Private equity in Belgium: market and regulatory overview

A Q&A guide to private equity law in Belgium.

This Q&A is part of the PLC multi-jurisdictional guide to private equity. It gives a structured overview of the key practical issues including, the level of activity and recent trends in the market; investment incentives for institutional and private investors; the mechanics involved in establishing a private equity fund; equity and debt finance issues in a private equity transaction; issues surrounding buyouts and the relationship between the portfolio company's managers and the private equity funds; management incentives; and exit routes from investments. Details on national private equity and venture capital associations are also included.

To compare answers across multiple jurisdictions, visit the Private Equity Country Q&A tool. For a full list of jurisdictional Q&As visit

Luc Wynant, Van Olmen Wynant

Market overview

1. How do private equity funds typically obtain their funding?

Pension funds and other asset managers (including private equity houses other than funds of funds) contributed strongly to the Belgian private equity market in 2010. Commitments from pension funds, which had been one of the main sources of capital in 2009 nearly doubled in 2010 at EUR195.1 million (as at 1 November 2011, US$1 was about EUR0.7).

2. What are the current major trends in the private equity market?

The level of fundraising activity in Belgium doubled in 2010 compared with 2009. Nearly 65% of new funds raised were from Belgian investors. Investments in Belgian companies accounted for EUR938 million. Of the private equity firms headquartered in Belgium, 25 were venture specialists, 12 focused on buyouts and 11 are generalist firms.

3. What has been the level of private equity activity in recent years?

The following statistics are from the latest report of the European Private Equity and Venture Capital Association (EVCA).


Total fundraising by Belgian private equity firms in 2010 was EUR732 million, nearly double the level in 2009.

The expected allocation of funds raised in 2010 indicates an increasing share of funds allocated to buyouts and growth capital with nearly EUR690 million representing 94.3% of the total (compared to EUR282 million and 79.4% in 2009).

Investment and transactions

Investments in Belgian companies in 2010 included:

  • Start-up investments. These amounted to EUR59.9 million (compared to EUR85.3 million in 2009).

  • Later stage venture investments. These amounted to EUR15 million (compared to EUR60.8 million in 2009).

  • Buyouts. Buyouts increased substantially and accounted for nearly 67% (EUR626,5 million compared to EUR546.9 million in 2009).

  • Replacement capital. This decreased by nearly two thirds to EUR42.6 million (compared to EUR118.7 million in 2009).

  • Growth capital. This decreased to EUR178.6 million (from EUR292.5 million in 2009).

The investment distribution by sector was (amount invested):

  • Life sciences. 2.7% (compared to 6.5% in 2009).

  • Computer and consumer electronics. 3.0% (compared to 8.0% in 2009).

  • Business and industrial products. 4.4% (compared to 12.7% in 2009).

  • Energy and environment. 4.2% (compared to 9.8% in 2009).

  • Communications. 16.3% (compared to 1.9% in 2009).

  • Consumer goods and retail. 49.3% (compared to 8.0% in 2009).

In 2010, private equity firms based in Belgium invested a total of EUR938.4 million in 105 companies. Investments decreased slightly compared to the 2009 figure of EUR1.16 billion.

Domestic investment by Belgian private equity firms represents nearly 47% of transactions in 2010 (compared to nearly 78% in 2009). The share of investment in other European countries increased to 50.4% at EUR253.4 million in 2010 (compared to 10.0% at EUR104 million in 2010). The remaining 3% represented investments in non-European countries (compared to nearly 1% in 2009).


Total divestments in 2010 by private equity firms based in Belgium were EUR244.3 million from 49 transactions (compared to EUR305.2 million from 69 transactions in 2009). Popular forms of exit in 2010 included (by percentage of the total amount at cost):

  • Trade sales. 38.1% (compared to 59.7% in 2009).

  • Sales of quoted equity. 48.6% (compared to 12.2% in 2009).



4. Are there any proposals for regulatory or other reforms affecting private equity in your jurisdiction?

There are no specific regulatory or other reforms affecting the private equity sector specifically.


Tax incentive schemes

5. What tax incentive schemes exist to encourage investment in unlisted companies? At whom are the schemes directed? What conditions must be met?

Incentive schemes

Apart from the special tax regime applicable to privaks (see Question 7), investors in any Belgian limited liability company enjoy favourable tax treatment on capital gains and dividends.

