Created from the merger of the Amsterdam, Brussels, Lisbon and Paris exchanges, Euronext is the largest stock market in mainland Europe in terms of capitalisation, listings and equity trading volume. The Euronext Company trades on the Euronext stock market under the symbol NXT. As of the end of December 2006, 1,210 companies were listed on Euronext, with a total market capitalisation of €2,812 billion. In February 2005, Euronext adopted a single list, replacing the three existing regulated markets (the First Market, Second Market and New Market). Companies on this single list are identified by market capitalisation, distinguishing small caps (market capitalisation of under €150 million), mid-caps (capitalisation of €150 million to €1 billion) and large caps (over €1 billion). Several Belgian listed companies have dual listings, such as Delhaize, which is also listed on the New York Stock Exchange (NYSE), while Caterpillar, Altria, Pfizer, TDK, Volkswagen and General Motors all have Belgian listings.
In 2004, there were 32 initial public offerings (IPOs) on Euronext: 24 on Euronext Paris, two on Euronext Brussels, four on Euronext Amsterdam and two on Euronext Lisbon. In 2005, 34 companies joined Euronext: 22 on Euronext Paris, seven on Euronext Brussels, four on Euronext Amsterdam, and one on Euronext Lisbon. Moreover, 2005 was characterised in Brussels by, inter alia, 15 public takeover, exchange or buyout bids and over 150 issuances of debt securities with and without capital guarantees. A large number of these transactions were international in scope and increasingly complex. The year 2006 showed a record number of new listings, with 142 companies including the 57 listings on Alternext. The only hostile takeover bid worth mentioning is Mittal Steel’s bid for Arcelor in the summer of 2006.
Founded in Paris on 15 May 2005, Alternext, an exchange-regulated market for small and mid-sized companies, was launched in Brussels on 15 June 2006 along with the IPO of Evadix and in Amsterdam on 24 November 2006. Seventy-five companies were listed at the end of 2006 for a total market capitalisation of €3.5 billion. Euronext created this market as part of its long standing commitment to provide small and mid-caps with appropriate solutions for their financing needs and to encourage further growth in the context of more stringent Community oversight of regulated markets. The Alternext all-shares index was launched on 4 September 2006 tracking the combined performance of all shares listed on this alternative market.
2. REGULATORY STRUCTURE
The public offering of securities was until recently governed by the Act of 22 April 2003. With some delay, Belgium has finally transposed the Directive 2003/71/EC on the prospectus to be published when securities are offered to the public or admitted to trading (the ‘Prospectus Directive’) by the Act of 16 June 2006.
The Act of 16 June 2006 regulates the public offering of securities in Belgium and the admission to trading of securities on a Belgian regulated market as well as the prospectus and the communications with a promotional character regarding the public offering of securities for a total amount of no less than €2,500,000 or the admission to trading of securities taking place on the territory of one or more member states of the European Economic Area (with the exception of Belgium) when Belgium is the member state of origin. As a consequence, the Act of 22 April 2003 only remains in force as far as public takeover bids are concerned (and as long as the Directive 2004/25/EC on takeover bids has not been implemented in Belgium).
Article 3(1) of the new Act provides a new definition of a ‘public offering’ of securities. It means a communication to persons in any form and by any means, presenting sufficient information on the terms of the offer and the securities to be offered, so as to enable an investor to decide to purchase or subscribe to these securities, and which is made by the person authorised to emit or sell the securities or on her account.
According to Article 3(2) of the Act, an offering of securities shall not qualify as public in the following cases:
A public offering of securities in Belgium and the admission to trading of securities on a Belgian regulated market require beforehand the publication of a prospectus by the issuer. This prospectus shall be approved by the Banking, Finance and Insurance Commission (Commissie voor het Bank-, Financie- en Assurantiewezen or CBFA) within ten days of the presentation of a complete file by the issuer.
3. REGISTRATION OF THE ISSUER AND OF SECURITIES
There is no need for a foreign company offering securities in Belgium to be locally registered or licensed or to have any formal local presence or agent to accept legal process. In the event of a public offering, however, a foreign issuer must appoint a financial intermediary to act as its paying agent for Belgian investors, and the CBFA shall require and ensure that the Belgian public receives the same financial information provided abroad (particularly in the issuer’s home country).
Pursuant to article 88 of the Company Code, any issuer offering its securities in Belgium to the public without a subsidiary or branch in Belgium must file its instrument of incorporation and articles of association with the clerk of the Brussels Commercial Court and register with the company registry of the Crossroads Bank for Enterprises.
