Redemption of shares: less stringent restrictions

The Royal Decree of 8 October 2008 amending the Belgian Companies Code [1] has amended the rules on redemption of shares by a company. They will enter into force on 1 January 2009 [2].

The new rules are part of a broader set of measures, mainly taken in order to increase the flexibility for companies to conduct their financial policy, and to better anticipate the desire of their shareholders and the changing market conditions. The new rules will make the redemption of shares a more attractive means to upstream available cash.

The Royal Decree implements European Directive 2006/68/EG amending the Second Company Law ‘Capital’ Directive[3]. This Directive provided the Member States with the opportunity to ease some of the capital protective measures that were taken in the light of the aforementioned ‘Capital’ Directive, amongst others the rules pertaining to the redemption of shares.

Although the scope of the Directive was limited to rules regarding public limited liability companies (NV/SA), the Belgian legislator chose to extend the application of the new capital rules to private limited liability companies (BVBA/SPRL) and cooperative companies with limited liability (CVBA/SCRL).

The following amendments have been made to the previous rules, rendering the procedure for the redemption of shares less stringent[4]:

  • The maximum validity period for the approval of the general meeting authorizing the board of directors to proceed with the effective acquisition of the shares, is extended from 18 months to 5 years, as from the day of the approval;
  • The maximum of the total nominal value, or in the absence thereof, the par value of the acquired shares, including the shares previously acquired and held in portfolio, is raised from 10 % to 20 % of the authorized share capital of the company;

The following other requirements remain unchanged:

  • The prior approval of the general meeting of shareholders for the redemption of the shares is required, whereby the specific terms and conditions of the acquisition must be specified;
  • The funds spent on the share redemption must be profits that would have qualified for distribution as dividends;
  • During the period the company holds the redeemed shares in its portfolio, it must include a reserve unavailable for distribution on its balance sheet, equal to the amount of the shares as registered in the assets as shown on the balance sheet;
  • Finally, subject to certain exceptions, when acquiring its own shares, all shareholders should be equally treated, i.e. every shareholder should have the opportunity to respond to the company's offer for redemption of its own shares.