Capital gains

Capital gains realised by a Belgian company on the sale of shares in a subsidiary are exempt from corporate income tax. A minimum duration of one year of the shareholding is required. However, capital losses on shares are not tax-deductible, except following the liquidation of a company when the capital loss can be deducted from taxable income up to the amount of the investor's paid-in capital.

Withholding tax

In general, interest and dividend payments are subject to withholding tax of 21% or, most likely, 25%.

However, many exemptions exist.

Dividends allocated by a subsidiary to its parent company are exempted from withholding tax when the parent company both:

  • Is located in another EU member state or in a state with which Belgium has concluded a double taxation convention.

  • Has maintained a minimum share of 10% in the capital of its subsidiary for an uninterrupted period of at least one year.

The extension of the exemption from withholding tax on participation dividends to dividend payments to a contracting state (non-member of the EU) applies to dividends allocated or made payable as from 1 January 2007 (Directive 90/435/EEC on the taxation of parent companies and subsidiaries (Parent-Subsidiary Directive)).


A participation exemption applies in relation to dividends attributable to a Belgian permanent establishment. Dividends are initially included in the taxable income and then 95% of the dividends are subsequently deducted from that taxable income. The participation exemption is not granted to income allocated or assigned by companies that are not liable to corporate income tax or to a similar foreign tax, or which are established in countries with a tax system that is markedly more advantageous than the Belgian system. A tax regime is considered markedly more advantageous when the normal corporate income tax rate or the effective tax burden is lower than 15%. The common right fiscal provisions applicable to companies located in the EU are deemed not to be markedly more advantageous.

To benefit from the scheme, the following conditions must be satisfied:

  • A holding requirement of at least 10% of the share capital or not less than EUR2.5 million.

  • The shares must have been held in full ownership for at least one year.

  • The shares must be held as financial fixed assets (portfolio investments are not eligible).

Where there is little or no taxable profit, the remaining participation exemption can now be carried over the next taxable periods, as a consequence of the recent Cobelfret judgment by the European Court of Justice (CJEC, 12 February 2009, C-138/07).


A 10% withholding tax is charged on the amounts attributed following either the:

  • Liquidation of the issuing company.

  • Total or partial distribution of the company's assets.

  • Repurchase by the company of its own shares.

The amount liable to withholding tax is the amount chargeable as a dividend under CIT provisions. However, shareholders are exempt under the Parent-Subsidiary Directive.


Interest payable on loans taken out by Belgian companies to acquire Belgian or foreign shareholdings is generally fully deductible.

Debt-to-equity ratio

There are no general thin capitalisation rules and so it is not necessary to observe any debt-to-equity ratio within a Belgian company. Specific thin capitalisation rules can be imposed in special circumstances but only for corporate income tax purposes. Where these rules apply they impose a debt-to-equity ratio of:

  • 1:1 where the lender is a director or an individual shareholder.

  • 7:1 if the actual beneficiary of the interest paid by the Belgian company is not subject to taxation on income, or is subject on its interest income under a tax regime that is more favourable than the Belgian tax regime.

There is no time limit when carrying forward tax losses.

Value added tax (VAT)

A holding company that acquires a stake in a business, without intervening directly or indirectly in its management, is not deemed to be paying VAT. Therefore, VAT cannot be deducted by that company.

Capital duty

Capital contributions to a Belgian company are not subject to any registration tax at company formation or at a later date (except, sometimes, for contributions of real estate into the capital of a company).

Notional interest deduction (NID)

The NID allows companies to claim a tax deduction for the cost of capital by deducting a notional interest rate calculated on the company's equity (including reserves) (Law on Notional Interest Deduction). It aims to encourage equity funding in small and medium-sized companies. Where there is no (or no sufficient) tax base, the notional interest deduction cannot be carried forward.

At whom directed

The tax incentive are applicable for all investors.


Fund structuring

6. What legal structure(s) are most commonly used as a vehicle for private equity funds in your jurisdiction?

Various legal forms are allowed for the incorporation of a company (Company Code 7 May 1999 (Wetboek van Vennootschappen or Code des Sociétés)). The structure most commonly used for domestic private equity funds is a Belgian company limited by shares (naamloze vennootschap (NV) or société anonyme (SA)).

An NV or SA must have at least two shareholders. The shareholders can be corporate entities or individuals, and both Belgian or foreign. The minimum share capital is EUR61.500. Shares can be either registered or bearer and can be with or without a nominal value. However, from 1 January 2008, bearer share issues are no longer allowed. In general, shares are freely transferable. However, company law permits transfers to be restricted by means of either a shareholders' agreement or a statutory clause (Article 510, Company Code).

