Category: vennootschapsrecht

A conflict of interest for a director of a company occurs sooner than one might think. Several situations are possible. For example, when the director is also a director in another company with which one wants to enter into an agreement. Or when the director wants to enter into an agreement with himself as a natural person.

The legislator has worked out a regime so that a director cannot let his own interest take precedence over the interests he should represent as a director of a company.

Specifically, the problem arises when the governing body of a company has to take a decision or make a ruling on a transaction under its jurisdiction, and it turns out that one or all of the directors have an interest that conflicts with it. In this article, we set out how to legally approach these conflicts of interest.

  1. Conflict of interest: concept

It follows from the relevant provisions of the Companies and Associations Code (“Wetboek van Vennootschappen en Verenigingen”, hereinafter “WVV”) that a conflict of interest is the situation where a director or governing body has a direct or indirect interest of a patrimonial nature that conflicts with the company’s interest.[1]

The requirement of “patrimonial” means that a material benefit is obtained or a material disadvantage is avoided. A potential patrimonial interest is sufficient. It need not be established that by making the decision the conflicted director obtains a material benefit or avoids material prejudice, if there is a possibility that this is the case, it qualifies as a patrimonial interest covered by the conflict of interest rule.

An example of such a conflict of interest is when the director wants to sell a property to his company. As a private seller, he will try to ask the highest possible price, as a director-buyer he should try to strive for the lowest possible price in the company’s interest.[2]

  1. Duty to report and prohibition on participation

The BV and CV can be managed by one or more directors who may or may not form a collegiate body.  If the governing body does not form a collegiate body, each director is individually authorised to manage and represent the company.[3]

When a conflict of interest arises in a BV or CV, and there are several directors who are each individually authorised to manage and represent the company, the conflicted director should notify the other directors. They will then take the decision or carry out the transaction. The director concerned may not participate in the deliberation or vote by the other directors in this regard.[4]

If the articles of association of a BV or CV provide that the governing body is a collegiate body, the decision is taken or the transaction is carried out by the governing body. In collegial decision-making, a majority of directors must meet or be represented to decide by a simple majority of votes.[5] Accordingly, the director with the conflict of interest may not participate in the deliberations or vote.[6]

In an NV, when a board member has a conflict of interest in a decision or transaction within the board’s competence, the director concerned must notify the other directors before the board takes a decision. The board may not delegate this decision.[7] Such as, for example, to the daily governance. As in the BV and CV, the conflicted director may not participate in deliberations or vote.[8]

Within a dual governance in an NV, the conflicted director on the supervisory board must also report it before the board takes a decision. It may not delegate this decision either.[9] The director concerned may again not participate in the other director’s deliberation or vote on such decision or transaction.[10]

When the executive board has to take a decision, or decide on a transaction within its competence, and a conflict of interest arises, the executive board refers the decision to the supervisory board. The board then acts as set out above.[11]

  1. Intervention general meeting

When all the directors have a conflict of interest, the power to take the decision or carry out the transaction shifts to the general meeting. If it approves the decision or transaction, then the governing body can still execute it. This regulation applies to the directors in the BV and CV, the board of directors in an NV with a monistic governance and the supervisory board in an NV with a dual governance.[12]

  1. Sole director

This submission to the General Meeting also happens when there is only one director in the BV, CV or NV.[13] This is because in that case there are no other directors who can take the decision or carry out the transaction. In the NV, the general meeting can approve the decision or transaction, allowing the sole director to carry it out.[14] If the sole director is also the sole shareholder, he or she may take the decision or carry out the transaction.[15] This can only be done in the BV and NV, as for the CV the WVV requires at least three founders.[16]

If the sole director of the NV is an NV with a collegiate management body, the rules relating to the board of directors in a monistic governance, or the executive board in the case of a dual governance, apply. If all members of the governing body of the sole director who has to rule on the conflict of interest have a conflicting interest, the decision or transaction is submitted to the general meeting. If the general meeting of the governed company approves the decision or transaction, the governing body, or, in the case of a dual board, the executive board, may implement it.[17]

  1. Exceptions

There are two exceptions where the above procedure should not be applied: when there are close links or when the acts are in conformity with the market.

As a first exception, the conflict-of-interest rule is not applied when the decisions or transactions were made between companies that are closely related. That is when one company directly or indirectly holds at least 95% of the votes attached to the whole of the securities issued by the other company. Or companies of which at least 95% of the votes attached to the whole of the securities issued by each of them are held by another company.[18]

This ground for exemption does not apply when the sole director in the BV or NV is also the sole shareholder.[19] After all, there is no one whose interests he can harm.

