Category: *In English

Recent trends in the remuneration of executives and directors

Conference organized by the Jean-Pierre Blumberg Chair on 23 May

Over the last few years, remuneration in public companies has received considerable attention in both academic and public discourse. Several national and international initiatives have reformed remuneration practices to achieve various objectives, including improving shareholder engagement, encouraging active monitoring by (independent) directors, achieving corporate sustainability, and incentivising long-term value creation. Although these trends have had a significant impact on practice, large differences in remuneration practices still exist.

On the afternoon of 23 May 2024, the Jean-Pierre Blumberg Chair organizes a conference on the topic of “Recent trends in the remuneration of executives and directors”. The conference aims to improve the understanding in Belgium and Europe of the dynamic topic of remuneration of executives and directors. The conference brings together theory and practice through academic presentations that contain empirical evidence on remuneration practices, and through a panel discussion of prominent practitioners (moderated by Charles-Antoine Leunen, Linklaters). 

More information and registration can be found via this link. Below follows a brief teaser of what conference participants may expect.

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Regulatory competition concerning capital markets between the EU and the UK

Seminar (Cambridge and via Teams)

In response to the recent changes to the UK Listing Rules and the proposed EU Listing Act, we are pleased to invite you to our hybrid seminar on regulatory competition concerning capital markets between the EU and the UK.

The seminar will take place on Thursday 28 March 2024 from 10h to 12h GMT, 11h to 13h CET. The in-person event will take place in the Law Faculty of the University of Cambridge, room G24.

You can also to follow the seminar online by using the following Teams-link.

This seminar is organised in collaboration with the University of Cambridge (UK), the London School of Economics and Political Science (UK) and KU Leuven (Belgium). We are delighted to announce that the seminar will be led by three esteemed speakers from the different universities. 

Professor Veerle Colaert: Professor Colaert holds the chair for financial law at KU Leuven since 2011 and is co-director of the KU Leuven Jan Ronse Institute for Company and Financial Law. She will cover the recently proposed EU Listing Act in her talk on “The ‘EU Listing Act Package’: harmonisation, de-harmonisation and regulatory competition.”

Professor Eílis Ferran: Professor Ferran is Professor of Company & Securities Law at the University of Cambridge and is a fellow at St Catherine’s College. She will discuss the changes to the UK Listing Rules, by giving an overview of possible changes and examples of regulatory competition.

Assistant Professor Elizabeth Howell: Assistant Professor Howell is Assistant Professor of Law at LSE. She will focus on the Financial Conduct Authority (FCA), the transfer of greater powers to the FCA in light of Brexit, and the accompanying accountability issues in her talk on “Who watches the watchers”.

There will be a possibility to ask questions at the end of the talks during the Q&A.  Interested to know how these changes may lead to more regulatory competition between the UK and EU? Find out on the 28th of March 2024.

The flip side of the coin: how entrepreneurship‑oriented insolvency laws can complicate access to debt financing for growth firms

Policymakers strive to create legislation that promotes entrepreneurship, as it influences individuals’ propensity to start new ventures. While research extensively covers the effects of tax and interest policies on entrepreneurship, the impact of insolvency laws remains underexplored in law and economics scholarship. In our paper entitled “The flip side of the coin: how entrepreneurship‑oriented insolvency laws can complicate access to debt financing for growth firms”, we examine the changes in the use of debt for growth firms, using the recent reform of Belgian insolvency and company law in the 2017-2019 period as an exogenous policy shock (e.g. easier access to debt remission for natural persons, the new rule for demarcation of the assets of the bankrupt estate from art. XX.110, §3 and the ‘cheaper’ form of limited liability due to the introduction of the BV without a legal [minimum] capital).