Two specific types of undertakings for collective investment (instelling voor collectieve belegging or organisme de placement collectif) have been created:

  • The public privak (publieke privak or pricaf publique). A public privak can be constituted either:

    • by contract (prifonds). Prifonds take the form of an investment fund (beleggingsfonds or fonds de placement). That is, they are a set of jointly owned assets, managed by a management company (beheersvennootschap or société de gestion) that has no legal personality;

    • as an investment company (beleggingsvennootschap or société d' investissement). These privaks have their own legal personality and can be incorporated either as an NV or SA, or a partnership limited by shares (commanditaire vennootschap op aandelen or société en commandite par actions). They are subject to company law, with a few specific exceptions.

  • The private privak (pricaf privée). A private privak can only be constituted as an investment company. It can be incorporated as any of the following:

    • a company limited by shares (an NV or SA);

    • a partnership limited by shares;

    • an ordinary limited partnership (gewone commanditaire vennootschap or société en commandite simple).

7. Are these structures taxed, tax exempt or fiscally transparent for domestic and foreign investors?

Private privaks

Private privaks benefit from fiscal transparency as they are virtually exempt for direct and indirect tax purposes. The tax rules for private privaks are basically the same for both foreign and domestic investors:

  • Corporate income tax. Although private privaks are, in general, subject to corporate income tax, the basis for the calculation of the tax is the total amount of abnormal or gratuitous advantages received and any disallowed expenses, with the exception of capital losses and reductions in value on shares. In practice, this is a favourable tax regime.

  • Withholding tax. No withholding tax is payable where the following exemptions apply (Royal Decree of 23 May 2007 (Privak Decree)):

    • dividends are paid by the private privak to its shareholders and those shareholders are foreign persons or companies that did not commit their capital to a professional activity in Belgium. This exemption applies when the dividends originated in dividends issued by foreign companies. However, this exemption does not apply when the dividends paid by the private privak originated in dividends paid to the private privak by Belgian companies;

    • the dividends are from capital gains on shares realised by the private privak.

  • Capital gains tax. Capital gains realised on shares held by the private privak are tax exempt.

Other structures

Non-collective investment structures do not benefit from the same tax regime. Ordinary limited partnerships (which are not formed as a private privak) are comparable to UK limited partnerships. Therefore, they are likely to be regarded as tax transparent vehicles under UK law and in most other continental jurisdictions.

8. What (if any) structures commonly used for private equity funds in other jurisdictions are regarded in your jurisdiction as not being tax transparent (in so far as they invest in companies in your jurisdiction)? What parallel domestic structures are typically used in these circumstances?

Most investment vehicles do not satisfy Belgian requirements for transparency. A foreign fund is subject to Belgian taxation on realised capital gains and dividends, and other income received in Belgium, where these are attributable to any Belgian establishment. If so, taxation is on the same basis as for Belgian resident companies. A Belgian establishment is a fixed place through which the professional activities of a foreign company are entirely or partly conducted in Belgium. This is similar to the definition of a permanent establishment under the tax treaties. An investment vehicle cannot claim the benefits of double tax treaties on the basis that it is subject to a more favourable tax regime in its home jurisdiction. If treaty protection is not available, the investment vehicle is liable to tax in Belgium.


Investment objectives

9. What are the most common investment objectives of private equity funds?

The most common investment objective is to achieve a maximum return on investment and various techniques are applied to do so. Most investments are structured as straight equity because of the exemptions on the proceeds (whether dividends or capital gains) (see Question 7). For investors and funds, a maximum leverage effect can be created to reduce the taxable profits of a Belgian target. This can be achieved by structuring the investment through subordinated debt (see Question 5, Debt-to-equity ratio).


Fund regulation and licensing

10. Do a private equity fund's promoter, principals and manager require licences?

A private equity fund can qualify as an institution for collective investment. To do so, a licence from the Banking, Finance and Insurance Commission (BFIC) must be obtained.

All Belgian public privaks must be registered with the BFIC. To register, it must prove that it has the technical and financial resources, and accounting and administrative facilities that are appropriate to its activities. In addition, the board of directors must be sufficiently independent and the board's members must have the appropriate experience to carry out their functions properly.

