Mergers and (partial) demergers in case of negative net equity
Although nothing in Belgian company law or tax legislation explicitly indicates that companies with a negative net equity are not allowed to participate in a merger (or demerger or partial demerger), legal doctrine is divided as to whether such a transaction is possible if the acquired company has a negative net equity.
While most legal authors seem to agree that 100% parent-subsidiary mergers can take place even if the acquired company has a negative net equity, this is not the case for side stream mergers.
A significant part of the legal authors has taken the view that it is not possible to merge a company with negative net equity into another company via a side stream merger. Their main reasoning is that a side stream merger requires that the acquiring company issues new shares, which would not be possible in the case at hand since the capital of the acquiring company is not increased upon the merger (as the absorbed company has a negative net equity). Also the ruling commission has taken a similar position in some cases in the past.
Other legal authors took the position that the issuance of new shares relates to the fair market value of the companies involved, and that a merger with a company with negative net equity should hence still be possible provided that its fair market value is positive.
Position of the Accounting Standards Commission (CBN/CNC)
In its Advice nr 2022/01 of 19 January 2022, the Accounting Standards Commission has given its view on the accounting treatment of side stream mergers (and demergers and partial demergers) whereby the acquired company has a negative net equity.
The Commission agrees that such transactions may take place for Belgian accounting purposes, and this even in case the net equity of the acquiring company would become negative as a result of the merger or (partial) demerger.
However, the Commission requires that the acquired company has a positive market value, so that it is still possible to determine the number of shares of the acquiring company to be issued upon the merger.
Note that the Ruling Commission has also adopted a similar (nuanced) position in the meantime.