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Print articleNew Belgian Rules on Contributions in Kind and Acquisition of Own Shares (share buy-back)
June, 2009 - Tom Vantroyen, Adriaan Dauwe
Introduction
Directive 2006/68/EC of the European Parliament and the Council of 6 September 2006 has amended the Second Company Law Directive in relation to maintenance of capital.
On 8 October 2008, the Royal Decree (hereafter the “Royal Decree 10/2008”) implementing the Directive was adopted and substantially modified the Belgian Companies Code (hereafter “BCC”) in respect of contributions in kind, purchase of own shares and financial assistance.
The Royal Decree 10/2008 was published in the Annexes to the Belgian State Gazette on 30 October 2008 and entered into force on 1 January 2009.
Scope of Application
The Royal Decree 10/2008 applies to all forms of limited-liability companies, such as companies limited by shares (“naamloze vennootschap”/“société anonyme”, abbreviated “NV”/”SA”), private limited liability companies (“besloten vennootschap met beperkte aansprakelijkheid”/“société privée à responsabilité limitée”, abbreviated “BVBA”/“SPRL”) and co-operative limited liability companies (“coöperatieve vennootschap met beperkte aansprakelijkheid”/“société coopérative à responsabilité limitée”, abbreviated “CVBA"/"SCRL”).
Acquisition of own shares
As from 1 January 2009, Belgian companies are allowed to acquire up to 20% of their own shares (previously, companies could acquire a maximum of 10% of their own shares). The nominal or par value of all own shares on the company's balance sheet may not exceed 20% of the company's share capital.
The General Shareholders' Meeting may delegate the Board of Directors to undertake a share buy-back during a five-year period (previously this period was limited to 18 months).
The means by which the shares are purchased must be available for distribution and all shareholders must be treated equally during the transaction.
Specific rules apply for listed companies and shares listed on a multilateral trading facility.
From a Belgian tax perspective, share buy-backs are subject to 10% withholding tax.
Simplified procedure for contributions-in-kind
As a general rule, when a contribution-in-kind is made to a company, an independent auditor has to write a report analysing whether the fair market value of the contributed assets and liabilities corresponds to the value of the issued shares or not. This audit report should contain a description of the assets that are contributed in kind, the valuation methods used to determine the value of the contribution and the applicable remuneration.
Furthermore, a special report must be drawn up by the Board of Directors (or, if the contribution-in-kind takes place at the occasion of the incorporation of the company, by the founding shareholders) setting forth why the contribution-in-kind is in the interest of the company and, as the case may be, why the Board of Directors wishes to deviate from the conclusions of the auditor’s report.
This procedure has now been simplified. As from 1 January 2009, no special reports for contributions-in-kind are required, in three specific cases, being:
1) a contribution-in-kind of securities or money-market instruments which are valued at the weighted average price at which they have been traded on a regulated market during a period of 3 months prior to the date of completion of the contribution;
2) a contribution-in-kind of assets, other than securities or money-market instruments, which have already been valued in the last 6 months prior to the contribution by an auditor in accordance with generally-accepted valuation standards and principles;
3) a contribution-in-kind of assets, other than securities or money-market instruments, where the value of each asset concerned is derived from the annual accounts for the previous financial year, provided that these annual accounts have been audited by the statutory auditor (for Belgian companies) or by the person in charge of auditing the annual accounts (for foreign companies).
In the aforementioned cases, if the contribution takes place without the special reports referred to above, the company must file, within one month following the effective date of the contribution-in-kind, a statement with the Office of the Clerk of the Commercial Court. This statement must contain certain information which is similar to the information required in the special reports and should thus include (i) a description of the contribution-in-kind, (ii) the name of the contributor(s), (iii) the value of the contribution, the origin of this valuation and, if applicable, the valuation method, (iv) the nominal value of the shares or, if the shares are without nominal value, the number of shares issued in consideration of each contribution-in-kind, (v) a statement determining whether the value received corresponds at least with the number and nominal value or, if there is no nominal value, the par value and, if applicable, the share premium of the shares issued in consideration of the contribution-in-kind and (vi) a statement that no special circumstances have arisen which might impact the valuation of the contribution-in-kind.
The simplified procedure does not apply in case of exceptional circumstances (to be assessed by the Board of Directors), in which event the board can decide that a revaluation of the assets concerned be made in accordance with the general procedure.
In the absence of such revaluation, one or more shareholders holding jointly, at the date on which the decision to increase the capital is taken, at least 5% of the capital subscribed are entitled to request that an audit report is drawn up in accordance with the general procedure.
This new procedure reduces administrative charges, but the company's Directors may incur liability if the simplified procedure is applied when all the conditions had not been met.
Conclusion and comments
As indicated by its title, the Royal Decree 10/2008 aims to simplify the applicable procedure of both contributions in kind and acquisitions of own shares.
However, only practice will show whether or not the procedure on both contributions-in- kind and acquisitions of own shares have been simplified. With regard to contributions-in- kind, the statement to be filed by the Board of Directors with the Office of the Clerk of the Commercial Court is relatively similar to the special report the Board of Directors has to draw up when a contribution-in-kind does not fall within the scope of the three new exceptions. Therefore, the most import simplification in this respect is the lack of requirement for an auditor’s report. However, this may lead to a shift of liability from the auditor to the directors of the company as the directors (and no longer the auditor) must mention in their statement whether the value received corresponds at least with the number and value of the shares issued in consideration of the contribution-in-kind and whether any special circumstances have arisen which might impact on the valuation of the contribution-in-kind.
We point out that another far-reaching change brought by the Royal Decree 10/2008 is the elimination of the prohibition on financial assistance as set out in articles 329, 430 and 629 BCC, which we have not further discussed in this contribution.
