The new Companies and Associations Code entered into force on 1 May 2019 with regard to newly incorporated companies, and on 1 January 2020 for all companies existing prior to 1 May 2019.
It establishes eight different types of business organisations, of which the major ones are:
The 2019 reform abolished the need for a minimum share capital for the BV/SRL. The previous requirement for a starting capital of EUR18,600.00 has been abandoned. Founders now only need to ensure that the company will have sufficient financial means to run its activities. These means must be explained through a financial/business plan that must be provided for the purpose of the company's incorporation. It makes the BV/SRL the most accessible form of business for SMEs. The legislator considers this company form as the default company form.
Unlike the BV/SRL, the NV/SA retains its requirement of a minimum share capital of EUR61,500.00 at the time of the incorporation, which makes this form appropriate for companies with more significant financing needs. It is also the legal form most often used by listed companies.
There are four overarching Corporate Governance requirements in the Belgian legal landscape for listed companies, and three for unlisted companies, one of which is non-binding:
Specific legislation then applies to certain types of industries, such as the financial sector (financial service-providers, credit institutions, investment firms, insurance companies, etc).
In Belgium, corporate governance requirements are set out in the Companies and Associations Code and in the 2020 Belgian Corporate Governance Code, which is mandatory for companies with publicly traded shares.
Through its principles, the 2020 Belgian Corporate Governance Code requires the setting up of transparent, efficient, balanced, and fair rules of management.
The corporate governance requirements especially concern the board structure (a one tier or unitary board structure, or a two tier or dual board structure), the composition and functioning of the board of directors (and, if applicable, the supervisory board and management board), the establishment of an audit committee and a remuneration committee, the appointment of the directors, the communication between the shareholders and the directors.
In compliance with the 2020 Belgian Corporate Governance Code, listed companies must apply the principle of “comply or explain”: if they choose not to comply with the entire set of mandatory provisions, they must provide the legitimate reasons of this deviation.
Regarding the transparency requirement, listed companies are required to publish a Corporate Governance charter and integrate a Statement of Corporate Governance in their annual report.
Listed companies must opt either for a unitary board structure consisting in one board of directors, or for a dual board structure with a supervisory board and a management board. These board structures are also referred to in the Companies and Associations Code. It rules specifically on the composition and functioning of the board of directors (or, if applicable, the supervisory board), which must include:
For listed companies, the key rules are in the 2020 Belgian Corporate Governance Code; for non-listed companies, the Buysse III Code provides non-binding recommendations.
Non-listed companies are also free to apply the provisions and principles of the 2020 Belgian Corporate Governance Code, to improve their governance standards.
Specific legislation also applies to specific sectors, such as financial service-providers, insurers, and banks.
With regard to social considerations, the 2020 Belgian Corporate Governance Code provides specific requirements for the remuneration of directors. Remuneration should strike a balance between attracting qualified directors, while matching the overall remuneration framework of the company.
Performance-based remuneration of the executive staff should link rewards with sustainable value-creation for the company. Stock options that are given as remuneration should not be sellable within three years, to guarantee that executives will keep the long-term health of the company in check.
In listed companies, the remuneration policy should specify the way in which it provides for long-term sustainability of the company. This policy must be approved by the shareholders at the shareholders’ meeting. It must provide for, among others, the remuneration of the directors and managers, clear criteria for the allocation of variable remuneration and particularly those relating to CSR (corporate social responsibility), and the terms and conditions for contract duration.
Specific provisions ensure the professional development of board members, through appropriate training.
The company will have to report on the application of the 2020 Corporate Governance Code to the board of directors, which will have to submit these considerations to the shareholders at the annual shareholders’ meeting.
The Belgian legal landscape regarding environmental considerations is quite scarce, but the European one is changing fast.
The 2019 EU Green Deal, aiming at a neutral carbon Europe by 2050 has focused on the role of the private sector. Three regulations apply to either financial service-providers or their products: the Taxonomy Regulation, the Sustainable Finance Disclosure Regulation (SFDR), and the Non-Financial Reporting Directive (NFRD).
They apply to listed companies and to actors of the financial sector. They aim to facilitate access to information for investors regarding the Environmental, Social, and Corporate Governance (ESG) impacts of their investments, with the objective of redirecting financial flows towards ESG-positive activities.
In their annual reports, under European Law, listed companies must provide information related to ESG aspects of their activities, expenses, and turnover (See Belgium Trends & Developments).
Moreover, Belgian law requires listed companies to designate in their annual reports which code of Corporate Governance it applies, which rules it applies or does not apply (the aforementioned “comply or explain” rule) and to report on the diversity of the composition of its board. This obligation stems both from the Companies and Associations Code and from the 2020 Belgian Corporate Governance Code.
Belgian companies usually have three bodies:
Ad hoc proxy-holders or informal executive committees can have tasks delegated to them.
Advisory committees, such as audit and remuneration committees, can also be set up by the board of directors or the supervisory board within a one-tier governance structure.
