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New Companies and Associations Code to allow termination of the term of directors with notice/compensation without using protective structures

  • Belgium
  • Employment law

29-04-2019

As from 1 May 2019 the new Companies and Associations Code (“CAC”) will allow to terminate the term of director with notice/compensation without using protective structures.

Currently, the term of a director may be terminated at any time ("ad nutum"), without notice or compensation. The general assembly does not have to justify its decision and no specific majority is required.

In order to circumvent the revocability ad nutum – which is of public order – protective structures allowing to terminate the term of director with notice period and/or compensation have been used. This requires entering into a consultancy agreement with the director for tasks unrelated to his/her term.

To avoid the use of these protective structures, the CAC opts, as from 1 May 2019, for flexibility: revocability ad nutum remains the rule, but it can be derogated. As a result, protection against termination (notice period or compensation) may be foreseen in the articles of association, the decision of appointment and/or in a service agreement.

As a corollary to this new protection against termination, the CAC allows also the general assembly to terminate the term of a director for "just cause", without notice or compensation. The lawmaker gives as an example of "just cause" a serious criminal offence or tax fraud. It will be interesting to see how future case law will interpret this principle, probably by reference to termination of employment for serious cause.

No time limit or formality is imposed to invoke a "just cause". However, it is advisable to act quickly in the event of acts or negligence that may constitute a “just cause” and to submit the situation to the general assembly with a view to possible termination. The director is then free to bring an action before the Court to challenge his/her termination.

Although directors might appear more protected, this protection is still subject to the willingness of companies to implement those rules.

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