Banks, insurance companies and other asset managers
(including private equity houses other than funds-of-funds)
contributed strongly to the Belgian private equity market in
2009. Commitments from government agencies, the main source of
capital in 2008 (279 million) ($364 million)
In 2009, fundraising by Belgian private equity firms nearly
halved at 355 million compared to 2008. Nearly 65% of new
funds raised were committed by Belgian investors. Investments
in Belgium companies (1.1 billion) accounted for 49% of
investments in the Benelux region. Of the private equity firms
headquartered in Belgium, 27 were venture specialists, 12
focused on buyout, and one on growth deals.
The expected allocation of funds raised in 2009 indicates a
relatively stable share of funds allocated to buyouts and
growth capital with nearly 79.4% of the total and 282
million (compared to 90.4% and 640 million in 2008).
Investment and transactions
Investments in Belgian companies in 2009 included:
- Start-up investments. These amounted to 88.5
million (compared to 52.8 million in 2008).
- Later stage venture investments. These amounted to
108.5 million (compared to 79.4 million in
- Buyouts. These increased by nearly 50% to 537.5
million (compared to 354.3 billion in 2008).
- Replacement capital. This increased by more than 400%
(118.7 million compared to 25.8 million in
- Growth capital. This increased substantially to 239
million (from 173 million in 2008).
The investment distribution by sector was:
- Life sciences. 18.3% (compared to 15% in 2008).
- Computer and consumer electronics. 14.4% (compared to
15.8 % in 2008).
- Business and industrial products. 12.7% (compared to 6.1%
- Transportation. This sector saw a significant decrease to
2.8% (compared to 10.5% in 2008).
In 2009, private equity firms based in Belgium invested a
total of 1.059 million in 248 companies. Investments
increased by more than 50 % compared to the levels reached in
2008 (667.6 million in 2008).
Domestic investment by Belgian private equity firms
represents the majority of transactions in 2009 (79.2%) and
reached nearly twice the 2008 level (41.5%). The share of
investment in other European countries decreased to 18.8% with
110.9 million in 2009 (compared to 58.3% with 573
million in 2008. The remaining 2.0% represented investments in
non-European countries (0.2% in 2008).
Total divestments in 2009 by private equity firms based in
Belgium were 306 million from 82 transactions (compared
to 313.9 million from 55 transactions in 2008). Popular
forms of exit in 2009 included (by percentage of the total
amount at cost):
- Trade sales: 59.8 % (compared to 42.7% in 2008).
- Sales to other private equity houses: 13.5 % (compared to
19.1% in 2008).
- Sales of quoted equity 12.2 % (compared to 0.0% in
- There were no public offerings in 2009 (compared to 24.2%
Various legal forms are allowed for the incorporation of a
company (Company Code May 7 1999 (Wetboek van
Vennootschappen or Code des
Sociétés)). The structure most commonly used
for domestic private equity funds is a Belgian company limited
by shares (naamloze vennootschap (NV) or
société anonyme (SA)).
An NV or SA must have at least two shareholders. The
shareholders can be corporate entities or individuals, and both
Belgian or foreign. The minimum share capital is 61,500.
Shares can be either registered or bearer and can be with or
without a nominal value. However, from January 1 2008, bearer
share issues are no longer allowed. In general, shares are
freely transferable. However, company law permits transfers to
be restricted by means of either a shareholders' agreement or a
statutory clause (Article 510 Company Code).
Two specific types of undertakings for collective investment
(instelling voor collectieve belegging or
organisme de placement collectif) have been
The public privak (publieke privak or pricaf
- by contract (prifonds). Prifonds take
the form of an investment fund (beleggingsfonds or
fonds de placement). That is, they are a set of
jointly owned assets, managed by a management company
(beheersvennootschap or société de
gestion) which has no legal personality;
- as an investment company (beleggingsvennootschap
or société d' investissement). These
privaks have their own legal personality and can be
incorporated either as an NV or SA, or a limited partnership
by shares (commanditaire vennootschap op aandelen or
société en commandite par actions).