11. Are private equity funds regulated as investment companies or otherwise and, if so, what are the consequences? Are there any exemptions?

A private equity fund, structured as a company limited by shares, is unregulated if its shares are not offered to the public in Belgium. However, a private equity fund in the form of a privak (public or private) must fulfil certain legal requirements.

Public privaks

A public privak can only be registered if the BFIC has:

  • Given the management company or the investment company authorisation.

  • Accepted the management regulations or the contents of the articles of association.

  • Approved the appointment of the depository.

The essential document for the application is the prospectus. It must include all the information required by potential buyers to make a full assessment of the investment policy and the related risks.

Private privaks

The private privak regime is governed by the Privak Decree, which has substantially reduced the list of requirements.

A private privak can only be constituted as an investment company in certain legal forms (see Question 6). The private privak must comply with (among other things) the following requirements:

  • The private privak must have at least six investors. The minimum commitment of each investor is EUR50,000.

  • The private privak's shareholders' meeting must decide with a majority of at least four shareholders jointly holding at least 50% of the voting rights (subject to any other applicable majority requirements provided by the Company Code and the private privak bye-laws).

These limitations do not apply if at least one shareholder holds at least 30% of the private privak's voting shares and has a special status, such as:

  • An undertaking for collective investments (UCITS).

  • A pension fund.

  • A company operating under governmental authorisation.

The classes of financial instruments in which the private privak is allowed to invest are limited to financial instruments issued by non-listed (Belgian or foreign) companies, including private loans (such as mezzanine financing). The private privak has no geographical limitation nor is there an obligation to diversify investments.

The private privak is not allowed to control a portfolio company. However, there are certain exceptions to this prohibition, such as in case of a company incorporated exclusively with a view to holding debt instruments (Privak Decree).

Before starting its activities, the private privak must be registered on the Ministry of Finance list of private privaks. The statutory auditor supervises private privaks (Privak Decree).

Marketing and advertisement rules

The nature of the offer determines the type of marketing rules and restrictions that apply:

  • Non-public offers (private placement). There are no specific rules as to who can promote and market shares in a private fund (including private privaks), or to whom the marketing can be directed. Investors in a fund incorporated as an ordinary company limited by shares can be approached using a private placement memorandum, but only if this is not considered to be a public offer (see below, Public offers).

    There are restrictions on promoting and marketing products, including rules concerning:

    • advertising (including prohibiting misleading and comparative advertising);

    • the obligation to inform consumers;

    • illegal selling practices (for example, the dissemination of inaccurate or false information);

    • abuse provisions (for example, tying (koppelverkoop)).

  • Public offers. The law of 16 June 2006 relating to public offers of investment instruments and the admission of investment instruments to trading on regulated markets (Prospectus Law) implements Directive 2003/71/EC on the prospectus to be published when securities are offered to the public or admitted to trading (Prospectus Directive) into Belgian law. These require an approved prospectus to be published for qualifying transactions. However, the Prospectus Law goes further than the Prospectus Directive by including transactions not covered by the directive.


A private equity fund, structured as a company limited by shares, is unregulated if its shares are not offered to the public in Belgium.

12. Are there any restrictions on investors in private equity funds?

Investors must be at least 18 years old.

13. Are there any statutory or other limits on maximum or minimum investment periods, amounts or transfers of investments in private equity funds?

Generally, no specific rules apply to the maximum or minimum investment periods, amounts or transfers of investments in private equity funds. However, some restrictions can be found in the regulatory framework for private privaks (see Question 11).


Investor protection

14. How is the relationship between the investor and the fund governed? What protections do investors in the fund typically seek?

A management company administers investment vehicles such as public and private privaks. The rights of the investors and obligations of the management company are usually set out in the internal rules of the fund. Typical clauses include:

  • Veto rights of minority investors in relation to specified transactions.

  • Formation of an investment committee, containing representatives of minority investors, which has the right to veto new investments and exits (depending on the fund manager's track record).

  • Protection where transactions involve a conflict of interest (for example, a requirement for approval by independent directors).


Interests in portfolio companies

15. What forms of equity and debt interest are commonly taken by a private equity fund in a portfolio company? What are the relative advantages and disadvantages of each? Are there any restrictions on the issue or transfer of shares by law?

