21 Feb Companies and Associations Code: the double distribution test

One of the most significant changes in the new Companies and Associations Code (abbreviated “CSA” for “Code des Sociétés et des Associations” in French and “WVV” for Wetboek van Vennootschappen en Vereiningen” in Dutch) is the abolition of the minimum capital requirement in limited liability companies (abbreviated “SRL” for “Sociétés à responsabilité limitée” in French and “BV” for “Besloten Vennootschappen” in Dutch) and cooperative societies (abbreviated “SC” for Sociétés cooperatives” in Fench and “CV” for “Coöperatieve vennootschappen” in Dutch). In order to maintain sufficient funds for the protection of creditors, any distribution to shareholders will have to be preceded by an in-depth analysis consisting of a double test of solvency and liquidity.

Solvency test

Before being able to allocate the profit and, if applicable, to set the amount of distributions, the General Assembly must have carried out a solvency test. This test consists in prohibiting a distribution of dividends if the company’s net assets are negative or would become negative as a result of such a distribution.

Liquidity test

The decision to distribute dividends taken by the General Assembly shall only take effect after the Governing body has ascertained that, following the distribution, the company will be able to continue to pay its debts falling due for a period of at least twelve months as of the date of the distribution.

These tests must be carried out from 1 January 2020.

It should be noted that heavy penalties are provided for should any distribution be made in violation of the provisions relating to the solvency and liquidity tests, e.g. :

– Beneficiaries, whether in good or bad faith, may be required to repay any irregular distributions;
– the directors are jointly and severally liable for breaches of their legal obligations regarding the distribution of profits, both to the company and to third parties.

For more information on tht subject, feel free to contact Didier CHAVAL esq. (didier.chaval@cairnlegal.be).

Best regards,
The Cairn Legal team.