A dividend distribution is a payment of profit or reserves to shareholders. In a BV the general meeting resolves to distribute, but the resolution only takes effect once the board has approved it on the basis of the distribution test.
Legal basis
Article 2:216 of the Dutch Civil Code contains the regime. Paragraph 1 gives the power to the general meeting and limits distribution to the amount by which equity exceeds the statutory and contractual reserves: the balance sheet test. Paragraph 2 contains the distribution test: the board must withhold approval if it knows or should reasonably foresee that after the distribution the company will be unable to continue paying its debts as they fall due. Case law applies a horizon of roughly one year. Paragraph 3 makes directors who nonetheless approve jointly and severally liable for the resulting shortfall, and requires shareholders who knew or should have foreseen the problem to repay.
How it works in practice
The test must demonstrably have been carried out and recorded in writing, with a liquidity forecast, the payment obligations for the coming year, committed investments and known risks such as pending litigation. In a BV with a single owner-director that record is all the more important, because director and beneficiary are the same person. The same test applies to a repurchase of own shares and to a repayment on shares.
Where it goes wrong
Dividend is distributed on the basis of a profit figure without looking at liquidity, for instance while a large tax assessment or a claim is on the horizon. A second error is the absence of any record, so the director cannot afterwards show that the test was performed. Third, the owner-director’s current account withdrawals are used in effect as dividend, without a resolution and without a test.
Related terms
The distribution connects to the general meeting, directors’ liability and the annual accounts.
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