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A director's liability may be compromised if a cautious director would not have made the decision or would have behaved differently under the same circumstances. The circumstances for making decisions as a director today are, to put it mildly, special and exceptional. These decisions will therefore also be viewed differently, but the rules that are imposed do create certain expectations from entrepreneurs.
What if the company's results deteriorate?
Are pay-outs still on the table?
All pay-outs (e.g. paying out dividends) by a Besloten Vennootschap/Société à Responsabilité Limitée (BV/SRL or private company) are subject to a double test: the balance sheet test and the liquidity test. Pay-outs by a Naamloze Vennootschap/Société Anonyme (NV/SA or public limited liability company) are only subject to the balance sheet test.
Directors are faced with a difficult task, particularly regarding the liquidity test for the BV/SRL. After all, it is up to the directors to decide whether the company will continue to be able to meet its financial obligations for the next twelve months, after the pay-out. Directors are required to write a report, after which the general meeting can proceed with the pay-out. Here as well, they need to look at the impact of the corona crisis.
Directors may be held liable if the pay-out was made wrongfully.
Alarm bell procedure
Good governance also means that financial problems must be identified well ahead of time and that in the event of a loss within the company, a timely response must be provided. The Company Code provides for a specific obligation in this respect that directors must meet.
The so-called 'alarm bell procedure' must be followed in two specific situations:
A proper analysis of the recovery measures is essential (inter alia: income is permanently lost or merely postponed?)
More information about how to draft the reports can be found in the alarm bell procedure product sheet. Feel free to contact us if you or your client need assistance.
Continuation of lost business
Directors may be held liable if they continue a loss-making activity in an unreasonable manner.
However, under a government-approved draft power of attorney decree, there is currently no obligation to file a declaration of bankruptcy, if the company is found to be in a state of bankruptcy. The company cannot be declared bankrupt either, at the moment.
The decision also provides for automatic suspension. Specifically, this means that current agreements cannot be terminated due to non-payment and no assets can be seized.