Article 7:97 of the BCCA - Related party transactions
Within a group of companies controlled by a listed company (currently quasi-exclusively in the form of a SA/NV), situations can occur where the interests of the listed company and those of its subsidiaries or of other related parties (within the meaning of IAS 24, see below) can diverge. In order to prevent these related parties (i.e. some of the important shareholders of the listed company) from taking advantage of their position to appropriate (part of) the benefit or value of a certain transaction to the detriment of other/minority shareholders (value shifts) in the context of a group of companies, the aforementioned procedure for related party transactions has been reinforced in the Belgian Code of Companies and Associations (BCCA), Article 7:97 (or 7:116 and 7:117 respectively in the case of a dual governance model), as amended in 2020 following the transposition of the EU Directive 2017/828 as regards the encouragement of long-term shareholder engagement (the Second Shareholders’ Rights Directive or SRD II).
As a result of the transposition of this Directive into Belgian law, the scope of application of Article 7:97 of the BCCA (and consequently of Articles 7:116 and 7:117 of the BCCA) has been broadened and new exceptions have been introduced.
In this newsflash PwC Legal aims to shed light on these developments, to explain when Article 7:97 of the BCCA applies and which procedure to follow.
Which companies fall within the scope of Article 7:97 of the BCCA?
The rules provided in Article 7:97 apply to transactions, to be decided upon by the board of directors of (i) a listed company, and (ii) non-listed subsidiaries of a listed company.
Which transactions lead to the application of Article 7:97 of the BCCA?
Article 7:97 of the BCCA applies to any transaction which carries out (i) a decision which falls within the competence of the board of directors (or alternatively the supervisory board or the management board or the sole director of a listed company (or its subsidiaries)) concerning a party related to the listed company, as well as (ii) a number of preparatory decisions to be taken by the board of directors of the listed company, for example a proposal by the board of directors to the general shareholders’ meeting regarding a contribution in kind to the listed company to be carried out by a related party, a merger proposal, a demerger proposal, a proposal for any assimilated transactions or a proposal for a contribution in kind of a universality, with a related party.
The following transactions, among others, are excluded from the procedure described in Article 7:97 of the BCCA:
- Transactions entered into in the ordinary course of business, provided they are concluded at arm’s length, and that (i) the managing body establishes an internal procedure to periodically assess whether the conditions are met and (ii) the related parties do not participate in this assessment.
- Transactions representing less than 1% of the listed company’s net assets, on a consolidated basis.
- Transactions relating to the remuneration of directors, other officers and persons responsible for the day-to-day management of the company, or certain elements of their remuneration.
- Transactions regarding the acquisition (or sale) of the listed company’s own shares, the distribution of interim dividends, capital increases in the framework of the authorised capital without cancellation or limitation of the preferential right of existing shareholders.
- Transactions between a subsidiary and its listed parent company provided that the person who has control of the listed parent company does not hold more than 25% of the share capital or is entitled to more than 25% of the profits, via other persons/entities than the listed company.
What is a related party?
The definition of ‘related party’ is broader than the one of ‘related company’ as referred to under Article 1:20 of the BCCA (based on the concept of ‘control’) as it is now defined with reference to IAS 24 (one of the norms defined in the International Accounting Standards as adopted by EU Regulation 1606/2002) which encompasses, in addition to companies with any direct or indirect control, any person who exercises significant influence over the company, or who is a member of the company’s senior management, or a close family member, and also any company which is an associated undertaking or a joint venture.
An associated undertaking is any company, other than a subsidiary or a joint subsidiary, in which another company holds an interest and over whose management it exercises a significant influence.
Significant influence is the power to participate in the financial and operating policy decisions without exercising control over those policies. A significant influence may be acquired through shareholding, the articles of association or an agreement. According to the BCCA, a company holding one fifth (20 %) of the voting rights attached to the shares of a company is considered to have a significant influence.
What procedure should listed companies follow?
Before being able to take a decision, the board of directors of a listed company (or its supervisory board or the sole director, if applicable) must request the opinion of a committee composed of three (3) independent directors. This committee can be assisted by one or more experts if need be.
The committee will issue a special report stating its reasoned opinion about the proposed transaction, including information about the transaction itself, the financial and other consequences thereof, etc. This opinion must be submitted to the managing body before the latter deliberates. Deviations from the opinion of the committee, are possible but must be explained by the managing body.
In addition, the statutory auditor will have to assess whether the financial and accounting data in the minutes of the meeting of the board of directors and in the committee’s opinion contain any significant inconsistencies. This assessment must be attached to the minutes of the meeting of the board of directors.
For transparency reasons, the transaction must be made public by the listed company via an ad hoc communication at the latest at the time the decision is taken or the transaction is concluded.
In the event of a transaction between a non-listed subsidiary of a listed company and a related party, the subsidiary must submit the transaction to the managing body of its parent listed company for prior approval. In such a case, the managing body of the listed company will have to apply the procedure of Article 7:97 of the BCCA as described above.
Special case – cumulation with 7:96 of the BCCA
If a member of the managing body is directly or indirectly involved in the transaction, this member will not be able to take part in the deliberations nor vote to approve the transaction. If all members of the managing body are involved, then the general assembly would need to approve the transaction.
Please note that the concept of ‘involved director’ is broader here than the concept of ‘director with a conflict of interest’ in Article 7:96 (which only covers a direct or indirect financial implication). A director is considered to be involved when, for example, he or she is an employee or director of the related party or plays a role in any capacity, such as an advisor in the decision-making process of the transaction in question.
In the event that the involved director is also a director with a conflict of interest within the meaning of Article 7:96, then that director will also have to follow the conflict-of-interest procedure provided for in that article.
Should you have any questions, please do not hesitate to reach out to our team!
