Stricter scrutiny of inactive companies

Stricter scrutiny of inactive companies
February 5, 2018

The legislature recently took steps to improve the follow-up monitoring of companies in financial difficulty and strengthen the fight against inactive companies. Companies that fail to pay their social security or value added tax (VAT) debts, file their annual accounts or fulfil other administrative obligations on time will appear on the radar of the Commercial Court’s Investigative Services much earlier. The Investigative Services’ recently extended powers of action could lead to unfortunate surprises for some companies.

Late payment of social security debts and taxes leads to immediate alert

One month after the end of each quarter, the public services in charge of the collection of social security and tax debts will send a list naming each company that has failed to make the payments due for that quarter to the Commercial Court for the jurisdiction in which such a company’s registered office is located. This will also be the case for judgments by default declared against a company and decisions terminating a company’s commercial lease agreement. Previously, information regarding tax and social security debts was sent only if debts spanning several quarters remained unpaid.

Now, this information is passed to the Commercial Court’s Investigative Services, which systematically screens publicly available information about Belgian companies to identify those that are facing financial distress or are inactive.

The Investigative Services can open investigative proceedings and invite a company’s management to discuss its financial situation and activities. The Commercial Court and the Investigative Services have become more proactive in this field of late.

The Investigative Services has recently been given additional powers to react if a company (ie, its management) does not adequately respond to this invitation.

Late filing of accounts as trigger for judicial dissolution

For some time, the late filing of annual accounts has been a means of identifying inactive companies and requesting their judicial dissolution. In the past, the Commercial Court could order a company’s judicial dissolution only if the company had not filed its accounts on time and on the request of an interested third party (eg, a competitor) or the public prosecutor. Following the recent changes to the law, the Commercial Court’s Investigative Services now also has the power to initiate an inactive company’s judicial dissolution if its annual accounts have been filed late.

Previously, action was taken if a company failed to meet its obligation to file its annual accounts for three consecutive financial years; now, action can be taken much faster, as a company’s judicial dissolution is available as soon as the legal provisions for filing the (most recent) annual accounts have not been complied with on time. In principle, this procedure can be initiated as early as seven months after the end date of the previous financial year.

Additional triggers for judicial dissolution

Following an Investigative Services investigation, a company can be dissolved by the Commercial Court on the services’ request if:

  • the company was deregistered from the Crossroads Bank for Enterprises due to inactivity;
  • the company has repeatedly failed to reply to an invitation to appear before the Investigative Services; or
  • the directors lack the basic management skills or professional capacities required to perform the company’s activities.

Investigative Services can request immediate dissolution

If an interested third party or the public prosecutor initiates proceedings for judicial dissolution for the late filing of accounts, the Commercial Court must grant the company at least three months to regularise the situation. The file is then sent to the Commercial Court’s Investigative Services for follow up.

The regularisation period can be skipped if the Investigative Services has initiated the judicial dissolution proceedings. In such a case, the Commercial Court can then grant a regularisation period or immediately order the company’s judicial dissolution.

Comment

A company that fails to pay its VAT, tax or social security contributions for one quarter can already find itself under the scrutiny of the Investigative Services. If an investigation finds a reason for judicial dissolution, it can request the court to dissolve the company.

The court does not have to grant a regularisation period and can dissolve the company on the first hearing.

The powers of the Investigative Services and the courts have thus been significantly enforced. Companies are highly recommended to respond to any requests or invitations from the Investigative Services in a timely and professional manner to avoid the initiation of proceedings seeking their dissolution.

Our Experts in

  • Bart Heynickx

    Partner

Recommended articles

November 30, 2022

Heiploeg’s impact on Belgian insolvency law

The European Court of Justice’s (“ECJ”) Plessers judgment seemed to cause a serious threat for the applicability of the Belgian reorganisation procedure by transfer under judicial supervision, and the right of the interested buyer of the debtor’s activities to choose which particular employees it would take over. But, in the end, it has turned out to be “much ado about nothing”.

Read on
December 17, 2021

No automatic liability for directors who do not ring the alarm bell

On 16 September 2021, the Antwerp Court of Appeal ruled on the liability of the directors of a company that did not respect the so-called ‘alarm bell procedure’.

Read on
March 04, 2020

Limits to privileged claims

A company (debtor) involved in reorganisation proceedings is in principle not protected against new claims that originate after the reorganisation proceedings have been opened.

Read on