Exit rights and forced exits in
Belgium
Hans De Wulf
Ghent University –Financial Law
Institute
Belgium
background
• Very often conflicts in closed companies
between shareholders
– Between different branches of a family
– Between husband and wife who jointly control
company
– Minority versus majority
– 50% shareholder vs other 50% shareholder (joint
ventures)
Reasons for conflicts
• Personal conflict between brothers (jealousy),
husband/wife (divorce) spills over into
company
• Differences over strategy:
– Dividend policy:Distributing vs retaining profits
– Attracting new partner necessary for financial
reasons vs fear of being diluted by other
shareholder
• …
Background cont’d
• Netherlands had for a long time had a rule in
companies Act allowing one shareholder to force
opponent to sell his shares to him
– Forced exit
• Or for shareholder to demand that he be bought
out by opponent
– Forced buy-out
• Belgium copied the rule, with changes, in 1997
and procedure became enormously popular in
Belgium, whereas it’s never been much used in
Netherlands
Belgian rules (art. 635-644 CA)
• In private (BVBA/SPRL) and public (NV/SA)
companies (ltd)
• But not in listed companies: shareholder can
exit through stock market
• Principle of subsidiarity: expulsion, buy-out
only if no other solution possible:
– E.g. shareholder does not pay up shares=> simply
ask court to force him to; no expulsion
• It’s shareholder against shareholder, company
not involved
– In coperative company: exit right against company
• So no buy-back by company
• Always judge involved: determines whether there
are “just grounds” for demand and determines
price to be paid for shares
• Summary proceedings: speedy resolution of
conflict
• Mandatory rules: articles may not deviate
expulsion
• May be demanded by shareholder who owns at
least 30% of shares or votes
– People may band together to obtain 30%
• On “just grounds”
• Ultimum remedium
• Not necessary to show that defendant comitted
breach of duty/fault
– E.g. frequently used in deadlock situations where
nobdoy is to blame/both parties equally to blame
– But plaintiff may not be the major cause of problem
exit
• =shareholder forces opponent to buy his
shares
• Any shareholder can ask this on justified
grounds, no minimum percentage required;
also majority shareholder
• No fault of defendant required
• Interest of plaintiff not really limited by interst
of company
• Plaintiff must be full owner: not merely
“ususfructus” or having limited rigts in share,
like being beneficial owner
• Judge can take preliminary measures:
– Settle disputes about who owns shares
– Suspend voting rights
– Appointing court trustee over defendant’s shares
• Often asked in separate high speed and unilateral
procedure before exit/expulsion procedure
Procedural remarks
• Defendant may not transfer shares anymore
as soon as he has been notified through
citation
• Company must also be cited, but is not real
party to proceedings
– Company itself may not exclude shareholder
(except in partnerships and cooperative company)
• Plaintiff must provide court with all
shareholder agreements plus articles
What are “just grounds” ?
• serious threats to interests of the company
and when expulsion is necessary to safeguard
the continuity of the company
– => not after insolvency filing: no continuity
• Three main categories:
– Breach of duty by shareholder
– Permanent and serious disagreement
– Abuse of majority or minority voting power
Abuse of majority/minority
• Cf. “unfair prejudice”
• “manifestly unreasonable exercise of voting
rights” = abuse of right as in civil law
– Can also give rise to annullment of AGM/board
decision
• Recurring nature
• Minority abuse: using blocking minority to block
initiatives that are necessary in company’s
interest
– Eg capital increase when C. urgently needs funds
Just grounds continued
• Must always relate to relationship between
shareholders
– Will usually affect functioning of general meeting
– Issues at board level alone are not sufficient
• Since these can usually be solved by general meeting
– But rows at board level can be additional factor in
convincing judge
– Dismissal of director who is also important
shareholder without any reasonable grounds is often
held to be “just grounds” for exit or expulsion
Price determined by judge
• Often after interim judgment on “justified
grounds” and exclusion/exit
• Usually with help of expert
• Summary proceedings (faster)=> judge may
only deal with exit/exclusion, not with related
issues
– E.g. force party to pay back loan from company
– E;g. directors’ liability
• Is unfair to minority shareholder who wants to
exit: value of shares depressed by majority
abuse, but minority needs to start separate
procedure before different judge to claim
damages
• => judges sometimes instruct expert to value
shares at moment before value was
depresssed by majority abuse
Some procedural remarks
• Once you have filed a claim for expulsion/exit,
you cannot drop it because you do not like the
price for the shares determined by judge
• Appeal against judgement does not suspend
initial judgement
• “partial” exit or expulsion not possible
– Would pertain to only part of the shares involved
Reciprocal claims
• Very frequent phenomenon
• A demands expulsion of B; B reacts with a
demand for expulsion of A
– If A demands its own exit and B reacts with
expulsion of B, parties are in agreement; still
judges needs to check whether both can invoke
just grounds and determine price
• Parties can reach settlement and have it approved by
court
Reciprocal claims cont’d
• Judge will first check whether both parties can
invoke “just grounds”
• If yes, then looks at “interest of company”
– E.g. which shareholder can provide company with
financial means
– Sometimes: know-how of shareholder-director crucial
for company
• Judges also take into account whether
shareholder wil be able to pay counterparty’s
shares
Relationship to shareholder
agreements
• Judge may disregard “approval rights” in
articles or shareholder agreements
– Situation where articles/SHA imposes approval of
board/sharehlder /third party before one can
transfer (sell, donate, …) shares
• In case of preemption right (first offer or first
refusal), judge may determine price instead of
contractually indicated party, and may shorten
periods for exercise of preemption right
Relationship to dissolution and
insolvency
• After opening of insolvency: no initiation or
continuation of proceedings
• What about situation where
– a.expulsion/exit is asked after filing for dissolution with
court, or
– b. dissolution is asked for as reaction to expulsion/exit
claim ?
• B indicates shareholder does not xwant to continue
with company: wil be to his disadvantage
• A indicates sharehodler wants to avoid negative
consequences of dissolution/equal treatment: will not
be accepted
conclusion
• Very often used and “popular” procedure
• Not as fast as expected, because lot of time is
spent on determining price
• Inefficient that judge cannot rule on any
related matters
Some other non-contractual
techniques
• Court trustee who temporarily replaces director or board
– Usually limited to certain decisions or veto right
– Not provided for in companies act, but courts have developed
this
• Unilater demand for sequestration of assets or documents
• Derivative action
• Individual inspection rights of shareholders in companies
without official external auditor
• Right to ask questions at AGM
• Individual right to have decisions of GM or board annulled
– Formal reasons (procedural rules for GM have been violated:
only if it affected outcome of vote)
– Substantive reasons