Shareholders’ General Meeting
In both the SRL/BV and the SA/NV, the shareholders gather ordinarily once a year for the approval of the annual financial statements.
It is also invested with the following exclusive competences:
At the incorporation of the company, founders may also grant additional powers to the general shareholders’ meeting in the articles of association, but any such allocation of powers is only valid internally and cannot be enforced against third parties.
The governing body represents the company towards third parties. It is authorised to perform whatever actions and take whatever decisions are necessary to achieve the company’s purposes subject to the company’s interests, except for the powers granted by the Companies and Association Code to the shareholders' meeting.
The typical actions of the governing body include, for instance, the conclusion of contracts with suppliers, clients and employees in the name and on behalf of the company, the representation before courts, the establishment of the annual accounts, the day-to-day management.
The governing body is also empowered to file for judicial reorganisation or bankruptcy of the company.
It can also be delegated the power to decide an increase of the capital to a fixed amount, under the conditions set out in the articles of association.
If the management body is two-tiered (supervisory and management boards), the supervisory board will be responsible for the strategy and general policy of the company, and all actions reserved by law to the board of directors, while the management board will have all the residual powers. The supervisory board watches over the management board.
The governing body reports to the general shareholders’meeting.
For both listed and non-listed companies, shares represent an equal part of the company’s capital, and each share gives the right to one vote.
The articles of association of a company can provide for the granting of multiple votes in favour of certain shareholders. With respect to listed companies, certain conditions have to be met, such as the registration of their shares in the register of nominative shares for at least two years. The double voting right in listed companies is also called a “loyalty right”.
For non-listed companies, the shareholders' meeting must be convened by the management body at least 15 days prior to the meeting. The timeframe is 30 days for listed companies. In principle, there is no attendance requirement and the meeting can act upon decisions by way of a simple majority of the present shareholders’ votes.
Specific matters, such as mergers or demergers, amendments of the articles of association, or dissolution, require an attendance quorum and special majority thresholds provided in the Companies and Associations Code.
Stricter attendance quorums and/or stricter majority thresholds for all or specific decisions can be provided for in the articles of association. This is usually done in joint-venture structures to make shareholders’ agreements enforceable against third parties.
Votes can be cast by letter or electronically. In addition, the meeting can take all decisions in writing by way of a unanimous vote, apart from decisions that must be passed before a notary public.
The articles of association provide for the meeting conditions of the governing body. Board members can waive the convening formalities. Unless otherwise provided in the articles of association, the usual presence quorum is of at least half of the members. The board can take decisions by way of a simple majority.
The articles of association can impose a stricter attendance quorum and/or voting majority thresholds with regard to specific types of decisions (usually, this happens in joint-venture structures).
Board meetings can be held by tele-conference or video-conference. Written decisions can be taken by unanimous vote (except as otherwise provided for in the articles of association).
Corporate entities act through the governing bodies whose powers are determined by the Companies and Associations Code and the articles of association, as well as private agreements. The members of these bodies do not engage personally with the undertakings of the legal person.
The 2019 Companies and Associations Code contains important innovations with regard to the management structure in public limited liability companies (NV/SA) and private limited liability companies (BV/SRL).
It provides for the possibility to choose between three governing structures, namely, a one-tier or unitary board structure, a two-tier or dual board structure and a management body consisting of a single director.
In a one-tier governing structure, the collegial board of directors must have at least three members. This structure is reminiscent of the most classic way of governance, as provided for by the previous corporate law, and can also be implemented in private limited liability companies (BV/SRL), with the only difference that the BV/SRL does not require a minimum number of directors or collegiality amongst the board members.
The two-tier governance structure implies the creation of a supervisory board and a management board. Both the supervisory board and the management board are collegial bodies with at least three members, which can be individuals as well as corporate entities. The mandate in each of these bodies must be executed independently from each other and cannot be cumulated. Neither the members of the supervisory board nor those of the management board can, in their capacity of board member, be employed by the company by means of an employment contract. The supervisory board is responsible for the strategy general policy of the company, while the management board is responsible for the operational policy, as well as all residual powers that have not been specifically assigned to the supervisory board.
Both the NV/SA and the BV/SRL can be managed by a sole director. In listed companies and in any other case where a legal provision requires a collegial board, the sole director must be a limited liability company with a collegial governing body.
The board of directors, or the sole director, as the case may be, has the most extensive powers regarding the governance and representation of the company towards third parties. As a result, it is authorised to perform any actions that have not been expressly granted by the Code to the shareholders’ meeting.
The articles of association may limit the powers of the board of directors, but any such limitation cannot be enforced against third parties, even when these have been made public. The same rule applies to the internal division of tasks amongst directors.
The articles of association may, however, grant individual or joint representative power of the company to one or more directors. This representation clause can be enforced against third parties, provided that it has been published in the annexes to the Belgian Official Gazette.
In addition, the Board of Directors may entrust the day-to-day management as well as the company’s representation to one or more persons who can either be board member or not, each acting individually, jointly or as a college.