They are subject to company law, with a few specific
The private privak (pricaf privée) can only
be constituted as an investment company. It can be incorporated
as any of the following:
- a company limited by shares (an NV or SA);
- a limited partnership by shares (commanditaire
vennootschap op aandelen or société en
commandite par actions);
- an ordinary limited partnership (gewone commanditaire
vennootschap or société en commandite
Most investment vehicles do not satisfy Belgian requirements
for transparency. A foreign fund is subject to Belgian taxation
on realised capital gains and dividends, and other income
received in Belgium, where these are attributable to any
Belgian establishment. If so, taxation is on the same basis as
for Belgian resident companies. A Belgian establishment is a
fixed place through which the professional activities of a
foreign company are entirely or partly conducted in Belgium.
This is similar to the definition of a permanent establishment
under the tax treaties. An investment vehicle cannot claim the
benefits of double tax treaties on the basis that it is subject
to a more favourable tax regime in its home jurisdiction. If
treaty protection is not available, the investment vehicle is
liable to tax in Belgium.
Tax incentive schemes
Apart from the special tax regime applicable to
privaks, investors in any Belgian limited liability
company enjoy favourable tax treatment.
Capital contributions to a Belgian company are not subject
to any registration tax at company formation or at a later date
(except, sometimes, for contributions of real estate into the
capital of a company). On top of that, the NID allows companies
to claim a tax deduction for the cost of capital by deducting a
notional interest rate calculated on the company's equity
(including reserves) (Law on Notional Interest
Deduction). It aims to encourage equity funding in small
and medium-sized companies. Where there is no tax base, the
notional interest deduction can be carried forward for up to
Capital gains realised by a Belgian company on the sale of
shares in a subsidiary are exempt from corporate income tax,
irrespective of the size or duration of the shareholding.
However, capital losses on shares are not tax-deductible,
except following the liquidation of a company. In this case the
capital loss can be deducted from taxable income up to the
amount of the investor's paid-in capital.
In general, interest payments are subject to withholding tax
of 15% and dividend payments are subject to withholding tax of
25%. However, many exemptions exist.
Dividends allocated by a subsidiary to its parent company
are exempted from withholding tax inasmuch as the parent
company is located in another member state of the European
Union than Belgium or in a state with which Belgium has
concluded a double taxation convention. At the time income is
attributed, the parent company shall have maintained, during an
uninterrupted period of at least one year, a minimum share of
10% in the capital of its subsidiary.
The extension of the exemption from withholding tax on
participation dividends to dividend payments to a contracting
state (non-member of the European Union), applies to dividends
allocated or made payable as from January 1 2007 (Directive
90/435/EEC on the taxation of parent companies and subsidiaries
A participation exemption applies in relation to dividends
attributable to a Belgian permanent establishment. Dividends
are initially included in the taxable income and then 95% of
the dividends are subsequently deducted from that taxable
income. The participation exemption is not granted to income
allocated or assigned by companies which are not liable to
corporate income tax or to a similar foreign tax, or which are
established in countries offering a legally established tax
system that is markedly more advantageous than the Belgian
system. A tax regime is considered 'markedly more advantageous'
when the normal corporate income tax rate or the effective tax
burden is lower than 15%. The common right fiscal provisions
applicable to companies located in the European Union are
deemed not to be markedly more advantageous.
To benefit from the scheme, the following conditions must be
- A holding requirement of at least 10% of the share
capital or not less than 1.2 million.
- The shares must be held in full ownership for at least
- The shares must be held as financial fixed assets
(portfolio investments are not eligible).
In case of lack or insufficiency of taxable profit, the
remaining participation exemption now can be carried over the
next taxable periods, as a consequence of the recent Cobelfret
judgment of the European Court of Justice (CJEC February 12
2009, nr. C-138/07).
