In many articles where experts present their country and services through various topics in their comfort zone, one often finds that it is about tax benefits, social benefits, subsidies and so on, and always for prosperous companies that must be able to allocate their profits as profitably as possible after the lowest possible taxation of any kind. Companies in difficulty are often overlooked in this process. Hence this article and how Comptafid Benelux NV, a Belgian certified accountancy firm ITAA deals with this.
Indeed, the legislator has stipulated within the framework of the new Companies and Associations Act (CAA), which came into force on 1 May 2019, that a decent financial plan must be drawn up by the founders, whereby several minimum conditions must be respected, and it is not misunderstood that the assistance of a certified accountant ITAA is certainly no luxury. What do we mean?
1. A precise description of the intended activity
2. An overview of all sources of financing at incorporation, if any, with indication of the securities provided in that connection
3. An opening balance sheet drawn up according to the scheme referred to in Article 3:3, as well as projected balance sheets after 12 and 24 months
4. A projected profit and loss account after 12 and 24 months, drawn up according to the scheme referred to in Article 3
5. A budget of the expected revenues and expenses for a period of at least two years after the formation
6. A description of the assumptions used in estimating the expected turnover and profitability
7. If applicable, the name of the external expert who assisted in drawing up the financial plan.
As the reader will notice, the legislator wants to prevent the entrepreneur from getting into difficulties. But nothing could be further from the truth. Companies that invest in Belgium from abroad, but also Belgian initiators, usually overlook the fact that this Belgian market does not necessarily correspond to their home market, that there are often many differences, and these are often ignored. In addition, many expectations are often not realised or are much more expensive, or they do not find the necessary resources quickly enough at the expected cost price, so profit expectations go wrong. Usually, certain start-up losses are foreseen which then must be financed by the home market, but it happens all too often that these start-up losses are larger than planned or that disappointing results in the home market cannot finance these increasing losses. Then the company gets into difficulties.
In the Economic Law Code (ELC), in Book XX, the legislator has provided a lot of text for companies in difficulties where protection is invoked against the creditors. Unfortunately, this law is used very little or mostly in the context of bankruptcy. It overshoots its target because many professionals do not know enough about this law, let alone its scope. Usually, this law is only used when the target is already bankrupt. It is up to the certified accountant to intervene when certain loss conditions arise.
We look at the Private Limited Company (PrivatLC) and the Public Limited Company (PublicLC).
The PrivatLC: A special report must be prepared by the Board of Directors in accordance with Article 5:153, §1 and/or 5:153 §2 of the CAA. In this report the net assets of the company should be assessed, and it should be determined whether these are or will become negative. Thus, the Board of Directors should assess whether the continuity of the company is at stake and whether it recommends liquidation. If the Board of Directors advises the continuation of the company, a restructuring plan is in order and the certified accountant will monitor the realistic and professional value of this plan. If the Board of Directors states that no restructuring plan is necessary, it can propose it as such to a Special General Meeting. As you can see, the legislator places the responsibility on the Board of Directors. Then the Special General Meeting will decide on the continuity of the company. If the certified accountant evaluates the restructuring plan, he must in certain circumstances inform the Chairman of the Enterprise Court about the feasibility of this restructuring plan. Here too, the responsibility of the certified accountant is invoked. It will then be the Delegated Judge of the Enterprise Court who will assess what actions need to be taken in the context of this company.
The PublicLC is not really different from the PrivatLC, however, the Board of Directors have to issue a report on the continuity of the enterprise in accordance with article 7:228, first paragraph and/or article 7:228, fourth paragraph and/or article 5:153, §1 and/or article 5:153,§2 of the CAA. The comparison standards are somewhat different, as follows: if, because of losses incurred, the net assets of the company have fallen to less than half of the capital and thus below the limit stipulated in article 7:228, first paragraph, the Board of Directors must act and decide on whether the business can coninue. Worse, if the net assets fall below the limit of one quarter of the capital according to article 7:228, fourth paragraph, any interested party can sue the company in dissolution. The legal minimum capital is currently €61,500. The PublicLC then follows the same procedure as the PrivatLC.
The certified accountant therefore plays a very important role here. He must warn and follow up his client to watch over the profitability and the owned equity of the company. But he also must inform his client if the company ‘temporarily’ needs protection and possibly make use of the Continuity of Enterprises Act (CEA), a regulation provided for in the new ELC book XX. As mentioned, this frightens off most enterprises. Indeed, the publicity given to it has the effect that many suppliers withdraw their credit for new deliveries or only accept deliveries against cash payment. This, of course, accelerates the deterioration process of the company in difficulty. Similarly, the ‘silent’ CEA scheme has been introduced whereby the procedure is identical but only the main creditors are informed so that only limited damages can occur. It is here that the certified accountant has a very important task. Unfortunately, this procedure is accepted as the precursor to bankruptcy.
As a Supervisory Judge, I often find that bankruptcy could have been avoided and a positive liquidation could have been achieved if only one had intervened much sooner. That is why the liability of the Directors in these cases is often referred to.