The day-to-day management consists in performing whatever acts and decisions are in the company’s interests without exceeding the requirements of the day-to-day life of the company. It also includes those which, owing to their minor importance or lack of urgency, do not justify the intervention of every member of the board of directors, the sole director or the management board in the context of a two-tier management structure.
The governing structure and composition of the board will most likely be organised in accordance with the company’s purposes, its activities, stage of development, and any other element that might be defined by the ownership structure of the company. When establishing the number of board members, it must be ensured that the board is small enough to guarantee efficient decision-making, but also sufficiently large and diversified that the directors can share their experience and knowledge as shaped by their backgrounds.
In listed companies and entities of public interest, at least one third of the members of the board of directors must be of one gender and two thirds of the other gender. Should the member be a legal entity, its gender is determined through its permanent representative’s gender. The general shareholders’ meeting shall ensure that this condition remains fulfilled throughout the life of the company, as non-compliance can lead to the suspension of all financial and immaterial benefits of the current directors by virtue of their mandate.
Furthermore, listed companies require the independence of at least three of its directors.
The members of the board of directors are appointed and removed by a simple majority of votes cast at the general shareholders’ meeting.
The removal of a director, whether they are a member of a board of directors or a sole director, can be decided by the general shareholders’ meeting at any time and without any motivation.
However, unless the articles of association provide otherwise, the general shareholders’ meeting can define the term of the appointment and decide to grant a compensation for the termination at the moment of removal.
Directors always have the possibility to present their resignation to the general shareholders’ meeting. However, they will remain in function until the company can reasonably provide for their replacement. The termination modalities will be determined by the articles of association, despite the possibility of an amicable agreement.
In a two-tier governing structure, the appointment and removal of the members of the supervisory board require a simple majority threshold cast at the general shareholders’ meeting, unlike the members of the management board, who are appointed and removed by the supervisory board.
According to the 2020 Belgian Corporate Governance Code, listed companies must provide for transparent appointment and reappointment procedures, which must include objective selection criteria with regard to executive and non-executive directors. Such procedures are carried out by a nomination committee.
The nomination committee leads the appointment and reappointment procedure and recommends suitable candidates to the board of directors.
Based on the recommendation of the nomination committee, the board of directors submits the proposal to the general shareholders’ meeting, in which each proposed (re)appointment will be voted upon separately. The suitability of the candidates will be assessed individually, taking into account their competences, knowledge, and experience.
The independence of the directors in listed companies is of paramount importance. A director will be considered to be independent if he or she does not have any link with the company or one of its shareholders that can compromise his or her independence.
In the case of a legal entity director, its independence will be assessed both regarding the legal entity as well as the individual appointed as its permanent representative.
The link of independence will be evaluated in accordance with the legal provisions of the corporate governance code. Those who comply with it are presumed to be independent until proven otherwise. A company can still decide to appoint a candidate who does not meet the legal criteria to be considered as an independent director, provided that the board of directors clarifies the reasons why the candidate is considered to be independent.
The independence of directors must be established at the moment of their appointment and must persist throughout the duration of their mandate.
Their independence implies that they should be able to exercise sound, objective, and independent judgement in the performance of their duties, including being comfortable enough to ask questions and evaluate and challenge the views of other members of the board while taking into account the company’s interest.
The Companies and Associations Code provides a very specific procedure with regard to potential conflict of interest, for both the BV/SRL and the NV/SA.
The procedure is as follows: when a director has or may have a direct or indirect conflicting interest of a patrimonial nature with regard to a decision or transaction within the competence of the board of directors, the director concerned must inform the other members of the board thereof before the decision is taken by the board of directors. The statement and explanation with regard to the nature and scope of his or her conflicting interest must be recorded in the minutes of the board meeting that must deliberate upon the decision or transaction. The board of directors cannot delegate this decision. The conflicted board member should refrain from participation in the decision-making process.
Nevertheless, the above-mentioned procedure shall not apply when such decisions or transactions take place between companies of which one holds, directly or indirectly, at least 95% of the voting rights issued by the other company, or between companies of which at least 95% of the voting rights issued by each of them is held by another company.
With regard to companies where there is only one director or where the conflict of interest concerns all directors, the decision or transaction is submitted for evaluation to the general shareholders’ meeting. If the shareholders approve the decision or transaction, the director will be able to implement it.
In a two-tier governing structure, the proposed decision or transaction is submitted for evaluation and approval to the supervisory board. The reporting obligation of the concerned board member, as previously described, shall be followed accordingly. The limitation with regard to subsidiaries and affiliate companies is also applicable to companies with a dual governing structure.
The procedure in respect of a conflict of interest in listed companies shows a particularity: the proposed decision or transaction must be submitted to the evaluation of a committee of three independent directors who – if deemed necessary – are assisted by one or more independent experts. The committee delivers a written opinion on the proposed transaction to the management board, together with the expert’s comments. The board of directors shall then deliberate on the proposed decision or transaction based on the written opinion of the committee. As for non-listed companies with only one director or when the conflict of interest concerns all the members of the board, the written opinion is presented for approval to the general shareholders’ meeting.