What research tells us, and doesn’t tell us 

Continue reading “The flip side of the coin: how entrepreneurship‑oriented insolvency laws can complicate access to debt financing for growth firms”

Intra-Group Financing and Enterprise Group Insolvency: Problems, Principles and Solutions

A PhD thesis teaser by Ilya Kokorin (Assistant Professor, Leiden University)

‘Entity separateness should not result in complete entity insulation‘

Ilya Kokorin

1. Economic and legal realities of corporate groups

The enterprise group is one of the primary forms of organising economic activity. In fact, virtually every major firm is organised as a group. From early precursors of business groups, such as the Medici system of partnerships of the 15th-16th centuries and the European colonial trading empires of the 17th centuries (e.g. Dutch and English East India Companies), to the emergence at the end of the 19th century of the first modern groups of companies characterised by multi-layered and hierarchical structures of ownership and control, groups have occupied an important place in societies’ economic and political life. Yet the enterprise group is a curious case. It combines separate entities, usually protected by limited liability, and often an integrated business enterprise facilitated through elaborate networks of financial arrangements. Some of these arrangements “perforate” limited liability (e.g. cross-guarantees), while others closely tie the fates of separate group members (e.g. intra-group loans, centralised cash management, intercompany cross-default and ipso facto clauses). Consequently, the idea of legal separateness, which underpins modern insolvency law, hardly reflects present-day economic realities.

In my PhD book “Intra-Group Financing and Enterprise Group Insolvency: Problems, Principles and Solutions”, I focus on financial arrangements common for enterprise groups and explore their influence on and treatment in insolvency and restructuring of corporate groups. On the one hand, these arrangements can have a positive effect in the form of risk mitigation – ex ante resulting in a lower cost of debt and greater liquidity. On the other hand, intra-group financial arrangements promote group inter-dependence and could magnify the risk of contagion and opportunistic behaviour within the group. In my thesis, I conduct a comprehensive analysis of contemporary commercial practices, case law and the legal tools offered by three prominent restructuring hubs: the UK, the USA, and the Netherlands.

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Authorizations to issue shares and disapply pre-emption rights in the UK, Belgium and France: law, economics and practice

Paper in the Journal of Corporate Law Studies

In Europe, shareholder approval and pre-emption rights have traditionally fulfilled an important role in protecting shareholders in listed corporations against excessive dilution in share issuances. However, these protections also make it costlier and slower to raise capital through share issuances. That is why countries generally allow shareholders to authorize the board of directors to issue shares without shareholder approval and without pre-emption rights – within certain limits. The protection offered by pre-emption rights and shareholder approval therefore depends on the extent to which shareholders are willing to approve authorizations to issue shares and disapply pre-emption rights. 

In a paper recently published in the Journal of Corporate Law Studies, I provide new empirical evidence on the flexibility of such authorizations in practice in French and Belgian listed corporations. Proxy advisors and (associations of) asset managers have adopted guidelines on the maximum size for authorizations – typically 50% of legal capital for authorizations to issue shares with pre-emption rights, and 10% of legal capital for authorizations to issue shares without pre-emption rights (although Glass Lewis is more flexible for Belgium, with thresholds of 100% and 20%, respectively). 

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The new Belgian restructuring plan for large enterprises: debt-to-equity swap

A post by guest blogger Eric Blomme (Simmons & Simmons)

The long anticipated law of 7 June 2023 implementing the European Directive on restructuring and insolvency brings about a major reform of Belgian insolvency law. Among various other innovations, it introduces a new judicial reorganisation through collective agreement for large enterprises.

The new law will apply to all procedures opened as from 1 September 2023.

In this second of two blog posts (see first here), we will examine to which extent creditors can seek to impose a debt-to-equity swap on shareholders within the new judicial reorganisation for large enterprises.

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The new Belgian restructuring plan for large enterprises: secured creditors no longer entitled to the reorganisation value

A post by guest blogger Eric Blomme (Simmons & Simmons)

The long anticipated law of 7 June 2023 implementing the European Directive on restructuring and insolvency brings about a major reform of Belgian insolvency law. Among various other innovations, it introduces a new judicial reorganisation through collective agreement for large enterprises.[1]

The new law will apply to all procedures opened as from 1 September 2023.

