The CAC provides for a phased entry into force as regards companies that existed prior to 1 May 2019. In particular, this phased entry into force means that the compulsory provisions of the CAC will also apply to all existing companies from 1 January 2020. However, you will have until 1 January 2024 to bring your articles of association into compliance with the CAC (although there may be reasons to do this earlier, as we indicated in a previous article). https://www.moore.be/en/news/three-reasons-to-amend-your-companys-articles-of-association-before-1-january-2020
The compulsory provisions of the CAC, however, will apply from 1 January 2020, even if your articles of association do not reflect these. The question, then, is what these compulsory provisions are. We should be clear here that the law itself does not contain a clear list of compulsory provisions. Nonetheless, the explanatory note for the draft law does contain a non-exhaustive list that provides a degree of clear indication.
In this article, we will provide an overview of a number of compulsory provisions that cannot be avoided from 1 January 2020.
State the correct legal form for your company
The CAC trims down the number of company forms considerably, with four legal forms remaining: the private company (BV/SRL), the public limited company (NV/SA), the cooperative company (CV/SC) and the partnership. There are two additional variants of the latter, these being the general partnership (VOF/SNC) and the limited partnership (CommV/SComm).
The new designations for company forms and their abbreviations will apply from the start of 2020. This means that the term BVBA/SPRL will be a thing of the past, given that a BVBA/SPRL will automatically become a BV/SRL.
What is less clear is the situation for an ‘improper’ CVBA/SCRL (a CVBA/SCRL that does not conform to the cooperative ideology). These companies will be legally converted into a BV/SRL on 1 January 2024 and will be covered by the old rules from the Companies Code until then, but will be subject to the compulsory provisions in the CAC from 1 January 2020. On that score, the Minister of Justice recently adopted the stance that they should be able to maintain the CVBA/SCRL designation until their effective conversion into a different legal form.
Therefore, from 1 January 2020, the new designations for the company forms should be stated on all documents issued by the company. These could include headed paper or invoices, as well as the advertising on company cars. No fines will be due if this name change does not occur immediately, but it is important to bear this in mind when e.g. ordering new headed paper. For the letterheads on invoices sent out electronically, this ought to be put right in the short term in principle.
Mandatory amendments to bring the articles of association into compliance with the CAC if any alterations are made
The transition arrangement regarding the entry into force of the CAC stipulates that any company proceeding to alter its articles of association after 1 January 2020 must use this opportunity to amend them to bring them into compliance with the CAC at the same time. This obligation does not apply if the alteration to the articles of association results from the application of the authorised capital, exercise of warrants or conversion of convertible bonds.
The company directors are personally and severally liable for the damage suffered by the company or by third parties due to non-compliance with this obligation.
Ensure that your governing board's composition is correct
Under the CAC, it is no longer permitted to sit on the executive board in more than one capacity. This is because, in the past, a great many smaller companies chose to allow the same person to sit on the board as both a natural person and a permanent representative of a director who is a legal entity.
Besides the aforementioned prohibition on cumulative roles, the CAC introduces a cascade prohibition. This means that a director who is a legal entity should immediately appoint a natural person as their permanent representative. It will therefore be explicitly forbidden to appoint a management company as a permanent representative, which then in turn appoints a natural person as its permanent representative.
Finally, the CAC also obliges the day-to-day director to appoint a permanent representative, which was not the case in the past.
This means that a great many executive boards will no longer have the correct composition from 1 January 2020. There is a risk that decisions taken by an executive board with an invalid composition may be declared null and void.
Maintain the correct procedures where you have a conflict of interest
The CAC introduces a considerable change to the procedure that applies where a director has a conflict of interest of a pecuniary nature. This is the case where a director concludes an agreement with the company (e.g. a rental agreement).
Whereas the director involved was previously allowed to take part in the decision-making process, they should abstain from this under the new CAC. Moreover, where all the directors have a conflict of interest, the decision must be taken at the Annual General Meeting. The minutes recording the approval of the decision must also contain the necessary justification.
Be careful when making payouts from your BV/SRL
The capital within a BV/SRL has been abolished. Accordingly, in order to ensure that the company's creditors nonetheless receive the necessary protection, strict rules were introduced for the BV/SRL/SRL that apply to any payouts made from the company's own equity.
In particular, the CAC provides for a double test. On the one hand, you must check that your company's net assets are not negative, or would not become negative as a result of this payout (net assets test). On the other, the governing board must check whether the company, in accordance with reasonable expected developments, is able to service its debts insofar as these fall due over a period of at least twelve months following the payout (liquidity test).
The directors will bear responsibility for this double test and may therefore be held severally liable should an excessive amount be paid out. Accordingly, it is recommended to exercise the necessary prudence for payouts after 1 January 2020.