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New Merger and Demerger Procedure

New Merger and Demerger Procedure

New Merger and Demerger Procedure

03.02.2012 BE law

The Act of 8 January 2012 amending the Belgian Companies Code (hereinafter referred to as the “BCC”) as regards reporting and documentation requirements for mergers and demergers (hereinafter referred to as the “Act”) was published in the Belgian Official Gazette 18 January 2012.

1. Introduction and general considerations

The Act puts in place more flexible administrative, reporting and publication requirements for mergers and demergers of companies, while safeguarding the interests of shareholders and other parties involved in these transactions. In this respect the Act implements Directive2009/109/EC of the European Parliament and Council of 16 September 2009, the implementation deadline for which was 30 June 2011.

This e-bulletin provides a concise outline of the key modifications to the BCC that are introduced by the Act.

In addition to amendments relating to documentation, reporting and publication requirements (discussed in point 2 below in further detail), the Act also contains a change in respect of the so-called “squeeze-out” procedure provided under Article 513 of the BCC. Said Article 513 BCC allows holders of securities representing at least 95% of the voting rights in a Belgian stock company (naamloze vennootschap / société anonyme) to make an offer to acquire the company’s remaining voting securities. Depending on whether the target company is public or not, a different offering procedure will apply (public versus private squeeze-out offer), and in a private stock company the minority  securitiesholder(s)  are entitled to refuse the squeeze-out offer while their counterparts in a public stock company do not have this right. The Act supplements the foregoing by reducing the 95% threshold to 90% in case the squeeze-out takes place by another Belgian stock company (naamloze vennootschap / sociétéanonyme) in the framework of a merger by acquisition, and further stipulates that in this case the minority securitiesholder(s) are not entitled to refuse the squeeze-out offer, which will thus be binding; these new rules apply for both public and private target companies.

The Act enters into force on 28 January 2012 and will apply to mergers and demergers for which the merger/demerger proposal is deposited at the clerk’s office of the Commercial Court as of this date.

The set of rules under the BCC as applicable to mergers and demergers prior to the Act entering into force is for practical purpose hereinafter referred to as “the previous legal regime”. 

2. New documentation, reporting and publication requirements for mergers and demergers

2.1   Mergers – mergers by acquisition, mergers by incorporation and transactions equivalent to merger by acquisition

Save as expressly set out hereinafter, the discussion under this point 1 relates to Belgian “national” merger procedures (i.e. involving only Belgian companies), and not to cross-border mergers under Directive 2005/56/EG, as implemented in Belgium by the Act of 8 June 2008.

Alternative method for the publication of the merger proposal

The Act introduces amendments to the publication requirements with respect to (the deposition of) the merger proposal.

Each company involved in a merger1  is required to deposit the merger proposal at the clerk’s office of its respective Commercial Court at least six weeks prior to the extraordinary shareholders’ meeting deciding on the transaction.

Under the previous legal regime, a notice regarding this deposition was published in the Annexes to the Belgian Official Gazette. This is modified by the Act in that the publication in the Belgian Official Gazette will not be limited to a mere notice, but must contain either an extract from the merger proposal or a hyperlink to the company’s website on which the merger proposal itself is made available.

The foregoing also applies to (Belgian companies involved in) cross-border mergers, it being understood that the publications in the Annexes to the Belgian Official Gazette for this type of merger were under the previous legal regime already required to include an extract from the merger proposal. The only modification introduced by the Act in this respect is the possibility to publish a hyperlink to instead of an extract from the merger proposal.

Exemption from reporting requirements on the part of the management bodies

The management bodies of each of the companies involved in a merger by acquisition or by incorporation2 are required to draw up a special report in relation to the merger, inter alia setting out the rationale and implications of the merger, and the valuation methods used for the proposed share exchange ratio.

Under the previous legal regime the BCC did not provide for exemptions to this reporting requirement. In application of the Act, the special management report is no longer required if all shareholders and holders of other voting securities of all the merging companies unanimously waive compliance with this requirement.

Exemption from information obligations regarding significant changes in the assets and liabilities of the merging companies

For mergers by acquisition or by incorporation3, the management body of each merging company is required to inform both the shareholders’ meeting of its company and the management body/bodies of the other merging company/companies regarding significant changes in the assets or liabilities of its respective company after the date of the merger proposal; after so having been informed by the management body of another merging company, each merging company’s management body is then required to pass on this information to its respective shareholders’ meeting.

Under the previous legal regime the BCC did not provide for exemptions to these information obligations. By virtue of the Act, the obligations no longer apply if all shareholders and holders of other voting securities of all the merging companies unanimously waive compliance with these requirements.

