Most acquisitions of companies are nowadays structured as leveraged deals, whereby a portion of the purchase price for the assets or for the shares to be purchased is obtained through loan financing. In such a leveraged transaction, the buyer specifically intends to use the assets and cash flow of the acquired company in order to reimburse or secure the loan financing.

Under Belgian law, this technique is sometimes impaired by article 52 ter of the Company Laws, which provides that a Belgian limited liability company ("societe anonyme / naamloze vennootschap") may not advance funds, grant loans or provide suretyships with a view to the acquisition by a third party of its own shares. A breach of article 52 ter entails the nullity of the transaction at hand (e.g., the nullity of the loan, the nullity of the suretyship, etc.) and may result in criminal sanctions and fines.

It is therefore quite difficult to structure a leveraged deal where the borrower cannot offer anything other than the assets of the acquired company in order to secure its obligations.

However, financing though a future dividend distribution remains permissible, although a merger between the purchased company and the purchasing company immediately after the acquisition may be questionable. Some time should elapse between the acquisition and the merger in order to remain on safe ground.

Another difficulty under Belgian law comes from the general company law principle which states that the Board of Directors of Belgian limited liability companies ("societe anonyme/naamloze vennootschap") must always act in the best interests of the company. This concept is not defined by law, but is usually understood as the seeking of profits. The giving of a guarantee by a Belgian company to secure debts of an affiliate company is usually not seen per se as being in the company's best interests, as the concept of group companies is not recognised by law in Belgium . A Belgian company is not supposed to give a guarantee for debts of another company unless it can derive or expect to derive an interest for the giving of such a guarantee.

It is therefore crucial to assess how to validly structure a leveraged deal in Belgium before entering into too advanced negotiations purporting to the acquisition of a Belgian company.

The content of this article is intended to provide general information on the subject matter. It is therefore not a substitute for specialist advice.

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