If you do business through a private limited company, public limited company, or cooperative, you will like to have (part of) the profits distributed at some point. The articles of association of most companies state that the general meeting can decide on a distribution. In the past, courts have already indicated that the board of the company may not simply cooperate with a distribution if this would negatively affect the continuity of the company. It has also been addressed in the past that a shareholder must repay distributions received in a number of cases.
On 1 October 2012, for the BV, the law came to state that the board must refuse to approve a distribution if "it knows or should reasonably foresee that the company will not be able to continue paying its due debts after the distribution". If the board fails to do so, each director is jointly and severally liable for the deficit. The test that the board must do before it may make a distribution is called the distribution test. In any event, it must also perform this test at the time of the actual payment.
This therefore means that the distribution test must be performed before a resolution to pay dividends is passed, but also at the time of the actual payment of the dividend.
In any case, payable debts are also debts due within one year. However, they may also include debts due further into the future.
Only if a director can prove that it was not his fault that the company made the distribution and that he was not negligent in taking measures to avert the consequences, he is not liable. In any case, this means that he must have voted against and also taken measures. For example, raising additional liquidity or going to court to prevent the execution.
A person who received the distribution may also be liable for repayment. For example, a receiving shareholder who knew that the company would not be able to pay its due debts must repay the distribution.
For more information on the distribution test, dividends and other distributions, please contact us. We will be happy to help you.
