The contractual and legal practice in share and asset acquisitions in Belgium is largely similar to those of most other continental European jurisdictions. However, where target companies are family owned, legal documents are usually less detailed.

Private M&A transactions in Belgium are usually negotiated acquisitions and most public takeover bids are still friendly, although the recent past has seen an upsurge of hostile bids. The friendly nature of public bids partly results from the structure of the ownership of many Belgian companies, where even listed companies often have a single controlling shareholder.

Legislation and supervisory authority

Under Belgian law, no specific all-encompassing regulation governs an acquisition of the shares or the assets of a company. The applicable rules depend on whether the transaction is structured as a share or an asset deal and whether the deal involves a public or private target.

The Belgian Company Code governs various issues, such as corporate governance, transfer restrictions, financial assistance, statutory mergers and certain transfers of assets. The Civil Code contains basic civil law principles, including the principle of good faith, contractual liability, or implied warranties.

The Codes are completed by number of specific laws, such as: financial laws and royal decrees governing disclosure obligations, public takeover bids and change of control of companies; employment laws including information and consultation rules; and tax, competition and environmental laws.

The Banking, Finance and Insurance Commission (BFIC) is the single supervisory authority for the Belgian financial sector. It is the main controlling body for public takeover and change of control of public companies. Its guidelines and practice are not legally binding but are closely monitored and complied with by market players.

Methods of acquisition

Share deal

Under Belgian law, a formal share purchase agreement is not required to create a right of ownership over shares. As between parties, the mutual consent of the seller and the purchaser on the shares and the sale price is, technically, sufficient. In practice, however, a written agreement is always concluded. In addition, to ensure the enforceability of the transfer against third parties, a physical delivery is required if the transferred shares are in bearer form. The transfer must be entered into the shareholders' register of the target company if the shares are in registered form and inscription in an account held by a recognized account holder is required if the shares are in dematerialized form. Bearer shares will cease to exist from January 1 2008. Specific transfer restrictions exist for non-fully paid-up shares. Articles of association and shareholders agreements may also include transfer restrictions (for example, prior approval clauses and pre-emption clauses).

Share purchase agreements typically involve due diligence process, representations and warranties/indemnification obligations and non-compete clauses.

Asset deal

In Belgian asset deals, the purchaser may choose the assets and liabilities it wants to acquire. However, according to the general principles of Belgian Civil law, the validity and enforceability of the transfer is subject to the fulfilment of the transfer formalities that specifically apply to each asset/liability (for example, intellectual property rights, contracts, subsidies, trade names, and permits). For instance, the full transfer of all rights and liabilities under an agreement, including the release of the transferor, is subject to the transferee's consent.

Provided that the assets can be characterized as a branch of activity or universality of assets, the parties may decide to submit the transfer to a specific set of rules provided by the Company Code. Under those rules, subject to certain limited exceptions, all operational activities, contracts, assets and liabilities relating to the relevant universality of goods or branch of activity are transferred automatically by operation of law without any further formalities. The procedure takes at least six weeks because a number of reports have to be prepared and a number of formalities must be complied with within specific periods. Also, the transfer of certain permits and licences might have to be notified to the relevant authority and/or to be re-applied for by the purchaser. The seller's creditors are granted specific protection such as the joint liability of the seller for debts existing at the time of the transfer, up to the amount of its net assets.

Statutory mergers and demergers

The Belgian Company Code covers two types of mergers: (i) merger by acquisition, where a company transfers all its assets and liabilities to another existing company; and (ii) merger by incorporation of a new company, where several companies transfer all their assets and liabilities to a newly created company.

In a statutory merger, the acquired (or merged) company is dissolved without being liquidated and the shareholders of the acquired (or merged) company become shareholders of the acquiring company (and possibly receive cash equivalent to up to one-tenth of the value of the issued shares).

The merger procedure requires compliance with a number of formalities. For example, a merger proposal must be filed with the clerk of the commercial court at least six weeks before the shareholders' general meeting approving the merger, audit reports that evaluate the exchange ratio must be issued, and a shareholders' decision with a 75% majority is needed. The minutes of the shareholders' meeting must be drafted in a public deed drawn by a notary and published in the Annexes to the Belgian Gazette. The creditors of each of the merged companies whose claims predate the publication and have not yet become due and payable may require a security interest.

A simplified procedure may be followed for the absorption of a company whose shares are all held by the acquiring company.

Public takeover bids

Public takeover bids and changes of control of public companies as defined below are governed by the law of March 2 1989 on the disclosure of important participations in listed companies and the regulation of public takeovers (Law of 1989), and the Royal Decree of November 8 1989 on public takeover bids and modification of control of companies (the Takeover Decree).

The consideration can be either cash or securities, or even a mix of both.

