The double solvability and liquidity test in case of dividend distribution

One of the major news foreseen by the new Belgian Companies and Associations Code (CAC) consists in the suppression of the minimum capital requirement for Private Limited Company (PLC) and Cooperative Companies (CC). One of the role of the previous minimum capital requirement was the protection of the interests of third parties linked to these types of companies.

Following the suppression of this minimum capital requirement, and in order to protect the financial interest of third parties, the CAC has introduced the obligation for the PLC and CC to perform a double liquidity and solvability test prior to any distribution to the shareholders (i.e. dividend, directors fees, capital reduction, buy-back of own shares – any distribution decided at the closure of the financial year). This double test requirement is applicable for distributions decided as from 1st January 2020.

I. What is the “solvability test”?

Following the solvability test (also known as the “net asset” test), the General Assembly cannot decide to distribute any amount in case the company’s net asset (i.e. total of the assets, minus provisions, debts and, except exceptional cases, the not yet depreciated part of constitution and expansion costs, as well as R&D costs) is negative prior to the distribution or would become negative after the distribution. This test should be based on the latest approved annual accounts or on a more recent financial statement. In case an auditor was nominated, the latter analyses the more recent statement and must join his report to his annual control report.

In the current state of the law, it is not mandatory to insert in the minutes of the General Assembly the quantified result of the solvability test.

II. What is then the “liquidity test”?

Following the result of the liquidity test, a decision to distribute taken by the General Assembly can only produce its effects after the Board of Directors would have demonstrated that, following the distribution, the company could still pay back its debt up to a period of 12 months. It is then the Director’s role to perform a financial analysis (consisting in the demonstration that the company’s short-term debts can be repaid from its current assets – “acid ratio” or “quick ratio”) in order to demonstrate that the liquidity test is fulfilled prior to the General Assembly’s decision to distribute proceeds.

If it can be demonstrated that the Board of Directors knew, or should have known, that the liquidity test would not be fulfilled prior to the distribution, the latter can be held jointly and severally liable towards the company or the third parties of the damages resulting from the decision to still perform the contemplated distribution.

The realization of this double test is phased. Indeed, the General Assembly must first perform the solvability test. In case the test has a negative result, no distribution can be decided upon, despite the potential result of the liquidity test. However, if the solvability test shows a positive result, the Board of Directors must then perform the liquidity test before the actual payment of the distribution.

Tax Consult follows the news of the new measures taken and applied by the Authorities on a daily basis and is regularly in contact with the (tax) Administration. In case of question, do not hesitate to contact our team at or directly your file manager in order to receive a tailor-made advice adapted to your situation.

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