The Conflicts of Interest Policy describes the potential conflicts of interest that have been identified by Spreds and how Spreds will deal with these conflicts of interest, if any. This policy is subject to annual review.
This document has 6 main sections:
- Definition of a conflict of interest under Belgian law
- Conflicts of interest within Spreds
- Conflicts of interest between specific persons within Spreds and project owners
- Conflicts of interest between Spreds and project owners
- Conflicts of interest between Spreds and investors
- Conflicts of interest between project owners and investors
1. Definition of a ‘conflict of interest’ under Belgian law
Article 7:96. § 1 of the Code of Companies and Associations (hereafter: the “CCA”) defines a conflict of interest within a public limited company as follows:
“When the Board of Directors is called upon to take a decision or to decide on a transaction falling within its remit in respect of which a director has a direct or indirect interest of a financial nature which is opposed to the interests of the company, that director must inform the other directors before the Board of Directors takes a decision. His declaration and explanation of the nature of the conflicting interest must be included in the minutes of the meeting of the Board of Directors at which the decision is taken. The Board of Directors may not delegate its decision.”
A conflict of interest therefore only exists if the following elements are present:
- a decision has to be taken by the Board of Directors or the Board has to decide on a transaction;
- one of the directors has an interest (direct or indirect);
- is of a proprietary nature; and
- is contrary to the interests of the company.
Given this definition, Spreds believes that there are only a limited number of situations that could constitute a conflict of interest under Belgian law. Nevertheless, we have included certain situations for which mitigating measures have also been provided, as these situations could be perceived as conflicts of interest and/or have been covered by Regulation (EU) 2020/1503 of the European Parliament and of the Council of 7 October 2020 on European crowdfunding service providers for business, and amending Regulation (EU) 2017/1129 and Directive (EU) 2019/1937 (text with EEA relevance).
2. Conflicts of interest within Spreds
2.1. Conflicts of interest as defined by the CCA
2.1.1. Description of the situation
The Board must decide on a transaction where the other party is a director (or a company controlled by a director) of Spreds, such as the sale of an asset held by Spreds to one of the directors.
2.1.2. Concrete examples
- sale of a car;
- loan agreement between a director of Spreds and Spreds.
2.1.3. Description of the conflict of interest
The director has an interest in setting the highest possible price if he is selling or the lowest possible price if he is buying. This is therefore a proprietary interest. Furthermore, Spreds’ interest is opposed to the interest of the director concerned: it wants to set the lowest possible price if it is buying and the highest possible price if it is selling. Finally, the decision is taken by the Spreds’ Board of Directors, on which the director concerned could and should vote in principle.
2.1.4. Mitigating the conflict of interest
In this case, Spreds will follow the provisions of Article 7:96 § 1 of the CCA.
Thus, the director concerned is required to inform the other directors of the conflict of interest before the Board of Directors makes a decision. The statement and explanation of the nature of the opposing interest must be included in the minutes of the meeting of the Board of Directors to make the decision.
The Board of Directors shall describe, in the minutes, the nature of the decision or transaction concerned and the patrimonial consequences for the company and justify the decision that was taken, in particular by indicating how the transaction is in the interest of the company and how it complies with the conditions and guarantees normally provided by the market for transactions of the same nature. This part of the minutes shall appear in its entirety in the annual report or in an exhibit filed at the same time as the annual accounts. In addition, the minutes of the meeting are provided to the auditor of Spreds. In his report referred to in Article 3:74 of the CCA, the auditor assesses in a separate section, the patrimonial consequences for the company of the decisions of the Board of Directors, as described by the latter, for which there is an interest.
The director with a conflict of interest may not take part in the deliberations of the Board of Directors concerning such transactions or decisions or take part in the vote on this point.
Where all the directors have a conflict of interest, the decision or transaction shall be submitted to the general meeting; if the decision or transaction is approved by the general meeting, the administrative body may execute it.
2.2. Transactions that are not the responsibility of the Spreds’ Board of Directors
2.2.1. Description of the situation
Spreds enters into a contract with a partner, supplier, client, controlled by a Spreds director. Example: PrivateLending SA/NV, concerning the cooperation between Spreds and PrivateLending for projects based on loans to small and medium-sized enterprises. Spreds will use PrivateLending to analyse the repayment capacity of the borrowing company.
