New governance proposals for listed companies approved in Parliament

[update of an article initially published on 29 March 2024]

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.

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

On 21 March 2024, the House of Representatives approved the final act, which, however, differs from the initial draft act on certain aspects.

The act was promulgated on 28 March 2024 and published in the Belgian Official Gazette on 29 March 2024. For the most part, it entered into force on 8 April 2024.

1. At least three independent directors

Under the 2020 Belgian Code on Corporate Governance, 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 the Belgian legislator wishes to strengthen their position. To this end, listed companies will be obliged 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 must establish a validly composed board of directors (without prejudice to the validity of the composition (and hence the decision-marking) of the board of directors up to that date); any other appointment will 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 will be suspended for as long as the board of directors is not validly composed. These 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. Fulfilling the specific independence criteria set out in the 2020 Belgian Code on Corporate Governance no longer results in a presumption of independence.

2. Shareholders’ 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 Belgian legislator also follows the FSMA on this point: if a transfer of assets by a listed company or its (non-listed) subsidiaries concerns 3/4 or more of the total (consolidated) assets of the listed company, it must be approved in advance by the general meeting of shareholders of that listed company. This threshold must 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) must be taken into account. If the listed company publishes consolidated accounts, the threshold must also be calculated on the basis of the consolidated assets. All asset transfers by the listed company and its (non-listed) subsidiaries carried out within twelve months (and not approved by the general meeting of the listed company) will 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. There are also no exceptions for routine transactions.

However, transfers to a subsidiary are exempt, except if the natural or legal person that has direct or indirect control over the listed company holds, directly or indirectly through natural or legal persons other than the listed company, a holding that represents at least 25% of the capital of the subsidiary or that entitles he/she/it to at least 25% of the distribution of profits.

No quorum is required for the approval by the general meeting. The decision must be taken by a simple majority of the votes cast, without taking account of abstentions (neither in the numerator nor in the denominator). The approval must then be filed with the enterprise court and published in the Annexes to the Belgian Official Gazette.

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

However, third parties are protected since the absence of shareholder approval does not affect the representational powers of the governing body. They may thus assume that the approval by the governing body is sufficient.

The transfer is not subject to review by the FSMA.

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

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) are not allowed to exercise a mandate as directors of listed companies. This professional ban is extended to the CEO and other executives of listed companies as well.

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 applies 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

The new act was published in the Belgian Official Gazette on 29 March 2024 and entered into force on 8 April 2024.

The obligation to have at least three independent directors will, however, apply as from the first day of the second financial year beginning after the publication of the act in the Belgian Official Gazette. In other words, listed companies whose financial year starts on 1 January have until 31 December 2025 to comply with this new requirement. If their financial year starts, for example, on 1 April, then they have until 31 March 2025.