What does this reform mean for secured creditors? In this first of two blog posts, we will examine the “value” to which secured creditors are entitled under the new judicial reorganisation through collective agreement for large enterprises.

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Short-termism in European corporate governance

Conference organized by University of Antwerp, Harvard Law School and ECGI on 30 May

Short-termist behavior by corporations is often seen as a large societal problem. For example, Joe Biden wrote in a 2016 op-ed for the Wall Street Journal: “Short-termism […] is one of the greatest threats to America’s enduring prosperity”. 

However, the debate on short-termism has so far largely focused on possible short-termism in the US and the UK). Short-termism in European corporate governance has received much less attention. A notable exception is the 2020 EY study for the European Commission on “directors’ duties and sustainable corporate governance. This study is generally regarded as heavily flawed, however.

For this reason, the University of Antwerp, Harvard Law School and the European Corporate Governance Institute (ECGI) have decided to organize a conference on “short-termism in European corporate governance” on 30 May in Antwerp. We believe that it is important to study short-termism in (continental) Europe, because corporate governance in continental Europe differs in important respects from corporate governance in the US and the UK, with potentially profound implications for the short-termism debate. 

Controlling shareholders in Europe

A first important difference is that corporations in continental European countries more often have a controlling shareholder than corporations in the US and the UK. For example, according to one paper, the percentage of shares held by the largest shareholder in the corporation is much higher in France (46.4%), Germany (45.3%), Belgium (38.6%) and the Netherlands (34.6%), than in the US (21.4%) and the UK (19.5%). 

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Special Purpose Acquisition Companies: too Alternative to be an Alternative Investment Fund?

A post by guest blogger Victor Denil

While Special Purpose Acquisition Companies (SPACs) made a comeback to the American stock markets in 2020, Euronext Amsterdam became the SPAC champion on the old continent, with 16 SPAC listings (FT, 17 February 2021). As we appear to be past the hype, burning legal questions to understand the legal landscape for alternative investment funds, and in particular European SPACs come to the fore. One of these questions is whether European SPACs are subject to the Alternative Investment Fund Managers Directive (AIFMD)? There is no clear answer to this question. In this article, I will try to summarize the pros and cons and I will bring on three arguments why AIFMD could apply in my opinion.

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New FDI rules in the Benelux: a brief analysis from a Law and Economics perspective

A post by guest blogger Thomas Van Gerven (student, KU Leuven)

On November 30 2022, the Belgian federal government and the governments of the federated entities adopted the cooperation agreement on the Belgian foreign direct investment screening mechanism. The draft text has now been submitted to the various parliaments for approval and should enter into force on June 1, 2023. This adds Belgium to the list of EU Member States that have recently tightened their rules on foreign direct investment (FDI). Similarly, in mid-2022, the Dutch Chamber of Representatives adopted the Wet Vifo, establishing the new Dutch general (F)DI screening mechanism. Its entry into force is scheduled for early summer 2023.

As many have pointed out, the practical implications of these new FDI rules for mergers and acquisitions (M&A) in the Benelux can hardly be overstated. For one thing, FDI screening will affect the timetable of transactions. As with merger control, the deal will not be able to close prior to the green light from the respective screening authorities (i.e. the Interfederal Screening Committee for Belgium and the Investment Screening Office for the Netherlands). As important as these practical implications are, the tightening of FDI rules also raises more theoretical questions, that is, from a Law and Economics perspective.

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Harmonisation of EU Insolvency Law: Is Europe Welcoming the New Commission’s Proposal?

With the publication of its Proposal for a Directive on the harmonisation of certain aspects of insolvency law in December 2022 (Proposal), the European Commission has moved into unchartered territory. The first responses have been divergent. Some commentators indicated that (part of) the Proposal is farfetched and at odds with currently well-functioning domestic insolvency legislation in EU Member States, whereas others had clearly hoped for more extensive proposals for harmonisation.

