Netherlands: How to successfully navigate distributions out of a Dutch BV | Actualités

We encounter distributions (in cash and in kind, eg, a transfer of shares by title of distribution) from a Dutch limited liability company (besloten vennootschap met beperkte aansprakelijkheid or BV) in all types of international corporate restructuring, such as (pre-sale) carveouts and spin-offs, post-acquisition integrations, rationalizations and Extensions of Entities. Here we look at the pitfalls that can arise when calculating distributable reserves, as well as the role of the board.

General provision
Under Dutch law, the general meeting of a BV has the power to determine the determination of the company’s profits (as shown in the annual accounts) and, in the event of their distribution or other distributions, to resolve the extent to which the BV’s net assets exceed the statutory reserves required by Dutch law or the articles of association of the BV. This test is performed to determine the amount that can be paid out.

“A distribution resolution passed by the general meeting is only effective if the BV board of directors has approved it.”

A distribution resolution passed by the general meeting is only effective if the BV board of directors has approved it. Dutch law provides that the board of directors must refuse to approve a distribution if the board of directors knows or should reasonably foresee that the BV will not be able to pay its due and payable debts after the distribution (taking into account about a calendar year ahead).

According to the above, a distribution is always subjected to two types of tests:

  1. The balance test (balance test), to be conducted by the general meeting of the BV to determine whether the net assets exceed the statutory reserves to be held under Dutch law (ega revaluation reserve or a currency translation reserve) or the articles of association of the BV (iewhether there are sufficient freely distributable profits/reserves) and
  2. The distribution test (uitkeringstest) to be carried out by the board of directors of the BV in order to determine whether, after the distribution, the BV will continue to be able to pay its debts due and payable in the coming calendar year (and therefore whether the board should refuse to approve the shareholders’ decision on distribution).

Responsibility board

The Board has no discretion as to the conduct of the payout test and the resulting approval or rejection of the payout. Under Dutch law, the Board of Directors can and must only refuse to approve the proposed distribution if, after the distribution, the BV will no longer be able to pay its due and payable debts. The term debts due in this paragraph includes both existing debts and future debts that may become due as a result of existing legal relationships (e.g. a rental agreement).

As can be seen from the above, it is permissible to approve a distribution after which the BV’s equity will end up being negative. This is only permissible if the BV (i) has no legal reserves that are required by law or its articles of association to be maintained and (ii) despite its negative equity after the distribution is still able to pay its liabilities due body (eg, there is a letter of comfort from the shareholder for coverage, there is an ongoing bank facility from which the BV can draw, the BV expects distributions from subsidiaries or the BV has access to an internal cash pool). The BV’s liquidity position must therefore be sufficient at all times. The fuses mentioned (egshareholder letter of comfort for coverage, an ongoing bank facility, anticipated distributions from subsidiaries, or access to an intragroup cash pool) can also help the board more easily approve a distribution that does not necessarily go into negative distributable reserves.

Consequences of violation

Managing Director

Under Dutch law, a director who has approved a distribution knowing or reasonably foreseeing that the BV would not be able to pay its due and payable debts after the approved distribution (approximately one calendar year in advance) jointly and jointly and severally to the BV to compensate for the shortfall resulting from the distribution (plus statutory interest from the day of the distribution).

If the BV is declared bankrupt within the calendar year following the distribution, the directors are deemed to have been aware of this at the time the distribution was approved. Dutch law provides for a possibility for directors to be released from the aforementioned joint and several liability if it can be proved that (i) the director is not responsible for the BV having made the distribution and (ii) that the director is not has negligently taken measures to avert the (negative) consequences of the distribution.


Dutch law provides that the person who has received a distribution (the Shareholder), even though he knows or can reasonably foresee that after the distribution the BV will be unable to pay its debts due and payable, BV can be held liable to BV to compensate for the shortfall caused by the (unauthorized) distribution.

The extent of this liability is limited to the amount or value of the distribution received by the shareholder plus statutory interest on the date of the distribution. The shareholder can therefore be forced to pay back the amount of the distribution to the BV.

The burden of proving that the shareholder was unaware of the BV’s financial position (and therefore can be acted in good faith) lies with the shareholder. It depends on whether a shareholder can be considered to have had such knowledge of the BV’s financial condition, including whether the shareholder was aware that the BV might not be able to pay its due and payable debts after the distribution. In such cases, it is relevant to what extent the shareholder is kept up to date by the board of directors.

Welcome to Crossing – ICR Insights

Crossing – ICR insights is our series of short articles designed to help companies consider international corporate restructuring (ICR). Each country-specific, solution-based brief answers a key Consideration during a global transaction such as carveouts, spinoffs, acquisitions and divestitures, pre- and post-acquisition integration or legal entity rationalization. Visit Crossing to view the collection or email to discuss further [email protected].

Leave a Reply

Your email address will not be published. Required fields are marked *