Pure equity

Generally, investors buy or subscribe to common shares. Convertible bonds and warrants, giving potential access to the share capital, are also used. Holders of common shares are entitled to the full benefits of a successful exit but have no priority over other shareholders in the event of an unsuccessful exit. The NID abolished capital contribution duty as from 1 January 2006 and, in addition, introduced risk capital deduction (see Question 5, Notional Interest Deduction (NID)), which is an attractive system for new equity funded entities and activities in Belgium.

Convertible debt

Convertible debt has no priority over other debts in the event that the company is liquidated (see Question 26). If bank finance is involved, the banks are likely to insist that the convertible debt is treated as subordinate to the bank debt.


The advantage of warrants is that there is no need to make any cash outlay before it becomes apparent that the warrants are in profit. The disadvantage is that the company does not receive any immediate injection of funds from the investment. Therefore, warrants are typically only used as an additional equity kicker to a debt or equity investor who simultaneously provides a substantial cash investment to the company.

Issue of shares

Shares can be issued by the authorised corporate body (for example, in a general shareholders' meeting or by the board of directors) provided it is done in accordance with the company's articles of association and the Company Code. As a result, the company's share capital can be increased by either:

  • A shareholder vote amending the articles of association.

  • The board of directors (where authorised share capital is used).

Restrictions on transfer

In general, shares in an NV or AS are freely transferable. However, it is possible to restrict transfers through a shareholders' agreement or a statutory clause (see Question 4).

Takeover bids

On 1 September 2007, the Belgian Acts of 1 April 2007 and the Royal Decree of 27 April 2007 on public takeover bids entered into force implementing Directive 2004/25/EC on takeover bids. Squeeze-out bids are regulated by a separate Royal Decree of 27 April 2007.

The Belgian rules on voluntary takeover bids require the bidder to prepare a prospectus and to have it approved by the BFIC. There are specific rules on the notification of a contemplated bid to the BFIC and the offeree's board of directors must:

  • Draw up a memorandum in response.

  • Inform the works council of the bid.

  • Notifiy the BFIC of advertisements that are published in relation to the bid.

The breakthrough mechanism (in other words the non-application of share transfer restrictions during the bid's acceptance period) and/or the prohibition on the board of directors taking any defensive measures, only apply to Belgian companies when the articles of association explicitly contain these rules.

The new legal framework differs substantially from the former regime in relation to mandatory takeover bids. The new Act no longer requires a public tender offer where a higher price than the market price has been paid to acquire control over a company. The obligation to launch a public tender offer on all voting securities, and all securities giving access to voting rights, arises when a shareholder holds, alone or in concert with others, more than 30% of the voting securities of a Belgian company listed on a regulated market.

However, there is a grandfathering exception for persons who held (alone or in concert with others) more than 30% of the voting securities of a listed Belgian company before 1 September 2007. Under this exception, shareholders that agree to a certain amount of co-ordination in relation to their shareholdings are deemed to be acting in concert for purposes of Belgian law and are not subject to the tender offer requirement.

Transparency legislation

The Belgian law of 2 May 2007 aims at bringing the Belgian rules concerning the disclosure of voting rights in line with Directive 2004/109/EC on transparency requirements for securities admitted to trading on a regulated market and amending Directive 2001/34/EC (Transparency Directive). Some of the more important changes the law makes are as follows:

  • The mandatory thresholds remain the same but the possibility of specifying lower thresholds in the articles of association has changed. Where, under current legislation, the threshold can be set below 5% but can be no less than 3%, the Law allows, in line with the Transparency Directive, the thresholds to be set at 1%, 2%, 3%, 4% or 7.5%.

  • The issuer must be notified as soon as possible but no later than four trading days after the holding is acquired (compared to two days under current legislation).

  • On notification by a shareholder, the issuer must disclose the notification within three days (currently within one day).

  • The notification is mandatory when the thresholds are crossed (up or down) due to the acquisition and disposition of shares. This is also mandatory where crossing passive thresholds (for example, following a capital decrease or capital increase).



16. Is it common for buyouts of private companies to take place by auction? If so, which legislation and rules apply?

It is common for buyouts (including some major buyouts) to take place by auction but there is no specific legislation covering this. There is no absolute fiduciary obligation to sell to the highest bidder and therefore the board of directors can consider other factors when deciding which bid to accept.

17. Are buyouts of listed companies (public to private transactions) common? If so, which legislation and rules apply?

Buyouts of listed companies do occur but are rare, partly because these types of transactions are complex. Public offers for shares of publicly traded companies are subject to extensive regulation and a public offering of securities requires the publishing of a prospectus approved by the BFCI (see Question 11, Public privaks). In addition, a buyer can be obliged to start a buyout offer followed by a squeeze-out procedure (see Question 15).


