CORONA CRISIS: The potential impact of the corona crisis on dividend policies

As a consequence of the corona virus outbreak, the financial position of many companies may be compromised. Management currently remains in uncertainty to what extent the corona virus will impact their business. This uncertainty may also affect the annual profit distribution and companies may need to revisit their dividend policy. Many (listed) companies have already reported or cancelled their yearly shareholders’ dividend. This does not necessarily mean that no profit distributions can take place, however there are important elements to take into account and conditions that have to be met when considering to pay out dividends.

Distribution of dividends

The general shareholders’ meeting is competent to decide on the appropriation of the companies’ profits and the possible granting of a dividend. The general meeting may furthermore empower the management in the articles of association to decide on interim dividends (i.e. dividends issued on the basis of profits carried forward, profits of the current financial year or of the previous financial year – as long as those annual accounts have not yet been approved). Under the old companies’ code, this was only possible for a NV/SA. However, since the entry into force (as from 1 January 2020) of the new Belgian Companies Code, this has also been made possible for a BV/SRL. Distributions from available reserves however remain the sole competence of the general meeting. Please note that the term dividend is very broad and not only covers ‘standard’ (yearly) dividends, interim dividends or intermediary dividends, but equally concerns profit premiums, reimbursement of contributions, directors’ bonuses (“tantièmes”), etc.

Nevertheless, the management will decide on the effective payment of a dividend. Therefore a distinction should be made between on the one hand the moment the decision to grant a dividend is made, and the moment on which the dividend is effectively paid out. A dividend may have been declared, but this does not mean that it is also (immediately) payable.

Depending on the type of company, certain conditions should be met before a dividend payment can be made.


In a BV/SRL, a double distribution test applies: a dividend can only be paid out in case both the balance sheet and the liquidity test are met.

A) Balance sheet test

The first test to be passed is the balance sheet test or the net assets test. The purpose thereof is to assess whether the net assets of the company will not become negative as a result of the contemplated distributions. In short, this may be calculated by subtracting the amount of (i) provisions and (ii) debts from the total assets (with some other minor adjustments to be made). The test has to rely on the latest (audited) approved annual accounts, or if desired so – and compulsory in case of a distribution based on the profits of the current financial year- , on a more recent statement of assets and liabilities, to be verified by a statutory auditor (if there is one). In case the result of the test is negative, no dividend distribution may take place.

B) Liquidity test

Since the new Belgian Companies Code came into play, distributions in a BV/SRL have to pass a second and more stringent test, namely the liquidity test. The key question to answer is: will the company still be able to meet its payable debt obligations in the course of the twelve months following the distribution?

This is a trickier exercise for which the directors bear responsibility, and has to be motivated in a special report. This report is of high importance as it justifies the directors’ decision and should mention all considerations that they have made as to the company’s liquidity position. In case a statutory auditor has been appointed, he or she also have to verify this special report.

As opposed to the balance sheet test, the Code of companies and associations does not provide a specific calculation method to be used (but most logical would be to look at the ratio of current assets to short-term debts). The board of directors therefore has more discretion to assess the liquidity position, but must also take into account all reasonably foreseeable developments and circumstances that may impact the overall financial position and liquidity of the company.

This test thus requires a dynamic and forward-looking evaluation, considering all possible events that may have an impact. Especially now and in the coming months (and possibly even the coming years), this will become increasingly important as the impact of the corona crisis is still very uncertain and may easily be underestimated (e.g. decline in sales, non- or deferred payments by trading partners, lost supplies, etc.).


For a NV/SA, a contemplated dividend distribution shall only have to pass a balance sheet test: no distribution may be made if the net assets, as shown in the annual accounts, have fallen or would fall as a result of the distribution below the amount of the capital. It is however not mandatory to also carry out a liquidity test. However, in case the directors and/or shareholders become aware of circumstances that may compromise the liquidity position of the company (take for instance the corona crisis), they should of course refrain from issuing a dividend.

Can I now declare a dividend despite COVID-19?

The current uncertainty on the financial position of a company and the implications COVID-19 will have thereon makes declaring a dividend a tricky decision. An option could be to have a dividend declared by the annual general meeting, but to postpone the actual payment thereof to a later date. It can then be paid once the directors have more clarity on the liquidity capacities of the company and how these have been impacted by the COVID-19 crisis. Essentially, this means that the shareholders will have a claim against the company for the payment of the dividend. Another option would be to cancel the yearly dividend. Once the liquidity position of the company would then allow it, an intermediary dividend is declared by an extraordinary general meeting. In this way, the financial position of the company is not aggravated (different to this option, the previous option leads to an immediate increase of the debt position of the company once the shareholders approve the dividend distribution) and a dividend will only be distributed once the level of liquidity is sufficient not to jeopardize the continuity of the company.

In case a dividend has been issued notwithstanding a negative balance sheet and/or liquidity test, the dividend may be reclaimed by the company, even if the shareholder that received the dividend handled in good faith (i.e. was not aware of the company’s compromised financial position). Furthermore, it is the directors’ liability to correctly evaluate and interpret the liquidity (test) of the company. The directors bear joint and several liability for the wrongful payment of a dividend, not only towards the company but as well as towards any third parties that have suffered losses. Directors can also be criminally sanctioned if they act against these distribution rules.

It is thus recommended to evaluate the situation diligently and strictly to comply with the rules set out above. All possible elements that may have a financial impact (even if they are deemed to have only a minor impact for now) should be taken into account. It is highly uncertain how long this crisis will last, and built-up cash buffers may prove insufficient in the longer term. The payment of prior declared dividends may be postponed to a moment when management has a clearer view on the financial situation, or it could be proposed to carry forward dividends to next year or to have them declared later this year. Should you have any questions on this matter, please do not hesitate to contact our corporate experts, who will be happy to assist you with this.

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