Transferring all or part of your business ... how do you go about it?

The Code on Companies and Associations (hereafter “WVV/CSA”) provides a regulation for the restructuring of companies. Mergers and demergers immediately come to mind. However, the WVV/CSA also offers the possibility of transferring a branch of activity or a complete business activity to another company, whether for a consideration or not. An important argument here is that such a transfer is fully enforceable against third parties.

But the WVV/CSA does not provide any specific regulation if a company does not want to divest its entire business or a division, but rather a small part of it. What should a company do in such a case to make the transfer enforceable? Fortunately, we can already reassure you. What is regulated in the WVV/CSA does not exclude that a company freely transfers certain assets (and corresponding liabilities) without applying the WVV/CSA.

In this article, we will further discuss the transfer of an entire business activity or a division to conclude with the way in which assets (and associated liabilities) that a company can freely select can be transferred so that the transfer is still binding. 

1. What is a transfer of a universality or branch of activities?

A transfer of a universality or branch of activity takes place when an entire business or a division is transferred either for no consideration or for a consideration to one or more existing or new companies.

A company's "universality" is equal to its entire business activity, i.e. its entire assets and liabilities. In practice, this means that a company transfers its entire activity without distinction.

A branch (or division) of activity is defined as an entity that, in technical and organisational terms, performs an autonomous activity and can operate independently.

These definitions are extremely important because if the object of a transfer does not comply with it, the operation does not qualify for a transfer under the WVV/CSA and must therefore be done in another way (see further point 3).

2. How is the transfer of a universality or a branch of activity carried out with the application of the WVV/CSA?

A universality or branch of activity may be transferred either for no consideration, free of charge, or for a consideration, in other words, against payment of a price or by exchange. This contrasts with a contribution of a universality or branch of activity, where the consideration of the receiving company consists of shares.

The WVV/CSA allows a transfer to have the same legal consequences as a contribution, namely that this transfer is opposable to third parties. To this end, the parties must explicitly declare that they will subject the transaction to the provisions of the WVV/CSA and follow the appropriate procedure.

Please note that this is a free choice and not an obligation. The transferor and transferee can still opt to transfer their business or a branch of activity under the ordinary provisions of the law if they have a good reason for doing so.

2.1 How does the procedure described in the WVV/CSA work?

In summary, the procedure to be followed involves the following steps:

1. The management bodies of the companies involved, transferor and transferee, draw up a proposal for transfer of a universality or branch of activity in an authentic or private deed. It is important to state explicitly that the transaction concerns a proposal of transfer in accordance with the WVV/CSA;
2. The general meeting of the transferring company is competent for the decision to transfer a universality;
3. The management body of the transferring company is competent for the decision to transfer a branch of activity;
4. The deed establishing the transfer of a universality or a branch of activity must be notarised and will be deposited and published by extract in the annexes to the Belgian Official Journal.

This is essential to give the same legal effect to the transfer towards third parties as to the contribution, i.e., to achieve the transfer automatically and make it enforceable against third parties.

An individual can also make a transfer of a universality or a branch of activity under the provisions of the WWV/CSA, if they follow the procedures. In this case, the transfer proposal shall be signed by the transferring individual. When liability is at stake, the transferor-individual himself will be assimilated to a jointly and severally liable partner.

2.2 What are the consequences of a transfer of a universality or a branch of activity?

In the case of a transfer of a universality, all the assets and liabilities of the company are automatically transferred to the acquiring company. 

When a branch of activity is transferred, only the assets and liabilities connected with it are automatically transferred to the acquiring company.

A transfer of a universality or a branch of activity that takes place via the procedure of the WVV/CSA is in principle enforceable towards third parties as of the day of publication of the deed of transfer. By way of exception, there are special laws that provide for a specific regulation to bring about the transfer.

Therefore, please note that, if the procedure described in the WVV/CSA is not strictly adhered to, any interested party may invoke the unenforceability of the transfer.

3. What to do in case of a transfer of assets and liabilities that are neither a universality nor a branch of activity?

In addition to the procedure provided for in the WVV/CSA, any company can decide to transfer assets (and related liabilities) that can be considered neither as a universality nor as a branch of activity. For such transfers, the procedure of the WVV/CSA cannot be applied.

As an example, let's take a printing company that has separate businesses for print design, printing and folding. This printing company considers divesting its activity that is specifically aimed at professional customers and to focus only on private customers from now on. The design, printing and folding can be considered as a separate business, but the services to professional customers cannot.

Such a transfer is, of course, also possible, but it must take place via an ordinary purchase/sale agreement. For such a transfer, the WVV/CSA cannot be applied.

It is important to note that in this case it is crucial to ask the approval of all the contractors involved. This contrasts with the WVV/CSA procedure where, in principle, such approval does not need to be sought.

In this regard, particular attention should be paid to the fact that contracts sometimes contain clauses that limit or make their transferability impossible. A problem can also arise with intuitu personae contracts where the contracting party has only contracted for the sake of the other party's person.

Finally, we would like to point out that a company wishing to transfer a universality or a branch of activity, and thus being able to apply the regime of the WVV/CSA, is also free to choose not to apply the WVV/CSA and to let the transaction proceed by means of a purchase/sale agreement.

4. Conclusion

For the transfer of a universality or a branch of activity, you can always appeal to the arrangement provided for in the WVV/CSA, with all its advantages.

But in addition, the possibility remains to transfer assets (and related liabilities), which may or may not constitute a universality or branch of activity, via an ordinary sale-purchase agreement. In that case, however, the consent of all the contracting parties concerned must be sought. Otherwise, this transfer cannot be opposed to them.

This is not necessary in the case of a transfer under the WVV/CSA. The regulation of the WVV/CSA therefore consists in perpetuating the continuity of a business activity, whether a universality or a branch of activity.

If you would like more information on this subject or if you would like to be assisted with the transfer of a universality or a branch of activity, please do not hesitate to contact our specialists at info@seeds.law or +32 (0)2 747 40 07.