As far as capital maintenance is concerned, the most significant change is undoubtedly the suppression of the legal notion of capital in the BV/SRL. As we will see, this revolution has led to the introduction of new legal safeguards in order to counteract the suppression of the minimum capital requirement and to strengthen the protection of company’s creditors.
1. The public limited company
The concept of capital has been retained for the distribution of profits within the public limited company (NV/SA). The regime applicable under the former Company Code therefore remains in force, with the exception of some relaxations regarding interim dividends.
Consequently, the distribution of profits within an NV/SA only remains subject to the net asset test. The purpose of this test is to verify that the company’s net assets are not negative and to make sure they will not become negative as a result of the contemplated profit distribution.
In addition, the following changes should be noted with respect to interim dividends:
- abolition of the prohibition to pay an interim dividend during the first six months of the financial year;
- abolition of the mandatory minimum period of 3-month between two distributions;
- possibility to distribute an interim dividend based on the profits of the previous financial year until the date on which the general meeting approves the annual accounts for that financial year
2. The limited liability company
The regime applicable to the limited liability company (BV/SRL) has been subject to more substantial changes.
Delegation to the Board of Directors. The distribution of profits may henceforth be delegated to the board of directors by the articles of association provided that the distribution comes to the profit from the ongoing financial year or the previous year (as long as the financial statements have not been approved yet).
Double test. Prior to any profit distribution, the BV/SRL is now subject to a double test of net assets and liquidity in order to determine whether (or not) the company’s assets may be distributed and up to what amount:
(i) Net Asset Test
The net asset test shall be made by the general meeting at the time when it takes the decision to distribute the profit ; if the company has a legally or statutorily unavailable equity, no distribution may be made if the net assets are less than the amount of such unavailable equity or would become so as a result of a distribution
(ii) Liquidity test
If the net asset test is satisfied, the Board of Directors must, at the time when the actual payment is going to be made, conduct this second test prior to the payment of profits.
This test consists of verifying that, following the distribution, the company will be able to pay its due debts for at least the coming twelve months and according to future developments that can reasonably be expected (for example : planned investments, payment of short-term debts, stock to be reconstituted, irrecoverable debts, etc.).
The board of directors shall therefore justify its decision in a short internal report – the accounting and financial data of such report shall be verified by the statutory auditor (if one has been appointed) – aimed at assessing the liquidity situation of the company.
This new regime applies to all distributions, without any distinction being made between dividends, directors’ fees or other similar transactions (such as the repurchase of own shares, financing the acquisition of shares by third parties or the withdrawal price).
Double liability regime. In case of irregular distribution: (i) the directors will be jointly and severally liable (to the company and third parties) for not meeting the liquidity test when they knew or should have known that as a result of the distribution, the company would clearly no longer be able to assume the payment of its due debts (the board will therefore no longer be able to limit itself to a purely mathematical analysis of the balance sheet at a given moment) and (ii) the shareholders may be required to reimburse a distribution if it results in the net assets being reduced below the legal minimum (regardless of whether they are acting in good or bad faith).
Since the CCA came into force, the distribution of profits within the BV/SRL requires increased attention and caution. The management body will have to be particularly attentive before allowing the payment and will have to conscientiously justify compliance with the liquidity test in its special report.
While the double test certainly makes the distribution of dividends more complex, the CCA nevertheless simplifies the profits’ distribution in the BV/SRL by allowing the distribution of interim dividends, similar to the regime provided for the NV/SA.
In this respect, the CCA has made the former regime of the Company Code more flexible by abolishing the applicable deadlines to interim dividends in the NV/SA.
The future will tell us how these developments impact the attractiveness of BV’s/ SRL’s and the way how, in practice, the profit distributions within the BV/SRL and NV/SA will be used.