Following the right procedures more important than ever when in financial distress


As the spread of Covid-19 undoubtedly has a huge impact on the economy, a significant number of companies will very likely be confronted with losses, possibly putting the going-concern of their business into question.

Besides the necessary disclosure in the annual management report so as to reflect and elaborate on such impact in the “post-closing” events section (especially for those having a calendar year-end), companies should also consider monitoring more closely their financial situation and, as the case may be, applying without delay the measures provided for by the Code on Companies and Associations (“CCA”) to preserve their share capital or their assets, depending on the form of company (the so-called “alarm bell procedure”).

Failing to observe the rules below, and in particular to convene a general meeting, can have far-reaching consequences for the company and its management body, as the damages suffered by third parties shall, save for contrary evidence, be deemed to have resulted from the failure to convene the meeting. It should however be noted that based on the rare case law on the subject, courts tend to not only verify whether the convocation period has been respected, which can prove to be difficult to assess especially as to the start of this 2 months period in particular in the context of COVID-19. They also tend to waive reports which were only containing vague measures or standard wording without any evidence.

To be on the safe side, it is therefore of the utmost importance for companies not to wait until the preparation of their annual accounts but to have a clear view on their financial situation on a periodical basis, be it monthly or quarterly, and, when applying the alarm bell procedure, to devote sufficient attention to the measures proposed and to ensure that these are concrete and specific to the situation.

Procedure NV/SA and BV/SRL

While for NV’s/SA’s, the procedure remains unchanged (compared to the previous Companies Code, where a general shareholders’ meeting must

(i) be convened within two months after the loss, leading to a situation where the net assets have dropped below one half /one quarter of the capital, has been or should have been established, and

(ii) must resolve on the measures to safeguard the continuity of the company), the entering into force of the new CCA for all existing companies, and the replacement of the share capital in BV’s/SRL’s by the notion of assets have induced some important changes in the way the alarm bell procedure must be applied.

Indeed, the procedure is meant to apply even without losses being incurred, and will actually be linked to the situation where either the net-assets would or have become negative (the so-called “balance sheet test”), or when the management body establishes that it is no longer certain that the company, according to reasonably foreseeable developments, shall be able to pay its debts for a period of at least the following twelve months as they become due and payable (the so-called “liquidity test”).

Similarly to the NV’s/SA’s, the management body of a BV/SRL will have to

(i) convene a general shareholders’ meeting to be held within two months of the date on which this situation was or should have been determined (i.e. the date on which one of the abovementioned tests would no longer be met), in order to resolve on the measures announced in the agenda to safeguard the company’s continuity, and

(ii) to draft a special report including measures it proposes to take thereto.

Finally, please be aware of the upcoming measures announced by the Minister of Justice regarding the possible postponement of the annual general shareholders’ meetings with 10 weeks and/or the ways available to hold any general shareholders’ meetings remotely and/or by way of proxies.