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Leaver Provisions Under Belgian Law: Dangling Good Carrots and Wielding Bad and Ugly Sticks

Gisele Rosselle

Leaver Provisions Under Belgian Law: Dangling Good Carrots and Wielding Bad and Ugly Sticks Watz

Nothing ignites frustration in deal negotiations quite like leaver provisions. You’ll find leaver provisions in venture capital deals, private equity buy-out structures, employee incentive schemes, and sale and purchase agreements in an M&A deal. In fact, they are relevant in any scenario where employees, founders or other key people hold equity interests whilst performing services to the equity issuing company. One can construe leaver mechanisms in many ways, and what is considered ‘market’ covers a wide spectrum. Achieving a solution that will satisfy everyone can be a real challenge, given that leaver provisions attempt to strike a balance between protecting shareholders’ investment and allowing management some flexibility in how and when they can exit the business and still get a proper return for their efforts. This article features the myriad of leavers and their treatment, the pricing on exit and the enforceability of leaver provisions. Overall and in the aftermath of the pandemic, ICT, biotech, and healthcare continue to be the most active sectors in terms of PE transactions.

Classification and Treatment

Classifying leavers can be challenging, because one never knows from the outset the exact circumstances of a leaver’s exit. There are no hard and fast rules about leaver exits, and it always depends on the specifics of the transaction and the company.

The company will usually want to define bad leavers as those who are not (classified as) good leavers. Company founders, employees or other corporate officers will seek the inverse and identify the circumstances in which they would be a bad leaver, without which they would be good leavers.

Good leavers are usually those who leave the company on good terms following an event of death, redundancy, mental or physical incapacity impairing their ability to work, or departure following a change in the role or job description and duties. Bad leavers are usually those who leave the company on bad terms following conduct (they allegedly committed) that is detrimental to the company’s reputation or business. Some examples of such conduct include being a party to fraudulent activities, breaching contracts or the shareholder agreement, acting beyond the remit of their authority or being dismissed for gross mis-conduct. The company might also want to include a more flexible discretionary leaver provision—for intermediary leavers—that allows the company’s board of directors to determine on a case-by-case basis whether a shareholder is considered a good or bad leaver.

With the categories of leavers set, the drafting of the provisions should clarify how each type of leaver is treated when they leave the company. Executives could be in such a strong negotiation position that they can retain some or all of their shares, depending on the timing of their exit and as long they are not bad leavers. In such scenario, (a) the leaver could be entitled to retain an increasing proportion of his or her shares over time, perhaps that convert into non-voting shares, (b) the leaver could keep the shares that have been vested, as they represent his or her contribution to date, or (c) the leaver could transfer the shares to a Stichting Administratiekantoor (STAK). If the leaver must put some or all of his or her shares for sale or agree for them to be repurchased by the company (subject to the procedure of purchase of own shares), the debate then shifts to the price at which the leaver must sell the shares.


How shares will be valued on exit can trigger debate. When a leaver is required to sell his or her shares, the common practice in determining the share value is to look at the circumstances surrounding the exit. Generally, the good leavers’ shares are bought at fair market value, while those of bad leavers are bought at a discounted valuation. Different valuation methods can be used for each type of sale whereby one gives a lower price than the other. For example, a good leaver could be bought out at the price of the shares at the last investment round, while a bad leaver could be bought out at the par value of the shares. Parties may seek an independent expert’s opinion on a what would be the fair value of the shares in question. They must do so if the price is not determinable. A shareholder’s agreement can stipulate delayed payment terms to allow the purchaser to get funding. If individual shareholders do not have the cash for the purchase, the company could buy back the shares depending on and in line with the contractual provisions regarding the purchase of the leaver shares.


Leaver provisions should always be drafted with caution, as you should be mindful of their enforceability. For example, a common issue that can arise during the drafting process concerns the enforceability of a compulsory purchase at a discounted price. It is because any discount to fair value could be seen as an unenforceable penalty against the leaver under certain circumstances. Bad leaver provisions could also be challenged, in theory, if there is any abuse of circumstances, e.g.: in a scenario involving a young starter versus an institutional investor. In practice, however, the aggrieved party would invoke more successfully the obligation to perform the agreement in good faith. Finally, you should also consider the effect of leaver provisions on other agreements like service agreements, employment agreements, articles of associations, loan agreements and option agreements.

This article was prepared by the Business Law Section's Private Equity and Venture Capital Committee.