personality, it being understood that the latter retain their particularity. The association with legal personality (the current not-for-profit association – VZW/ASBL) still has an international variant (the current IVZW/AISBL). The professional association can be abolished, due to the option to include, in the articles of association of the not-for-profit organisation (or of its international variant), the power to act to uphold the interests of its members. The foundation (without members) will continue to exist. The not-for-profit association, its international variant, and the foundation are authorised to conduct economic activities without restriction. Any profit distribution is strictly prohibited (see above). As soon as they exercise economic activities in a recurring manner, they fall within the scope of insolvency laws. Furthermore, a number of improvements are made, including the introduction of a procedure for dealing with conflicts of interest of directors, the introduction of the possibility to co-opt directors in the not-for-profit association, and the abolition of the rule requiring the number of directors in a not-for-profit association to be smaller than the number of members.
The other priorities concern the modernisation and simplification of the publication system for documents and announcements of companies and associations (through the creation of an electronic register accessible via a single government website), as well as a clarification and relaxing of the legislation on the use of languages. Furthermore, there will be an update of the provisions on restructuring, dissolution/winding-up, and the dispute settlement procedure in the non-listed NV/SA and the BVBA/SPRL. Moreover, the opportunity is taken to make some individual improvements and to eliminate some inconsistencies. Last but not least, sufficient attention will be paid to a smooth and flexible transitional regime.
Next steps
The drafting work can now begin. It is expected that, in the coming months, the Ministry of Justice will, on the basis of the policy note, prepare an initial draft act which will be presented to the House of Representatives before the end of the current legislative term – provided, of course, that no unexpected obstacles arise.