Belgium Minority Shareholder Rights IBA Corporate and M&A Law Committee 2016

Belgium Minority Shareholder Rights IBA Corporate and M&A Law Committee 2016 Contact Gisèle Rosselle Ludovic Vilain Strelia Gisele.Rosselle@Strelia.Com Ludovic.Vilain@strelia.com

Contents Page SOURCES OF PROTECTION AND ENFORCEMENT 1 PROTECTION AGAINST DILUTION 1 RIGHTS TO APPOINT DIRECTORS 2 PROTECTION AGAINST TAKEOVER BIDS FOR THE COMPANY 2 ACTIONS AND SEEK REMEDIES ON BEHALF OF THE COMPANY 3 RIGHTS TO PARTICIPATE IN DECISION-MAKING 4 RIGHTS WHEN A COMPANY IS EXPERIENCING FINANCIAL DIFFICULTIES 4 RIGHTS ENFORCEABLE AGAINST OTHER SHAREHOLDERS 5 SUMMARY OF RIGHTS 6

SOURCES OF PROTECTION AND ENFORCEMENT Please provide an overview of the sources of protection for minority shareholders in your jurisdiction. Who enforces these rights?1 Belgian law protects minority shareholders in a number of ways, and the majority of the rights and protections are laid down in the Belgian Companies Code ( BCC ). The articles of association of a company can also provide additional rights and protections for minority shareholders. In addition, minority shareholders can also rely on case law whenever statutory provisions are silent on a particular issue, such as the interpretation of certain concepts as, for example, legitimate reason (see below at point 8). Strict requirements apply to publicly listed companies, and the relevant requirements apply in general to all shareholders. Nonetheless, one of the purposes of these requirements is also to protect minority shareholders. These requirements range from compulsory disclosure of significant shareholdings to the mandatory creation of committees for auditing and remuneration, and from the compulsory insertion of a chapter in the annual management report that is dedicated to recommendations regarding corporate governance to the possibility for minority shareholders holding at least 3% of the share capital to remove items from the meeting agenda and/or make new proposals for a resolution to be considered at the general shareholders meeting. The enforcement of the rights and protections of minority shareholders under Belgian law depends on the nature and intended purpose of the right or protection in question. Certain provisions laid down in the BCC are intended to redress balance of power, and need to be enforced by the minority shareholders themselves. Other rules applying to publicly listed companies and providing protection to minority shareholders are intended to regulate the market conduct. Therefore, the sector regulator, which is the Financial Services and Markets Authority ( FSMA ), rather than the minority shareholders themselves, will enforce these rights and protections. PROTECTION AGAINST DILUTION Are there any mechanisms in your jurisdiction to protect against dilution of shareholdings? For example, are existing shareholders granted any rights on the issue of new shares in a company? Under Belgian law, existing shareholders benefit in several ways from protection against dilution when new shares are issued. One such protection is the requirement that an issuance of new shares resulting in a capital increase in the company must be approved by a 75% majority vote at an extraordinary general shareholders meeting. This gives the minority shareholder(s) having (together) at least 25% +1 of the voting rights the power to block a capital increase. An exception to this principle is when the capital is increased by the board of directors, i.e. the so-called authorized capital. The capital may however only be increased by applying the authorized capital procedure if this is set out in the company s articles of association. The minority shareholders having (together) at least 25% +1 of the voting rights have the power to block the insertion of this authorized capital procedure clause in the articles of association. Furthermore, a capital increase by the board of directors must take place within the limits of the authorization conferred on the board of directors by the shareholders. Finally, the board of directors must also consider the limits applying to the general shareholders meeting, i.e. the capital increase by the board may not take place for the purpose of depriving the minority shareholders of their possibility to block a later change to the articles of association. Existing shareholders have a pre-emption right if there is a capital increase in cash when new shares are allotted. This pre-emption right is to protect existing shareholders against dilution of their shareholdings. It 1 This contribution is limited to (i) the most prevalent form of private company, i.e. the limited liability company (naamloze vennootschap / société anonyme) and (ii) publicly listed companies. All other forms of private companies such as the BVBA (besloten vennootschap met beperkte aansprakelijkheid / société privée à responsabilité limitée) are not taken up in this guide. Page 1