A 10% withholding tax is charged on the amounts attributed
following the liquidation of the issuing company, following the
total or partial distribution of the company's assets or
following the repurchase by the company of its own shares. The
amount liable to withholding tax is the amount chargeable as a
dividend under CIT provisions. However, shareholders are exempt
under the Parent-Subsidiary Directive. Interest payable on
loans taken out by Belgian companies to acquire Belgian or
foreign shareholdings is generally fully deductible.
There are no general thin capitalisation rules and so it is
not necessary to observe any debt-to-equity ratio within a
Belgian company. Specific thin capitalisation rules can be
imposed in special circumstances but only for corporate income
tax purposes. Where these rules apply they impose a
debt-to-equity ratio of:
- 1:1 where the lender is a director or an individual
- 7:1 if the actual beneficiary of the interest paid by the
Belgian company is not subject to taxation on income, or is
subject on its interest income under a tax regime that is
more favourable than the Belgian tax regime.
There is no time limit when carrying forward tax losses.
Lastly, a holding company that acquires a stake in a
business, without intervening directly or indirectly in its
management, is not deemed to be paying VAT. VAT cannot
therefore be deducted by that company.
The most common investment objective is to achieve a maximum
return on investment and, to do so, various techniques are
applied. Most investments are structured as straight equity
because of the exemptions on the proceeds (whether dividends or
capital gains). For investors and funds, a maximum leverage
effect can be created to reduce the taxable profits of a
Belgian target. This can be achieved by structuring the
investment through subordinated debt.
Generally, investors buy or subscribe to common shares.
Shares can be issued by the authorised corporate body (for
example, in a general shareholders' meeting or by the board of
directors) provided it is done in accordance with the company's
articles of association and the Company Code. As a result, the
company's share capital can be increased by either:
- A shareholder vote amending the articles of
- The board of directors (where authorised share capital is
In general, shares in an NV or AS are freely transferable.
However, it is possible to restrict transfers through a
shareholders' agreement or a statutory clause.
Convertible bonds and warrants, giving potential access to
the share capital, are also used. Holders of common shares are
entitled to the full benefits of a successful exit but have no
priority over other shareholders in the event of an
unsuccessful exit. The NID abolished capital contribution duty
as from January 1 2006 and, in addition, introduced risk
capital deduction (Notional Interest Deduction (NID)),
which is an attractive system for new equity funded entities
and activities in Belgium.
Convertible debt has no priority over other debts in the
event that the company is liquidated. If bank finance is
involved, the banks are likely to insist that the convertible
debt is treated as subordinate to the bank debt.
The advantage of warrants is that there is no need to make
any cash outlay before it becomes apparent that the warrants
are in profit. The disadvantage is that the company does not
receive any immediate injection of funds from the investment.
Therefore, warrants are typically only used as an additional
equity kicker to a debt or equity investor who simultaneously
provides substantial cash investment to the company.
It is common for buyouts (including some major buyouts) to
take place by auction but there is no specific legislation
covering this. There is no absolute fiduciary obligation to
sell to the highest bidder and therefore the board of directors
can consider other factors when deciding which bid to
Buyouts of listed companies do occur but are rare, partly
because these types of transactions are complex. Public offers
for shares of publicly traded companies are subject to
extensive regulation and a public offering of securities
requires the publishing of a prospectus approved by the BFCI.
In addition, a buyer can be obliged to start a buyout offer
followed by a squeeze-out procedure
Typical clauses included for the protection of contractual
buyers are as follows:
- Representations and warranties
(non-management). The purchase agreement is
comprised of representations and warranties made by the
sellers. A buyer is not allowed to rely on a representation
or warranty if:
- he had actual knowledge that the representation or
warranty was false;
- he should reasonably have known that the representation
was false, based on the information disclosed by the seller
in the data room before the transaction was completed.
Institutional sellers are often extremely reluctant to
provide any representations or warranties other than
confirmation that they own the shares.