Securities have up until now been in either bearer or registered form. However, pursuant to the Act of 14 December 2005 on bearer securities, it will no longer be possible for companies to issue shares or other securities in bearer form in the future. As of 1 January 2008, it will indeed only be possible to issue registered or dematerialised securities. The scope of the Act extends not only to stock but also to profit-sharing certificates, bonds, warrants and notes issued by Belgian companies. The Act does not apply to bonds and securities issued by non-Belgian natural or legal persons. In addition, it will still be possible for Belgian companies to issue bearer securities if these are subject to foreign law. However, such securities may not be physically delivered in Belgium. Securities issued prior to publication of the Act (and which are not automatically converted on 1 January 2008) must be converted into registered or dematerialised form at the request of the holder before 31 December 2013. Securities issued after publication of the Act but before 1 January 2008 must be converted before 31 December 2012. Issuers are authorised to issue certificates similar to ADRs (American depositary receipts), representing a certain number of their existing securities. Modifications to the Act of 14 December 2005 are, however, foreseen in 2007.
The head offices of various major financial institutions, such as Euroclear and SWIFT, are located in Belgium. Settlement of all transactions made on Euronext Brussels is through CIK, a former subsidiary of Euronext which has since been renamed Euroclear Belgium following its acquisition by Euroclear on 1 January 2006.
4. SUPERVISORY AUTHORITIES
Supervision of the Belgian financial markets is currently governed by the Act of 2 August 2002 on the supervision of the financial sector and financial services. This act has reorganised the separation of powers between the CBFA and Euronext. According to the act, Euronext is responsible for issuing, supervising and enforcing its internal rules, which are contractual in nature and binding on market participants. The CBFA oversees compliance with all general rules of public policy and is responsible for ensuring respect by listed companies of obligations regarding the provision of financial information and the transparency of their shareholder structure and, in general, for supervising the secondary markets. Euronext is therefore in charge of setting the rules for admitting securities to its own markets, while the CBFA is responsible for approving the admission prospectus. In this respect, the CBFA can also veto an admission to trading of securities if such an admission would undermine investor protection.
5. OFFERING DOCUMENTATION
The Act of 16 June 2006 or the legislation of the member state where the offering or admission is taking place (Belgium being the member state of origin) requires the publication of a prospectus for a public offering of securities (for a total amount of at least €2,500,000) and for the admission to trading of securities on one or more regulated market as described in the Prospectus Directive for the so-called harmonised operations.
The prospectus must firstly be approved by the CBFA before being published. The CBFA must ensure that the prospectus complies with the applicable regulations and contains all necessary information, depending on the characteristics and nature of the offering, to enable the public to make a properly informed assessment of the proposed investment. The minimum information to be included in a prospectus is set out in the Commission Regulation (EC) No 809/2004 of 29 April 2004 implementing Directive 2003/71/EC of the European Parliament and of the Council as regards information contained in prospectuses as well as the format, incorporation by reference and publication of such prospectuses and dissemination of advertisements. The CBFA may not give any appreciation on the opportunity or the quality of the operation nor on the situation of the issuer.
The prospectus must also mention the identity and capacity of those persons responsible for it and a statement by the latter that, to the best of their knowledge, the information contained in the prospectus is in accordance with the facts and that there are no omissions likely to affect the content of the prospectus. These persons are traditionally directors of the issuer. As noted above, advisors can also be held liable for misleading information in a prospectus, but such cases are rare.
A prospectus is traditionally drafted by the bidder, with the assistance of its bank, counsel to the bank and the bidder, and its auditors. All of these parties usually take part in meetings organised with the CBFA prior to submission of a draft prospectus and during the examination process. There is no statutory requirement to perform due diligence before an offering of securities, but it is common practice to do so. Banks may be held liable if the prospectus contains misleading information and for failure to perform due diligence.
The prospectus should be drafted in French or Dutch or in a commonly used language of the international financial markets accepted by the CBFA. If the offer is taking place totally or partially in Belgium, the summary of the prospectus must be established or translated into French or Dutch.
The prospectus may consist of a single document or may be composed of several separate documents. In the latter case, the information required is divided into :
6. DISTRIBUTION SYSTEM
Securities offerings are traditionally distributed by commercial or merchant banks. Depending on the size of the transaction, a large consortium of banks may be involved (with lead managers, global coordinators, book-runners, co-managers, selling agents, etc). In any case, all of these parties must be registered as credit institutions or investment firms and be familiar with securities distribution methods (underwriting versus best efforts, book-building, green-shoe, etc.). Bankers’ fees are in line with international practice and depend on the banks’ commitments.