The CEO of PrivateLending is Benoît Fally, who is a director at Spreds.
2.2.2. Situation likely to undermine client confidence
Even if the decision is not taken at the level of Spreds’ Board of Directors, it could be considered that there is a situation that could adversely affect the impartial and objective exercise of the functions of Spreds and, as such, to undermine the trust that clients may have in good management, which is a situation that can be perceived as a conflict of interest.
2.2.3. Mitigating the conflict of interest
The negotiation of contractual conditions is the responsibility of the CEO (and the Management Committee). This situation is therefore not discussed at the Board level and the director concerned does not have to make a decision.
In addition, contracts negotiated with all Spreds suppliers are on market terms and, if a commercial reduction, outside market standards, were to be granted, it would be submitted to the Risk Committee for its opinion.
2.3. Managing conflicts of interest or risk situations
It should be noted that the following rules apply to persons affected by a conflict of interest. If this person is required to make decisions that would lead to a conflict of interest, he is then replaced by the Legal & Compliance Officer (including if it is a director or the CEO who is concerned). If the Legal & Compliance Officer is the subject, the CEO replaces the Legal & Compliance Officer.
Procedures to prevent or control the exchange of information between people carrying out activities involving a risk of conflict of interest where the exchange of such information may harm the interests of one or more clients
In general, and apart from what is described below, in individual cases there are very few situations where the exchange of information may be detrimental to the interests of one or more clients. Crowdfunding, like financial markets in general, must be transparent. The platform should therefore ensure transparency, as far as possible, and should therefore put in place procedures for the exchange of information between relevant persons to achieve this transparency (in particular to enable investors to make an informed investment decision).
In the rare cases where this exchange of information could be detrimental to a client, the procedure for preventing or controlling this exchange is described below in the special cases.
2.3.2. Separate supervision of relevant people whose main functions are to carry out activities on behalf of clients whose interests may conflict, or to provide services to these clients, or otherwise represent different interests that may conflict, including those of Spreds
In general and in addition to what is described below, in special cases, most people within Spreds manage a specific aspect of the process of accompanying a campaign go live until it closes. They act in the interest of both clients (project owner and investor), ensuring transparency of information. Each task comes under the exclusive competence of a person who assumes responsibility for it under the control of the Legal & Compliance Officer for all essential elements relevant to the interests of clients (transparency of information in particular). Since the team is small, the ultimate supervision is provided by the CEO.
2.3.3. Removal of any direct link between the remuneration of people primarily engaged in one activity and the remuneration of, or income generated by, different people primarily engaged in another activity, where a conflict of interest may arise in connection with those activities
Each person is always paid (including variable) on the basis of his own activities and not on the basis of the activities of other persons concerned.
2.3.4. Measures to prevent or limit the exercise by any person of inappropriate influence on the manner in which a person provides crowdfunding services
In general and in addition to what is described below, in particular cases, each person manages his part of the process, in relative autonomy. Every important decision regarding the crowdfunding process is made by the appropriate committees. The Legal & Compliance Officer is the person people can turn to if they feel influenced. The latter can, if he feels influenced, turn to the CEO, the Risk Committee or another independent director.
2.3.5. Measures to prevent or control the simultaneous or sequential involvement of a person in separate crowdfunding services where such involvement may adversely affect the proper management of conflicts of interest
In general and in addition to what is described below, in special cases, Spreds considers that there are only exceptional situations where the involvement of a person concerned in sequential or simultaneous activities could hinder the proper management of conflicts of interest. Indeed, every element of the process is the responsibility of a different person, every decision is made by a committee and clients are always in control of their decisions (including asset sales, decision made by investors).
3. Conflicts of interest between specific people within Spreds and project owners
3.1. A Spreds director or team member launches a campaign
3.1.1. Description of the situation
A Spreds director or team member might want to launch a campaign on the Spreds platform.
3.1.2. Situation likely to undermine client confidence
Even if the decision is not taken at the level of Spreds’ Board of Directors and there are no conflicting interests of a patrimonial nature, it could be considered that there is a situation likely to prejudice the impartial and objective exercise of the functions of Spreds and, as such, to undermine the trust that clients may have in good management, which is a situation that can be perceived as a conflict of interest.