The sellers' indemnification obligations are usually limited
by cap, threshold and duration and may be guaranteed by various
instruments. Representations and warranties include those given
in relation to tax, other financial matters, and social and
- Representations and warranties
(management). Management are often the only people
who can make accurate representations and warranties.
However, they are usually reluctant to incur personal
liability by doing so. Possible solutions include:
- limiting liability to a specified amount;
- requiring management to make representations only on a
best -knowledge basis.
- Non-compete undertaking. A non-compete
undertaking is usually requested from the management.
- Other solutions (specific indemnities and
escrow). Where specific problems are identified in
the due diligence, sellers can be required to indemnify
against any losses arising out of those problems, regardless
of whether the buyer had actual knowledge of them. Where
major problems are anticipated, or where the seller is not
expected to be solvent after closing, it may be desirable to
escrow a portion of the purchase price to cover indemnity
It is usual for management participating in an MBO to enter
into management or employment agreements. A wide range of terms
are usually imposed, including:
- Confidentiality provisions.
- Non-compete undertakings.
- Non-solicitation undertakings.
In addition, most managers are required to forfeit all or
some of their equity (or stock options) in a Belgian company if
they leave voluntarily or are dismissed for cause. If so, the
purchase price for the manager's equity share may be less than
market value (known as a bad leaver clause). In other
circumstances (such as death, disability, or termination
without cause), the manager is allowed to keep his equity in
the company (known as a good leaver clause).
A minority investor is usually granted the right to nominate
one or more members of the company's board of directors. This
right can be included in the company's articles of association
(a binding nomination), but is much more likely to be found in
the shareholders' agreement.
Minority shareholders can also be granted veto rights over
specific corporate actions, such as:
- Use of authorised capital by the board of directors.
- Appointment of managing directors and key managers.
- Decisions in relation to certain investments,
divestments, borrowing, lending and guaranteeing.
- This is often achieved by issuing a separate class of
shares to the minority investor and then granting veto rights
to that class of shares (or to a director appointed by the
A majority shareholder can remove the company's board of
directors virtually at will and, therefore, does not require
The most commonly used forms of exit are:
- Secondary sales (where the private equity provider sells
his interest in the company to a third party).
- Trade sales of the company to a third party.
- Auctions, which are particularly beneficial if they are
organised between strategic third party buyers and investment
underwriters contemplating an IPO for the company.
- An IPO of the company on the relevant stock
Although the IPO remains the most prestigious and profitable
exit, current slow-moving worldwide stock market conditions
mean that the secondary sale and the trade sale remain the most
popular forms of exit in Belgium.
The alternatives for an exit are generally limited for an
unsuccessful company. Under certain circumstances, a separate
sale of healthy business units can be considered. In extreme
situations, a company can be liquidated (on a solvent or
insolvent basis) or declared bankrupt.
The advantages and disadvantages of these alternatives can
vary widely in each case.
Security, in the form of pledges of equity (share pledges)
and other collateral (such as receivables), is available,
subject to applicable financial assistance rules.
The Collateral Law (Wet Financiële Zekerheden)
allows a taker of collateral to enforce a financial collateral
arrangement when an enforcement event occurs, without the
collateral provider being given an opportunity to remedy the
situation, or without any judicial procedure, even where there
are existing insolvency proceedings in place. This ensures that
certain provisions of insolvency law that would hinder the
effective realisation of the collateral do not arise, provided
that the parties act in good faith. Belgian courts may exercise
control afterwards over the realisation or valuation of the
relevant financial obligations to verify that they were
conducted in a commercially reasonable manner.
Debt providers can take first charges over the fixed assets
of a company, and it is also possible to take a floating charge
(pand op handelszaak) over the company's assets. In
the event of either bankruptcy or judicial composition
(gerechtelijk akkoord) (a form of insolvency
proceedings generally entered into before bankruptcy), secured
creditors are paid before the generally preferred creditors and
unsecured creditors. Secured creditors are creditors secured
- Other special preferential rights on real or personal
The order of priority on insolvent liquidation is as
- Secured creditors. Secured creditors are
paid before the generally preferred creditors. However, their
claims only relate to the assets over which they have taken
security, while generally preferred creditors can have their
claims satisfied out of the general assets.
