Article 2:216 of the Dutch Civil Code (Burgerlijk Wetboek) governs distributions of profit and reserves by a private limited company (BV). The general meeting decides on a distribution, but only insofar as equity exceeds the reserves required by law or the articles. The resolution has no effect until the board approves it after a distribution test (uitkeringstoets).
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What is the distribution test?
The board may only refuse approval if it knows or should reasonably foresee that, after the distribution, the company will not be able to continue paying its due debts. In practice, boards look at liquidity and expected obligations for at least the next 12 months. This test is in addition to the balance sheet test: equity must exceed the reserves that the law or the articles require the company to maintain.
Who is liable if the test is not met?
If the company cannot pay its due debts after a distribution and the directors knew or should reasonably have foreseen this, they are jointly and severally liable to the company for the deficit, up to the amount distributed, plus statutory interest from the date of distribution. A director who proves that this cannot be attributed to him and that he was not negligent in taking measures is not liable. A shareholder who received the distribution while knowing or reasonably foreseeing the problem must repay his share, up to the amount he received. In bankruptcy, the trustee brings these claims.
What does this mean in practice?
A dividend resolution is not a formality. Prepare a documented distribution test based on current figures, cash flow forecasts and known obligations such as tax, rent and loans, and record it in the board minutes. The risk is greatest where the director is also the shareholder, because he can be liable as director and as recipient. When in doubt, postponing the distribution is cheaper than a later claim. The same rules apply to interim dividends and to repayments of capital.
Frequently asked questions
Does the test apply to a holding company receiving dividend?
Yes. A holding company that knew the subsidiary could not afford the payment can be ordered to repay it.
Is there a minimum capital requirement?
No. Since the Flex-BV reform of 1 October 2012, the BV has no minimum capital, which is why the distribution test matters.
Related terms
- Dividend distribution
- Directors’ liability
- General meeting of shareholders
- Article 2:248 Dutch Civil Code (director liability in bankruptcy)
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