Principal documentation

18. What are the principal documents produced in a buyout?

Typical documents produced in a buyout are:

  • The legal documentation for the constitution of the acquisition vehicle(s), if any.

  • The sale and purchase agreement in order to realise the buyout.

  • The shareholders' agreement.

  • The loan agreements.

  • Financial security arrangements.


Buyer protection

19. What forms of contractual buyer protection do private equity funds commonly request from sellers and/or management?

Typical clauses included for the protection of contractual buyers are as follows:

  • Representations and warranties (non-management). The purchase agreement is comprised of representations and warranties made by the sellers. A buyer is not allowed to rely on a representation or warranty if:

    • he had actual knowledge that the representation or warranty was false;

    • he should reasonably have known that the representation was false, based on the information disclosed by the seller in the data room before the transaction was completed.

    Institutional sellers are often extremely reluctant to provide any representations or warranties other than confirmation that they own the shares.

    The sellers' indemnification obligations are usually limited by cap, threshold and duration and may be guaranteed by various instruments. Representations and warranties include those given in relation to tax, other financial matters, and social and environmental issues.

  • Representations and warranties (management). Management are often the only people who can make accurate representations and warranties. However, they are usually reluctant to incur personal liability by doing so. Possible solutions include:

    • limiting liability to a specified amount;

    • requiring management to make representations only on a best-knowledge basis.

  • Non-compete undertaking. A non-compete undertaking is usually requested from the management.

  • Other solutions (specific indemnities and escrow). Where specific problems are identified in the due diligence, sellers can be required to indemnify against any losses arising out of those problems, regardless of whether the buyer had actual knowledge of them.

    Where major problems are anticipated, or where the seller is not expected to be solvent after closing, it may be desirable to escrow a portion of the purchase price to cover indemnity claims.

20. What non-contractual duties do the portfolio company managers owe and to whom?

It is usual for management participating in an MBO to enter into management or employment agreements. A wide range of terms are usually imposed, including:

  • Confidentiality provisions.

  • Non-compete undertakings.

  • Non-solicitation undertakings.

In addition, most managers are required to forfeit all or some of their equity (or share options) in a Belgian company if they leave voluntarily or are dismissed for cause. If so, the purchase price for the manager's equity share may be less than market value (known as a bad leaver clause). In other circumstances (such as death, disability, or termination without cause), the manager is allowed to keep his equity in the company (known as a good leaver clause).

21. What terms of employment are typically imposed on management by the private equity investor in an MBO?

Minority investors

A minority investor is usually granted the right to nominate one or more members of the company's board of directors. This right can be included in the company's articles of association (a binding nomination), but is much more likely to be found in the shareholders' agreement.

Minority shareholders can also be granted veto rights over specific corporate actions, such as:

  • Use of authorised capital by the board of directors.

  • Appointment of managing directors and key managers.

  • Decisions in relation to certain investments, divestments, borrowing, lending and guaranteeing.

This is often achieved by issuing a separate class of shares to the minority investor and then granting veto rights to that class of shares (or to a director appointed by the investor).

Majority investors

A majority shareholder can remove the company's board of directors virtually at will and, therefore, does not require additional protection.

22. What measures are commonly used to give a private equity fund a level of management control over the activities of the portfolio company? Are such protections more likely to be given in the shareholders' agreement or company bye-laws?

Minority investors

A minority investor is usually granted the right to nominate one or more members of the board of directors of the company. This right can be included in the company's articles of association (a binding nomination), but is much more likely to be found in the shareholders' agreement.

Minority shareholders can also be granted veto rights over specific corporate actions, such as:

  • Use of authorised capital by the board of directors.

  • Appointment of managing directors and key managers.

  • Decisions in relation to certain investments, divestments, borrowing, lending and guaranteeing.

This is often achieved by issuing a separate class of shares to the minority investor and then granting veto rights to that class of shares (or to a director appointed by the investor).

Majority investors

A majority shareholder can remove the company's board of directors virtually at will and, therefore, does not require additional protection.


Debt financing

23. What percentage of finance is typically provided by debt and what form does that debt financing usually take?

Generally, a substantial part of the finance on a buyout is provided by debt and occasionally this can be as much as 80%. The usual sources of debt financing are loans from institutional investors, financial institutions and the sellers themselves (in private acquisitions).