operates in proportion to the existing shareholdings in the company, allowing minority shareholders the chance to purchase sufficient new shares to maintain their relative shareholdings in the company. Under certain strict conditions, the pre-emption rights of existing shareholders in a limited liability company can be restricted or suspended. Such restriction / suspension must be in the interest of the company and must be decided on by a 75% majority. Minority shareholders holding at least 25% +1 of the voting rights have therefore the power to block such a restriction. Another mechanism to protect existing shareholders from dilution when the accounting value of the shares is higher than the nominal or par value is to issue new shares with a premium. The share premium entails a surplus value for the shares resulting from the accumulation of reserves that are not expressed in the value of the shares. The value of the shares held by the existing shareholders is then not diluted. Although the above rights and protections apply generally to all shareholders, they nonetheless operate to protect minority shareholders by requiring their input where their shareholdings are at risk of being diluted. RIGHTS TO APPOINT DIRECTORS Do minority shareholders have any special rights to appoint directors to safeguard their interests? Are other protections available to minority shareholders in this context (such as general duties of directors)? Minority shareholders have no specific rights to appoint directors under Belgian law unless a shareholders agreement or the company s articles of association stipulate otherwise. A company s articles of association or a shareholders agreement may, however, set out a mechanism whereby different classes of shareholders that represent different groups within the company, including the minority shareholders, have the right to propose candidates for directorship. Exceptionally, the court may intervene by appointing a provisional administrator if there is, for instance, an abuse of right by the majority. Case law qualifies an abuse of right by the majority as a manifest abuse of justice by the majority shareholders whereby the interests of the minority shareholders, the company, and the company s creditors are seriously threatened. Additionally, the directors owe a fiduciary duty towards the company. Under this duty, each director is required to manage the company s business and affairs to the best of his or her ability and in the best interest of the company and its stakeholders and not in the interest of the majority shareholders. Generally speaking, in determining whether there is a breach of fiduciary duty, the court must be satisfied that, in view of the specific circumstances of the matter at hand, a normally diligent" director would have acted otherwise. Thus, a breach of fiduciary duty is assessed by taking into account the degree of carefulness that can be expected from a hypothetical normally diligent director who is placed under similar circumstances. PROTECTION AGAINST TAKEOVER BIDS FOR THE COMPANY Do minority shareholders have any protection in your jurisdiction where the company is the subject of a takeover bid? Following the implementation of the Thirteenth EU Directive (Directive 2004/25/EC) on Public Takeover Bids, takeover bids in Belgium are governed by (i) the 1 April 2007 law on public takeover bids (the Public Takeover Bids Law ), and (ii) the 27 April 2007 executing Royal Decree on public takeover bids (the Public Takeover Bids Royal Decree ) (together the Public Takeover Bids Legislation ). As a general rule, Article 9, 1 of the Public Takeover Bids Law states that all of the offeree s security holders must be treated equally. In addition, the offeree s security holders must also have sufficient time to decide on the bid made by the offeror. Page 2