- Generally preferred creditors. The
following are generally preferred creditors:
- the government (mainly relating to contributions to the
Social Security Office regarding employees'
- tax authorities which also have certain special
protective powers (for example, seizure of assets);
- employees (in relation to their remuneration and
- Unsubordinated creditors.
- Subordinated creditors.
- Shareholders. Shareholders are paid
last, once all debts have been satisfied.
A debt holder can achieve equity appreciation through
rights, warrants and options.
(ii) Financial assistance
A company is entitled to provide financial assistance with a
view to the acquisition of its shares by a third party provided
the following stringent conditions are met (Article 629,
The transaction must be authorised by the board of directors
as being at fair market conditions, taking into account the
usual market interest rate and the usual collaterals for
similar types of financing as well as the credit standing of
the third party.
The transaction is subject to prior approval by the general
meeting of shareholders with the same quorum and majority
requirements as for an amendment to the Articles of
The board of directors must draft a special report
- the reasons for the transaction;
- the interest of the company in entering into the
- the conditions of the transaction;
- the liquidity and solvency risks for the company;
- the price at which the shares are sold.
In addition, if a director of the parent company or the
parent company itself benefits from the transaction, the report
of the board must explicitly justify such a decision taking
into account the capacity of the beneficiary and the
consequences for the assets of the company.;
The assistance must be paid out of, and cannot exceed,
distributable profits (as defined in Article 617 of the Company
Code). The company must set up a non-distributable reserve on
the liabilities side of its balance sheet equal to the total
amount of the financial assistance.
Except for the requirement for sufficient distributable
profits, the above conditions do not apply where financial
assistance is granted to company employees or to affiliate
companies controlled by employees.
In addition, a special general meeting of shareholders can
approve the distribution of dividends from profits that have
been reserved and approved by the annual ordinary general
meeting of shareholders. A distribution of dividends is usually
made through the approval of an ordinary or special general
meeting, although under certain circumstances the board of
directors can also approve the distribution of an interim
dividend. This kind of dividend distribution is commonly used
in the context of private equity transactions.
(iii) Management incentives
A common management incentive is to give the managers a
combination of shares and options.
Stock option plans are also often used because they can
receive favourable tax treatment in Belgium. For example, it is
possible to pay relatively low upfront tax at the time of the
grant of the stock options and to realise a tax-free capital
gain, provided that the options are not exercised earlier than
three years from the date of the grant (Law of March 26
1999 relating to the 1998 Belgian Employment Action Plan).
In addition, a well-designed stock option plan can provide for
a period of vesting (which determines when the options become
Shares can be issued at a 20% discount if the employer uses
part of a new share issue (Article 609, Company Code). The 20%
discount is exempt from both income tax and social security
contributions, subject to certain conditions (for example, a 5
year lock-up period).
However, there are no other specific tax reliefs or
incentives available to management investing in their
About the author
Luc Wynant is founding partner of Van Olmen Wynant
and head of the corporate law, private equity and
M&A practice. Van Olmen Wynant is listed as
recommended law firm in the PLC Handbooks, Chambers and
Mr Wynant has extensive experience in all aspects of
corporate law, in particular regarding mergers &
acquisitions and private equity in both transactional
and financial work. He focuses especially on
international and domestic share and assets
acquisitions, venture capital and debt capital markets,
(leverage) management buy outs, divestitures, funds
formations, mergers and company reorganisations.
Mr Wynant regularly publishes on corporate and
My Wynant is fluent in Dutch, French and English. He
was admitted to the Brussels bar in 1989. He graduated
from the University of Leuven (KUL) in 1989 and
obtained an MBA degree from the Vlerick Leuven Ghent
Business School (1990).
Van Olmen Wynant
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