Companies facing financial difficulties due to the Corona crisis have been given additional breathing space by both the federal and Flemish governments through numerous support measures. But many companies have ended up in dire straits, and their financial situation has become precarious.
This is dangerous for the directors of companies. In order to avoid personal liability, a director must then follow the "alarm bell procedure" (alarmbelprocedure). Moreover, with the new Companies and Associations Code, a number of the rules of the game have changed for the Private Limited Company, which does not make things any easier.
Do the Corona measures provide for any relaxation in the application of the alarm bell procedure?
No, on the contrary. Royal Decree No. 4 of 9 April 2020 explicitly stipulates that the relaxed rules on the postponement of general meetings do not apply to alarm bell procedures.
Then what's the problem?
It’s not so much the government's recent Corona measures as such that cause a snag, but rather the new Companies and Associations Code.
First a refresher:
Under the old legal regime, the directors of the company had to convene a general meeting in the event of a "loss of capital", and this within two months of the loss being established.
Loss of capital? This was the case if the net assets of your company fell to less than half of its share capital due to losses incurred. The general meeting then had to quickly decide to either dissolve the company or take measures to remedy the situation.
So what's the catch today?
Because the "capital" in private limited companies has now been abolished, the alarm bell procedure for this form of company is also completely different. The Code now applies a "balance sheet and liquidity test".
As a director, you must now follow the alarm bell procedure every time that:
the net assets are negative or are 'at risk of’ becoming negative
it is no longer certain that, depending on reasonably foreseeable developments, the company will be able to continue to pay its debts for a period of at least twelve consecutive months.
It’s above all the introduction of the criterion ‘at risk of' that can lead to dangerous situations in the current crisis. It’s already difficult to make predictions about the future financial situation of a company under normal market conditions; in the current Corona crisis, this threatens to become completely impossible.
In other words, it’s clear that this liquidity test is a very delicate exercise under Corona conditions. But it is your continuing obligation as a director to ensure that the alarm bell procedure is applied in a timely manner. A prudent director will do this sooner rather than later.
Does this rule only apply to Limited Companies?
This regulation also applies to Co-operative Societies. The same requirements as under the 'old' legislation still apply for Public Limited Companies.
As a director, what do I risk if I don’t comply with these regulations?
If you, as a director, fail to convene the general meeting in accordance with the alarm bell procedure, you can be held liable for this. After all, as a director you are jointly and severally liable for all damage resulting from your failure to comply with the provisions of the Companies Code or the articles of association (statutes).
In addition, don't forget that the alarm bell procedure entails increased liability for directors. After all, if you don't follow the alarm bell procedure, there is a legal presumption of a causal connection between the fact that you didn't follow the alarm bell procedure and the resulting damage.
What does this mean in concrete terms?
Directors who fail to apply the alarm bell procedure or who fail to draw up the special report may be held personally liable for damages suffered by third parties, both in the event of bankruptcy and in the event of non-payment. In such a case, the private assets of the directors can be claimed by the creditors of the company.
Do you have any questions about the alarm bell procedure?
Do I have to effectively follow the alarm bell procedure, and how do I do that? My client was in deep trouble, but took no action, leaving our company running out of money: how do I address his negligence?
Contact us immediately for a personal appointment. This can, of course, be done safely and completely online (our entire case management has been digital for years).
Defensis Law Firm
+32 (0)2 892 60 83 (direct)
Wouter Van Cutsem
+32 (0)2 892 60 71 (direct)
+32 (0)2 892 60 70 (administration)
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