The Public Takeover Bids Law, in Article 5, offers a main protection for minority shareholders by way of the concept of mandatory offers. If a person, as a result of his or her own acquisition, or the acquisition by persons acting in concert with him or her or by persons acting for their account, directly or indirectly, holds more than 30% of the voting securities in a company having its registered office in Belgium and whose securities are (in whole or in part) listed on a regulated market (the Belgian regulated market or the regulated market of a country located in the European Economic Area), including Alternext and the Marché Libre markets, both organized by Euronext Brussels, he or she must submit a mandatory bid for all voting securities or securities giving a right to such voting securities issued by the offeree which he or she does not yet hold. This gives minority shareholders a chance to exit the company if they do not wish to remain involved after the takeover. The minimum price that must be offered for the shares is also governed by the Public Takeover Bids Law. This gives the minority shareholders the protection that they can be bought out at least at the same price at which the majority or reference shareholder(s) have sold their stake. Minority shareholders have another means of exit, in the form of the sell-out procedure under Article 44 of the Public Takeover Bids Royal Decree. If an offeror, alone or in concert with another, is able to acquire 95% of the share capital conferring voting rights and 95% of the voting securities in the offeree, the securities holders are entitled to sell their securities to the offeror at the same price as the offer price. However, minority shareholders not wishing to exit the company in this situation may still be squeezed out by the offeror. Article 42 of the Public Takeover Bids Royal Decree gives the offeror who holds, alone or in concert with another, 95% of the share capital conferring voting rights and 95% of the voting securities in the offeree, a right to force the remaining minority shareholders to sell their voting rights securities or securities giving entitlement to voting rights under the same conditions applicable to the offer. More generally, under the Belgian Law of 2 May 2007 on the disclosure of significant shareholdings in issuers whose securities are admitted to trade on a regulated market, all natural or legal persons who possess or acquire, directly or indirectly, rights or other securities in a Belgian-listed company must declare to such company and to the FSMA the number of rights or securities directly or indirectly owned or owned in concert with one or more other persons if these rights or securities confer voting rights amounting to 5% or more of the total voting rights in the company at the time when the situation giving rise to the declaration occurs. All additional rights or securities acquired or transferred under the same conditions as those described above must also be declared to the target company and to the FSMA if, as a result of this operation, the voting rights in the target company attached to the rights or securities attain 5%, 10%, 15%, etc., in each instance per bracket of 5%, of the aggregate voting rights at the time when the operation giving rise to the declaration is implemented. This declaration is also required for the transfer of rights or securities if, as a result thereof, the voting rights drop below one of the thresholds mentioned above. ACTIONS AND SEEK REMEDIES ON BEHALF OF THE COMPANY Are shareholders in your jurisdiction able to bring actions and seek remedies on behalf of the company? For example, is there any mechanism for a judicial or other official representative to oversee or intervene in the management of the company? Minority shareholders have the right to sue on behalf of the company any of the company s directors who is negligent ( Minority Claim ). Any proceeds resulting from the Minority Claim go to the company and not to the minority shareholders who filed the claim. The financial benefit for the minority shareholders, as a result of such claim, will therefore only be indirect. For minority shareholders to be able to file a Minority Claim on behalf of the company, certain thresholds must be met. The securities must, on the day the general shareholders meeting will decide whether to discharge the directors from their duties, represent either (i) EUR 1,250,000 of the share capital or (ii) 1% of the votes in a limited liability company. If the minority shareholders are not able to meet the required threshold individually, they may appoint a trustee, which appointment is decided unanimously, who will be tasked with handling the procedure. The trustee can be a shareholder or not. The right to file a Minority Claim requires that the shareholders filing the claim advance the necessary funds in view of the costs of the action. Upon a final court decision on the matter, payment of the costs of the proceedings will either be imposed on the claimants (i.e. the minority shareholders if they are the nonprevailing party) or the defendant (i.e. the directors if they are found negligent). If, at the end of the proceedings, the funds advanced by the minority shareholders are not covered by the costs of the proceedings to be paid by the defendants, the company will reimburse the advanced funds to the minority Page 3

shareholders. The fact that minority shareholders must advance the necessary funds makes the Minority Claim action unattractive. After all, whether the directors will be condemned depends on the decision of the judge. Finally, if the judge finds the directors liable, i.e. negligent, the proceeds will go to the company, so the minority shareholders will only gain an indirect financial benefit as a result of a Minority Claim. Additionally, it can be difficult to prove that a director is effectively accountable for the claim brought by the minority shareholders. The Minority Claim will only be available to those minority shareholders who (i) did not discharge the directors duties, (ii) abstained from discharging them at all, or (iii) were absent from the meeting in which they were discharged. If the minority shareholder(s) did discharge the directors and was (were) able to prove that the granted discharge was void, he (they) will still be able to file a Minority Claim. Because the chances of bringing a successful Minority Claim under Belgium law are low, it is common to seek to pursue a direct claim for alternative actions. In other words, the minority shareholders themselves can try to sue the negligent directors directly. However, such a direct claim will usually fail on grounds that the minority shareholders have not, or might fail to prove that they have, suffered any actual personal damage that is distinct from the damage sustained by the company. RIGHTS TO PARTICIPATE IN DECISION-MAKING To what extent do minority shareholders have rights to participate in the decision-making of companies in your jurisdiction? All shareholders holding at least one share in the company have the right (i) to be convened to any general shareholders meeting, (ii) to vote during such meeting, (iii) to ask questions to the directors and/or the statutory auditor, and (iv) to receive any relevant documents before the general shareholders meeting takes place. Shareholders holding at least 20% of the shares in the company have the right to request that the directors and/or the statutory auditor call a general shareholders meeting so that they can express their opinion and vote at the general meeting. If the directors refuse to call a general shareholders meeting, the shareholders may file an application with the court, seeking a court order that a general meeting be held. The judge can also appoint an ad hoc trustee who will be tasked with calling the general shareholders meeting, or the judge can order the directors to do so. All shareholders must be given at least a 15 day prior notice period (or a 30 day prior notice period if it is a publicly traded company) of the scheduled general meeting. The notice must include details of the time and venue of the meeting, as well as the agenda containing subject matters that require resolutions to be made at the meeting. Shareholders of publicly traded companies who hold at least 3% of the share capital have the right to have any item (subject matter) removed from the agenda or to make new proposals for a resolution to be considered at the general shareholders meeting. Finally, minority shareholders also have a say in some of the most important decisions in the life of a company by virtue of the special resolution procedure. Certain decisions require a qualified majority (e.g. a 75% majority for changing the articles of association or 80% majority for changing the corporate purpose or corporate form). This gives the minority shareholders the ability to block certain decisions. RIGHTS WHEN A COMPANY IS EXPERIENCING FINANCIAL DIFFICULTIES Do minority shareholders have any particular rights or protections when a company is experiencing financial difficulties? For example, are they able to demand that the company be wound up? Whenever the financial situation of a company deteriorates to the extent that the net assets drop below one-half of the share capital, the board of directors must (i) prepare a special report on the financial situation of the company and (ii) convene a general shareholders' meeting within two months after the situation becomes or should have become apparent. The purpose of this meeting will be to vote on measures to redress the situation or to wind up the company. The decisions made at this meeting must Page 4