A specific prohibition applies pursuant to Article 8.2 of Regulation (EU) 2020/1503. Indeed, this article provides that Spreds shall not accept any of the following persons as project owners in relation to the crowdfunding services offered on its crowdfunding platform:
- a) their shareholders holding 20%, or more, of share capital or voting rights;
- b) their managers or employees;
- c) any natural or legal person linked to those shareholders, managers or employees by control as defined in point (35)(b) of Article 4(1) of Directive 2014/65/EU.
3.1.3. Mitigating the conflict of interest
It is strictly forbidden for any person employed by Spreds or exercising a mandate within Spreds, to submit a project for funding (which it controls) on the platform.
3.2. A director or employee of Spreds also holds a director position in a company seeking to raise funds prior to the campaign
3.2.1. Description of the situation
It is possible that someone within Spreds -in tempore non suspecto- already has a director mandate in a company and that this company subsequently wishes to raise funds through the Spreds platform.
3.2.2. Situation likely to undermine client confidence
One could think that Spreds would favour this company by virtue of the link with the director. This could therefore constitute a situation likely to undermine the impartial and objective exercise of the functions of Spreds and, as such, the confidence that clients can have in good management, is undermined, which constitutes a situation that can be perceived as a conflict of interest.
3.2.3. Mitigating the conflict of interest
The following measures have been designed to protect the interests of investors:
- The person in question within Spreds must not participate in the decision to launch a campaign and – in the broad sense – must not be aware of the elements of the decision-making procedure;
- The person in question cannot validate the information to be sent to investors when there are decisions to be made (investment or sale decision for example) and a warning must be sent;
- The person in question within Spreds can also not be part of subsequent decisions that may be taken with regard to the project owner after the end of the fundraising;
- It is explicitly brought to the attention of investors that a specific person within Spreds has a director mandate with the respective project owner (notably in the key investment information sheet).
3.3. A director or employee of Spreds also holds a director position in a company seeking to raise funds after a campaign
3.3.1. Description of the situation
The target case is when a project owner proposes to a person within Spreds to take a director’s mandate within it.
3.3.2. Situation likely to undermine client confidence
One could think that Spreds would later favour this company by virtue of the relationship with the director. This could constitute a situation that could harm the impartial and objective exercise of the functions of Spreds and, as such, undermine the confidence that clients may have in good management, what constitutes a situation that may be perceived as a conflict of interest.
3.3.3. Mitigating the conflict of interest
Spreds has issued a ban on taking on new mandates within a company financed by Spreds.
3.4. A Spreds director or employee invests in a campaign organized by Spreds
3.4.1. Description of the situation
As a person involved in Spreds, there is access to many investment opportunities. It is therefore possible that someone involved in Spreds would like to invest in one of these opportunities.
3.4.2. Situation likely to undermine client confidence
One could think that Spreds would favour this company by virtue of the relationship with the director or employee. This could constitute a situation that could harm the impartial and objective exercise of the functions of Spreds and, as such, undermine the confidence that clients may have in good management, what constitutes a situation that may be perceived as a conflict of interest.
3.4.3. Mitigating the conflict of interest
The following measures have been designed to protect the interests of investors:
- People within Spreds who wish to invest must notify Spreds by email of their wish to invest by indicating the reasons for the investment (the elements that made them decide to invest), beforehand, before the launch of the campaign;
- The Legal & Compliance officer checks whether the project of the key investment information sheet includes the information that made the investment decision by the person concerned and if this is not the case, the key investment information sheet is adapted to take these elements into account;
- The persons concerned are not involved in the decision to launch a campaign related to their investment;
This investment is being made:
- through Spreds Finance;
- In a separate compartment (not the public compartment)
- The fact that a person within Spreds wants to invest in a project cannot have the consequence that the public can no longer invest what is considered a standard amount for the offers organized on the Spreds platform (that is, about €250,000).
- The persons concerned cannot subsequently hold executive positions in the target company (Board of Directors, management committee, …).
