Distribution test (uitkeringstoets)
The distribution test is the board’s assessment, for a BV, of whether the company can keep paying its due debts after a distribution.
What does distribution test (uitkeringstoets) mean?
The distribution test is the board’s assessment, for a BV, of whether the company can keep paying its due debts after a distribution.
The board looks ahead to foreseeable circumstances, not only at today’s bank balance. Alongside this test, the balance sheet test limits the distributable amount.
How does it work?
A distribution resolution of the general meeting has no effect as long as the board has not given its approval (art. 2:216(2) DCC). The board refuses only if it knows or should reasonably foresee that after the distribution the BV cannot continue to pay its due debts. The law names no period for the forward look.
If things then go wrong, the directors who knew or should have foreseen it are jointly and severally liable for the shortfall caused by the distribution, with statutory interest from the day of distribution (art. 2:216(3) DCC). The shareholder who received the distribution and knew or should have foreseen the same repays the shortfall up to at most what he received.
Example
A BV has € 90,000 equity, no statutory reserves, € 45,000 in the bank and no credit headroom. The shareholder wants € 30,000 dividend. The balance sheet test allows it. For the distribution test the board makes a liquidity forecast for twelve months: opening balance € 45,000, expected receipts € 420,000, expected payments including taxes and repayments € 440,000. Without dividend the bank ends at € 25,000; with dividend at € 5,000 negative. The board therefore approves € 20,000, refuses the other € 10,000 and records the forecast and the decision.
In the annual accounts
Decision on dividend and equity; not a P&L cost.
Difference from the balance sheet test
The balance sheet test looks at the balance sheet: is equity greater than the statutory and articles-based reserves (art. 2:216(1) DCC)? The distribution test looks at cash in the coming period. A BV can pass the balance sheet test comfortably and fail the distribution test, for example when the capital is tied up in a building.
Common mistakes
- Looking only at the current bank balance
- Confusing the balance sheet test and the distribution test
What to watch for
- Record the test in writing on the day of the decision, with the forecast and the assumptions; afterwards that is your evidence.
- Include known large payments: the corporate income tax assessment, repayments and the dividend tax to be withheld.
- Test again if something material changes between decision and payment, such as the loss of a large customer.
Legal basis and sources
art. 2:216(2) DCC
Frequently asked questions
Must a DGA as sole director also perform the distribution test?
Yes. Even if shareholder and director are the same person, a resolution of the general meeting and an approval by the board are both needed. Record both.
What happens if the BV goes bankrupt after the distribution?
Then directors who knew or should reasonably have foreseen the payment problem can be held liable for the shortfall caused by the distribution. A recipient who also knew repays up to the amount received (art. 2:216(3) DCC).
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