A series of scandals has cause the organisation of the administration and management of limited companies, so-called “corporate governance” has become a hot topic in many jurisdictions.
To date, in Belgium, there has not been any litigation arising out of corporate governance issues. However, the market players and the legislation have been aware for some time of the potential pitfalls and the possibility for dispute in this field. This awareness led to first initiatives long before the infamous US scandals and the 2002 crisis.
Indeed, in-depth analysis has been carried out by the Banking and Finance Commission, the Company Managers Group Corporate Governance established at the Federation of Belgian Companies and the Belgian Commission on Corporate Governance (established at the Brussels Stock Exchange).
These analyses and the legislative initiatives have resulted in the Act on Corporate Governance of 2 August 2002. The Act contains modifications to the Belgian Company Code and can be divided into three main chapters: (i) the structure and the functioning of the management institutions; (ii) the position of the account controller and (iii) modifications to the rules governing the shareholders.
Our main focus will be on chapter (i). Generally, when a legal entity is a member of the Board of Directors, it must now designate a permanent representative, who will be legally and criminally responsible as if he/she were a member of the Board (art. 61§2 Company Code). This representative can be held personally liable and might face both financial and penal repercussions in the event of impropriety. This rule applies to all companies, whether listed or not.
The Act also provides a legal framework for the transfer of the powers of the Board of Directors to a Management Committee (“Directiecomité/Comité de Direction.). All of the Board’s powers can be transferred to such a committee save for the general management of the company and unless expressly provided by specific laws (art. 524bis Company Code). The responsibility for the designation, remuneration, liabilities and supervision of the members of these committees lies with the Board. It is anticipated that this legal framework will offer the companies the possibility to organise their corporate structure more efficiently and to respond to the company’s specific needs and requirements..
In the event of a potential conflict of interest, a decision by the Board has always been subject to a specific procedure. However, under the new article 524 of the Company Code, any decisions or actions by a listed company which could impact on the relationship between that company (or its subsidiary) and its associated companies (or the associated companies of its subsidiary) have to be submitted to a specific conflict procedure. This procedure entails three independent directors (supported by one expert) presenting a written opinion to the Board of Directors. A director can only qualify as an independent director if he/she answers the strict requirements set out in Article 524§2 of the Company Code.
It is now also possible for all companies to hold a general meeting in writing without having to convene provided that the decisions have been taken unanimously and do not require authentication.
In conclusion, the new Act clarifies some important issues of the Company Code, adapting them to the present needs of the companies and enhancing the Directors’ awareness of their responsibilities. Although it is a big step forward, other aspects such as accountancy law, institutional investors, credit institutions, still need to be improved by the legislator.
Corporate Governance is still a minefield and it is imperative that non-executive directors move cautiously.
Written by Jan Decorte and Fernand Lefere.