Once the investment has been made, the following rules apply:
- The concerned people will be excluded from discussions when decisions are to be taken on the file concerned (notably the launch of subsequent campaigns, the cessation of campaigns, the assessment of the satisfaction of the conditions precedent to the investment of Spreds Finance);
Regarding General Meetings of Participatory Noteholders:
- The general meeting for the separate compartment will always take place after the general meeting for the public compartment.
The Legal & Compliance Officer will analyse whether a conflict of interest could exist between the person linked to Spreds and the investors of the public compartment.
- If the Legal & Compliance Officer concludes that a conflict of interest exists (for example in the case where the vote concerns the approval of a voluntary liquidation that would allow investors to recover a small sum but which will result in the loss of the tax benefit (Tax Shelter) pro rata temporis to which the person within Spreds would not be entitled), the separate compartment must vote in the same way as the majority of the public compartment.
- If no conflict of interest exists (for example in the context of a proposal to sell the shares held by Spreds Finance following the exercise of a tag along right) and the result of one compartment has no impact on the other compartment, the separate compartment may vote at its discretion.
- The people concerned can help the company in which they have invested through Spreds Finance by providing contacts, assistance, etc. (role of business developer). They may also be remunerated for their work, but only in cash (for an amount consistent with the market) and explicitly excluding remuneration that consists of shares (through a contribution in kind or a transfer of shares) in the company.
4. Conflicts of interest between Spreds and project owners
4.1. Description of the situation
After a campaign has been completed, project owners send Spreds Finance (as a shareholder or lender) decisions that must be submitted to investors. These decisions could be in favor of the project owner but not in favor of investors. Spreds might want to promote the interests of the project owner to preserve this relationship, for example, hoping to manage a new campaign for this project owner.
4.2. Concrete examples
- The project owner wants to modify the rights and/or economic situation of existing investors (and, in particular, put them in a less advantageous situation, for example by creating a preferential liquidation right that will not apply to existing investors);
- The project owner wishes to have an employee stock option plan approved which, once exercised, will result in dilution for existing shareholders.
4.3. Situation likely to undermine client confidence
The project owner may have a patrimonial interest in certain decisions, but this one is not necessarily opposed to the interests of Spreds itself, which, moreover, often does not have patrimonial interests in this kind of situation. However, this may be a conflict of interest with investors. These conflicts are discussed below in sections 5 and 6.
For other situations, it could be considered that there is a situation that could harm the impartial and objective exercise of the functions of Spreds and, as such, undermine the confidence that clients may have in good management, what constitutes a situation that can be perceived as a conflict of interest, even if the decision is not made at the board level and there are no conflicting interests of a patrimonial nature.
4.4. Mitigating the conflict of interest
Action has been taken to protect the rights and interests of investors. Spreds will hold a General Meeting of Participatory Noteholders during which Participatory Noteholders will have the opportunity to make a binding decision for Spreds Finance. If the urgency warrants, Spreds Finance may be required to make the decision itself. In this case, Spreds will provide a report to investors communicating the issue on which a decision was to be made, the context (as given by the project owner), the decision taken by Spreds Finance and the considerations it took into account in reaching that decision.
5. Conflicts of interest between Spreds and investors
5.1. Description of the situations giving rise to the conflict of interest
A conflict of interest exists for Spreds whenever Spreds would receive a compensation when investors decide in a certain way, which is not necessarily in their own interest.
5.2. Concrete examples
- During a new round of financing that a project owner wishes to launch on the Spreds platform but for which he imposes as a condition that existing investors renounce their right of preference. Spreds receives remuneration for this campaign and some individuals receive a commission, which could lead them to influence investors to agree to waive their right of preference while they are diluted;
- When the project owner informs Spreds of an exit offer for shares held by Spreds Finance for note holders, it is possible, depending on the return obtained by investors, that a compensation (carried interest) is due to Spreds. Spreds could be led to stimulate an exit (to gain compensation faster) while investors may want to hold on to their investment longer in the hope of obtaining a better return or delaying an exit to obtain a larger compensation; Conversely, if the amount received by investors during a proposed exit does not justify the payment of a carried interest to Spreds, it could be thought that the latter may want to influence investors to refuse this exit, so that it can continue to receive its annual compensation paid by the project owner for the management of its investors, while the exit may be in the interest of investors.