Directive 2006/68/EC of the European Parliament and the Council of 6 September 2006 has amended the Second Company Law Directive in relation to maintenance of capital.
On 8 October 2008, the Royal Decree (hereafter the “Royal Decree 10/2008”) implementing the Directive was adopted and substantially modified the Belgian Companies Code (hereafter “BCC”) in respect of contributions in kind, purchase of own shares and financial assistance.
The Royal Decree 10/2008 was published in the Annexes to the Belgian State Gazette on 30 October 2008 and entered into force on 1 January 2009.
Scope of Application
The Royal Decree 10/2008 applies to all forms of limited-liability companies, such as companies limited by shares (“naamloze vennootschap”/“société anonyme”, abbreviated “NV”/”SA”), private limited liability companies (“besloten vennootschap met beperkte aansprakelijkheid”/“société privée à responsabilité limitée”, abbreviated “BVBA”/“SPRL”) and co-operative limited liability companies (“coöperatieve vennootschap met beperkte aansprakelijkheid”/“société coopérative à responsabilité limitée”, abbreviated “CVBA"/"SCRL”).
Acquisition of own shares
As from 1 January 2009, Belgian companies are allowed to acquire up to 20% of their own shares (previously, companies could acquire a maximum of 10% of their own shares). The nominal or par value of all own shares on the company's balance sheet may not exceed 20% of the company's share capital.
The General Shareholders' Meeting may delegate the Board of Directors to undertake a share buy-back during a five-year period (previously this period was limited to 18 months).
The means by which the shares are purchased must be available for distribution and all shareholders must be treated equally during the transaction.
Specific rules apply for listed companies and shares listed on a multilateral trading facility.
From a Belgian tax perspective, share buy-backs are subject to 10% withholding tax.
Simplified procedure for contributions-in-kind
As a general rule, when a contribution-in-kind is made to a company, an independent auditor has to write a report analysing whether the fair market value of the contributed assets and liabilities corresponds to the value of the issued shares or not. This audit report should contain a description of the assets that are contributed in kind, the valuation methods used to determine the value of the contribution and the applicable remuneration.
Furthermore, a special report must be drawn up by the Board of Directors (or, if the contribution-in-kind takes place at the occasion of the incorporation of the company, by the founding shareholders) setting forth why the contribution-in-kind is in the interest of the company and, as the case may be, why the Board of Directors wishes to deviate from the conclusions of the auditor’s report.
This procedure has now been simplified. As from 1 January 2009, no special reports for contributions-in-kind are required, in three specific cases, being:
1) a contribution-in-kind of securities or money-market instruments which are valued at the weighted average price at which they have been traded on a regulated market during a period of 3 months prior to the date of completion of the contribution;
2) a contribution-in-kind of assets, other than securities or money-market instruments, which have already been valued in the last 6 months prior to the contribution by an auditor in accordance with generally-accepted valuation standards and principles;
3) a contribution-in-kind of assets, other than securities or money-market instruments, where the value of each asset concerned is derived from the annual accounts for the previous financial year, provided that these annual accounts have been audited by the statutory auditor (for Belgian companies) or by the person in charge of auditing the annual accounts (for foreign companies).
In the aforementioned cases, if the contribution takes place without the special reports referred to above, the company must file, within one month following the effective date of the contribution-in-kind, a statement with the Office of the Clerk of the Commercial Court. This statement must contain certain information which is similar to the information required in the special reports and should thus include (i) a description of the contribution-in-kind, (ii) the name of the contributor(s), (iii) the value of the contribution, the origin of this valuation and, if applicable, the valuation method, (iv) the nominal value of the shares or, if the shares are without nominal value, the number of shares issued in consideration of each contribution-in-kind, (v) a statement determining whether the value received corresponds at least with the number and nominal value or, if there is no nominal value, the par value and, if applicable, the share premium of the shares issued in consideration of the contribution-in-kind and (vi) a statement that no special circumstances have arisen which might impact the valuation of the contribution-in-kind.
The simplified procedure does not apply in case of exceptional circumstances (to be assessed by the Board of Directors), in which event the board can decide that a revaluation of the assets concerned be made in accordance with the general procedure.
In the absence of such revaluation, one or more shareholders holding jointly, at the date on which the decision to increase the capital is taken, at least 5% of the capital subscribed are entitled to request that an audit report is drawn up in accordance with the general procedure.
This new procedure reduces administrative charges, but the company's Directors may incur liability if the simplified procedure is applied when all the conditions had not been met.
Conclusion and comments
As indicated by its title, the Royal Decree 10/2008 aims to simplify the applicable procedure of both contributions in kind and acquisitions of own shares.
However, only practice will show whether or not the procedure on both contributions-in- kind and acquisitions of own shares have been simplified. With regard to contributions-in- kind, the statement to be filed by the Board of Directors with the Office of the Clerk of the Commercial Court is relatively similar to the special report the Board of Directors has to draw up when a contribution-in-kind does not fall within the scope of the three new exceptions. Therefore, the most import simplification in this respect is the lack of requirement for an auditor’s report. However, this may lead to a shift of liability from the auditor to the directors of the company as the directors (and no longer the auditor) must mention in their statement whether the value received corresponds at least with the number and value of the shares issued in consideration of the contribution-in-kind and whether any special circumstances have arisen which might impact on the valuation of the contribution-in-kind.
We point out that another far-reaching change brought by the Royal Decree 10/2008 is the elimination of the prohibition on financial assistance as set out in articles 329, 430 and 629 BCC, which we have not further discussed in this contribution.
Footnotes: For further information on this topic please contact Tom Vantroyen or Adriaan Dauwe at Altius by telephone (+32 2 426 14 14) or by fax (+32 2 426 20 30) or by email ([email protected] ; [email protected]). |
