Under Article 7:155 of the Belgian Code of Companies and Associations (the “BCCA”), the general meeting can approve the issuance of new share classes or profit participation certificates, cancel one or more share classes, make the rights of another share class the same, or change directly or indirectly the respective rights attached to a type of security if it fulfills the formalities set out in the same provision.
One of the formalities (besides the board of directors’ duty to draw up a report and to have the general meeting adopt the board’s resolution on the share class change) is to have a verification report draw up by the statutory auditor or (if no statutory auditor is appointed) a company auditor or an external accountant designated by the governing body. In practice, the scope of the obligation to draw up such verification report is one of the causes of uncertainty and, consequently, debate.
2. Formalities under Article 7:155 BCCA
Article 7:155 BCCA states that the general meeting must approve every decision on share class change while, for every share class, complying with the attendance and majority requirements prescribed for amending the articles of association.
Moreover, before the general meeting that decides on the change, a special board of directors’ report must be drawn up in which the governing body justifies the proposed changes and the effects they have on the rights of existing share classes. If financial and accounting information lie at the base of that report, the statutory auditor or (if no statutory auditor is appointed) a company auditor or an external accountant designated by the governing body must even draw up a verification report before the general meeting.
If no financial or accounting elements underlie the proposed share class creation or bifurcation, then it suffices if the governing body simply indicates this in its report.
The board of directors’ report and, if appropriate, the verification report must be filed with the court’s clerk and published as a notification in the official gazette.
3. Scope of the obligation to draw up a verification report
To determine if a verification report must be drawn up, the key question is whether financial and accounting information lie at the base of the board of directors’ report. This question is crucial in practice because having no verification report when one is required will caused the general meeting’s resolution about the share class change to become null.
The legislature did not define the concept “financial and accounting information”, however. The preparatory legislative documents do not show what this specifically means either, nor do they state what the expression “lie at the base” precisely means as regards the financial and accounting information. The preparatory legislative documents give only one example, and that is, no financial or accounting elements lie at the base of the proposed share class in the creation of a share class to which exclusive nomination rights (such as the nomination of a director) are allocated. This legislative framework is insufficiently justified since in reality exclusive nomination rights are hardly allocated to one share class.
Because of the lack of conclusive legislative guidelines on this, legal practitioners have dealt with the interpretation of this concept on its own, which has led to different opinions up to now.
For example, the Belgian Institute for Company Auditors (i.e., Instituut van de Bedrijfsrevisoren (IBR) – Institut des Réviseurs d’Entreprises (IRD)) believes that no verification report is needed only in exceptional situations, regardless of the nature of the rights that are allocated to the relevant share class or classes. This position is a direct response to the position of certain legal practitioners who believe that a verification report should be required only if the board of directors’ report explicitly contains financial and accounting information, regardless of the nature of the rights that are allocated to the relevant share class or classes.
Some practitioners take a broader position though. They say that a distinction must be made depending on the nature of the rights that are allocated to the relevant share class or classes. If financial rights accompany the relevant share class or classes (such as, e.g., liquidation preferences, preferential dividend rights, or ratchet arrangements), it must be presumed that financial and accounting information lie at the base of the board of directors’ report and a verification report must therefore be drawn up. If only non-financial rights (such as nomination rights) accompany the relevant share class or classes, then a verification report is not required. This position seems to be supported in practice by lawyers and notaries as well as company auditors.
As long as the legislature does not clarify this, the obligation to draw up a verification report remains a question of fact that gives rise to debates between different persons involved in the share class change. And they are not only the directors and shareholders of the company but also their respective legal advisors, the notary who executes the deed, and the statutory auditor (if one is appointed).
Given that drawing up a verification report is required under penalty of nullity, it is advised that you know the position of these individuals as soon as possible so that the verification report, if it is necessary, can be drawn up on time.
 Although in this article we refer only to the scheme that applies to public limited liability companies (Art. 7:155 BCCA), the abovementioned principles moreover apply by analogy to closed limited liability companies (Art. 5:102 BCCA) and cooperative entities (Art. 6:87 BCCA).