Exemption from the obligation to draw up interim financial statements

Under the previous legal regime, the management body of a company involved in a merger4  was required to draw up interim financial statements in case the most recent annual accounts of this company relate to an accounting year closed more than six months prior to the date of the merger proposal; the accounts date for these interim financial statements may not precede the date of the merger proposal by more than three months. In application of the Act these interim financial statements are no longer required, either if the relevant company has published a semi-annual financial report pursuant to article 13 of the Royal Decree of 14 November 20075 and made this available to the shareholders of the merging companies, or if all shareholders and holders of other voting securities of all the merging companies unanimously waive compliance with this requirement.

Alternative method for the communication of documents to shareholders

The previous legal regime required printed copies of the merger proposal, the management body’s special report and the statutory auditor’s report to be delivered to all holders of registered shares of each company involved in a merger6. The Act provides an alternative possibility to deliver these documents by e-mail to those shareholders that have expressly agreed to this in writing.

In addition the merging companies were under the previous legal regime required to keep (printed copies of) certain documents7 available at their registered office for inspection by the shareholders, and to provide printed copies to the shareholders upon their request (save to the holders of registered shares who would have already received such a printed copy in accordance with the foregoing). These rules are also modified by the Act.

§  A first modification relates to the obligation to keep hard copies of the documents available at the company’s registered office for inspection. Pursuant to the Act it is sufficient to make the relevant documents available on the company’s website free of charge for a continuous period of one month prior to the extraordinary shareholders’ meeting8 deciding on the merger. In that case the printed documents will (arguably) not have to be kept available at the registered office of the relevant merging company, although this is not entirely clear in view of the second modification introduced by the Act, as discussed hereinafter. 

§  A second modification relates to the shareholders’ entitlement to request a printed copy of the relevant documents. In this respect the Act provides that in case the company website allows the documents on which they are made available to be downloaded and printed during the entire aforementioned one month period, the shareholders will not be entitled to request a printed copy. Remarkably, the Act then continues to state that the documents must in this case be kept available at the registered office of the company for inspection by the shareholders, which does not seem to be in line with the objective pursued by the first modification introduced by the Act, as discussed above.

Exemption to the mandatory approval of the merger by the extraordinary shareholders’ meeting of the acquiring company

Under the previous legal regime, all mergershad to be approved by the extraordinary shareholders’ meetings of all the merging companies.

Under certain conditions the Act exempts the acquiring company from this requirement for mergers by acquisition, provided the acquiring company holds at least 90% of the shares and other voting securities in the acquired company, as well as for transactions equivalent to a merger by acquisition (in which case the acquiring company by definition holds 100% of the shares and other voting securities in the acquired company)10. In order for the exemption to apply the publication of the merger proposal must have taken place at least six weeks prior to the merger becoming effective, and the merger documentation must have been kept available at the company’s registered office for inspection by the shareholders (irrespective of the new rules introduced by the Act in this respect, as discussed above in this e-bulletin). Furthermore, a minority protection mechanism is provided by the Act, as one or more shareholder(s) holding at least 5% of the acquiring company’s share capital11 can request an extraordinary shareholders’ meeting to be nevertheless convened held to decide on the merger; the Act is not entirely clear as to whether these shareholders can themselves convene the shareholders’ meeting or they must request the company’s management body to do so.

Amendments regarding the (existing) exemption for mandatory audit reports

The statutory auditor12 of each of the companies involved in a merger by acquisition or by incorporation is required to draw up an audit report regarding the merger (inter alia containing an assessment of the share exchange ratio and the underlying valuation methods13), unless all shareholders and holders of other voting securities of all the merging companies unanimously waive compliance with this requirement.

The Act provides that in case application is made of the aforementioned exemption regarding the merger-related audit report, the acquiring company must comply with the special reporting requirements regarding contributions in kind applicable to it14 (i.e. report by the management body and the statutory auditor15); inversely these contribution-related reporting requirements will thus not apply in case the merger-related audit report is drawn up. In principle this was arguably already the case under the previous legal regime (at least for the merger by acquisition), but the Act has introduced formal amendments to the relevant BCC provisions in order to avoid interpretation issues in this respect.

2.2   Demergers – demergers by acquisition, demergers by incorporation and mixed demergers

The Act introduces broadly similar changes to demerger procedures as those discussed above in relation to mergers (and thus a general reference can mutatis mutandis be made to the foregoing section of this e-bulletin in this respect), subject however to certain demerger-specific considerations as set out hereinafter.

The management body of a company involved in a demerger was under the previous legal regime already exempted from drawing up a special merger report in case of unanimous consent by the shareholders and holders of other voting securities (cf. point 1.2 above as regards mergers). This is not changed by the Act, which provides an additional exemption for demergers by incorporation in case the shares issued by the newly incorporated company/companies are allocated to the shareholders of the demerged company pro rata their shareholding in the demerged company. The Act does not introduce a similar additional exemption for demergers by acquisition.