Institutional investors usually lend money directly to a company by purchasing privately placed bonds without an investment bank acting as a placement agent. There are also a number of funds that provide mezzanine finance.

Commercial banks have always been a source of debt financing. Most commercial banks have acquisition finance teams that specialise in arranging acquisition finance. For larger loans, one or more banks generally arrange a syndicated facility.


Lender protection

24. What forms of protection do debt providers typically use to protect their investments?


Security, in the form of pledges of equity (share pledges) and other collateral (such as receivables), is available, subject to applicable financial assistance rules (see Question 23).

The Collateral Law (Wet Financiële Zekerheden) allows a taker of collateral to enforce a financial collateral arrangement when an enforcement event occurs, without the collateral provider being given an opportunity to remedy the situation, or without any judicial procedure, even where there are existing insolvency proceedings in place. This ensures that certain provisions of insolvency law that would hinder the effective realisation of the collateral do not arise, provided that the parties act in good faith. Belgian courts may exercise control afterwards over the realisation or valuation of the relevant financial obligations to verify that they were conducted in a commercially reasonable manner.

Debt providers can take first charges over the fixed assets of a company, and it is also possible to take a floating charge (pand op handelszaak) over the company's assets. In the event of either bankruptcy or companies in distress (such as a restructuring in accordance with the act relating to the continuity of enterprises (wet op de continuïteit van ondernemingen)), secured creditors are paid before the generally preferred creditors and unsecured creditors. Secured creditors are creditors secured by:

  • Mortgages.

  • Pledges.

  • Other special preferential rights on real or personal property.

Other mechanisms

Subordination agreements and inter-creditor agreements are also used to protect the interests of debt providers and are generally enforceable on subsequent insolvency.


Financial assistance

25. Are there rules preventing a company from giving financial assistance for the purpose of assisting a purchase of shares in the company? If so, how does this affect the ability of a target company in a buyout to give security to lenders? Are there exemptions and, if so, which are most commonly used in the context of private equity transactions?


Under the new rules that entered into force on 1 January 2009, a company is entitled to provide financial assistance with a view to the acquisition of its shares by a third party provided the following stringent conditions are met (Article 629, Company Code):

  • The transaction must be authorised by the board of directors as being under fair market conditions, taking into account the usual market interest rate and the usual collaterals for similar types of financing as well as the credit standing of the third party.

  • The transaction is subject to prior approval by the general meeting of shareholders with the same quorum and majority requirements as for an amendment to the articles of association.

  • The board of directors must draft a special report explaining:

    • the reasons for the transaction;

    • the interest of the company in entering into the transaction;

    • the conditions of the transaction;

    • the liquidity and solvency risks for the company; and

    • the price at which the shares are sold.

  • In addition, if a director of the parent company or the parent company itself benefits from the transaction, the board's report must explicitly justify the decision, taking into account the capacity of the beneficiary and the consequences for the assets of the company.

  • The assistance must be paid out of, and cannot exceed, distributable profits (as defined in Article 617 of the Company Code). The company must set up a non-distributable reserve on the liabilities side of its balance sheet equal to the total amount of the financial assistance.

Distribution of dividends

In addition, a special general meeting of shareholders can approve the distribution of dividends from profits that have been reserved and approved by the annual ordinary general meeting of shareholders. A distribution of dividends is usually made through the approval of an ordinary or special general meeting, although under certain circumstances the board of directors can also approve the distribution of an interim dividend. This kind of dividend distribution is commonly used in the context of private equity transactions.


Except for the requirement for sufficient distributable profits, these conditions do not apply where financial assistance is granted to company employees or to affiliate companies controlled by employees.


Insolvent liquidation

26. What is the order of priority on insolvent liquidation?

The order of priority on insolvent liquidation is as follows:

  • Secured creditors. Secured creditors are paid before the generally preferred creditors. However, their claims only relate to the assets over which they have taken security, while generally preferred creditors can have their claims satisfied out of the general assets.

  • Generally preferred creditors. The following are generally preferred creditors:

    • the government (mainly relating to contributions to the Social Security Office in relation to employees' remuneration);

    • tax authorities which also have certain special protective powers (for example, seizure of assets);

    • employees (in relation to their remuneration and indemnities).

  • Unsubordinated creditors.

  • Subordinated creditors.