As far as the legal duties of directors are concerned, every officer and member of the board of directors is bound towards the company to fulfil its mandate properly, while taking into account the company’s interests, the articles of association, as well as the law. Their most important duties include:
Furthermore, current case law and legal doctrine provide in addition duties such as the duty of loyalty and the duty of discretion, which imply for a director the duty to exercise its mandate while bearing in mind the interest of the company and to avoid disclosure of any information obtained through the exercise of his or her mandate or which disclosure could have a negative impact on the position and interest of the company.
Directors and officers will be accountable towards the company for their compliance with these duties during the execution of their mandate.
The members of the board of directors – and every person with actual management authority, for that matter – are bound towards the company to fulfil their mandate properly, while taking into account the scope of their mandate as well as the interests of the company.
According to the Belgian Supreme Court, the interests of the company are determined by the “collective profit interest of its current and future shareholders”. This implies that – at least to a certain extent – directors must take into account the interests of the shareholders while discharging their duties. Recent developments, however, call for an assessment of the interest of the company based on the interests of all stakeholders and the values of environmental and social governance.
Directors can be held liable to the company for the faults committed in the performance of their duties. They carry the same liability towards third parties in so far as the committed fault is extra-contractual.
However, directors shall only be liable for decisions, acts and behaviours to the extent that those decisions, acts and behaviours are manifestly incompatible with the decisions, acts and behaviours of a reasonably prudent and diligent director placed in the same circumstances.
In addition to the general liability for the faults committed in the performance of their duties, directors can also be held liable with regard to their manifest gross negligence leading to bankruptcy or the continuation of a loss-making activity and the non-payment of VAT or social security contributions.
If the board of directors is collegial, their liability shall be joint and several. Even when the board does not act as a college, each of its members can be held jointly and severally liable towards the company and third parties for any damage resulting from breaches of the Companies and Associations Code or the articles of association.
Nevertheless, directors who do not take part in the committed fault can avoid joint and several liability, provided that they report the alleged fault to the other board members or, as the case may be, to the management board and the supervisory board. In such a case, the statement of the reporting board member shall be recorded in the minutes of the board meeting.
In any event, the liability of directors has been capped to amounts that range between EUR125,000 and EUR12 million, depending mostly on the average turnover and balance sheet total of the company. The cap applies per fact or set of facts, regardless of the number of claimants or claims and applies both in the case of liability towards the company or towards third parties. For this purpose, the contractual or extra-contractual basis of the liability claim is irrelevant.
However, there are certain situations where the cap is not applicable, such as in the case of a minor fault (considered habitual rather than accidental), gross negligence, and fraudulent intent or intent to cause damage. The cap does not apply either in the case of a breach of certain obligations under the Companies and Associations Code.
It is important to highlight that the liability of directors cannot be limited beyond the cap provided for by the law. The company, its subsidiaries or the entities controlled by it cannot exonerate or indemnify a director in advance from its liability towards the company or third parties. Any provision in the articles of association or in a private agreement stating otherwise shall be deemed void.
As a rule of thumb, it will be the general shareholders’ meeting that determines the remuneration of the directors.
Listed companies are, however, required to establish a remuneration policy concerning the directors and any other person in charge of the (daily) management. The remuneration policy is set out and implemented by a “remuneration committee”. The remuneration committee is established within the management board or within the supervisory board in the two-tier governing structures. The obligation to establish a remuneration committee, however, is only mandatory if very specific legal thresholds are exceeded. If the thresholds are not exceeded and therefore no remuneration committee is established, the remuneration policy will be implemented by the board of directors.
In NV/SAs with a two-tier governing structure, the remuneration committee is composed of a majority of independent members of the supervisory board, while in a one-tier structure it is mainly composed of independent, non-executive directors. The general shareholders’ meeting shall ultimately approve the remuneration policy.
The remuneration committee of listed companies must provide for a remuneration report in its corporate governance statement. The remuneration report is made public as part of the annual report and provides for a comprehensive overview of the remuneration and any other benefits granted during the accounting year covered by the annual report to all the members of the board of directors and/or any other company officer.
The remuneration report must be presented for approval to the general shareholders’ meeting. However, the latter’s vote is only advisory, which implies that the company must explain how this has been taken into account in the following remuneration report.
The shareholders are the legal and beneficial owners of the shares issued by the company in exchange for a contribution to the company. A share represents a proof of participation in the share capital or equity of a company. The shareholder obtains certain participation rights and certain rights to the profits of the company.
Different categories of shares can be issued, whereby different rights are granted to each category. The shareholder's right to participate in the company’s profits can never be excluded. Furthermore, all shareholders of the same category of shares must be treated equally.
The shareholders use the company to serve their combined interests, in most cases by trying to create added value. This will result in the increase of the value of the shares, and a share in the profits, whether or not paid out.
The shareholders’ common interests are expressed in the general shareholders’ meeting where they exercise their control over the company. The powers of the general shareholders’ meeting are primarily defined in the Companies and Associations Code. As stated in the introduction, the articles of association can grant additional powers and competences to the general meeting of shareholders.