An exemption from the management bodies’ information obligations regarding significant changes in the assets or liabilities of their respective companies after the date of the demerger proposal (cf. point 1.3 above as regards mergers) is only put in place by the Act for demergers by incorporation, and not for demergers by acquisition. Under this exemption for demergers by incorporation, the management bodies’ information obligations will not apply in case the shares issued by the newly incorporated company/companies are allocated to the shareholders of the demerged company pro rata their shareholding in the demerged company.

For all types of demergers the Act provides for an exemption from the management bodies’ obligation to draw up interim financial statements in certain specific circumstances (cf. point 1.4 above as regards mergers) in case the relevant company has published a semi-annual financial report pursuant to article 13 of the Royal Decree of 14 November 2007. For demergers by incorporation the Act provides an additional exemption from the interim financial statements obligation in case the shares issued by the newly incorporated company/companies are allocated to the shareholders of the demerged company pro rata their shareholding in the demerged company.

The Act introduces an exemption to the requirement for a demerger by acquisition to be approved by the shareholders’ meeting of the demerged company (cf. point 1.6 above for the exemption from shareholders’ meeting approval in relation to mergers by acquisition). This exemption will only be available for a demerging company in case 100% of its shares and other voting securities are held by the acquiring companies, and under certain other conditions that are broadly similar to those set for the exemption from shareholders’ meeting approval in relation to mergers by acquisition (cf. point 1.6 above).

The Act provides for amendments to the BCC regarding the exemption from the requirement to draw up an audit report in relation to a demerger in case of unanimous shareholder consent (as already in place under the previous legal regime) that are broadly similar to those in respect of mergers (as discussed in point 1.7 above). For demergers by incorporation the Act introduces an additional exemption from the requirement to draw up an audit report in case the shares issued by the newly incorporated company/companies are allocated to the shareholders of the demerged company pro rata their shareholding in the demerged company.

 

Footnotes

 

  1. All types of mergers, i.e. mergers by acquisition, mergers by incorporation and transactions equivalent to a merger by acquisition. 
  2. This requirement does not exist for transactions equivalent to a merger by acquisition. 
  3. These requirements do not exist for transactions equivalent to a merger by acquisition. 
  4. All types of mergers, i.e. mergers by acquisition, mergers by incorporation and transactions equivalent to a merger by acquisition. 
  5. Royal Decree of 14 November 2007 concerning the obligations of issuers of financial instruments admitted to trading on a regulated market. 
  6. All types of mergers, i.e. mergers by acquisition, mergers by incorporation and transactions equivalent to a merger by acquisition. 
  7. Merger proposal, special report of the management body, report of the statutory auditor, annual accounts over the last three financial years, annual reports of the management body or managing directors and the auditor over the last three financial years. 
  8. The information must remain available for a further one month period after this shareholders’ meeting. 
  9. All types of mergers, i.e. mergers by acquisition, mergers by incorporation and transactions equivalent to a merger by acquisition. 
  10. This is not applicable to a merger by incorporation as the acquiring company is newly incorporated in the process of the merger. 
  11. Shares without voting rights are disregarded for purpose of the calculation of this percentage. 
  12. Or an external accountant or auditor in case the company has not appointed a statutory auditor. 
  13. The requirement to draw up a merger-related audit report does not exist for transactions equivalent to a merger by acquisition. 
  14. These reporting requirements in relation to contributions in kind only exist for certain company types, i.e. private limited companies (‘besloten vennootschap met beperkte aansprakelijkheid / sociétéprivée à responsabilité limitée’), cooperative limited companies (‘coöperatieve vennootschap met beperkte aansprakelijkheid /société coopérative à responsabilité  limitée’), European cooperative societies (Societas Cooperativa Europaea or SCE), stock companies (‘naamloze vennootschap / société anonyme’), European companies (Societas Europaea or SE),  and partnerships limited by shares (‘commanditaire vennootschap opaandelen / société en commandite en actions’). 
  15. Or an external accountant or auditor in case the company has not appointed a statutory auditor.

 

All rights reserved. Care has been taken to ensure that the content of this e-bulletin is as accurate as possible. However the accuracy and completeness of the information in this e-bulletin, largely based upon third party sources, cannot be guaranteed. The materials contained in this e-bulletin have been prepared and provided by Stibbe for information purposes only. They do not constitute legal or other professional advice and readers should not act upon the information contained in this e-bulletin without consulting legal counsel. Consultation of this e-bulletin will not create an attorney-client relationship between Stibbe and the reader. The e-bulletin may be used only for personal use and all other uses are prohibited.

 

 

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