The legislature wants to clean up dormant companies

The legislature wants to clean up dormant companies

According to the Minister of Justice, in 2013 there existed 140,000 so-called “dormant” companies. The legislature has found that dormant companies are being sold for prices of 4,000 to 5,000 EUR. The buyer of such a company avoids the verification of the enterprise counter with regard to the statutory incorporation requirements. The legislature fears that creditors and buyers of the company as well as competitors that do meet the requirements will be the victims of this loophole. In addition, bad-faith contractors strive for anonymity with such purchases.

In order to remedy this situation and prevent it from recurring in the future, the legislature expanded the procedure for judicial dissolution of companies in an Act of 17 May 2017.

Earlier, the court could only pronounce judicial dissolution if a company hadn´t filed any annual accounts for three successive years, at the demand of the Public Prosecutor´s Office. As of 17 June 2017, the legislature expanded the cases in which judicial dissolution can be pronounced, and it can also be demanded by the chamber for commercial inquiries.

The most striking change is that, as of that date, a company can be judicially dissolved if it did not file its annual accounts within a period of seven months after the close of its financial year - in practice, the period after which the court can pronounce the judicial dissolution is thus shortened by three years. Obviously this dissolution will not be automatically pronounced after this period (which moreover is also a minimum period). In addition, one of the points of departure of the new law is that the company must always receive an opportunity to regularise its situation.

Another interesting change is that a company may be dissolved if its directors cannot prove that they possess the fundamental management skills or the required professional competence. These wordings are based on the Programme Law of 10 February 1998 to promote independent entrepreneurship, which defines what must be understood by "management skills" and "professional competence".

The law now also expressly provides that the Public Prosecutor´s Office will be able to demand the dissolution of companies whose net assets have fallen beneath the minimum capital. This is a confirmation of existing case-law of the Court of Cassation. This power was not allocated to the chamber for commercial inquiries.  

Finally, a duty to work with the liquidator is imposed on the directors. In the absence of cooperation, the (strict) sanction is an occupational ban, which nevertheless will only be imposed if the director intentionally refuses to cooperate with the liquidator.

Earlier, companies could fall dormant without any worries – but with this change of law, that is precisely what the legislature wishes to prevent. The dissolution sanction will have a deterrent effect, although how often it will actually be applied in practice is anyone´s guess right now.

For more information on this subject, you can contact Sophie Deckers (author) and Gwen Bevers (unit head).