Each shareholder has an individual right to consult and control the books and records of the company in order to supervise the governing body, unless a statutory auditor is appointed. In the latter case, shareholders have the right to raise questions to the statutory auditor, who must answer these questions or at least confirm that these are covered by his or her controlling activities.
The shareholders must be convened to the general meeting, at least once a year. If one or more shareholders who hold(s) at least 10% of the shares (BV/SRL) or 10% of the share capital (NV/SA) request(s) a general meeting, the governing body or statutory auditor is obliged to convene a general shareholders’ meeting. The agenda, proposed by the requesting shareholder(s), has to be addressed.
Shareholders of listed companies who hold 3% of the share capital can ask the governing body to add certain items to the agenda of the general meeting and to submit proposed resolutions on those items.
The articles of association determine the set of rules according to which the company must be operated.
These articles of association are initially unanimously adopted by the founders, and can subsequently be amended by the shareholders, in an extraordinary general shareholders’ meeting, subject to respecting certain attendance and voting criteria. The articles of association must comply with the mandatory rules of the Companies and Associations Code.
The shareholders are not actively and directly involved in the management or daily operations of the company. This task is executed by the governing body.
The governing body is exclusively and compulsorily appointed by the general shareholders’ meeting.
The shareholders will, furthermore, control the governing body through their right to consult and control the books and records of the company (see further) and by granting discharge for the execution of their duties during the past year at the ordinary general shareholders’ meeting. A valid discharge is a release of a liability claim against the governing body. The shareholders also have control over the governing body and the way they execute their mandate by their exclusive right to appoint and remove the members of the governing body.
The Companies and Associations Code also provides for several rules that should guarantee that minority shareholders can gain more insight and control, and/or can hold the management of the company accountable.
These rules imply the individual right to access, review and control the books and records if no statutory auditor is appointed and to require the convening of a general shareholders’ meeting if certain minimum conditions are met.
Furthermore, since a minority shareholder does not have the voting power to prevent the granting of discharge of a director, he or she is entitled to initiate a liability claim on behalf of the company, as long as the shareholder concerned has explicitly voted against the discharge.
All the shareholders, regardless of their share, have the right to question, orally or in writing, the management about the execution of their duties. The governing body must answer these questions, unless the disclosure of information or facts could harm the company or conflict with any confidentiality undertaking.
If it can be demonstrated that the majority shareholder has abused its powers of majority, or has disregarded a legal provision, any such decision can be suspended or annulled at the request of any interested party, which includes the minority shareholder.
The general shareholders’ meeting can be convened as an ordinary, extraordinary or special general meeting.
An ordinary general meeting must be held at least once a year, to approve the annual accounts, the appropriation of the financial results and to grant discharge to the governing body and the statutory auditor, if any.
The day, time and place of this annual meeting must be laid down in the articles of association. If the general meeting meets on the date determined in the articles of association, the meeting is called an ordinary or annual general meeting.
An extraordinary general meeting is held if the shareholders are convened to decide on certain topics that would imply an amendment to the articles of association. For instance, if a decision is to be taken on a new name, a change of financial year, a change of date for the ordinary general meeting or a change of object or purpose, an extraordinary general meeting will be called for.
Every general shareholder’s meeting that is not an ordinary or extraordinary general meeting is considered a special general shareholders’ meeting, such as a meeting called to decide on the appointment or removal of a director.
Usually, general shareholders’ meetings are organised by physical gathering. Since 1 January 2020, the following alternatives have been provided for by the law:
The governing body and, if applicable, the statutory auditor, shall convene the general meeting and determine its agenda.
The notice convening a general meeting shall state the date, time and place and the agenda to be discussed. The convocation must be communicated at least 15 days before the meeting for non-listed companies.
Each year, the general shareholders’ meeting must approve the annual accounts and discuss the annual report of the governing body.
Subsequently, the meeting grants discharge to the governing body for the execution of its (financial and strategic) managing duties in the company. If a director has not executed his or her duties properly according to the opinion of the shareholders, which consider it as a fault, the company can hold that director liable.
In theory, the shareholders do not have an individual right to claim, since the company incurs the damages. However, minority shareholders can initiate a liability claim on behalf of the company, as long as they voted against the discharge of the directors. If, however, they lose any such proceedings, they will have to bear the costs of those proceedings. If the minority shareholder(s) win the proceedings, all benefits will go to the company.
Based on general torts' law, shareholders can also directly file a liability claim against directors. Criminal procedures can also be considered should a director commit a criminal offence.
The Companies and Associations Code does not compel shareholders to disclose their shareholding in companies.
However, according to specific legislation, the Belgian Financial Services and Markets Authority (FSMA) is competent to monitor the disclosure of major holdings in issuers whose shares are admitted to trading on a regulated market. Anyone who acquires (directly or indirectly) voting securities in an issuer will have to notify the issuer and the FSMA of the number and proportion of the issuer’s existing voting rights that he or she holds as a result of the acquisition.