5.3. Mitigating the conflict of interest
In most of the cases described, the commissions received by Spreds are relatively low. This also applies to commissions received by the persons concerned.
Carried interest, meanwhile, is an element of interest alignment between investors and Spreds, except in very rare cases.
In all cases, Spreds Finance (and Spreds) does not make these decisions. They are always submitted to the general meeting of the holders of Participatory Notes as described above. This is therefore not a case of conflict of interest per se, but a risk of influencing the decision of investors. This is why the decisions submitted to the votes (and the accompanying information) are always checked by the Legal & Compliance Officer. In 2022, there was an exit approved by investors, without carried interest payment to Spreds, demonstrating the independence that investors have in their decision-making.
6. Conflicts of interest between project owner and investors
6.1. Conflicts of interest
6.1.1. Description of the situation giving rise to the conflict of interest
There is a conflict between a project owner (or more precisely, entrepreneurs or certain shareholders or lenders of a project owner) and its investors whenever they are required to decide on a decision that reduces or eliminates equality between shareholders or lenders.
6.1.2. Concrete examples
- An exit opportunity (at a loss) may present itself, while not all shareholders are selling. The entrepreneur himself may retain his shares. It is also possible that the entrepreneur sells his shares but, in the case of an exit (at a loss), is offered an employment contract by the potential buyer (for example, a more mature company that wants to take over a start-up in which Spreds Finance has invested) for a certain period of time (and thus gains job security);
- It is possible to plan a capital increase in which the pre-money valuation is not very advantageous for the investors of the previous round, but is for the entrepreneur (who has invested only in the first round(s) (s)) or who gets a bonus or a salary increase or other if there is a capital increase with a minimum amount in subscriptions);
- An entrepreneur may also want to have an option stock plan approved for him and/or the employees that is disproportionately in their favour and therefore not in the interest of investors.
6.1.3. Description of the conflict of interest
The previous examples can be considered as conflicts of interest because they concern situations where entrepreneurs have a patrimonial interest that is opposed to the patrimonial interest of investors.
6.1.4. Mitigating the conflict of interest
Spreds is of the opinion that this is not a conflict of interest in the strict sense since persons with opposing interests (on the one hand the entrepreneur and on the other hand the investors) are not in the same body where a decision must be made. In other words, project owners (or other lenders or shareholders) and investors decide independently. It is rather a negotiation to conclude a transaction between two economic operators.
That being said, Spreds will ensure the transparency of the information in order to allow clients (and in particular investors who are the recipients of the information provided by the project owner) to make reasoned decisions. Spreds will also explain the proposed scenarios and their consequences and, if necessary, comment on current market practices.
Therefore, Spreds could declare:
- It is important for the company that this is done because…
- This is a market transaction…
- Beware, this transaction is not in your interest because you lose the benefit of the Tax Shelter…
6.2. Other situations that may be perceived as conflicts of interest
6.2.1. Description of the situation
The investment decisions made by investors are obviously in conflict with the project owner in terms of determining the valuation or the applicable interest rate.
6.2.2. Situation likely to undermine client confidence
The project owners have of course a patrimonial interest in case of investments.
Spreds, for its part, receives a commission on any transaction made by an investor.
Nevertheless, neither Spreds nor the project owner participates in the individual decision of the investor.
Moreover, Spreds does not offer advice or individual investment management and therefore cannot influence investors in their decision to invest. In this respect, Spreds can be considered a marketplace. It should be noted that neither Spreds nor its team accepts any remuneration, discounts or non-monetary benefits for the routing of investor orders to a particular crowdfunding offer made on its platform.
Given that there is a situation where project owners could undermine the trust that clients can have in good management, the situation may be perceived as a conflict of interest, including a risk of investor deception or influence, which should be regulated.
6.2.3. Mitigating the conflict of interest
That said, the decision to invest or not is based on the information available to investors. This information is submitted by the project owner who assumes responsibility for it and who must ensure that it is correct, clear and not misleading. Spreds must verify the completeness, correctness and clarity of the information and make this information available to investors.
In addition, project owners sign a series of declarations and warranties and the breach of one or more of these declarations allows Spreds to obtain compensation from the project owner, particularly for the benefit of investors.