The second ground for exception is when the decisions of the governing body relate to customary transactions that are done under the conditions and at the collateral usually prevailing in the market for similar transactions. In that case, the conflict of interest rule should not be applied either.[20]

  1. The permanent representative

Article 2:55 of the WVV now also legally enshrines the majority view in case law. The rules on conflicts of interest for directors and members of the governing body apply to the permanent representative where applicable.[21]

  1. Publicity

The conflicted director must make a statement explaining the nature of the conflicting interest. That statement is recorded in the minutes of the meeting of the other directors, the board of directors in a monistic NV or the supervisory board in a NV with dual governance.[22] The sole director in a NV does not have this obligation.

The other directors or the general meeting shall describe in the minutes the nature of the decision or transaction for which the conflict exists and its patrimonial consequences for the company. They also justify the adopted decision.[23] If in the BV or NV the sole director is also the sole shareholder, he shall also include in his special report the agreements concluded between him and the company.[24] This part of the minutes or this report should be included in its entirety in the annual report or in a document filed together with the financial statements.[25] If the company has appointed an auditor (“commissaris”), the minutes of the meeting or report shall be communicated to him.[26]

  1. Nullity

The conflict of interest procedure in the WVV provides for the explicit additional possibility for the company to claim the nullity of the decisions or transactions taken in violation thereof if the other party to those decisions or transactions knew or should have known about them.[27]

  1. Conclusion

After more than two decades of absence, the ban on participating in deliberations has been reintroduced. The director with a conflict of interest must always report this to the other directors before the governing body takes a decision. The management board in the dual governance of a NV refers this decision to the supervisory board if necessary.

If the full board or the sole director has a conflict of interest, the WVV provides for a shift of power towards the general meeting. If it gives its approval, the governing body may still implement the decision or transaction. If the sole director is also the sole shareholder, he can of course decide on this himself.

One situation that the legislator did not take into account in 2019 is what to do if several, but not all, board members have a conflict of interest. There is a possibility that, as a result, the governing body may not achieve the required quorum to deliberate and decide.[28] A power shift to the general meeting is only possible if all board members have a conflict of interest. A statutory regulation of this remains outstanding for now.

One suggestion from legal doctrine is to formulate a provision in the articles of association for this purpose.[29] This way, you can provide for different attendance rules and possibly majority rules for deliberation in your company’s articles of association themselves. Another possibility is to include the shift of power towards the general meeting itself. Or the temporary appointment of a proxy to achieve the required number of attendees for deliberation and voting.

As such, there are some opportunities to provide a procedure for this yourself.

We will be happy to assist you in working out a regime tailored to your company, and with any other questions or concerns regarding the operation of your governing body.

You can contact us via e-mail at [email protected] or by telephone at 03/216.70.70.

Bronnen

Wetboek van Vennootschappen, BS 6 augustus 1999.

Wetboek van Vennootschappen en Verenigingen, BS 4 april 2019.

BRAECKMANS, H. en HOUBEN, R., Handboek vennootschapsrecht, Antwerpen, Intersentia, 2020, 975 p.

ERNST, P., “Belangenconflicten revisited, 25 jaar later. De nieuwe regels in het WVV over belangenconflicten van bestuurders in de niet-genoteerde NV en BV en hun ruimere impact” in HOUBEN, R., GOOSSENS, N. en LEUNEN, C. (eds.), JPB. Liber amicorum Jean-Pierre Blumberg, Antwerpen, Intersentia, 2021, 177-212.

[1] Art. 5:76, §1, lid 1; 6:64, §1, lid 1; 7:96, §1, lid 1; 7:102, §1, lid 1; 7:115, §1, lid 1, 7:117, §1 WVV.

[2] H. BRAECKMANS en R. HOUBEN, Handboek vennootschapsrecht, Antwerpen, Intersentia, 2020, 278. (hierna: H. BRAECKMANS en R. HOUBEN, Handboek vennootschapsrecht)

[3] H. BRAECKMANS en R. HOUBEN, Handboek vennootschapsrecht, 82, nr. 136.

[4] Artt. 5:76, §1, lid 1 en 6:64, §1, lid 1 WVV.

[5] H. BRAECKMANS en R. HOUBEN, Handboek vennootschapsrecht, 272, nr. 576.

[6] Artt. 5:76, §2 en 6:64, §2 WVV.

[7] Art. 7:96, §1, lid 1 WVV.

[8] Art. 7:96, §1, lid 4 WVV.

