Liability as a director may be compromised if, in the same circumstances, a prudent director would not have taken the decision or would have behaved differently. The circumstances in which one must make decisions as a director today are, to put it mildly special and exceptional. So the assessment of those decisions will be different as well, but the regulations imposed do create certain expectations of entrepreneurs.
What if the company's results deteriorate?
Are benefits still an issue?
Any distribution (e.g., distribution of dividends) of a private limited company is subject to a double test: on the one hand, there is the balance sheet test and on the other hand, there is the liquidity test. A distribution from a limited liability company is subject only to the balance sheet test.
Especially with regard to the liquidity test, which applies to the private limited company, the directors have a difficult task. After all, it is up to the directors to determine whether the company will remain in a position to meet its financial obligations over the next twelve months after the distribution. The directors must prepare a report on this, after which the general meeting can proceed with the distribution. Here too, therefore, the corona crisis must be taken into account.
Each director may be held accountable if the distribution is made in error.
Alarm bell procedure
Good management also means that financial problems must be identified in time and that in the event of a loss within the company one must react in a timely manner. The Code provides here for a specific obligation on the part of directors.
The so-called "alarm bell procedure" should be observed in two specific situations:
- When the net asset is in danger of becoming or has become negative;
- When it is no longer certain that, according to reasonably foreseeable developments, the company will be able to pay its debts for at least the next twelve months as they become due.
- A proper analysis of the recovery measures is essential (revenue permanently lost or merely postponed? ...) Directors can be held liable if this particular procedure is not followed. Especially the second situation is a common problem at the time of this corona crisis. It is therefore important that the managing body does not forget its legal obligation to comply with the alert procedure.
Proper analysis of recovery measures is essential (revenue permanently lost or merely postponed? ...)
You can find more information about the reporting in the product sheet alarm procedure. Feel free to contact us if you or your client needs assistance.
Continuing lost business
Directors may be held liable if they still unfairly continue.
However, pursuant to a draft proxy decision approved by the government, there is currently no obligation to file a bankruptcy declaration when it is found that the company is in bankruptcy. Nor can the company currently be declared bankrupt.
The decree further provides for an automatic suspension. Specifically, this means that current contracts cannot be terminated due to non-payment and cannot be seized.