The distribution process usually takes between 10 and 20 days from approval of the prospectus by the CBFA. Anyone wishing to offer securities publicly must inform the CBFA in advance. Moreover, any form of advertisement regarding the transaction must be submitted to the CBFA for prior approval.
7. LISTING
Pursuant to rule B.3.3 of Euronext Brussels’ Rule Book, in order to be admitted to trading on Euronext Brussels’ Eurolist, issuers must meet the following main requirements: audited financial statements drawn up in accordance with IAS for at least three financial years must be made available and the free float must represent at least 25 per cent of the issuer’ share capital (publicly held shares must represent a least €5 million).
For debt securities, the loan may not be less than €200,000, except in the case of tap issues where the amount of the loan is not fixed or if Euronext Brussels is satisfied there will be a sufficient market. Euronext Brussels may require that debt securities be rated by a designated financial rating agency.
Simultaneously with the filing of a draft prospectus (if any) with the CBFA, an application must be submitted to Euronext Brussels, including inter alia the issuer’s articles of association, the draft prospectus, a written commitment from a financial intermediary to act as paying agent, the issuer’s annual accounts for the last three financial years prepared in accordance with IAS, a description of the business sectors in which the issuer operates and expects to operate, a financial forecast for at least the coming three years, an overview of the issuer’s technical and human resources, copies of any liquidity agreements, etc. The applicant must designate a sponsor, the listing agent (normally an investment bank), who will advise the applicant, liaise with Euronext and the CBFA and coordinate other advisers.
Traditionally, the filing of a prospectus with the CBFA (for approval) and of an application with Euronext Brussels are preceded by informal contacts between the CBFA and Euronext Brussels, on the one hand, and the issuer, its sponsor and counsel, on the other. Additional meetings with the supervisory authorities may take place during the examination process.
Euronext Brussels and the applicant jointly agree on a timetable for the listing process. Euronext Brussels then rules on the application for listing as soon as possible and, in any event, always within the regulatory time limits (ie within 90 days from receipt of all required documentation and information for a first admission and 30 days in all other cases). Euronext publishes the date on which the admission of the relevant securities to listing on Eurolist shall become effective, as well as the particulars for the trading of such securities. The offering may not start as long as the prospectus (if any) has not been approved and distributed.
The rules for Alternext are less stringent than those applicable to regulated markets, with listing requirements adapted to small and mid-cap companies and ongoing requirements sized to meet their needs.
The Act of 2 August 2002 provides for a system of appeal against decisions by Euronext Brussels and the CBFA in certain matters. Decisions by Euronext Brussels not to admit certain securities to trading and decisions of the CBFA not to approve a prospectus submitted by an issuer may now be brought before the Brussels Court of Appeals.
Euronext admission fees range from €10,000 to €3 million, based on the issuer’s market capitalisation at the time of the IPO. Centralisation fees amount to 0.3 per cent of the capital raised. Annual fees range from €3,000 to €20,000, depending on the number of securities admitted to trading.
8. ONGOING COMPLIANCE REQUIREMENTS
Continuing requirements for both listed and unlisted companies are set forth in various sources, such as the Belgian Company Code, the royal decree of 31 March 2003 on the obligations of issuers of financial instruments admitted to trading on a Belgian regulated market as modified by the royal decree of 14 October 2006, Euronext’s Rule Book, the CBFA Circulars FMI/2003-02 (updated in November 2006) and FMI/2004-02 (updated in November 2006), etc.
All companies (both listed and unlisted) must file their annual financial statements within 30 days of approval by the general meeting of shareholders with the National Bank of Belgium. Any interested person may obtain a copy of these statements.
In addition, companies admitted to trading on a Belgian regulated market are required to release annual financial statements through the press and file them with the CBFA and Euronext Brussels. These annual statements must be accompanied by the company’s management and auditor’s reports. The management report often contains information with respect to the company’s strategy and business, a discussion and analysis of financial conditions and the results of operations, corporate governance disclosures, a list of material contracts the company has entered into during the past year, the auditor’s report, etc. This report must be published in brochure form, ie a printed document made available to all investors. Companies admitted to trading on a Belgian regulated market are also required to publish semi-annual financial statements within three months following the end of each semester and, for companies admitted to trading on Eurolist, quarterly statements within two months following the end of each trimester.
