Distribution of profits in an SA
May 2021 – In contrast to the SRL/BV and the SC/CV, the SA/NV does not have to perform a double test before a profit distribution can be authorised. The reason for this is that the SA/NV always has a share capital. For creditors, this capital is the ultimate guarantee. In any case, the old and well-known net asset test still applies. A recent opinion of the CNC clarifies this test.
Creditor protection
Both the double distribution test in the SRL/BV and the SC/CV and the net assets test in the SA/NV have the same essential objective: the preservation of the assets. And this, of course, with the aim of protecting creditors. The purpose of the net asset test is to avoid the net assets of the corporation, as shown in the annual accounts, being or becoming, as a result of such a distribution, less than the amount of the paid-up capital or, if this amount is higher, the amount of the called-up capital, increased by all the reserves which the law or the articles of association do not allow to be distributed.
The net assets test in the SA already existed under the former Companies Code (C. soc.). The changes made by the Companies and Associations Code (CSA) are in fact nothing more than the updating and clarification of the existing rules. The CNC/CBN states very explicitly in its opinion that the main principles regarding distributions remain unchanged.
The reference amount
The distribution (in principle, the dividend, but it may also be other distributions) may not result in the net assets falling below the reference amount. This reference amount is equal to :
the paid-up capital or, if higher, the called-up capital ;
the unavailable non-capital contribution (share premiums)
the unamortised part of revaluation surpluses
legal reserves;
other unavailable reserves (i.e. statutory unavailable reserves, reserves for the acquisition of own shares, reserves for the granting of financial assistance and other unavailable reserves);
capital subsidies.
Determination of net assets
Net assets are the total assets less:
provisions ;
liabilities ;
unamortised start-up and expansion costs; and
research and development costs.
What distributions?
This net asset test must certainly be carried out in the case of dividend distributions, but not only. It should also be carried out in the case of the distribution of directors' fees, the purchase of own shares, the granting of financial assistance or in the context of a statutory "repayment" of capital.
The test should also be applied to certain distributions to persons other than shareholders or directors, for example, when granting profit-sharing or bonuses to company employees (where this depends not only on the profits made, but also on the company's profit allocation policy).
Interim dividends and interim dividends
The general meeting has the power to grant an interim dividend. Such an interim dividend shall be paid out of the available reserves and the profit brought forward, as shown in the last approved annual accounts. The net asset test therefore applies.
Since such a dividend cannot be based on the current year's profits, the net asset test must be performed on the basis of the latest approved annual accounts.
Interim dividends are granted by the board of directors out of the result of the financial year which has not yet been included in the definitively approved annual accounts. The distribution of an interim dividend is subject to a number of conditions:
the articles of association must give the administrative body the power to distribute such an interim dividend
the profit that can be distributed is limited to certain results of the company;
the administrative body must set the limits for interim dividends on the basis of a statement summarising the assets and liabilities less than two months old.
Again, a net asset test is required, but this is not the only 'test' required.
The amount of an interim dividend must in any case be determined on the basis of an interim accounting statement of the company. This is the purpose of the statement summarising the assets and liabilities.
This interim statement must give a true and fair view of the company's situation, which means that, among other things, account must be taken of value adjustments, depreciation, provisions for risks and charges, reserves to be built up and the amount of corporation tax to be paid on the interim result.
What if it turns out later that the interim dividend was too high?
If the general meeting then sets the annual dividend at a lower amount than the interim dividend, the surplus is considered an interim dividend for the following years until the distributed interim dividend has been fully paid out.
The mere fact that the interim dividend is higher than the amount subsequently decided does not mean that the administrative body has committed a fault, provided that the interim statement has been drawn up correctly. The distribution is definitively acquired by the shareholders and the company has no possibility to recover this balance.
Sanctions
If dividends are distributed in excess of the amount allowed under the net asset test, the beneficiaries must repay the undue distributions if the company can prove that the beneficiaries were aware of the irregularity or could not have been unaware of it.
This applies to ordinary dividends, advances on dividends and interim dividends.
Non-compliance with the rules on the net asset test and the interim dividend may also have criminal consequences. It can result in a fine of between 50 euros and 10,000 euros, as well as imprisonment of between one month and one year.
Finally, any violation of these provisions may result in liability for the directors.
Clarity
Although the CNC notice 2021/02 does not introduce any major innovations, it does clarify a regulation that has existed for several years.