This must be done when the voting rights attached to the holder’s voting securities reach 5% (or more) of the total number of existing voting rights. The same notification will have to be repeated each time these voting rights attached to the holder’s voting securities reach another threshold of another 5% (ie, at 10%, 15%, 15%, etc).
The FSMA publishes this overview of shareholding structure of companies under its supervision.
In addition, the law implementing the Shareholder Rights Directive II, which was recently adopted by the Belgian parliament, requires institutional investors and assets managers holding shares in listed companies to disclose their engagement policy and their share investment strategy publicly.
Companies are required to report annually on their financial results and structure. Depending on the size of the company, this reporting will be limited or extended. Every company must draw up annual accounts. The annual accounts must be filed with the National Bank of Belgium by the governing body within 30 days after the approval of the annual accounts and at the latest seven months after the closing date of the financial year.
Micro-companies only have to draw up annual accounts that comply with the micro-scheme; for small companies, the abbreviated scheme applies. Larger companies and publicly listed companies will have to file the annual accounts in full.
Large and listed companies also have to provide annual reports. The annual report is drafted and presented by or under the responsibility of the governing body. In this report it accounts for its policy by giving a faithful overview of development and results, or by providing comments on the results, or by noting significant events that have occurred after the end of the financial year, etc.
Listed companies are subject to even more stringent rules on financial reporting. They must issue a financial report for the first six months of the financial year, no later than three months after the reporting period. They must integrate a Statement of Corporate Governance in their annual report, which must be published no later than four months after the closing date of the financial year.
The Companies and Associations Code provides that listed companies must indicate, in their annual report, which corporate governance code they will implement and adhere to.
In compliance with the 2020 Belgian Corporate Governance Code, listed companies must apply the principle of “comply or explain”: if they choose not to comply with the entire set of mandatory provisions, they must provide legitimate reasons for this deviation.
All companies are obliged to file the following with the registry of the competent business court:
These filings are published in the annexes to the Belgian Official Gazette and are publicly available on the Belgian Official Gazette’s website.
Certain of these filings will also be reflected in the Crossroad Bank for Enterprises.
External control of the financial situation, revision of the annual accounts, control of the transactions reflected in the annual accounts, and compliance with the Companies and Associations Code of all actions taken on behalf of the company, is entrusted to one or more statutory auditors. The auditor's report and the audit procedures are based on the International Standards on Auditing (ISA).
The statutory auditor is appointed by the general shareholders’ meeting.
A company must appoint a statutory auditor when it exceeds certain financial and employee number thresholds.
The appointment is not required for micro or small companies. These companies can, but are not obliged to, appoint a statutory auditor.
If and when a statutory auditor is appointed, the individual shareholders lose their individual right of investigation and control.
The statutory auditor is always appointed for a renewable term of three years. During this period, the mandate can only be terminated by the general meeting for lawful reasons, such as non-compliance with one of its fundamental obligations.
The statutory auditor reports on his or her findings to the annual general shareholders’ meeting. The general shareholders’ meeting decides whether or not to grant discharge to the auditor, which implies a waiver to claim for damages.
The 2020 Belgian Corporate Governance Code, mandatory for listed companies, provides that the board should approve the framework of internal control and risk management proposed by the executive management and review the implementation of this framework.
The audit committee, an advisory sub-committee within the board of directors, must mandatorily be constituted in publicly listed companies.
One of the main tasks of the audit committee is to monitor the effectiveness of the company's internal control and risk management systems.
The framework of internal control and risk management must be elaborated upon in the annual report that listed companies have to file, together with the annual accounts.
Going beyond Corporate Governance: the International Call for Sustainable Finance
The Belgian Corporate Governance Code applies to listed companies only. It provides for binding rules on the governance of listed corporations, to guarantee transparency of financial and structural information to shareholders.
However, in the current international landscape, listed companies are not only liable in terms of their internal governance, but also in terms of social and environmental factors. This trinity is referred to as "ESG", which stands for Environmental, Social and Governance. It refers to the three factors measuring the sustainable, environmental and societal impacts of financial investments.
This piece will address the origin of the focus on (i) ESG, (ii) the recent European developments and (iii) the current Belgian state of affairs.
The International Call for Sustainability
On 25 September 2015, the UN General Assembly adopted a new global sustainable development framework called the 2030 Agenda for Sustainable Development (the 2030 Agenda). It is meant to replace the UN Millennium Development Goals that expired in 2015. The core of the 2030 Agenda comes as the 17 Sustainable Development Goals (SDGs), which cover the three dimensions of sustainability: economic, social and environmental.
The SDGs were heavily influenced by the global context that preceded them: the 2008 financial crisis, the increasing worries for climate change, and the need to tackle the development of large-scale urbanisation and mitigate its negative impacts, especially for emerging economies.
In November 2016, the EU Commission issued a communication linking the SDGs to the Union policy framework, ensuring that all EU actions and policy initiatives would include the SDGs, at the outset and across the board.