Since 1 January 2005, Belgian issuers have been required to draw up their annual, semi-annual and quarterly statements in accordance with IAS/IFRS. Issuers subject to the legislation of an EU member state (until 1 January 2007) or issuers governed by the legislation of a non-EU country can prepare their financial statements in accordance with the accounting standards applicable in their home country. However, the CBFA may request such issuers to submit, within 15 days’ time, a declaration from their auditor or the financial supervisory authority of their home country indicating that the financial data in the issuer’s semi-annual, annual and quarterly statements has been prepared in accordance with the applicable accounting standards.
According to Euronext’s Rule Book, the issuer’s annual consolidated financial statements must be audited by its accountants in accordance with the standards of the International Federation of Accountants or national GAAP. Semi-annual financial statements for the first six months of the financial year must be subjected to a limited review by the issuer’s auditors. The report on this limited review shall be published along with the semi-annual report.
8.3 Other disclosure and governance obligations
Aside from the obligation to provide periodic information, a company admitted to trading on a Belgian regulated market must immediately disclose price-sensitive information. Occasional information must be disclosed through press agencies whether or not in combination with the company’s website (under conditions) or Euronext’s website or the financial media, and simultaneously transmitted to Euronext and the CBFA (which may order a halt on trading). Companies that wish to postpone disclosure, particularly of occasional information, must apply to the CBFA.
According to the (non-binding) Corporate Governance Code, any company admitted to trading on a regulated market should draw up a charter describing its corporate governance policy. This charter should include a description of the company’s governance structure and policies on matters such as related-party transactions, remuneration and insider trading, and market manipulation. The company is also required to disclose in its annual report information regarding its board’s activity and top-level remuneration.
The Company Code also provides that under certain circumstances the board of directors of any commercial company must draft special reports for shareholders, such as in the event of a capital increase due to a contribution in kind, the restriction or suppression of shareholders’ pre-emptive right in the event of a capital increase due to a contribution in cash, a change in the company’s corporate purpose, any changes to the rights attached to the company’s shares, issuance of convertible bonds or warrants, a merger, etc.
The Company Code also sets forth procedures for dealing with conflicts of interest. If a director has a direct or indirect financial conflict with a decision to be taken by the board, that director must inform the other directors accordingly. As long as the company is not a public company and its articles of association do not provide otherwise, the director may vote on the decision. If the company is listed and if the decision is likely to result in a financial advantage to one or more major shareholders, the board must appoint three independent directors and an expert to draft a report on the decision and its financial implications for the company and its shareholders, on the basis of which the board shall take its decision. A new procedure, directed in particular at intra-group transactions, was recently introduced to extend the scope of application of the conflict-ofinterest rules and strengthen the criteria used to assess the ‘independence’ of directors.
Companies admitted to trading on a Belgian regulated market must post on their website at least the following information: occasional information (in the form of a press release), any changes to the company’s shareholder structure, annual information in brochure form, annual and semi-annual financial statements, quarterly statements (if published), the company’s articles of association, information needed by the holders of financial instruments in order to exercise their rights, information concerning rights attached to the holding of financial instruments, the financial service offered, the financial year, etc.
9. CORPORATE GOVERNANCE
Principles of corporate governance for all companies admitted to trading on a Belgian regulated market are set forth in the Company Code and the Corporate Governance Code (also known as the Lippens Code) which has been adopted by the CBFA, Euronext Brussels and the Federation of Belgian Enterprises (FEB-VBO).
The Company Code reflect the ‘one-tier’ board model. All Belgian limited companies (sociétés anonymes) must appoint a board of directors (conseil d’administration) responsible for managing the company. The board is entrusted with general managerial authority and may take legal action on the company’s behalf. Members of the board of directors are accountable to the company’s shareholders for the performance of their duties and may be removed from office by the latter at any time. The board is led by a chairperson (président) and is composed of both executive and non-executive directors, including independent non-executive directors (administrateurs indépendants).
The board may delegate the day-to-day management of the company to one of its members (the administrateur délégué or CEO) or to a management committee (comité de direction). Both of these are responsible for running the company on a day-to-day basis, implementing internal controls, preparing the company’s financial statements and all information necessary for the board to perform its duties properly, presenting to the board a balanced and comprehensible assessment of the company’s financial situation, etc. Persons entrusted with daily managerial authority are accountable to the board for the performance of their duties and may be removed from office by the latter at any time.
The Corporate Governance Code requires a clear division of authority within a company between the board of directors and those responsible for running the company’s business. The chairman of the board and the chief executive officer should not be the same person. The division of authority between the chairman of the board and the CEO should be clearly established, set out in writing and approved by the board.
