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CAPITAL, DIVIDEND, SOLVENCY: THE NEW COMPANY CODE

The new Company and Associations Code (CSA-code des sociétés et des associations), published on 23 March 2019), has extensively reshaped the legal landscape in Belgium. The solvency of a company is now an issue in matters of the new rules on equity and own capital in the event of dividend distribution. So, are creditors really better protected?

new company code

 

Small enterprises

Many of the CSA provisions do not apply to small enterprises (as defined by Art. 1:24.), or micro-enterprises (as defined by Art. 1:25.). Some of these provisions are concerned with the quality of management or communication and, thus, the protection of creditors. That said, when we look at the statistics, we note that the small & micro-enterprises represent a good 99% of the 632 000 Belgian enterprises employing 53% of the 2.9 million workers in the private sector. That means that they represent 43% of the value-added or, if you will, 43% of the wealth created.

Type #Persons Number ent. Workforce Val-Added
Micro 0-9 94.8% 34.5% 24.8%
Small 10-49 4.4% 19.0% 18.3%
Medium 50-249 0.7% 15.0% 18.5%
Large 250 and + 0.2% 31.5% 38.5%
Total Belgium 632.000

enterprises

 2.87 million persons 222 milliard

EUR

 

  • So, there it is. Half of the creation of wealth, achieved by half of the workers, sidesteps the strictest rules. What’s more, you might even think that the small and micro-enterprises are the least professional, if only because of the limited resources available to them compared with medium and large enterprises.
  • And even if creditors and workers do happen to be less well protected in these companies with a workforce of fewer than 50 persons, we have to acknowledge legislator’s care not to impose too complex and too costly measures for these small enterprises. All this would otherwise lead to a quite sizable hole in the Belgian national economy.

The upshot is that the creditor must always be on his guard.

N.B.: in the same line of thought as a call for caution, it might help to bear in mind that the private limited liability company (Société à Responsabilité Limitée – SRL; former SPRL) no longer includes own or equity capital (i.e. the minimum capital).

 

Dividends

The distribution of dividends had already been limited before the new law entered into effect. This, inter alia, in the obligation to create reserves. These obligations are reiterated (e.g. Art. 7:211.).

A further provision, applicable to a company of any size, states that distribution to shareholders and percentages is provisional on (Art. 5:141. ff):

  • The net assets after any such distribution remaining positive (and even higher than the equity capital if applicable);
  • The administrative body of the company being able to reasonably confirm that the company, after the forecast distribution, would be able to clear its debts by the due dates during the 12 months following distribution.

If, however, it should be found that the members of the administration body knew, or indeed ought to have known, that the enterprise was no longer in a position to be able to pay its debts as required in the foregoing, they shall be held jointly and severally liable towards the company and third parties for any resultant loss or damage.

This provision would seem to have been designed to make the directors of medium-sized and large enterprises to look before they leap. In these cases, the amounts involved are consistent. However, the security of creditors of small and, above all, micro-enterprises does not seem to be much helped by this provision:

  • First, because small and medium-sized enterprises rather tend to be run by persons who fail to distinguish between the till and their own wallet and are least inclined to engage the services of a professional accountant. Plus, once the money is distributed, it is then only too soon swallowed up and recovery is complicated (and the liability under the law then becomes inoperative).
  • Second, because, in these companies, a small series of invoices that are private but charged to the company may represent more than any possible dividend, especially in a situation of cash flow problems.

It thus follows that the creditors of 99% of enterprises, representing half of the Belgian economy, would appear not to be meaningfully protected by this provision. But is this grounds for complaint against the law?

 

Conclusion

The CSA is a very elaborate and complex text. This article touches on only two aspects. The legislator may well have set in place certain additional safeguards to avoid insolvency, but cannot prescribe any cure that will finally kill the patient. At the end of the day, no law will ever protect the fool or the foolhardy.

All creditors must keep on trying to establish and revise credit lines and track client payments.

 

Any questions? Contact us.

