The Belgian Law governing international non-profit associations of 27th of June 1921 is set to disappear and the new ‘Belgian Code on Companies and Associations’ has just entered into force. Two novelties are of particular interest to directors of international associations having the form of an international non-profit association governed by Belgian law. A first novelty is the possibility to delegate daily management matters formally to a daily management body. A second novelty is the increased liability for members of the board. As a result, directors may have to pay more attention to their colleagues in the board than before.
Marijke Roelants is Managing Partner at BoldLAW and an experienced lawyer with extensive experience in the assistance of both international and Belgian firms and associations. Apart from being a lawyer, Marijke is also academically active. She has written a number of valued publications in her fields of law, she is a member of the editorial board of the most distinguished corporate and association law review in Belgium, TRV-RPS (‘Tijdschrift voor Rechtspersoon en Vennootschapsrecht- Revue pratique des sociétés’), and she publishes about the Belgian company and association law reform in Balans-Bilan, an accountancy newsletter.
International non-profit associations active in Belgium might be familiar with the Law governing international non-profit associations dating from the last century (27th of June 1921). This law has been amended and supplemented over time but this Spring a full-blown make-over occurred.
The Law of 27th June 1921 itself is set to disappear and the new rules regarding international associations are grouped together with the rules for companies. Hence, the birth of the new ‘Belgian Code on Companies and Associations’. This short article sheds light on two novelties that the new code brings for international associations having the form of an international non-profit association governed by Belgian law.
A first novelty is the possibility to delegate daily management matters formally to a daily management body. A second novelty is the increased liability for members of the board.
The Law provides a transition period of five years for international associations to adapt their articles of association to the new code, and even nine years with respect to their activities. As this might create the impression that nothing will necessarily change in the short term, it must be stressed that those rules of the new code considered as mandatory rules will already apply as from 1 January 2020. As one might have guessed, the new directors’ liability rules and daily management rules are such binding rules. Consequently, it is high time for a closer look at those rules.
Aside from the royal sanction granted to international non-profit associations, another attractive quality of this Belgian legal form is its freedom to organize its structure. The new code continues on this line of freedom and flexibility by stating that the association needs a ‘board of directors’ and a ‘general assembly of members’, as the Law of 27th of June 1921 did.
Now – and this is new – it is possible to create a third body that may act and represent the international association, namely a formal daily management body. It suffices that the articles of association allow to create such a daily management body and stipulate how its members are to be appointed and what they are allowed to do. It is possible for each daily manager to decide alone, or the articles could impose that they should decide together or by majority. It is up to the board of directors to appoint and supervise the daily managers, and to let them go if need be.
This new possibility will certainly facilitate the tasks of those daily managers today who might be faced with suppliers or institutions asking for board validation although it clearly concerns a daily management matter.
With the new code come new rules on directors’ liability. It is striking that directors of international associations are put under the same rules as those for directors in companies. It is therefore recommended for international associations to review their current board structure.
If the board consists of directors who can each individually decide for the association, the directors are jointly liable for those decisions violating the articles of association or the Belgian Code on Companies and Associations. If the board consists of directors who decide together by majority or unanimity, the directors are jointly liable for all board decisions.
This means in practice that directors should pay more attention to their colleagues in the board than they did before. If they notice something happening that they do not agree with, they should speak up during the meeting and have their concerns recorded in the board minutes. Only by voicing their concerns, they can be absolved from joint director’s liability if the board decision is later regarded by a court as faulty.
Of course, a board of directors can take any number of decisions and usually a certain degree of risk is involved as one cannot predict the future. Directors are therefore only liable if the board has taken a decision that is outside the range of different opinions that normal prudent and careful directors, placed in the same circumstances, reasonably could have regarding that matter.
The new code does not provide in a system of yearly discharge of the directors for the performance of their mandate as it does for national associations. If discharge is granted, claims against the directors can afterwards be prevented. In order to protect its directors, it might be considered to include a discharge system in the articles of association of the international association.
Another much-discussed feature in this respect is the ‘cap’ on directors’ liability i.e. the maximum amount that directors can be forced to pay as damages resulting from their liability. This maximum amount is based on the average annual turnover and the average annual total of assets of the association, starting from 125.000 euros for smaller associations and going up to 12 million euros for the biggest ones. Although these amounts may come across as chocking to some, one should bear in mind that this is an improvement compared to the situation today. Under the Law of 27th June 1921, the liability of a director is unlimited and thus damages can - in theory – exceed 12 million euros. The downside of the new code is that it forbids associations to hold its directors harmless against directors’ liability claims.
For those international associations not wanting to wait until the new year, it is already possible to bring their articles of association in line with the new code today. It looks that debate during future board meetings will be key and that is a good thing.