According to the Chapter 5 of the Corporate Governance Code, all companies admitted to trading on a Belgian regulated market must set up specialised committees to analyse specific issues and advise the board, in particular an audit committee, composed exclusively of outside directors, a nomination committee and a remuneration committee.
Another corporate governance code containing recommendations for unlisted enterprises (the Buysse Code) was presented on 21 September 2005. As the debate surrounding corporate governance originated in the need to protect investors, its principles initially appeared to be irrelevant for unlisted companies. However, to the extent corporate governance involves rendering a company’s management structure and decision-making processes more efficient, transparent and objective, unlisted enterprises can also benefit from these principles.
10. INSIDER TRADING AND MARKET ABUSE
10.1 Insider trading
Articles 25 and 40 of the Act of 2 August 2002 on the supervision of the financial sector and financial services provide that insider trading is a crime.
In order to be considered privileged, information must not be public and must (i) be sufficiently precise, (ii) relate to one or more issuers of securities or to one or more classes of securities, and (iii) be such that its publication would likely have a material effect on the price of the securities or their derivatives.
An insider is anyone in possession of ‘privileged information’ who knows or should be aware of the privileged nature of such information in his or her capacity as (i) a member of management or of a controlling body of the issuer or of a company closely related to the issuer, (ii) a holder of the securities in question or (iii) due to access to such information through his or her work, profession or function. Insiders may also be anyone who comes into possession of privileged information through criminal activities, any natural person who takes part in the decision to enter into a transaction or to pass an order on behalf of a legal entity, or any other person knowingly in possession of information that s/he knows or should be know is privileged and which originates, directly or indirectly, from any of the persons mentioned above.
Anyone in possession of privileged information must refrain:
The applicable criminal sanctions include a prison term ranging from three months to one year and fines from €50 to €10,000, capped at three times the capital gain derived from the insider trading. The CBFA can also impose administrative fines up to €2,500,000. The criminal sanctions are applicable to financial instruments admitted to trading on Eurolist, the Free Merket and Alternext (all organised by Euronext Brussels). The administrative fines, however, only apply to the Eurolist and Alternext markets.
There are nevertheless safe harbours to protect transactions such as buy-back programmes and stabilisation of financial instruments (subject to the fulfilment of several conditions). The literature is divided as to whether buying before the launch of a takeover bid constitutes insider trading if performed by the bidder who has already decided to launch a bid. It is advisable to notify this kind of transaction to the CBFA.
Notwithstanding the fact that Directive 2003/125 on the fair presentation of investment recommendations and the disclosure of conflicts of interests has direct effect in Belgium, a specific set of rules has been enacted which entails, among others that :
10.2 Market abuse
The royal decree of 5 March 2006 transposed into Belgian law Directive 2003/124 of 22 December 2003 on the definition and public disclosure of inside information and the definition of market manipulation (market abuse) and Directive 2004/72 of 29 April 2004 on accepted market practices, the definition of inside information in relation to commodities derivatives, the drawing-up of lists of insiders, and the notification of managerial and suspicious transactions. The royal decree clarifies certain provisions of the Act of 2 August 2002, provides guidance on conduct liable to amount to market abuse, and introduces measures intended to prevent such abuse. These provisions entered into force on 10 May 2006.
The preventive elements in the decree relate to the identity of any person with access to inside information, the notification of transactions in financial instruments by persons entrusted with managerial authority within an issuer, and intermediaries’ obligation to report any suspicious transactions. These obligations are applicable to financial instruments admitted to trading on Eurolist and Alternext.
Issuers whose financial instruments are admitted to trading on a Belgian regulated market or which are in the process of being admitted to such a market must provide a list of all persons working for them (whether under an employment contract or otherwise) who have access, on a regular or incidental basis, to inside information directly or indirectly concerning the issuer. This list must mention the identity of any person with access to such inside information, the reason for including that person on the list, and the date on which that person received access to the inside information and on which the list was created and updated. The royal decree also requires that persons on these lists be made aware of their statutory and regulatory obligations and the sanctions that can be imposed for abuse or improper disclosure of inside information.