[9] Art. 7:115, §1, lid 1 WVV.

[10] Art. 7:115, §1, lid 4 WVV.

[11] Art. 7:117, §1 WVV.

[12] Artt. 5:76, §1, lid 2; 6:64, §1, lid 2; 7:96, §1, lid 4 WVV en 7:115, §1, lid 4 WVV.

[13] Artt. 5:76, §3; 6:64, §3 en 7:102, §1, lid 1 WVV.

[14] Art. 7:102, §1, lid 1 WVV.

[15] Artt. 5:76, §4 en 7:102, §1, lid 3 WVV.

[16] Art. 6:3 WVV.

[17] Art. 7:102, §1, lid 2 WVV.

[18] Artt. 5:76, §5, lid 1; 6:64, §4, lid 1; 7:96, §3, lid 1; 7:102, §2, lid 1 en 7:115, §3, lid 1 WVV.

[19] Artt. 5:76, §5, lid 1 en 7:102, §2, lid 1 WVV.

[20] Artt. 5:76, §5, lid 2; 6:64, §4, lid 2; 7:96, §3, lid 2; 7:102, §2, lid 2 en 7:115, §3, lid 2 WVV.

[21] Art. 2:55, lid 1 WVV.

[22] Artt. 5:76, §1, lid 1; 6:64, §1, lid 1; 7:96, §1, lid 1 en 7:115, §1, lid 1 WVV.

[23] Artt. 5:77, §1, lid 1; 6:65, §1, lid 1; 7:96, §1, lid 2; 7:103, §1, lid 1 en 7:115, §1, lid 2 WVV.

[24] Artt. 5:77, §1, lid 1 en 7:103, §1, lid 1 WVV.

[25] Artt. 5:77, §1, lid 2; 6:65, §1, lid 2; 7:96, §1, lid 2; 7:103, §1, lid 2 en 7:115, §1, lid 2 WVV.

[26] Artt. 5:77, §1, lid 3; 6:65, §1, lid 3; 7:96, §1, lid 3; 7:103, §1, lid 3 en 7:115, §1, lid 3 WVV.

[27] Art. 5:77, §2; 6:65, §2; 7:96, §2; 7:103, §2 en 7:115, §2 WVV.

[28] P. ERNST, “Belangenconflicten revisited”, 202.

[29] H. BRAECKMANS en R. HOUBEN, Handboek vennootschapsrecht, 285; P. ERNST, “Belangenconflicten revisited”, 203.

In our previous article[1], you could already read that companies are prohibited from committing acts contrary to fair market practices that harm or may harm the professional interests of other companies. The concept of unfair market practices has many applications. In a recently published judgment[2], the Antwerp Court of Appeal sheds light on what should be understood by the concept of unfair market practices.

Article VI.104 of the Economic Code (hereafter: WER[3]) describes the general prohibition of unfair market practices between companies. “Prohibited is any act contrary to fair market practices through which a company harms or may harm the professional interests of one or more other companies.” In particular, are unfair the market practices of companies towards other companies that:[4]

  • are misleading;
  • are aggressive;
  • facilitate acts that infringe or violate the rules of the WER.

A misleading market practice[5] is one that can mislead an undertaking about essential elements of the contract that determine its economic behaviour and cause it to take a decision on a particular transaction that it might not otherwise have taken. In other words, there is a deficiency in the information provided by one company which prevents the other company from making an informed decision about a transaction.

An aggressive market practice[6] is a practice that significantly limits an undertaking’s freedom of choice by some form of aggression. Such aggression may include the use of intimidation, coercion, the use of physical force or any other undue influence, such as the abuse of the dominant position of a multinational. If that practice leads the other company to take a decision on a transaction that it would not otherwise have taken, it is considered as an aggressive market practice.

Antwerp Court of Appeal

A private limited company (BVBA) and a public limited company (NV) are active in the advertising sector and more specifically in the renting and sub-letting of facades for billboards. According to the BVBA, the latter was guilty of defamation, third party complicity in breach of contract, customer acquisition and parasitic competition. The Antwerp Commercial Court subsequently decided in a judgment dated 20 November 2019 that the NV had been guilty of defamation and unlawful acquisition of customers on behalf of the BVBA. An appeal has been lodged against this judgment.

Due to its particularly open character, article VI.104 WER has many applications. Several of these applications can also be found in the judgment of the Antwerp Court of Appeal of 7 October 2020. For example, it examines the case of defamation, third-party complicity in breach of contract, unlawful acquisition of customers and parasitic competition.