The Takeover Decree distinguishes between voluntary and mandatory bids:

Voluntary bid: There is a voluntary bid if a public offer is made in Belgium to acquire voting rights, or securities that confer, or are exchangeable for, voting rights, in any company whether listed or not, and whether Belgian or not. A bid is deemed to be public if: (i) the bidder uses advertising techniques targeted at the public in Belgium; or (ii) an intermediary is used that is not a financial intermediary licensed in Belgium; or (iii) more than 50 people (other than professional investors) are solicited in Belgium. These conditions are far-reaching and could lead to a situation where a bid is considered as public on purely technical grounds. Aside from derogations that can be granted by the BFIC where it deems this to be appropriate, there are certain exceptions, for example, if the offer is targeted at institutional and/or professional investors acting on their own behalf.

Mandatory bid: A mandatory bid must be made to the remaining shareholders of a Belgian public company, that is, a listed company or a company whose securities are held by the public if its control is privately transferred at a price that exceeds market value (the control premium). The determination of circumstances in which the mandatory bid regime applies remains uneasy as the relevant criteria is whether control is acquired rather than a specific percentage of voting securities.

A mandatory bid means that the remaining shareholders must be given the opportunity to sell their shares to the acquirer at the same price if control has been acquired.

Belgian law does not technically distinguish between hostile and non-hostile bids. Depending on the circumstances, an initial bidder or a competing bidder could be regarded by the target as being hostile or friendly. Distinction is made between initial bids, competing bids and subsequent bids. For example, competing bidders must be treated equally. Also, a competing bidder or any subsequent bidder must offer a price that exceeds the initial bidder's price by at least 5%.

Objective conditions can be included in the offer but subjective conditions the fulfilment of which depends solely on the bidder or those rendering the offer's success virtually impossible are not allowed. For example, a bid can be subject to the consent of the competition authorities or a certain level of acceptance of the bid.

The target board's powers to frustrate a bid are paralysed to a large extent. From the announcement of the bid until the end of it, the approval of the target's shareholders is usually required for the target's board to take defensive measures, for example, a capital increase with limitation of the shareholders' preference rights or the conclusion of a transaction that affects the assets or liabilities of the company.

The bidder must reopen the bid for 15 days if it has obtained 90% acceptances after the initial offer period. In addition, the Takeover Decree provides for a squeeze-out procedure after a successful takeover bid. If the bidder owns 95% or more of the securities of the company, it can reopen the bid under the same conditions. Even the shares that have not been voluntarily presented in response to the offer are deemed automatically transferred to the bidder.

The Parliament and Council Directive (EC) 25/2004 on takeover bids must be transposed into Belgian law by May 20 2006. The implementation of the Directive will result in a number of changes to the Belgian rules on takeover bids, including, for example, the introduction of sell-out rights. The Directive only applies to cross-border takeover bids on companies whose securities are listed on a stock exchange and will not directly affect internal takeovers or bids on other companies. However the Belgian authorities might take the implementation of the Directive as an opportunity to bring the Belgian regulations on internal takeover bids in line with the European regulations.

Forced transfer of shares

A forced transfer of shares can be ordered by judicial decision in specific circumstances (well-founded reasons). Such a decision can exclude a shareholder by being forcing it to transfer its shares to another shareholder or, conversely, the shareholder can be forced to acquire the plaintiff's shares.

Another forced share transfer can result from the squeeze-out procedure, which permits a holder of 95% of the voting securities to buy out the remaining shareholders.

Disclosure, notification and approval requirements

The Belgian Company Code

A company limited by shares that becomes the holder of shares or profit certificates representing 10% or more of the total voting rights of a Belgian company must immediately send a notification to this company.

Transparency Regulation

The Law of 1989 provides for the compulsory disclosure of significant shareholdings in listed companies.

Any shareholder of a Belgian company listed in Belgium (or elsewhere in the EU) must disclose its shareholding to the company and the BFIC when its shareholding reaches, exceeds or falls below the threshold of 5% or more of the total voting rights of the company as a result of an acquisition or a transfer of shares. The calculation of the threshold must take into account the shareholdings of affiliates and concert parties.

The articles of association of a listed company may provide that the disclosure obligation applies at a lower threshold (not lower than 3%). Similarly, the articles of association of a private company may impose disclosure obligations.

The penalties for failure to comply with these requirements have recently been strengthened.

Change of control

The Takeover Decree provides that the BFIC has to be notified five banking days before the acquisition when a party intends to acquire control, by means of one of several transactions, other than through a public bid, over a public company, that is, a listed company or a company the voting securities of which are owned by more than 50 persons.

Special requirements for public takeover bids

In a public takeover, the potential bidder has to notify the BFIC of its intention. The notification must include a detailed filing, containing the price, the terms and conditions of the bid, and a draft offer document. The BFIC in turn makes an announcement to the target company, the public and the stock exchange if the target's securities are listed.