Persons entrusted with managerial authority (ie members of the issuer’s administrative, management or supervisory bodies or senior executives who are not members of the foregoing bodies but who have regular access to inside information relating directly or indirectly to the issuer and the power to take managerial decisions affecting the future development of the issuer’s business and business prospects) and, if relevant, any persons closely associated with them (ie the spouse or any partner of that person considered under national law to be a spousal equivalent, dependent children, other relatives who have shared the same household as that person for at least one year on the date of the transaction or any legal entity, trust or partnership for which any of the foregoing persons exercise managerial responsibility or which is directly or indirectly controlled by such a person or which has been set up for the benefit of such a person or whose economic interests are substantially equivalent to those of such a person) must henceforth notify the CBFA of transactions performed for their own account involving shares of the issuer or any derivatives or other financial instruments related to these shares.
Notification must be made within five working days following the transaction, although a deferral is possible as long as the total value of the transactions completed during the current calendar year does not exceed €5,000. Once this threshold is attained, all previously completed (but undeclared) transactions must be reported within five working days from the date of the last transaction. If the total value of the transactions is below €5,000 for the current calendar year, the transactions in question must be reported before 31 January of the following year. The CBFA has established a model document (Form B – Reporting of Insider Transactions) to ensure that the notification meets the requirements set forth in the royal decree. Notifications are posted on the CBFA’s website.
11. MUTUAL FUNDS
11.1 Regulatory framework
The UCITS III Directive was transposed into Belgian law by the Act of 20 July 2004 on certain forms of undertakings for collective investment in transferable securities (UCITS). The Act of 4 December 1990 on financial transactions and the financial markets and its implementing decrees, however, still govern certain aspects of UCITS whose units are publicly offered for sale or subscription in Belgium or listed on a Belgian stock exchange.
Before commencing operations in Belgium, all UCITS must register with the CBFA. UCITS remain subject to continuous supervision by the CBFA or, if they are listed on Euronext, by the latter.
Only investment funds whose units are intended to be publicly offered in Belgium must take the form of a UCIT. These funds are subject to specific registration and information requirements. There are no statutory or regulatory constraints for a private offering of units in Belgium.
Foreign UCITS must appoint a financial intermediary established in Belgium responsible for circulating all information directed at Belgian investors and acting as the fund’s Belgian paying agent. This intermediary must be approved by the CBFA and ensure the circulation in Belgium of the information published in the home state in at least one of Belgium’s official languages.
A UCIT prospectus on the public offering or marketing of units in Belgium must be submitted in advance to the CBFA for approval. In addition, the net asset value per share must be published in at least one Belgian newspaper each day subscription or repurchase of the shares is possible and at least twice per month. The annual and semi-annual reports, translated into at least one of Belgium’s official languages, must be made available to the public at the UCIT’s agents for subscription and repurchase orders. Foreign UCITS must ensure that Belgian unit-holders are provided with the same information as holders in the home country.
11.2 Investment powers
Article 7 of the Act of 20 July 2004 provides for nine investment classes, adding one class to the eight pre-existing ones listed in Article 122 of the Act of 4 December 1990 (effective until 14 February 2007). All UCITS established under Belgian law must select one of the following investment classes:
Only vehicles whose investment policy meets the requirements of the UCITS Directive will be able to market their shares or units across the European Union.
12. SECURITIES INSTITUTIONS
12.1 Regulatory framework
The provision of investment services in Belgium is regulated by the Act of 6 April 1995 on the secondary markets and the status and supervision of investment firms, financial intermediaries and investment advisers and by the Act of 2 August 2002 and the royal decree of 20 December 1995 on foreign investment firms.
Investment firms are subject to supervision by the CBFA, which may request information on the financial status of firms subject to its supervision, their transactions, the manner in which they are organised and the way in which they conduct business. The CBFA may carry out spot inspections and inspect and copy, at the investment firm’s premises, any information in the firm’s possession. The CBFA also has powers to suspend investment firms.
Any Belgian company wishing to provide investment services in Belgium must obtain authorisation from the CBFA to act as a stockbrokerage firm, portfolio management company, financial instrument brokerage firm or financial instrument placement firm. Applicants must meet conditions with respect to their corporate form, initial capital, shareholder structure, managers, organisation, minimum equity, financial ratios, etc.
Article 36 of the Act of 6 April 1995 sets forth rules of good conduct for financial intermediaries, such as a duty to act honestly and fairly in order to promote integrity and good practices in the market and with due skill, care and diligence in the best interests of their clients. Firms that provide investment services must comply with the Act of 14 July 1991 on fair trade practices and consumer information and protection and its implementing decrees.
Investment firms established in Belgium must participate in a self-financed collective scheme that aims to reimburse or indemnify certain categories of investors who do not conduct financial activities in the event of default by such a firm and, if necessary, to enable action to be taken to prevent such an event of default.
