An accelerated end to
bearer securities

Due to the recent budget agreement, it is very likely that as from 1st of January 2012 the conversion of bearer securities into registered or dematerialized securities will be taxed at a rate of 1%. Therefore, it is important for shareholders (companies, investors, etc.), which still have a lot of bearer securities, to make arrangements before 31 December 2011. If a simple conversion is not possible, a modification of the articles of association will often be needed, as well as the conclusion of an agreement with a financial organization.

1. Introduction - background

Until recently, Belgian public limited companies and limited partnerships had the right to issue bearer securities.

The advantage of bearer securities was that they could easily be transferred, namely the bond, which represents the bearer security, could be transferred by simple offer. The possessor of the bearer security (paper) was assumed to be the owner. Because of abuses and under pressure of Europe, the possibility of issuing bearer securities was rescinded, and a transitional regulation was implemented regarding bearer securities being in circulation.

“Securities” is a collective term for inter alia shares, bonus share, bonds, warrants, debt certificates, etc.

2. Current situation

As from 1 January 2008, only registered or dematerialized securities can be issued. As from said date, bearer securities registered on a securities trading account may no longer be offered. Moreover, bearer securities exchanged on the stock market shall be legally dematerialized.

The listed companies and undertakings for collective investment had until 31 December 2007 to adjust their articles of association.

Ultimately on 31 December 2013 the bearer securities, which are not registered on the stock market, must be converted into registered or dematerialized securities, with respect to the articles of association and the possible law and/or regulation.

Most of the statutory provisions stipulate that these securities are registered securities or bearer securities, according to the choice of the holder of securities. Also the Belgian Code of Companies provides for this possibility. In principle, each holder of bearer securities may request the issuing company for the conversion into registered securities, and this free of charge. However, the conversion shall only be effective as soon as the holder of securities has actually materially handed over its bearer securities to the company.

To realize the conversion into dematerialized form, and if this possibility has not yet been provided for in the articles of association, an amendment of the articles of association shall be necessary. In case of an amendment of the articles of association and the implementation thereof, certain conditions must be fulfilled, i.e. the determination of the conversion date and the indication of a liquidation office or a recognized account holder.

3. Sanctions

Bearer securities not converted into registered securities or not dematerialized on 31 December 2013 are considered either to be dematerialized, if this possibility is provided for in the articles of associations, or to be converted into registered securities, registered in the name of the issuer until the rightful claimant presents himself. Until that moment the holder of the securities cannot exercise the rights attached to the securities.

As from 1 January 2015 the securities, of which the rightful claimant is unknown, shall be sold by the issuer. The revenues of this sale shall be deposited with the Belgian Security Deposit and Lodgement Pay-Office (“Deposito- en Cosignatiekas” – “Caisse des dépôts et consignation”), with deduction of costs.

As from 31 December 2015 rightful claimants who present themselves with the Belgian Security Deposit and Lodgement Pay-Office (“Deposito- en Cosignatiekas” – “Caisse des dépôts et consignation”) shall have to pay a fine at a rate of 10% per year of arrears incurred of the amount re-claimed. Furthermore the Belgian Security Deposit and Lodgement Pay-Office (“Deposito- en Cosignatiekas” – “Caisse des dépôts et consignation”) shall notify the (fiscal) authority of the identity of the ones that requested for the restitution.

4. The accelerated end of bearer securities: fiscal pressure as from 1 January 2012!

Besides the aforementioned measures, the budget measures also provide for a new fiscal tax. The law is not yet published, so neither the exact range, nor the conditions are known.

Nonetheless the pressure to make the bearer securities disappear as soon as possible is larger.

On the basis of the information as provided in the budget agreement, the conversion of the bearer securities into registered or dematerialized securities shall be taxed at a rate of 1% as from 2012, at a rate of 2% as from 2013 and at a rate of 3% as from 2014.

The tax base is still unknown, but most likely this shall be based on the market value or the net assets value (for the unlisted securities). Therefore, the tax to be levied could be substantial.

It is also not clear who the taxable person shall be. This can be the holder of the security as well as the issuer. It can be assumed that the issuer shall have to withhold the tax at the conversion, or the recognized account holder (the bank) at the registration on the securities trading account.

5. Conclusion: what to do?

Holders of bearer securities have a strong interest not to wait any longer with the conversion of their securities. If the issuer has already issued dematerialized securities or this has been laid down by statute or regulation, it will be sufficient to immediately offer these securities to a recognized account holder (the banks), and to request for the registration on a securities trading account.

The bearer securities may also be offered and handed over to an issuer with the request to convert them into registered securities and to register them in the securities register. To avoid problems of evidence, it is strongly recommended to obtain a fixed date. The conversion shall only be realized, if the securities are also handed over materially. In other words, a mere registration shall not be sufficient!

When the issuer, i.e the company, still has bearer securities in circulation, it is also advisable to withdraw them as soon as possible by means of an amendment of the articles of association, and to invite the holders of securities to convert their bearer securities and to register or dematerialize them. In the latter case, the prior conclusion of an agreement with a recognized account holder (the bank) shall be necessary.

The final date is 31 December 2011.

22 December 2011

Leo Peeters - leo.peeters@peeters-law.be