New governance proposals for listed companies

On 5 July 2023, we wrote that on the occasion of the publication by the FSMA of its 2022 annual report, Jean-Paul Servais, chair of the FSMA, had presented a webinar focusing on the FSMA’s plans for the future. Among these plans, three ideas were particularly relevant to listed companies: the obligation to have at least three independent directors; shareholder approval of transfers of significant assets; and a prohibition on acting as a director of a listed company for persons convicted of certain types of criminal offences. The FSMA had submitted a proposal to the Belgian government to implement its three proposals.

On 4 December 2023, the government introduced a draft act in the House of Representatives based on the FSMA’s proposals.

1. At least three independent directors

Under the Belgian Corporate Governance Code 2020, listed companies must have at least three independent directors. The FSMA wished to strengthen the position of independent directors and considered that this soft law recommendation should be enshrined in hard law.

Independent directors play an important role, including in the context of related-party transactions, and according to the government, their position should be strengthened. To this end, the government proposes to oblige listed companies to have at least three independent directors.

If for any reason the composition of the board of directors does not meet or no longer meets this requirement, the next general meeting should establish a validly composed board of directors (without prejudice to the validity of the composition of the board of directors up to that date); any other appointment would be null and void. If, after this general meeting, the board of directors is not validly composed, all benefits, financial or otherwise, in connection with the directors’ mandate would be suspended for as long as the board of directors is not validly composed. These proposed sanctions are identical to those applicable in the event of non-compliance with the gender quota.

In addition, when the board of directors proposes the appointment of an independent director to the general meeting, it must expressly confirm that it has no indications for doubting the independence of the candidate or, if it does have such indications, explain what those indications are and why it believes that the candidate is nevertheless independent.

2. Shareholder approval for transfers of significant assets

Unlike in other jurisdictions, Belgian company law does not currently require shareholders’ involvement in the event of a transfer of significant assets. Therefore, the FSMA proposed to introduce approval by (or at least consultation of) the shareholders of listed companies for any transfer of significant assets.

The government also follows the FSMA on this point and proposes that if a transfer of assets concerns 3/4 or more of the total assets, it should be approved in advance by the general meeting of shareholders. This threshold would be assessed in relation to the most recently published annual accounts, which means that the book value of the assets (rather than their market value) would have to be taken into account. If the listed company publishes consolidated accounts, the threshold must also be calculated on the basis of the consolidated assets. Approval would therefore be required if the threshold is crossed at the level of the listed company itself, at the consolidated level of the group or at both levels. In addition, asset transfers carried out within twelve months (and not approved by the general meeting) would have to be added to the proposed transfer to calculate the applicable threshold, without any de minimis threshold being taken into account at the level of the individual transfer.

Under penalty of nullity, the management body would have to justify the proposed transfer in a detailed report mentioned in the agenda and made available to shareholders.

No quorum would be required for the approval by the general meeting. The decision would have to be taken by a simple majority of the votes cast, without taking account of abstentions in the numerator or the denominator.

The transfer would not be subject to review by the FSMA.

3. Directors of listed companies should not have been convicted of certain offences

The government proposes that, in line with existing prohibitions for directors of credit institutions or other regulated entities, persons who have been convicted of certain serious offences (such as money laundering, insider dealing and bribery) should be prohibited from acting as directors of listed companies.

According to the government, this professional ban would help to strengthen confidence in the financial system in general and preserve the reputation and integrity of listed companies.

Article 20 of the Belgian Banking Act lists the offences justifying such a ban and sets the duration of its application. The ban would be effective for 20 years in the event of conviction with imprisonment of more than 12 months, or 10 years for a conviction with imprisonment of less than 12 months, a fine or a suspended sentence.

The professional ban would apply both to listed companies in the strict sense of the term and to companies whose securities other than shares (e.g. bonds) are admitted to trading on a regulated market.

Entry into force

Once approved, the new act would come into force on the tenth day after its publication in the Belgian Official Gazette.

The obligation to have at least three independent directors would apply as from the first day of the second financial year beginning after the publication in the Belgian Official Gazette. In other words, if the act is (approved and) published in 2024, listed companies (whose financial year starts on 1 January) would have until 31 December 2025 to comply with this new requirement.