12.2 Special arrangements for foreign entities
Investment firms authorised in other EU member states may provide investment services in Belgium through a branch or in the context of freedom of establishment. Such firms are carefully overseen by the financial supervisory authority in their home country.
Investment firms authorised in a non-EU member state that effectively provide investment services in their home country may render such services in Belgium without being established or licensed in this country, but only to certain institutional investors such as the Belgian government, regions and communities, the European Central Bank, the National Bank of Belgium, the Belgian Securities Regulation Fund, Belgian and foreign credit institutions, and Belgian and foreign investment firms. Such firms need not register with the CBFA but must identify themselves to the CBFA in advance, indicating the investment services they intend to provide and the categories of investors they intend to target.
13. NOTIFICATION OBLIGATIONS
13.1 Notification of substantial shareholdings
The Act of 2 March 1989 on the disclosure of large shareholdings in listed companies and the regulation of public takeover bids requires that any person acquiring or disposing of voting securities issued by a Belgian company admitted to trading on a regulated market in an EU member state, so that this person’s percentage of voting rights in that company exceeds or falls below five per cent, 10 per cent, 15 per cent, 20 per cent, etc, must indicate to the CBFA and the company within three days of such acquisition or disposal the number of securities held. Moreover, any person acquiring or disposing of a controlling stake in a company that holds at least five per cent of a Belgian company admitted to trading on the official list of a stock exchange in a member state must notify such acquisition or disposal to the latter company and the CBFA. Notwithstanding the above, the company’s articles of association may reduce these thresholds (but never to less than three per cent).
Any listed company notified by a shareholder of the acquisition or disposal of a substantial shareholding of its securities must make such notification public the following day and include a mention to this effect in its annual accounts. The CBFA may, at the request of such a company, grant an exemption in exceptional circumstances if publication could be seriously detrimental to the company (provided the exemption does not mislead the public). A draft bill has been discussed and very recently approved by Parliament (but not yet published in the Belgian State Gazette) in order to implement Directive 2004/109 on transparency. It will in certain ways modify these obligations for the future
13.2 Notification of substantial holdings in a credit Institution
Article 24 of the Act of 22 March 1993 on the status and supervision of financial institutions provides that any person who wishes to acquire or dispose of securities in a Belgian financial institution if such acquisition or disposal would result in that person holding directly or indirectly at least five per cent of the financial institution’s share capital or voting rights must notify the CBFA in advance. The notification must mention the percentage of the institution’s capital and voting rights represented by the shareholding. A similar requirement also applies to percentages exceeding or falling below five per cent, 10 per cent, 15 per cent, 20 per cent, etc. The CBFA may object to the transaction within three months following receipt of the notification if the potential purchaser does not have the necessary qualities for prudent management of the financial institution.
14 PUBLIC TAKEOVERS
14.1 Supervision
Takeover bids are governed by the Act of 2 March 1989 on the disclosure of large shareholdings in listed companies and the regulation of public takeover bids and the royal decree of 8 November l989 on corporate takeover bids and changes in control. This legislation is of mandatory application and is considered to reflect public policy. It will however be soon replaced by a new legislation the objective of which being to implement Directive 2004/25. A draft bill has been discussed and very recently approved at the level of Parliament but has not yet been published in the Belgian State Gazette.
Public takeover bids are supervised by the CBFA, which may grant exemptions from the takeover rules and impose penalties for their violation. Non-compliance with the CBFA’s orders can give rise to administrative sanctions.
14.2 The takeover process
Pursuant to Chapter III of the royal decree of 8 November 1989, any party wishing to acquire a controlling interest in a Belgian public company must inform the CBFA at least five days in advance. The royal decree does not provide for any kind of fixed threshold and only refers to ‘joint or exclusive control of a public company’, ie a company admitted to trading on a Belgian regulated market or with more than 50 shareholders.
If the purchaser pays more than the market price for the target company’s shares (indicating a control premium), it must launch a public takeover bid for all outstanding securities of the target company or carry out a price-maintenance operation at the same price paid to acquire its controlling interest.
If as a result of a takeover bid, the bidder holds 90 per cent or more of the target company’s securities, it is obliged to reopen its bid for at least 15 business days in order to allow security holders who, in good faith, have not tendered their shares to do so at the offer price. The bid must be reopened within one month following the close of the initial offer. The bidder is also obliged to reopen its bid if it requests delisting of the securities that formed the object of the bid within three months following the close of its initial offer. Moreover, if the bidder holds, at the end of a public takeover bid, at least 95 per cent of the voting rights in the target company, it may reopen its offer in order to squeeze out remaining minority shareholders. Such an option (to use a simplified squeeze-out procedure) must, however, have been foreseen by the bidder in the initial prospectus. There is no ‘reverse squeeze-out’ procedure in Belgium.
