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Three reasons to amend your company's articles of association before 1 January 2020

Tuesday 24/09/2019
WVV Opt in

On 1 May 2019, Belgian company law was comprehensively overhauled by the phased introduction of the Companies and Associations Code ("CAC").

Three distinct phases can be identified:

  • 1 May 2019: Companies, associations and foundations set up after 1 May 2019 had to comply immediately with the rules of the CAC. As an existing company, since 1 May 2019 you can also explicitly choose to have the rules of the CAC applicable to your company by amending the articles of association ("opt-in");
  • 1 January 2020: The mandatory provisions imposed by the CAC will apply from 1 January 2020 to companies and associations that already existed on 1 May 2019, even if they have not yet opted in. All provisions of the articles of association that are in breach of the mandatory provisions of the CAC will be assumed to be non-existent. Supplementary provisions of the CAC will only be applied if they are not excluded by provisions of the articles of association;
  • 1 January 2024: By 1 January 2024 at the latest, all articles of association must be brought into line with the provisions of the CAC.

In this article, we outline several good reasons for voluntarily opting for the application of the CAC before 1 January 2020.

Clarity

On 1 January 2020, the mandatory provisions of the CAC will apply to all companies. However, the CAC itself is not clear about which provisions are mandatory. To this end, we need to rely on the explanatory memorandum, which states that it relates to, among other things, the new names and legal forms, the rules on profit distribution, the composition, functioning and liability of the management bodies and the rules on liquidation.

Since the law itself does not make it clear which provisions are mandatory, there is a good chance that if your articles of association are not amended, there will be debate after 1 January 2020 as to which rules apply: the rules contained in the articles of association or the rules enshrined in the CAC. It will therefore be necessary to examine for each decision to what extent they are affected by a mandatory provision in the CAC or not.

In addition, the CVOA, the partnership limited by shares, the economic interest grouping and the agricultural company have been abolished in the CAC. They will therefore be subject to the mandatory provisions of the most similar company forms on 1 January 2020.

The 'CVBA' is reserved for the form of a cooperative company, where companies genuinely adhere to a cooperative philosophy. From 1 January 2020, 'illegitimate' CVBAs will be subject to the mandatory provisions of the 'BV' and will eventually be obliged to convert into a BV.

For these company forms, there may be undesirable consequences to waiting until after 1 January 2020.

Validity of decisions

The CAC contains various mandatory provisions relating to the management and decision-making in companies.

The main focus point is that from 1 January 2020, a cumulative ban will be introduced in the sense that one person can no longer sit in the same administrative body in multiple capacities, such as, for example, in one's own name on the one hand and as permanent representative of a legal entity-director on the other. In addition, the CAC introduces a cascade prohibition whereby a company director must immediately appoint a natural person as permanent representative, whereas at present a management company is often appointed as permanent representative, which in turn appoints a natural person. Whereas in the previous Companies' Code the permanent representative was obliged to have a link with the legal entity-director, the CAC scraps this link. The company director is entirely free to choose their permanent representative.

The term day-to-day management has been expanded under the new CAC. All day-to-day business and decisions and non-day-to-day business or decisions of which the minor importance or urgent nature do not justify the convening of the board of directors, are considered as day-to-day management under the CAC, whereas the case law previously stated that day-to-day management only covers non-day-to-day business that is of minor importance and urgent in nature.

In addition to the new features mentioned above, the CAC also contains an updated alarm bell procedure for BVs. This change is the result of the phasing out of the concept of capital in the BV. The procedure must be applied as soon as the equity capital of the BV is negative, or threatens to be, or if the company will no longer be able to pay its debts for at least twelve months. The management body will have to convene a general meeting within two months to decide on the dissolution of the company and on the measures announced in the agenda to safeguard its continuity.

The CAC also provides for a broader and stricter rules for conflicts of interest. We have previously published an article on this subject on our site. For more explanation, we therefore refer you to this article.

Reasons enough to review the composition and functioning of your management body before 1 January 2020. Indeed, a violation of the CAC can result in the decisions of the management body being declared null and void.

Opportunities

Adapting your articles of association to the CAC also offers opportunities. However, if your articles of association have been drawn up more stringently, you will still have to follow your more stringent articles of association.

Under the CAC, for example, both NVs and BVs can be set up by a single shareholder. In this way, groups of companies can be structured much more simply.

Moreover, the CAC also offers new possibilities for organising the management in an NV. Whereas under the previous law a board of directors always had to consist of at least 3 directors (in principle), the CAC offers the possibility to have an NV managed by one director.

The possibilities for distributing profits from your company have also been expanded. Whereas under the previous Companies Code, only the NV and the partnership limited by shares had a system of interim dividends, now the authority can also be delegated to the management body within BVs to distribute the profit of the current financial year as a dividend if this is provided for in the articles of association.

Shares can be issued with multiple voting rights under the CAC. The previous principle of one share - one vote has become an additional right. As a result, multiple types of shares can be created, with more voting rights being attributed to one type of shares than to another type of shares. Different participation in the profits can also be linked to different types of shares. The main advantage of this is that customised modulation is possible, e.g. the head of the family can already transfer a substantial shareholding to his children and still retain control of the company.

Finally, the CAC enables written decision-making within the management body of both the NV and the BV. The requirement of urgency has been abolished. Physical meetings of the boards of directors are then no longer necessary. Written management decisions can be taken in collective management bodies, provided that all directors agree on them on a case-by-case basis and unanimously. It is therefore important to screen your articles of association and the composition of your management bodies in good time in order to check whether you comply with the mandatory provisions of the CAC and whether your articles of association are not too restrictive, to take advantage of the new opportunities offered by the CAC.

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Carl Boudewyn
Carl Boudewyn
Senior Manager Tax & Legal Services
Bert Lutin
Bert Lutin
Partner Tax & Legal Services