  1. defamation/badmouthing

A company would commit defamation by telling the other company’s co-contractors that it is cheating them and calling it a cheat and a swindler.

Defamation consists of a statement by a person or a legal entity containing a fact or an allegation, launching an attack or making criticisms which, in the minds of third parties, could damage the credibility or the reputation of an economic operator, its products, its services or its activity.[7]

  1. Third party complicity in breach of contract

In order to be held liable for a third party’s complicity in another party’s breach of contract, the following conditions must be met:[8]

  • there is a valid contractual obligation;
  • this contractual obligation was breached;
  • the third party was aware of the obligation or should have been aware of it, and;
  • the third party nonetheless knowingly took part in and contributed to the breach of the contractual obligation.

  1. Unlawful acquisition of customers

Approaching a competitor’s customers is not in itself unlawful.[9] It will be an unfair market practice only to the extent that accompanying circumstances are proven which render the acquisition unlawful. Thus, practices that lead to a distortion of the competitor’s economic behaviour or mislead customers will be prohibited..[10]

  1. Parasitic competition

Finally, the company is alleged to have committed parasitic competition by entering into a new lease agreement with a potential client, knowing full well that the latter is bound by a current lease agreement with the other company. The Court of Appeal is of the opinion that active cloakroom advertising cannot in itself be regarded as unlawful and dismisses the claim as unfounded. After all, a market player is allowed to approach potential customers even if he knows that they may be tied to another market player.

But the Court does decide that the company is in breach of Article VI.104 WER when:

  • actively prospecting the market and proposing an agreement for the rental of a facade, it does not let itself be specifically informed of a possible current rental agreement with a competitor, the duration of that agreement and the conditions for its termination;
  • the company obtains a power of attorney to terminate a current rental agreement with another company, containing a preferential right, and this company does not inform the other company of the new rental agreement it has concluded and the conditions thereof that are important for this other company to fulfil its preferential right;
  • it issues an advertising letter to potential landlords concerning a rental proposal without indicating that it will be exempted from paying rent for the period during which it has not found a subtenant itself.

Conclusion:

The purpose of Article VI.104 WER is to ensure fair and healthy competition. In 2019, the legislator felt the need to protect ‘weaker’ companies against abuses by ‘stronger’ companies. However, questions can be asked as to whether it is appropriate to allow the principles of consumer law to seep into the B2B world and to introduce such far-reaching restrictions on their freedom of contract. After all, the freedom to conduct a business has always been a keystone of economic life.

It is therefore extremely important for companies to take these rules on unfair market practices into account when contracting with other companies. In the event of a breach of the prohibition of unfair market practices, the company whose professional interests have been or may be affected may, as an interested party, bring an action for an injunction before the competent president of the Commercial Court, which may even be accompanied by measures of disclosure if granted.[11] To the extent that a certain unfair market practice also constitutes an error causing damage, the harmed company may also bring a liability action for damages.

You can always call upon our services for the drafting and review of contracts with companies. If you still have questions after reading this article, please do not hesitate to contact us via [email protected] or 03 216 70 70.

 

[1] Studio Legale, Oneerlijke marktpraktijken tussen ondernemingen (B2B).

[2] See judgment of the Antwerp Court of Appeal of 7 October 2020, NjW 4 May 2022, no. 461, 375.

[3] Wetboek Economisch Recht

[4] See Article VI.104/1 of the WER

[5] See Article VI.105 of the WER

[6] See Article VI.109/1 of the WER

[7] See judgment of the Antwerp Court of Appeal of 20 January 2021, NjW 2021, no. 450, 778.

[8] See STUYCK, J. en KEIRSBILCK, B., Handels- en economisch recht. Deel 2 Mededingingsrecht. A. Handelspraktijken en contracten met consumenten, Mechelen, Wolters Kluwer, 294-299.

[9] Ghent 9 September 2019, Yearbook of Market Practices 2019, 558-571.

[10] KERKAERT, J., Onrechtmatige afwerving van cliënteel, NjW, nr. 461, 4 may 2022, 379.

[11] See Article XVII.1 and XVII.4 and XVII. 7 of the WER.

Hoofdwebsite Contact
make appointment upload






      GDPR proof area
      upload uw documenten





      drag your documents here or choose file


      drag your correspondence here or choose file











        Benelux (€... )EU (€... )International (price on request)

        By submitting this application, you expressly agree to our General Terms and Conditions and confirm that you have carefully read our Privacy Policy. Sending this application is considered as order confirmation.
        error: Helaas, deze content is beschermd!