Anyone wishing to launch a takeover bid must notify its intention to the CBFA in advance, indicating the main terms and conditions of the bid, any information necessary to verify that the statutory requirements have been met, as well as a draft prospectus (offer document) to be used in connection with the bid and drafts of the various public announcements to be made in connection with it. The CBFA shall publish the announcement in the financial press at the bidder’s expense no later than one business day following receipt.
That same day, the CBFA shall notify the target company and the market authority of the stock exchange on which the target company’s securities are listed. Within five business days from receipt of this notice, the target’s board of directors must comment on the prospectus and indicate, if relevant, whether it intends to apply pre-emption or approval clauses. Each director must indicate whether s/he (or the shareholder s/he represents) intends to sell his or her shares. The board’s opinion must be published in the prospectus or in a separate document. The works council of the target (if any) must be consulted and its opinion must be included in the board’s official opinion.
Once the prospectus has been approved by the CBFA (which can take from one to three months, depending on the size and nature of the transaction), the bidder may launch its takeover bid, which must remain open for 10 to 20 business days from publication of the prospectus. However, if a general meeting of shareholders has been called to discuss defence mechanisms, the bid will automatically be extended for 15 business days following the meeting.
The acquisition of a controlling interest (through a stock purchase) with the payment of a control premium triggers the obligation for the purchaser to launch a takeover bid to buy all outstanding securities of that company.
The prospectus is traditionally drafted by the bidder, with the assistance of its bank, counsel to the bank and the bidder, and its auditors.
The prospectus must be published in the form of a brochure made available to the public free of charge at least at the (branches of the) bank sponsoring the bid. In addition, a notice indicating where the public can obtain a copy of the prospectus in Belgium must be published in one or more national or widely distributed newspapers.
The bidder may wish to perform a due diligence of the target company prior to the launch of its bid. In principle, directors of the target company are prohibited from disclosing confidential and/or price-sensitive information to any third party. However, the CBFA will allow such due diligence under strict conditions.
The bid must relate to all outstanding securities (shares and subscription rights) issued by the target company which are not yet in the bidder’s possession. The bidder may, however, make the offer subject to its acquisition of a minimum number of securities or condition its offer on the approval of the relevant competition authorities.
14.3 Financing obligations
The consideration for a takeover bid may be either cash, securities or a combination of the two. The consideration for a squeeze-out must take the form of cash, however. In any case, a bidder wishing to launch a takeover bid must have the proposed consideration available. If the consideration consists of cash, all funds necessary to complete the bid must be available, either by way of a bank deposit or through an irrevocable and unconditional bank guarantee issued by a bank authorised to do business in Belgium. The securities offered as consideration for an exchange must either be in the bidder’s possession or the bidder must have the power to issue them (or to have them issued) in a sufficient number and within the time period required. The bidder will be required to use the services of one or more financial institutions to organise the receipt of bearer certificates (see comments in section 3 above) and distribution of the offer document to the public.
14.4 Impact of Directive 2004/25/EC of the European Parliament and of the Council of April 21, 2004 on takeover bids
The draft bill filed with Parliament at the beginning of January 2007 has been very recently approved but not yet published. The Directive, however, should have been implemented by 20 May 2006.
When implemented, the Directive will necessarily imply two major changes in the Belgian existing regulation:
Common defence mechanisms to protect target companies against hostile takeover bids include:
15. FOREIGN INVESTMENT CONTROLS
In principle, without prejudice to labour or competition law, the acquisition of securities in a company does not necessitate compliance with any specific formalities. However, the Ministry of Economic Affairs and the Ministry of Finance must be informed in advance of any operation resulting in the acquisition of more than one-third of the share capital in a company conducting a business in Belgium whose net asset value is at least equal to €2.5 million. In addition, a limited liability company that acquires or disposes of a certain number of securities in another company so that its shareholding exceeds or falls below 10 per cent of the shares or voting rights of that company must notify the company, by registered mail, of such acquisition or disposal. Such a notification is not mandatory if notification of a substantial shareholding in a listed company has been made.
All exchange control regulations were abolished in 1991. All transfers of funds into and out of Belgium are therefore free from regulation, provided anti-money laundering rules are met. Moreover, foreign investors do not need any specific authorisations or to make any particular filings before investing in Belgium.
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