In its conclusions of 23 June 2017, the Council confirmed the commitment of the European Union and its Member States to implement the 2030 Agenda in a full, comprehensive, integrated and effective manner. On 11 December 2019, the Commission published its communication on "The European Green Deal".
Simultaneously with the 2030 Agenda, the United Nations Framework Convention on Climate Change adopted the Paris Agreement, which was approved by the EU on 5 October 2016, affirming the objective of achieving a climate-neutral situation in the Union by 2050.
Increasingly, the focus was put on the role of the private sector in addressing the climatic challenge. Finance especially was pinpointed as a major leverage point towards taking impactful steps.
Calls for taking into account ESG-related matters also come from other segments of society and are increasingly taken on by companies themselves. An example of this is the case of tying executive board members’ compensation to reaching ESG and corporate social responsibility (CSR) targets. This has the aim of giving direct incentives to the executive and managers to take stakeholders into account. Until now, attempts at including stakeholder welfare within company strategy have fallen short because they were often not actionable in terms of corporate purpose. However, if these become linked with specific targets for managers, then it will flip the coin.
Some oil companies have already started doing so, linking for example their directors' pay with three- to five-year targets for net carbon footprints. This creates a precedent for other players in the industry to follow suit.
The European Normative Landscape
Fostered by the international impetus and the need for a sustainable paradigm shift, the EU is pushing the economic and financial sector in a completely new direction.
Following up on the 2016 Paris Agreement and the UN Sustainable Development Goals (SDGs), the EU adopted a European Green Deal aimed at tackling this challenge (see under The EU Green Deal).
The EU has also adopted a set of three normative instruments aimed at directing financial flows towards sustainable investments (see under Redirecting the EU financial landscape): the Non-Financial Reporting Directive (NFRD), the Taxonomy Regulation, and the Sustainable Finance Disclosure Regulation (SFDR).
The EU Green Deal
The EU Green Deal has the clear objective of making Europe a carbon-neutral entity by 2050.
Of course, the New Deal is not yet completely framed nor completely into force. It also does not specifically address corporate governance or ESG in the financial sector, but it will affect the companies that are major players in the realms of both climate change and the stock exchange.
The Green Deal will indeed tackle the six following areas: clean energy, sustainable industry, building and renovation, farm to fork, eliminating pollution, sustainable mobility and biodiversity. Concretely, these cover almost all areas of the modern economy. There is no doubt that major fuel and electricity providers, car manufacturers, agro-industry players, food chains, etc, will have to adjust their activities according to the new benchmarks.
This will also be reflected in terms of financial investments and ESG. Indeed, the main goal of financial investments are returns on investment, preferably in the long run. Since all segments of the economy will increasingly have to adapt to the Green Deal targets and to ESG reporting, there is no doubt that the Belgian landscape will be affected.
Redirecting the EU financial landscape
The regulations started on the premise that the first lever for change would be private investment, and that there was a need for a shift in the way capitals are invested. Acknowledging that the government’s actions would not be sufficient to tackle climate and social changes, the EU and the UN asked for the active participation of private funds. According to them, redirecting the immense capabilities of private investment towards specifically sustainable companies and projects would accelerate the shift towards sustainability. The EU realised that there was a need for information in order to do this. That information should not only be accessible, but also standardised, so that it would become easily readable and hence, usable and effective.
The EU opted for a set of three main legal instruments: (i) the Non-Financial Reporting Directive (NFRD), (ii) the Taxonomy Regulation, and (iii) the Sustainable Finance Disclosure Regulation (SFDR). They work together to achieve the aforementioned goal.
These regulations will have a significant impact on European companies, inasmuch as they imply obligations of disclosure of ESG-related information. Moreover, if proven effective, they would also boost economic development and foster investment.
The Non-Financial Reporting Directive (NFRD): the Non-Financial Reporting Directive (NFRD) came into force in 2014. It aims at raising the transparency of disclosure of non-financial information about companies.
The Directive applies to large, listed companies, banks and insurance companies (public-interest entities) with more than 500 employees. They are required to publish the policies related to ESG that they are implementing.
Contrary to the next two regulations (the Taxonomy Regulation and the Sustainable Finance Disclosure Regulation (SFDR)), the NFRD leaves a lot of room for flexibility in the way these non-financial reports are disclosed.
In April 2021, the Commission has announced a series of measures in the wake of its sustainable finance strategy. It has put into consultation a first version of the recast Directive on the Non-Financial Reporting of Companies (NFRD) which becomes, and this is a major change, a Directive on the sustainable development of companies (Corporate Sustainability Reporting Directive (CSRD)).
These are many acronyms for a strong ambition which is ultimately directed at all companies in the European Union, even if the first targets of the new text are the 50,000 largest by size.
The new directive will make it possible to strengthen and standardise in Europe the so-called extra-financial reports: reports covering environmental, social and governance (ESG) topics.
The project aims to create a set of rules which, over time, "will bring sustainability reporting on a par with financial reporting". The CSRD is expected to extend the requirements of the current NFRD to many companies with more than 250 employees, who escaped it, and to all listed companies.