have a 75% majority vote from the shareholders. Minority shareholders holding 25% +1 vote of the shares can therefore block a decision to (i) wind up the company or (ii) adopt the proposed measures. If the financial situation of the company deteriorates further to the extent that the net assets drop below a quarter of the share capital, then the same procedure as described above must be followed again, but shareholders holding only 25% of the shares may now decide whether to wind up the company. If the net assets of a company drop below the statutory minimum required capital (i.e. EUR 61,500 for a limited liability company), any party that has standing has the right to apply to the court to seek the windingup of the company. Therefore, any shareholder, who is in principle a party with standing, could seek the court to have the company wound up as long as the share capital of the company remains below the required minimum. It is important to note that the request for a company to be wound up must be submitted to a court and is hence subject to the court s assessment, so the request for winding-up will in principle not be granted automatically. The court could grant the company a period to bring the share capital above the required minimum. In any event, shareholders should be careful when petitioning for the winding-up of the company and should analyze the present company s financial situation thoroughly to determine whether any value is likely to remain after the company s creditors have been satisfied. RIGHTS ENFORCEABLE AGAINST OTHER SHAREHOLDERS Do minority shareholders have any rights or protections which are enforceable against other shareholders, for example, where the majority of shareholders act in contravention of the company s articles of association? The minority shareholders have the right to file for the winding-up of the company before court if there is a legitimate reason to do so. Although the law does not define the concept of a legitimate reason, it is the judge who will determine, on the basis of relevant facts of the case whether there is a legitimate reason to proceed to the winding-up of the company. Case law states that an enduring disagreement between the shareholders whereby any form of cooperation becomes impossible (on a permanent basis) resulting in the bringing of the company s normal operation to a standstill is a legitimate reason. Also, if the majority shareholders continuously act in contravention of the interest of the company or they/their actions oppress the minority shareholders, this constitutes a sufficient legitimate reason for the minority shareholder to apply to the court for the winding-up of the company. Of course, the final decision rests with the judge. The shareholders holding at least a 30% shareholding, alone or in concert with another, or the security holders holding at least 20% of the securities that do not represent the share capital, have the right to file a claim for exclusion. The right to file a claim for exclusion does not exist in publicly listed companies. A claim for exclusion entails that the claimant seeks the court to buy out the other shareholder(s) out of the company. Although this right can also be exercised by the majority shareholder(s) against the minority shareholder(s), it provides the same possibility for minority shareholders, holding at least 30% of the shares. The judge will only allow the claim if there are substantiated reasons to do so. Although there is no legal definition of a substantiated reason, the preliminary legislative works state that a substantiated reason can exist from a breach of the Articles of Association, the legal provisions regarding the company or any other fact (e.g., a violation of any other law) that is so severe that the retention of the individual as a shareholder is unthinkable for a reasonable person, or is in any event very undesirable or comes across improperly. A substantiated reason should therefore be perceived as detrimental actions of a shareholder whereby the extent of those actions would cause the company to suffer severe and irreversible damage. In addition, the preliminary legislative works of the Act of 13 April 1995 state that a judge, while assessing a substantiated reason, must consider the interest of the company and avoid endangering the existence of the company. Finally, any shareholder may also file a claim seeking to be withdrawn from the company (this is not available for publicly listed companies). With this claim, the (minority) shareholders wishing to exit the company seek for the court to find and order that their shares be bought by the other shareholders. Similar to the action/claim on grounds of exclusion, the judge will have to decide, based on the facts of the case, whether there are substantiated reasons to allow the claim. Substantiated reason is interpreted restrictively. The claim to be withdrawn may not be made if the company s financial results are poor or if the minority shareholders do not agree with the policy implemented by the company. On the other hand, the systematic abuse of right by the majority shareholder(s) is one example of a substantiated reason. A key difference in the interpretation of the substantiated reason in the context of a claim for exclusion is that the Page 5

