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Stibbe Simont Monahan Duhot

Through a tiny provision hidden in an act relating to a totally different matter (section 45 (4) of the Act of May 4 1999 containing several tax provisions, which was published in the Belgian Official Gazette of June 12 1999), section 4 of the Act of December 4 1990 relating to financial transactions and financial markets was repealed. The provision in question required the prior authorization of the Minister of Finance upon public issuance, sale by public subscription, or registration on the Belgian stock market of securities issued by a natural person who is not a citizen of one of the member states of the EU, or by a company or institution which is not incorporated under the laws of one of those countries. The same authorization was required for public takeover bids launched for Belgian securities by — or on behalf of — such persons or companies.

Section 4 of the Act of December 4 1990 was originally enacted as section 3 of the temporary Act of March 4 1919 on the organization of the Belgian stock market. This provision — accompanied by criminal sanctions — required the Minister of Finance's prior authorization upon public issuance, sale by public subscription and registration on the stock market of Belgian securities by non-Belgian natural persons, companies and institutions. The preamble of the Act of 1919 highlighted the necessity to organize such a control in order to avoid that the Belgian wealth — then indispensable to the reconstruction of the economy — could flow abroad.

In addition, the Minister of Finance was also granted in 1967 the power to publish in the Official Gazette a notice announcing that a transaction had not been duly authorized and providing that, from the date of publication of that notice, it would be forbidden for anyone, especially bankers and brokers, to cooperate in any way towards the realization of that transaction.

In 1972, at the request of the European Commission, this provision was restricted to the case where the natural person, company or institution was not a citizen of — or incorporated under the laws of — one of the member states of the European Community.

This provision was then integrated in the Act of December 4 1990, relating to financial transactions and financial markets. The Minister of Finance was granted the additional powers to request in advance any information deemed necessary to decide on the issuance of the authorization.

Reasons for reform

The government explained its reasons for the repeal of section 4 of the Act of December 4 1990 by referring to (i) the non-conformity of that provision with the OECD Code of Liberalization of Capital Movements and with the General Agreement on Trade in Services, (ii) the ineffectiveness of the provision, and (iii) the ease of circumventing the provision.

While the non-conformity of this provision with the OECD Code of Liberalization of Capital Movements is not in question, the General Agreement on Trade in Services does allow the maintenance of restrictions with respect to takeover bids launched in the banking sector. As far as the alleged ineffectiveness of the above-mentioned provision is concerned:

  • The sanction of publication in the Official Gazette of a notice providing that a transaction was not duly authorized, and the subsequent prohibition for any banker or broker to cooperate in the realization of the transaction, was sometimes (discretionarily) employed, and sometimes proved effective (for example, in 1970 the Minister of Finance refused to authorize the issuance of shares by a Panamanian company, and in another case concerning a takeover bid for an insurance company, the authorization was refused because the Minister of Finance considered that the offeror did not commit to preserve the employment level of the company).
  • In addition, the mere existence of this provision had a dissuasive effect, both on its own and in cases where the Minister of Finance officially let it be known to a foreign person or company that the authorization, if applied for, would be refused.

It is true that application of this provision could easily be circumvented by acting through an EC subsidiary or, in for example the takeover of a company, through the private purchase of the company's shares without payment of a premium above the market price.

Implications of repeal

After the repeal of section 4 of the Act of December 4 1990, the government no longer has a general control over all non-EC foreign investments in Belgium. However, Belgian laws still contain provisions allowing for control over foreign investments in specific fields (such as the power of the Belgian Banking and Finance Commission to forbid a person from acquiring more than 5% in a credit institution — section 24 of the Act of March 22 1993, relating to the status and control of credit institutions).

Ironically the repeal of section 4 of the Act of 1990 comes at the very moment that the question of whether and how Belgian undertakings — or at least their decision-making centres — can be kept on Belgian soil is being ardently debated, in the wake of the takeovers by foreign companies of leading Belgian banking, insurance and industrial companies. Such an issue is not unfrequently linked to a renewed approach to corporate governance.

André Bruyneel and Onenne Partsch

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