Due to radical changes in the relevant legislation, non-profit organisations (“NPO”s) now benefit from various provisions in terms of sectoral mergers. Since 25 January 2010, a NPO is allowed to transfer a universality of assets or a branch of activity to another non-profit organisation on the basis of article 770 of the Belgian Companies Code (“BCC”). This important change in NPO legislation brings an end to the legal uncertainty which previously affected this type of reorganisations.
The Law of 30 December 2009 (1) introduces a new chapter into the Law of 27 June 1921 (the “NPO Law”) (2) relating to the ”transfer of a universality of assets or a branch of activity”. It enables any NPO (3) to transfer a universality of assets or a branch of activity into another in line with article 770 of the BCC and the articles to which it refers. These transfers now have legal effect and can be held against third parties provided that the necessary statutory conditions have been fulfilled.
Mergers and divisions of NPOs prior to the Law of 30 December 2009
Until recently, the NPO Law did not contain any provisions on mergers and divisions between NPOs. Existing regulations governed merely their founding and dissolution. Although the BCC did provide a general statutory scheme for companies, NPOs were not part of this group.
However, this did not mean that NPOs could not merge or divide assets among themselves. To be able to do so, a range of general principles had to be invoked, which all too often entailed practical inconveniences and caused legal uncertainty.
In short, the old merger procedure occurred as follows: (i) the drawing up of a merger proposal by the boards of directors of the relevant non-profit organisations; (ii) the deliberation and decision making of the general meeting regarding the dissolution of the acquired non-profit organisation; (iii) the liquidation of the acquired non-profit organisation (4); and (iv) the transfer of the assets to the acquiring non-profit organisation.
Mergers and divisions of NPOs under the new legislation
First and foremost, it must be pointed out that the old merger procedure, as described above, can still be undertaken. The right to choose this option follows from the amendment by the new law of article 670 of the BCC (5). The amended article states that legal persons other than companies (i.e. non-profit organisations) can make use of this regime.
Based on these provisions, in order for the NPO participating in the reorganisation to be able to benefit from a legal transfer and from simplified requirements enabling such transfer to be invoked against third parties, the following procedure must be strictly applied:
a) Joint proposal of transfer by the boards of directors
The boards of directors of the relevant NPOs must prepare a joint proposal of contribution of a universality of assets or branch of activity in a deed, which must mention a number of details, such as the legal structure, name and objects of the relevant NPOs, as well as the date on which the book-keeping obligations are deemed to have been carried out by the acquiring association. This proposal of contribution must be filed at the competent registry of the commercial court at least six weeks before the transfer.
b) Written report of the board of directors
The board of directors of the contributing NPO must make a comprehensive written report available to its members at least one month before the general meeting. This report must clarify, on the one part, the capital status of the relevant associations, and on the other, a legally and economically grounded explanation and justification for the contribution including the conditions on which it is to be undertaken, the method and the consequences (6).
c) Decision of the general meeting
The general meeting of the contributing NPO must decide on the transfer with a minimum attendance quorum of 2/3 of members and a 2/3 majority of the votes. The decision must be taken six weeks after the deposit of the contribution proposal, at the earliest. The general meeting of the acquiring entity does not have to approve the transfer.
d) Deed establishing the transfer
Finally, the decision of the general meeting with regard to the transfer must be recorded in a deed establishing the contribution (7). An extract of this deed must be filed at the registry of the commercial court and must be published in the schedules to the Belgian State Journal.
Legal consequences of the new regulations
a) Legal transfer of assets and liabilities
Assets and liabilities of the contributing NPO can be transferred to the acquiring NPO without the agreement of creditors or co-contractors (8). In addition, the transfer can be held against third parties by the mere publishing of the deed of transfer in the Belgian State Journal (9). The transfer of the assets and liabilities will therefore take place without the application of common law rules and formalities to the various assets.
b) Creditor protection
In addition, if a merger or division is carried out in accordance with the new procedure, creditors can demand security within two months after the deeds establishing the transfer are published in the Belgian State Journal, provided that the claim arose before such publication and has not yet lapsed.
Finally, the contributing NPO remains severally liable for the debts which, on the day of the transfer, can still be claimed and are transferred to the acquiring NPO. However, this liability is limited to the net assets that the contributing NPO retains outside of the transferred assets.
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(1) Law of 30 December 2009 concerning various provisions relating to Justice (II), M.B./B.S., 15 January 2010.
(2) Law of 27 June 1921 concerning associations without a profit motive, international associations without a profit motive and foundations, M.B./B.S.,1 July 1921.
(3) Non-profit organisations include all legal forms which are subject to a prohibition on profit payments in accordance with the law applicable to non-profit organisations (i.e. associations without a profit motive, foundations (for public or private purposes) and international associations without a profit motive.
(4) A specific problem which arises with mergers and divisions of NPOs relates to article 24 of the NPO Law which states that the assets of the dissolved company can only be used after payment of all liabilities: in other words, all creditors must first be paid by the liquidator before an asset can be disposed of. This measure is of course justified if the NPO fully wishes to stop its activities, in order to guarantee the interests of its creditors. However, the aforementioned article forms a troublesome hindrance when mergers and divisions are concerned, since the intention is to continue (at least a part of) the activities.
(5) Art. 670 of the BCC was also amended by the Law of 30 December 2009
(6) Art. 761 of the BCC.
(7) Art. 762 of the BCC.
(8) Art. 763 of the BCC.
(9) Art. 765 of the BCC.
