The Belgian implementation of Directive (EU) 2019/2121 on cross-border conversions, mergers and demergers
On 6 June 2023 the law in view of the Belgian implementation of the Mobility Directive (EU) was published in the Belgian Official Gazette. With this law, the Belgian legislator thoroughly modifies the existing provisions on cross-border conversions, mergers, and demergers contained in books 12 and 14 of the Belgian Companies and Associations Code ("BCAC"), hereby bringing the Belgian legislation in line with the harmonized rules provided by the Directive. In addition to cross-border reorganizations, the law also creates new opportunities for national reorganizations. Here is what you should know about the new rules.
The cross-border mobility of companies has long been considered an integral and essential part of the freedom of establishment, one of the cornerstones of the European Union. However, until recently, only cross-border mergers were harmonized at European level, initially by Directive 2005/56/EG of 26 October 2005 and afterwards by Directive (EU) 2017/1132 of 14 June 2017. Other cross-border transactions, such as conversions and demergers fell out of the scope of application of said directives, requiring that for the implementation of such cross-border transactions, companies had to resort to the national laws of the Members States involved, which often led to legal uncertainty and fragmented application of local legislation.
In light of the above, the EU legislator adopted the Directive (EU) 2019/2121 of 27 November 2019 on cross-border conversions, mergers and demergers, also known as the “Mobility Directive”. In addition to creating a brand new European framework for cross-border conversions and demergers, it also provides additional protection for members, creditors and employees of companies involved in a cross-border reorganizations.
The requirements of the Mobility Directive should have been transposed into national law by the member states by 31 January 2023 at the latest. Although the Belgian legislator already anticipated the European trends by creating a legal basis for cross-border divisions and a procedure for cross-border conversions upon introduction of the BCAC in 2019, it did not meet the aforementioned deadline to implement the specific provisions of the Mobility Directive.
The Belgian Chamber of Representatives finally approved the implementing law on 27 April 2023, which appeared in the Belgian Official Gazette on 6 June 2023.
The law enters into force ten days after publication of the law in the Belgian Official Gazette, except for certain provisions that still require technical implementation. The new legislation will only apply to those conversions, mergers and demergers for which the transaction proposal has been filed with the clerk's office of the competent enterprise court ten days after the publication in the Belgian Official Gazette.
Some noteworthy features of the implementing law:
- The law introduces new definitions regarding mergers and demergers, which sometimes also lead to flexibilization or clarifications in relation to national procedures. For example, it will be possible to apply the procedure on the simplified merger, without issuance of shares, even in the case of a merger between companies which (directly or indirectly) have the same parent company or in case of a merger between companies which, proportionally have the same shareholders. In addition, a legal basis has been added for a disproportional partial demerger.
- The law also provides a legal basis for a new type of demerger, namely the cross-border demerger by separation, which can be defined as a cross-border transaction where a company transfers part of its assets and liabilities (which do not need to constitute a branch of activities) to one or more companies, in exchange for the issuance of shares in the recipient company to the company being demerged (comparable to the national procedure of a contribution of a branch of activities, without the need for the assets and liabilities to constitute a branch of activities). This possibility was only added by the Belgian legislator for cross-border transactions.
- Additional safeguards for (minority) shareholders are henceforth available in the framework of a cross-border reorganization. As such, minority shareholders who vote against the proposed cross-border transaction, have – if certain conditions are fulfilled - the right to exit the company and receive adequate compensation.
- The protection of creditors in connection with reorganization proceedings was also significantly modified. It has transformed from an ex-post protection (starting from the publication of the merger deeds in the Annexes to the Belgian Official Gazette) to an ex-ante right for certain creditors to ask for an additional security for their claim before the notarial transaction deeds are enacted. A waiting period of three months will now need to be observed, as from the publication of the transaction proposal in the Annexes to the Belgian Official Gazette, before the decision regarding the cross-border transaction may be taken (whereas for cross-border mergers, this used to be six weeks as from the filing of the proposal with the clerk’s office of the enterprise court, in line with the national provisions to this effect). The transaction may not be implemented if such creditors have not received satisfaction of their claims or their claims were dismissed. This could thus significantly impact the timing of the implementation of a cross-border transaction.
- The rights of employees are also enhanced, where employee participation rights, information and consultation will be essential both before, during and after the transaction. For instance, the employees (or their representatives) must be informed of the implications of the proposed transaction on the employment situation within the company and they will have the opportunity to comment and advise on the proposal on the cross-border operation. The management body of the company proceeding with a cross-border transaction will need to draft a specific (section in the) special report dedicated to the employees. In addition, the collective bargaining agreement nr. 94 regarding employee participation was amended in view of the provisions of the Mobility Directive by collective bargaining agreement nr. 94/1 dd. 22 December 2022.
- Taking into account the additional protection of (minority) shareholders, creditors and employees, modifications were also made to the information which needs to be included in the corporate documentation required in the framework of cross-border reorganizations. The law now also provides for additional possibilities to waive certain corporate documents (e.g. in case of single member companies, or in case the company or its subsidiaries have no employees other than members of the management body,…).
- Finally, the law also modifies certain attendance quorum and majority requirements for cross-border operations and national For cross-border transactions the general rule mandates that half of the shares and half of the profit certificates must be present to establish the attendance quorum, and the transaction will only be approved if it receives 3/4th of the votes cast. Additionally, the requisite majority in the general meeting for deciding on national conversion is reduced from 4/5th to 3/4th.
The aforementioned overview does not cover all the comprehensive modifications pertaining to cross-border reorganizations, but it seeks to offer a broad outline of some of the significant aspects of the recently enacted Belgian legislation.
Should you have any questions on the subject, our team of experts will be happy to further assist you.
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