Dividends: only when possible

One of the most important reforms in the new Company and Associations Code (CAC) is the so-called double distribution test. BV's and CV's can only distribute dividends when the net assets test and the liquidity test give a positive result. For NV's only the net assets test applies.

Net assets test

The first test in the net assets test: the net assets of the company should be positive at the time of the distribution, and cannot become negative due to the distribution.
You calculate the net assets amount based on the last approved annual accounts of the company, unless these figures would be outdated at the time of distribution. When you make a distribution based on the profit of the current financial year, you should use the most recent assets and liabilities statement.
You increase the lower limit with the unavailable part of the equity capital.
If your company has an auditor, he should appraise the assets and liabilities statement.

Liquidity test

When the net assets test gives a positive result, the general shareholders meeting can decide to distribute dividends. But the directors can only actually distribute after they have effectuated the liquidity test. As a consequence, the directors become liable when it shows that the company had insufficient liquidity to distribute the dividends.

Surely, with the liquidity test the board of directors should test whether the company will be able to pay its debts, after the distribution of dividends, for a period of at least 12 months. Not only debts which will be claimable have to be taken in consideration, but also future events which will have an impact on the liquidity position of the company. The liquidity test is more than just a simple calculation. The directors should start from the ratio between current assets and short-term debts. But additionally, they should also look at foreseeable events in the future.

The result of the test, and how they came to it, should be explained in a report. This report should not be published, but when there is an auditor with the company, he/she should appraise the report.

Dividends and other payments

You should (let) perform these tests, not only when distributing dividends. It certainly also goes for distribution of 'tantièmes' to directors.
In fact, these tests are mandatory for every payment or distribution to shareholders. Think of repurchase of own shares and repayment of a contribution (in cash or in kind) which was not statutory unavailable.

Negative result and still distribution

If you, as a shareholder, decide to distribute dividends notwithstanding a negative net assets test, the company can claim back the distributed amounts. Irrespective whether or not the shareholder was in good faith.
When distributing with a negative net assets test, the responsibility lies with the directors. They can be jointly held liable, in first instance towards the company, but also towards third parties for all damages.
Also, penal sanctions are foreseen for directors ignoring the double distribution test.