22.5.1 Company law regulation of capital and distributions

In many countries, the emphasis on the regulation of shareholder funding has shifted from absolute capital protection rules to generally formulated liability standards. For example, in all three jurisdictions studied, the focus is currently on the regulation of capital withdrawals by shareholders, even though few requirements are outlined for the contribution by the shareholders. In all countries studied, distributions to shareholders must initially satisfy a balance sheet test and (de facto) an economic test.1 Germany has the most stringent balance sheet test, given that distributions are only permitted to the extent that equity exceeds the Stammkapital. Most U.S. states have the more flexible rule that allows the entire equity to be distributed to the shareholders. Since the review of 1 October 2012, the Dutch rules as outlined in Section 2:216 DCC are the most flexible in this respect, because no balance sheet test is prescribed (in the absence of reserves that must be maintained by law or pursuant to the articles of association). This means that distributions in the event of or resulting in a negative equity are possible, even if there is no profit in the current financial year.

In all countries studied, the second economic test – in brief – holds that it must be reasonably foreseeable that the company’s continuity will not be at issue after the distribution. This test is not grafted on the company’s financial statements, but requires a reasonable opinion of the company’s ability to continue to fulfil its due and payable obligations in the future. This assessment should not be limited to the company’s (forecast) liquidity position; the anticipated solvency, profit margins and sales must also be included in the analysis. It is communis opinio that this distribution test is more imprecise and therefore leads to more uncertainty regarding the permissibility of a distribution, but also that creditors derive the most protection from this test.

In all jurisdictions studied, the board fulfils a prominent role in distributions to shareholders; shareholders cannot withdraw capital from the company without the board’s intervention. All countries studied provide for liability rules for directors that cooperate in or approve a distribution, even though they knew or should have foreseen that the distribution would lead to continuity problems.

The company law of the various jurisdictions also recognizes a restitution obligation for shareholders that have received an unauthorized distribution, although there are some differences between these rules. For example, the U.S. model act – the RMBCA – only offers directors who are held liable the possibility to seek redress from the shareholders who received the distribution. In most American states, under company law, a claim for repayment can only be brought against shareholders if they were aware of the unauthorized nature of the distribution. However, based on the common law rules, a claim for repayment can also be brought against shareholders who received a dividend in good faith, provided that the company was insolvent at the time the distribution was made.

In Germany, based on § 31 GmbHG, a claim for repayment can be brought against shareholders if the distribution was made in breach of the capital protection rules. This repayment obligation also applies to the shareholder who receives dividends in good faith. The GmbH-Gesetz also provides for an alternative liability of shareholders for distributions to their fellow shareholders if it proves impossible to seek redress against those fellow shareholders.

By virtue of the Dutch distribution rules in Section 2:216 (3) DCC, shareholders who received a distribution even though they knew or should have foreseen that after the distribution, the company would be unable to continue to pay its due and payable obligations, can be sued by the company to make up for the deficit that occurred as a result of the distribution, up to no more than the amount or the value of the distribution received by the shareholder, plus the statutory interest as of the day of the distribution. Even though based on the rules initially proposed in the preliminary draft of the Flex-BV Act, a claim for repayment could also be brought against the shareholder who acted in good faith, Section 2:216 DCC thus does not provide for liability of the shareholder who acted in good faith.