  • Shareholders. Shareholders are paid last, once all debts have been satisfied.


Equity appreciation

27. Can a debt holder achieve equity appreciation through conversion features such as rights, warrants or options?

A debt holder can achieve equity appreciation through rights, warrants and options.


Portfolio company management

28. What management incentives are most commonly used to encourage portfolio company management to produce healthy income returns and facilitate a successful exit from a private equity transaction?

A common management incentive is to give the managers a combination of shares and options.

Share option plans are also often used because they can receive favourable tax treatment in Belgium. For example, it is possible to pay relatively low upfront tax at the time of the grant of the share options and to realise a tax-free capital gain, provided that the options are not exercised earlier than three years from the date of the grant (Law of 26 March 1999 relating to the 1998 Belgian Employment Action Plan). In addition, a well-designed share option plan can provide for a period of vesting (which determines when the options become exercisable).

29. Are any tax reliefs or incentives available to portfolio company managers investing in their company?

Shares can be issued at a 20% discount if the employer uses part of a new share issue (Article 609, Company Code). The 20% discount is exempt from both income tax and social security contributions, subject to certain conditions (for example, a five-year lock-up period).

However, there are no other specific tax reliefs or incentives available to management investing in their companies.

30. Are there any restrictions on dividends, interest payments and other payments by a portfolio company to its investors?

There are no restrictions on dividends by a portfolio company to its investors. There are no general thin capitalisation rules for interest payments and so it is not necessary to observe any debt-to-equity ratio within a Belgian company. Specific thin capitalisation rules can be imposed in special circumstances but only for corporate income tax purposes. Where these rules apply they impose a debt-to-equity ratio of:

  • 1:1 where the lender is a director or an individual shareholder.

  • 7:1 if the actual beneficiary of the interest paid by the Belgian company is not subject to taxation on income, or is subject on its interest income under a tax regime that is more favourable than the Belgian tax regime.

There is no time limit when carrying forward tax losses.


Exit strategies

31. What forms of exit are typically used to realise a private equity fund's investment in a successful company? What are the relative advantages and disadvantages of each?

Forms of exit

The most commonly used forms of exit are:

  • Secondary sales (where the private equity provider sells his interest in the company to a third party).

  • Trade sales of the company to a third party.

  • Auctions, which are particularly beneficial if they are organised between strategic third party buyers and investment underwriters contemplating an IPO for the company.

  • An IPO of the company on the relevant stock exchange.

Advantages and disadvantages

Although the IPO remains the most prestigious and profitable exit, current slow-moving worldwide stock market conditions mean that the secondary sale and the trade sale remain the most popular forms of exit in Belgium.

32. What forms of exit are typically used to end the private equity fund's investment in an unsuccessful/distressed company? What are the relative advantages and disadvantages of each?

Forms of exit

The alternatives for an exit are generally limited for an unsuccessful company. Under certain circumstances, a separate sale of healthy business units can be considered. In extreme situations, a company can be liquidated (on a solvent or insolvent basis) or declared bankrupt.

Advantages and disadvantages

The advantages and disadvantages of these alternatives can vary widely in each case.


Private equity/venture capital association

Belgian Venture Capital and Private Equity Association (BVA)


Status. The BVA is a non-governmental organisation.

Membership. Members of the BVA consist of full members (private equity organisations directly involved in providing funds to entrepreneurs) and associate members (organisations providing goods or services to the private equity industry, including lawyers, consulting firms and banks).

Principal activities. The BVA was set up in 1986 as a professional association with the following goals:

  • Promoting the private equity industry in Belgium.

  • Establishing a unified front capable of serving as a spokesperson to the government in legal and fiscal matters.

  • Assuring communication with similar associations abroad, particularly the EVCA.

  • Handling statistical data regarding venture capital sectors.

  • Enhancing the possibilities of association between members.

  • Promoting an entrepreneurial spirit in Belgium.

Contributor details

Luc Wynant

Van Olmen Wynant

T +32 2 644 0511
F +32 2 646 3847

Qualified. Belgium, 1989

Areas of practice. Private equity; corporate and financial law; M&A.

Recent transactions

  • International and domestic share and asset acquisitions.
  • Venture capital and debt capital markets, (leverage) management buyouts, divestitures, funds formations, mergers and company reorganisations.
  • Member of the Belgium Venture Capital and Private Equity Association and the European Private Equity and Venture Capital Association.

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