This change will quadruple the number of target companies, since the almost 50,000 companies subject to the new requirements are themselves at the heart of an economic chain linking suppliers and subcontractors, which should result in a de facto extension of the CSRD system through the new specifications that will result from it.
Importantly, the Commission proposes to differentiate the expected standards for large companies and to adopt separate and "proportionate" standards for SMEs, which unlisted SMEs could use on a voluntary basis.
These rules will also apply to EU subsidiaries of non-EU companies and to subsidiaries of groups of companies.
The Commission proposes that the CSRD Directive be transposed into national law of the member states by 1 December 2022.
The Taxonomy Regulation: the Taxonomy Regulation (signed July 2020, entry into force in January 2022) establishes a framework for an EU investment taxonomy by setting out four overarching conditions that an economic activity has to meet in order to qualify as “environmentally sustainable”. The goal of the regulation is to enable comparison between business activities to inform investment decisions.
The current version contains six environmental objectives to enter into force in January 2022; social and governance objectives will be included and enter into force by December 2022:
The Taxonomy Regulation applies to the financial sector, but also to all public-interest entities headquartered in Belgium that fall under the scope of the NFRD.
Companies will have to report on the proportion of turnover and the proportion of expenditures related to taxonomy-aligned activities.
The Sustainable Finance Disclosure Regulation (SFDR): the SFDR applies to financial institutions (banks, investment firms, asset managers and insurers). It imposes upon them the requirement to classify their funds into three categories (grey, green, deep green).
The main idea is to impose disclosure requirements with respect to organisational, service and product levels to promote green investments and prevent greenwashing (the process of conveying a false impression or providing misleading information about a company's products, implying that they are more environmentally sound than they actually are).
Disclosure has to happen both at the entity level when that entity proposes financial services and at the product level. Product-level disclosure relates to information related to ESG for both ESG-specific products and non-ESG products. Those products then need to be classified into one of the three categories: mainstream products, products promoting environmental or social characteristics or products with sustainable investment objectives.
The information disclosed also needs to explain to what extent the investments qualify as “environmentally sustainable” under the Taxonomy Regulation.
As can be seen, the European landscape for company disclosure is changing massively.
The Belgian Landscape
In 2009, after the financial crisis, the Belgian legal framework jumped on the bandwagon of regulating the corporate structure of listed companies according to international standards. At that time, the focus was on corporate governance, and the first Belgian Corporate Governance Code was issued in 2009. The code has been recently updated with the 2020 Belgian Corporate Governance Code.
The Code applies to listed companies and sets out specific standards of corporate governance that aim to guarantee the sound management of listed companies. Corporate governance is thus essentially addressed towards investors and shareholders, ensuring them that the companies they are investing in are structurally and financially sound.
However, corporate governance does not guarantee the sustainability of a company’s activity as such. It merely regulates the functioning of its board of directors, whose remuneration, performance and composition it regulates. It also provides for the publication of the company’s financial information so that shareholders have access to updated information on the financial health of their investments.
The Belgian Corporate Governance Code hence only addresses the “G” of ESG. There is no mention whatsoever of an environmental focus. The only social impingement of the code would be the obligation of the fair remuneration of the board with respect to the remuneration policy of the company towards its staff – but still acknowledging that the specific abilities and responsibilities should be adequately rewarded – and the fact that the board of directors should be “sufficiently” inclusive in terms of gender, age, skills and backgrounds. Those terms are not very specific and certainly do not tackle the broad targets that the SDGs and the 2030 agenda are addressing.
In 2021, focusing merely on corporate governance is not sufficient to understand the obligations of information disclosure that listed companies have to face today. The Belgian context is, of course, subject to European Regulations and Europe is pushing for a focus on ESG in the financial sector.
The Belgian Corporate Governance Code, even in its 2020 revised version, is but a step in the process of fair information towards investors.
Belgian-listed companies and financial service-providers will thus, just as the rest of European companies, have to prepare for the new trend of corporate disclosure that is coming at the end of the year.
Outside Europe, the trend follows through. It has been reported that 85% of the S&P 500 companies have been publishing reports on ESG, CSR and sustainability since 2017, while only 20% did so in 2011. The tide is strong.
One should thus expect regulations and industry practices to change accordingly in Europe in the short term. It is certain that the direct benefits of anticipating these changes are huge: more visibility on the investors' front, a leading position in the move towards a new economic paradigm, and sustainable business models allowing for a resilient and durable company structure.
Eventually, all of the foregoing allows the cutting of unnecessary costs related to unsustainable company management, for example in terms of employee welfare and unnecessary staff turnover, environmental fines, loss of opportunity, stains on reputation, judicial cases, etc. Studies are almost literally raining from the sky, analysing the economic consequences of shifting towards sustainable environmental and CSR practices. While the initial investment may seem steep, the returns are quick, constant and multi-faceted. It is of increasing importance in an economy that shifts constantly and where corporate reputation becomes more and more the milestone against which everything is measured.