CAPITAL, DIVIDEND, SOLVENCY: THE NEW COMPANY CODE

The new Company and Associations Code (CSA-code des sociétés et des associations), published on 23 March 2019), has extensively reshaped the legal landscape in Belgium. The solvency of a company is now an issue in matters of the new rules on equity and own capital in the event of dividend distribution. So, are creditors really better protected?

new company code

 

Small enterprises

Many of the CSA provisions do not apply to small enterprises (as defined by Art. 1:24.), or micro-enterprises (as defined by Art. 1:25.). Some of these provisions are concerned with the quality of management or communication and, thus, the protection of creditors. That said, when we look at the statistics, we note that the small & micro-enterprises represent a good 99% of the 632 000 Belgian enterprises employing 53% of the 2.9 million workers in the private sector. That means that they represent 43% of the value-added or, if you will, 43% of the wealth created.

Type #Persons Number ent. Workforce Val-Added
Micro 0-9 94.8% 34.5% 24.8%
Small 10-49 4.4% 19.0% 18.3%
Medium 50-249 0.7% 15.0% 18.5%
Large 250 and + 0.2% 31.5% 38.5%
Total Belgium 632.000

enterprises

 2.87 million persons 222 milliard

EUR

 

  • So, there it is. Half of the creation of wealth, achieved by half of the workers, sidesteps the strictest rules. What’s more, you might even think that the small and micro-enterprises are the least professional, if only because of the limited resources available to them compared with medium and large enterprises.
  • And even if creditors and workers do happen to be less well protected in these companies with a workforce of fewer than 50 persons, we have to acknowledge legislator’s care not to impose too complex and too costly measures for these small enterprises. All this would otherwise lead to a quite sizable hole in the Belgian national economy.

The upshot is that the creditor must always be on his guard.

N.B.: in the same line of thought as a call for caution, it might help to bear in mind that the private limited liability company (Société à Responsabilité Limitée – SRL; former SPRL) no longer includes own or equity capital (i.e. the minimum capital).

 

Dividends

The distribution of dividends had already been limited before the new law entered into effect. This, inter alia, in the obligation to create reserves. These obligations are reiterated (e.g. Art. 7:211.).

A further provision, applicable to a company of any size, states that distribution to shareholders and percentages is provisional on (Art. 5:141. ff):

  • The net assets after any such distribution remaining positive (and even higher than the equity capital if applicable);
  • The administrative body of the company being able to reasonably confirm that the company, after the forecast distribution, would be able to clear its debts by the due dates during the 12 months following distribution.

If, however, it should be found that the members of the administration body knew, or indeed ought to have known, that the enterprise was no longer in a position to be able to pay its debts as required in the foregoing, they shall be held jointly and severally liable towards the company and third parties for any resultant loss or damage.

This provision would seem to have been designed to make the directors of medium-sized and large enterprises to look before they leap. In these cases, the amounts involved are consistent. However, the security of creditors of small and, above all, micro-enterprises does not seem to be much helped by this provision:

  • First, because small and medium-sized enterprises rather tend to be run by persons who fail to distinguish between the till and their own wallet and are least inclined to engage the services of a professional accountant. Plus, once the money is distributed, it is then only too soon swallowed up and recovery is complicated (and the liability under the law then becomes inoperative).
  • Second, because, in these companies, a small series of invoices that are private but charged to the company may represent more than any possible dividend, especially in a situation of cash flow problems.

It thus follows that the creditors of 99% of enterprises, representing half of the Belgian economy, would appear not to be meaningfully protected by this provision. But is this grounds for complaint against the law?

 

Conclusion

The CSA is a very elaborate and complex text. This article touches on only two aspects. The legislator may well have set in place certain additional safeguards to avoid insolvency, but cannot prescribe any cure that will finally kill the patient. At the end of the day, no law will ever protect the fool or the foolhardy.

All creditors must keep on trying to establish and revise credit lines and track client payments.

 

Any questions? Contact us.

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