You are undoubtedly aware that the new Companies and Associations Code (“CAC”) came into effect a few months ago, bringing with it a host of changes. The legislator’s goal is to provide Belgium with a competitive, flexible, and transparent legal framework.

Although simplification and flexibility for companies and associations are the guiding principles of the CAC, the transition period between the old and new codes has not been easy. That is why BestValue has identified for you the new rules regarding the share buyback mechanism in private limited liability companies (“SRL” – the new form of company replacing the SPRL). Indeed, this mechanism can prove very useful when reorganizing a company in preparation for its sale.

The New Companies and Associations Code

Let’s first review some key changes introduced by the CAC that will help you better understand the rest of this article.

Since January 1st, the mandatory provisions of the CAC have applied to your company, even if you have not taken any steps with your notary. A series of supplementary provisions have also been integrated into the CAC. If you wish to take advantage of them, you must update your company’s articles of association—an obligation for all companies by January 1st, 2024, at the latest.

One of the most significant changes for SRLs is the removal of the concept of share capital. To compensate for this removal and to strengthen creditor protection, all distributions (profits, reserves, capital repayments, etc.) are now subject to a “double test” for:

• Solvency: After the distribution, net assets must not become negative.
• Liquidity: After the distribution, the company must be able to meet its debts for at least the next twelve months.

Share Buyback

Although the concept of share buyback under the CAC is similar to the previous system, the rules have been significantly relaxed:

• Under the previous Companies Code, share buybacks were limited to 20% of the subscribed capital. Now, the number of shares to be repurchased and the price range are determined by the general meeting, although a cap can be included in the articles of association.
• The obligation for SRLs to cancel or sell the shares within two years no longer exists in the CAC. However, it is still possible to include specific restrictions in your articles of association.
• The amount used for this acquisition must be distributable according to the double solvency and liquidity test (see above).
• The buyback can only involve fully paid-up shares.
• The buyback offer must be proposed to all shareholder classes under the same conditions for each type of share.
• The buyback decision must be approved by the general meeting with a 75% majority, reduced from the previous 80%.

From an accounting perspective, a non-distributable reserve for treasury shares, equal to the value at which these shares are recorded as assets, must be included as a liability on the company’s balance sheet as long as the shares remain unsold or uncanceled. Treasury shares carry no voting rights and do not entitle the holder to dividend distributions.

Its Application in Business Transfers

The relaxation of legal requirements for share buybacks paves the way for broader use of this mechanism.

Several situations could make a share buyback beneficial, including:

• The death of a shareholder;
• A conflict between shareholders;
• A situation where some shareholders wish to sell their shares while others do not.

Let’s take the last scenario as an example. The remaining shareholders may not always have the necessary funds to buy the departing shareholder’s shares. If they are also unwilling to open the capital to external investors, the company itself may consider buying back the departing shareholder’s shares and holding them as assets—even if the buyback exceeds 20% of the total capital.

Later, the remaining shareholders might choose to open the capital to third parties (employees or external investors) and could then resell the previously acquired treasury shares.

In the long run, after canceling the treasury shares, buying back a selling shareholder’s shares allows the remaining shareholders to increase their share of distributable profits and benefit exclusively from the company’s growth if they later decide to sell.

As you can see, the share buyback mechanism, though underutilized by SMEs, deserves greater recognition. It is crucial to seek professional guidance to anticipate and fully understand the legal requirements and tax implications specific to your situation—especially if this transaction is part of your company’s preparation for a future sale.

Pierre Thiry
p.thiry@best-value.be