claim to be withdrawn is to protect the interest of the shareholders, whereas the interest and the continuity of the company are central for a claim for exclusion. Similar to the legitimate reason, an enduring disagreement between the shareholders whereby any form of cooperation becomes impossible (on a permanent basis) resulting in the bringing of the company s normal operation to a standstill can also be a substantiated reason in the framework of a claim for exclusion or to be withdrawn. It is interesting to note that this implies that the substantiated reason, i.e. the enduring disagreement, is not necessarily a wrongful behaviour on the part of any of the shareholders. SUMMARY OF RIGHTS Below is a table providing a brief summary of the rights of (minority) shareholders in Belgium, organised according to the percentage threshold at which the various protections become available. Shareholding (%) Description Reference (this provides the relevant articles in the BCC for the most prevalent company form, i.e. the limited liability company (naamloze vennootschap / société anonyme NV )). 50% +1 Possibility to take any decision with a normal majority of the voting rights, such as with regard to: - dismissal and nomination of directors and auditors; - approval of agreements that confer rights on third parties that have an influence on the assets of the company or install a debt or obligation in respect of the company if the exercise of these rights depends on a change of control over the company; - approval of the annual accounts, discharging the directors and auditor(s) from the duties they performed in the past year. 30% Right to file for exclusion of another shareholder. Art. 518 (NV) Art. 130 (NV) Art. 556 (NV) Art. 554 (NV) Art. 635 et seq (NV) 25% +1 Possibility to block shareholders resolutions requiring a 3/4 qualified majority of the voting rights, such as concerning a: - capital increase (unless it is an increase through authorized capital by the board of directors in an NV); - allotment of new shares (and convertible bonds and warrants in Art. 581 (NV) Art.302 Page 6

Shareholding (%) Description Reference (this provides the relevant articles in the BCC for the most prevalent company form, i.e. the limited liability company (naamloze vennootschap / société anonyme NV )). an NV); - capital decrease; - merger, demerger, contribution of a branch or universality; - liquidation; and - changing the articles of association. 25% Right to decide on the winding-up of the company if the net assets drop below a quarter of the company s share capital. Art. 581 (NV) Art. 612 (NV) Art. 699 712 722 736 751 761 (NV) Art. 181 (NV) Art. 558 (NV) Art. 633 (NV) 20% +1 Possibility to block shareholders resolutions requiring a 4/5 qualified majority of the voting rights, such as concerning the (i) changing of the corporate purpose and (ii) conversion of the company into another legal form. 20% Right to demand the board of directors or the statutory auditor to convene a general shareholders meeting. Art. 559 (NV) Art. 781 (NV) Art. 532 (NV) 1% (or securities that represent EUR 1,250,000 of the capital) One share Right to seek a court to appoint one or more experts to review the books and accounts of the company and the executed transactions made by the corporate bodies if there are indications that the interests of the company are (or could be) endangered. Right to sue negligent directors of the company insofar that the shareholder(s) did not discharge the director from his or her actions and duties. Right to be convened to the general shareholders meetings and to receive all documents to which the shareholders have the right to possess in accordance with the BCC. Art. 168 (NV) Art. 562 (NV) Art. 533 535 553 (NV) Page 7

Shareholding (%) Description Reference (this provides the relevant articles in the BCC for the most prevalent company form, i.e. the limited liability company (naamloze vennootschap / société anonyme NV )). Right to ask questions to the directors and the (statutory) auditor during the annual general shareholders meetings. Art. 540 (NV) Voting right during the general shareholders meeting, as the case may be, by proxy. Right to sign the minutes of the general shareholders meeting if the shareholder (or its representative) so requests. Art. 547-550 Art. 546 (NV) A pre-emption right (in proportion to the existing shareholdings) to purchase newly allotted shares if there is a capital increase in cash. Right to receive a dividend if there is a distribution of dividends (or interim dividends - only possible in the NV and if set out in the articles of association) in proportion to the existing shareholdings. Art. 592 (NV) Art. 617 618 (NV) Right to be reimbursed (in proportion to the existing shareholdings) if there is a capital decrease. Right to demand the winding up of the company before court if the company s net assets are below the statutory minimum. Right to seek the nullity of certain shareholders resolutions. Right to demand the winding-up of the company before court if the company has not filed its annual accounts for 3 consecutive years. Right to investigate and audit the company if there is there is no statutory auditor appointed in the company. Right to file a claim to be withdrawn from the company if the shares of the shareholder who wishes to leave the company must be bought by the others. Art. 612 (NV) Art. 634 (NV) Art. 178 (NV) Art. 182 (NV) Arty. 166 (NV) Art. 642 et seq (NV) Page 8

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