Tax Alert

More flexibility in the dismissal of directors of PLCs

Local contact

EY Belgium Tax

21 Mar 2019
Subject Tax alert
Jurisdictions Belgium

At this moment, a public limited liability company (“NV”) must always be able to dismiss one or more of its directors at any given time. This dismissal must also take immediate effect. Therefore, no notice periods and no severance payments can be stipulated in the articles of association of the public limited liability company or in the agreement with the company director.

However, this situation will change as of 1 May 2019. Starting this date, it will be possible to include notice periods and severance pay in the articles of association of the public limited liability company or in the agreement with the director. As a result, the rules on dismissal of directors of public limited liability companies will be very similar to those for directors of a private limited liability company (“BVBA”).

Background

Under current Belgian corporate law, there is a major difference in terms of dismissal between directors of a private limited liability company and directors of a public limited liability company (PLC). In the private limited liability company it is possible to appoint a director in the articles of association. This means that the General Meeting can only dismiss the director with a statutory majority - this is a majority of 75% - and for good reason.

Examples of good reasons are fraud and dementia. In the PLC on the other hand, directors are always revocable ad nutum. This means that they can be dismissed from one day to the next without having to respect a notice period and without having to pay a severance payment. Nor should there be given any reason for the dismissal. A simple majority in the General Meeting is also sufficient. According to the Court of Cassation, the rule that it must be possible to dismiss directors of a PLC at any time is a rule of public order, i.e. a rule that is so fundamental that it cannot be deviated from.

On 28 February 2019 the Belgian Parliament adopted the bill introducing the new code on Companies and Associations. This bill removes, among other things, the absolute nature of the ad nutum revocability of directors of a PLC. In the future the ad nutum revocability will rather take on the nature of a so-called default rule. The principle therefore remains that the director of a PLC is always dismissible at the General Meeting without notice or severance payment, without justification and by a simple majority.

The novelty will however be that the articles of association or the contract with the director are free to deviate from this default rule. In this way the ad nutum revocability of the director of a PLC can be excluded by the articles of association or made subject to a specific majority, and this as of the incorporation. It is also possible to grant a notice period or a severance payment to the director.

However, it is important to note that irrespective of the articles of association or the contract with the director, a director may always be dismissed with immediate effect for a good reason. This means without a notice period and severance pay (e.g. in the event of a serious criminal offence in the professional sphere or tax fraud).

This reform makes the regime for directors of a PLC very similar to the one which already existed for the directors of a private limited liability company (which remains virtually unchanged). In this way, the authors of the bill want to create more clarity and transparency in the termination of directorships.

Next steps to take

The entry into force of the new code on Companies and Associations is scheduled for 1 May 2019. All companies incorporated as from that date will immediately be subject to its new rules. They can therefore immediately make the dismissal of directors more difficult through their articles of association or the directors' agreement.

All existing companies will also be able to do the same from 1 May 2019. However, they should be aware that this will also mean that the other provisions of the code on Companies and Associations will apply to them. They will therefore first have to make a thorough assessment of the advantages and disadvantages.

Existing public limited liability companies that do not want to change the rules on dismissal of their directors do not have to do anything. They can leave everything as it is.