Merger control

Under the law of July 1 1999 on the protection of economic competition, a share or asset deal must be notified to the Belgian competition authorities if:

1. it amounts to a concentration, that is, there is a change of control; and
2. the concentration has no EC dimension; and
3. the combined Belgian turnover of the parties exceeds €100 million and at least two of the parties each have a Belgian turnover exceeding €40 million.

The notification must be completed within one month of the conclusion of the agreement. However, a notification on the basis of a draft agreement is allowed provided that the draft is sufficiently advanced and the parties explicitly state that they will conclude a final agreement, which will not differ from the notified draft on any aspect relevant for the purposes of competition law assessment.

The parties may not take any irreversible measures or measure that would lead to a lasting change of the market structure before a final decision is made about the deal's admissibility. This is normally addressed through carefully drafted conditions precedent in the acquisition documentation.

The Belgian competition authorities must notify their decision within 45 days, failing which the transaction is deemed cleared. In practice, this period is always used in full. Second stage proceedings may, however, be initiated if the transaction raises serious doubts as to its admissibility, in which case a further 60 days investigation is started. It is not possible to speed up the process. However transactions that do not raise competition concerns can be filed through a simplified notification form and procedure, the biggest advantage of which is that the Belgian competition authorities endeavour to make a decision within 25 days from filing.

Employee consultation

Share deals do not affect the employees' relationship with the target as their employer does not change. All potential liabilities therefore remain with the target and all employment constraints remain in force post-transfer. As employees' rights are a sensitive issue in Belgium, it is recommended to inform the employee's representatives about the economic, financial or technical reasons that cause the structural change as well as its economic, financial and social consequences.

In contrast, asset deals that qualify as a transfer of undertaking need to comply with the Collective Bargaining Agreement 32bis relating to safeguarding an employee's rights in a transfer of undertaking. A deal is deemed a transfer of undertaking if it involves the transfer of an economic entity that retains its identity after the transfer. In that case, in addition to the information obligation in due time and before the public announcement:

• all employees involved in the transferred business are automatically transferred;
• the purchaser is jointly liable with the seller for any debts resulting from the transferred employment contracts and existing at the time of the transfer, subject to contractual allocation among the parties;
• after the transfer, the purchaser must comply with all essential employment conditions of the transferred employees.

Specific permits and licences

Acquisitions of Belgian companies engaged in businesses requiring a special permit or licence, in particular in the banking, insurance and financial services industry, could require notification to or approval from a government or other regulatory agency.

For instance, if an envisaged acquisition would result in the purchaser holding directly or indirectly at least 5% of the capital or voting rights of a Belgian financial institution or investment company, the potential purchaser must notify its intention in advance to the BFIC. The BFIC may object to the transaction within three months after receiving the notification.

Foreign ownership

Foreign investors have the same rights as Belgian investors to acquire or sell interests in businesses and there is no exchange control under Belgian law.

However, Federal and Regional Ministers of Economic Affairs and the Ministry of Finance must be notified in advance of a transfer of at least one-third of the equity of a company conducting its business in Belgium if that company's net assets are €2.5 million or more. No consent or response is required and the ministers may not delay or prevent the transaction. Failure to notify does not give rise to any penalty.

Prohibited financial assistance

The Belgian Company Code prohibits a company from granting advances, issuing a loan or providing security interests for the purpose of the acquisition of its shares by a third party.

This rule is sanctioned by criminal penalties and any interested party can request a court to void the transaction.

It is widely accepted that the prohibition should be interpreted restrictively. Therefore, the financial assistance is in principle only prohibited if it relates to the acquisition of the shares of the company providing the assistance. Financial assistance provided for the purpose of the acquisition of the shares of a direct or indirect affiliated company is usually permitted provided that the assistance: (i) is not in breach of the company's corporate purpose clause; and (ii) meets the corporate benefit test.

Financial assistance prohibitions do not apply to Belgian asset deals.

Author biographies

Vincent Dirckx Lontings & Partners Vincent Dirckx has been a partner in the corporate and finance department of Lontings & Partners since February 2003. He obtained his law degree in 1991 at the Catholic University of Louvain (UCL). Vincent Dirckx deals with domestic and cross-border corporate and corporate finance transactions as well as company law issues. He is highly experienced in international and national public and private acquisitions (assets deals, share deals and joint ventures) and restructuring of multinational groups, as well as Belgian merger control and capital markets. Ysabelle Vuillard Lontings & Partners Ysabelle Vuillard has been a senior associate in the corporate and finance department of Lontings & Partners since September 2005. She obtained her law degree in 1996 at the Université Libre de Bruxelles (ULB). In 1997 she received a postgraduate degree in economic law from the Vrije Universiteit Brussel (VUB). Ysabelle Vuillard's areas of expertise are corporate and commercial financial deals, and general commercial contracts.