To explore the Proposal in further detail, the Conference on European Restructuring and Insolvency Law (CERIL) organises an international conference on 20 and 21 April 2023 in Leiden (the Netherlands). The CERIL Conference will bring together experts from practice, academia, and the bench who will assess the topics proposed for harmonisation. As input for the Conference itself, CERIL conducts a survey collecting views from across Europe on the reception of this new Proposal.

Commission Proposal to harmonise certain aspects of insolvency law

On 7 December 2022, the European Commission presented its long expected legislative proposal for a directive to harmonise certain aspects of insolvency law (COM/2022/702 final). With the aim to contribute to the development of a Capital Markets Union, the Commission has put forward this Proposal on corporate insolvency rules. More specifically, the Commission aims to make substantive insolvency regimes more coherent by reducing legal uncertainty. It also aims to promote cross-border investment.

With the objective of harmonising ‘certain aspects of insolvency law’, the Proposal covers a variety of more or less separate topics, including (i) avoidance actions, (ii) asset tracing, (iii) pre-pack proceedings, (iv) directors’ duty to file, (v) winding-up of insolvent micro-enterprises, (vi) creditors’ committees, and lastly (vii) measures enhancing the transparency of national insolvency laws.

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The Profit Motive: In Defense of Shareholder Value Maximization

A guest post by Professor S. Bainbridge (UCLA)

What is the purpose of a corporation? Is it, as Nobel Economics laureate Milton Friedman famously claimed, “to increase its profits”?[1] Or is it, as the Business Roundtable—a group of approximately 200 mostly USA corporate CEOs— claimed in 2019, “generating good jobs, a strong and sustainable economy, innovation, a healthy environment and economic opportunity for all.”[2]

In the academic sphere, the weight of scholarly opinion has tilted substantially towards stakeholder capitalism in recent years.[3] The late law professor Lynn Stout dismissed shareholder value maximization as a mere myth, albeit a powerful one she claimed “causes companies to indulge in reckless, sociopathic, and socially irresponsible behaviors.”[4] Canadian law professor Joel Bakan went even further by condemning the business corporation itself as a “pathological institution” whose relentless pursuit of profit has psychopathic attributes.[5] In making such arguments, they reflect a widely shared narrative that “corporations are powerful, evil, malevolent, bad-actors intent on profit-making at the expense of the health, safety, and well-being of individuals.”[6]

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The unfair terms prohibition in Article 5.52 of the new Civil Code and financial services in a B2B context: balancing fairness with legal certainty

A post by guest blogger Els Janssens (Linklaters)

The new Civil Code now contains a general prohibition on unfair terms in contracts. Before that, the B2B and B2C legislation had already introduced a similar prohibition, but financial services had been (partially) exempted. Such exemption for financial services, however, does not appear in the new Civil Code. This leaves the question as to what extent contracts on financial services (international corporate lending in particular) are now caught by the general prohibition on unfair terms in the new Civil Code.

This contribution looks into the arguments and attempts to create some clarity in a blurry picture.

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Public access to UBO registers across the EU ruled invalid

A post by Silvia Van Dyck, Nathalie Colin and Nikolaas Van Robbroeck (Freshfields Bruckhaus Deringer)

The principle of transparency does not justify the interference with the rights of privacy and protection of personal data resulting from the general public’s access to UBO information

The Court of Justice of the European Union (CJEU) this week ruled that the provision under EU legislation which requires that beneficial ownership information on EU companies and other legal entities is generally and publicly accessible violates privacy and data protection rights and is therefore invalid. This represents a significantly change to the transparency of company information and may have an immediate impact on the related registers across the EU. 

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Summer guests in the Lab: beach reads suggested by Xavier Dieux

‘And that which should occur finally occurred: the well-deserved ruin of the gullible, while the professor peacefully continued to enjoy his tenure’

To inspire our summer reading Corporate Finance Lab asked a few prominent lawyers and friends of the Lab: (1) which books were formative for you as a lawyer? en (2) what is your summer reading or what do you recommend? Today: Xavier Dieux, professor emeritus at the ULB, lawyer at the Brussels bar and member of the Royal Academy of Belgium.

Three proposals for a “Galbraithian” summertime:

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