Professionals

5. Are the conflict of interest rules for intra-group decisions (Art. 7:97 of the Code of Companies and Associations) applicable to these types of operations?

The various companies within a group sometimes have diverging interests when it comes to an intra-group operation.

If decisions or operations by listed companies may have an effect on other companies in the group, the law provides for conflict of interest rules. The starting point for this is that intra-group operations are permitted, but are subject to a procedure involving the independent directors and accompanied by an information obligation towards shareholders and third parties.

Under the old rules (Art. 524 of the Companies Code), the majority of legal commentators took the view that the conflict of interest rules applied only to decisions or operations falling within the competence of the board of directors and did not apply to decisions or operations, such as those addressed in these FAQs, falling within the competence of the general meeting. The protection offered by the procedure was not necessary, according to the then current view, if the general meeting took the final decision. The reasoning was that, if the general meeting judged that an operation proposed by the board of directors was not in the interest of the company, it was free in principle to reject the proposal. In practice, however, this was not always the case, for example in situations where the reference shareholder had sufficient voting rights to approve the operation. This explains why the FSMA, in the former version of these FAQs, recommended, with regard to operations giving rise to conflicts of interest on the part of the persons initiating the operation, that the conflict of interest rules be applied voluntarily or "by analogy". In the light of that recommendation, which was closely followed in practice, the Code of Companies and Associations (Article 7:97) imposes a legal obligation to apply the conflicts of interest rules in those cases.

As such, the management body of the listed company can determine whether the operation takes place under conditions that are at arm’s length. The application of the conflict of interest rules offers the independent directors, aided by one or more independent experts, the possibility and at the same time compels them to take an explicit standpoint regarding the operation.

The FSMA further considers it a good practice for the report drawn up by the independent directors to be made available in full to the shareholders at the time when the general meeting is called.