Two months, from a date nobody wrote down

How we work

Why both tests get applied together

The Belgian Code of Companies and Associations gives the board of a limited liability company a duty to act at a defined point of deterioration, and the duty has two independent triggers. The first is familiar: net assets negative, or threatening to become so. The second is far less discussed and catches more people, because it is a liquidity test rather than a balance sheet one. It is met when it is no longer certain the company will be able to pay its debts as they fall due over a period of at least the next twelve months. A company with respectable net assets, no apparent distress and a well-presented set of accounts can be squarely inside it because of a payment it knows it cannot meet three quarters of a year from now.

Once either trigger is met, the board has two months to convene the general meeting and put to it a reasoned special report proposing either the dissolution of the company or measures to restore its position. The important detail is where the two months run from: the date the situation was established, or ought to have been established. That second limb means a board cannot extend its own deadline by not looking, and it is why the clock is often already running by the time anyone discusses it. The consequence of not convening is what makes the provision bite. Damage suffered by third parties is presumed to result from the failure, which reverses the ordinary evidential position and leaves the director disproving causation rather than the creditor proving it.

The same twelve-month question reappears in distributions, because a limited liability company under the Code has no capital in the old sense. A distribution must pass a net assets test and a liquidity test, and directors are jointly and severally liable for one made in breach of the latter. Two further things are worth saying plainly to any director. The liability cap in the Code is narrower than its reputation: it does not apply to repeated minor fault, to serious fault, to fraudulent intent, or to certain tax and social security debts. And conflicts of interest have a procedure that has to be followed before the deliberation rather than explained afterwards, with the reasons minuted and the conflicted director out of the vote. Where a company has a single director, none of this will be noticed by anyone else, which is the entire argument for doing it on a schedule.