Discrimination in event of capital reduction in the BVBA

On 3 June 2015, the president of the Commercial Court of Antwerp submitted the question of whether article 317 of the Companies Code can be reconciled with the constitutional principle of equality to the Constitutional Court. It is expected that the latter Court will rule that this article does indeed violate the Constitution.

In essence it’s all about protection of the share capital.

The share capital is the “collateral” of a company’s creditors, and these creditors see their collateral shrink if the company announces a capital reduction (through distribution to the shareholders). So for them, a capital reduction can be an occasion to get all matured debts (finally) paid.

If a creditor (also) possesses a claim that is not yet due and payable, collection isn’t an option. For such creditors it’s crucial to act fast. The first step is to ask the company for additional securities. If the company doesn’t want to provide security, it has a simple alternative: pay. Because it involves debt claims that are not yet due and payable, such payment takes place after deduction of a discount. Sometimes it becomes apparent that paying isn’t an option for the company either.

In this scenario, the creditor turns to the President of the Commercial Court.

This has to be done within a period of two months from the time of the announcement. The proceeding that is hereby initiated has a radical consequence: the company will no longer be able to make payouts as long as the creditor(s) have not been satisfied.

In practice, this proceeding rarely occurs. Few creditors carefully watch what is happening with the capital of their debtors, and those who do generally already have enough (other) securities. The same protection mechanism nevertheless applies in case a company is going to merge or split up. By the manner in which the capital (and above all the rest of the assets) is divided amongst companies, the consequences for creditors are also quite similar.

It is in this context that not long ago a number of judgements drew (negative) attention. In each case it involved creditors who were involved in other judicial proceedings with their debtor (sometimes precisely because they had seized the occasion to press for payment).

The problem is that judicial proceedings intervene in the rights of the creditor in two ways. Firstly, for the debtor they are an occasion to assert that the debt claim in question "does not exist". Secondly, they are (for the debtor´s lawyer) an occasion to argue that the claim "is de facto no longer exigible" and that if it should ever become so again "the exigibility de jure applies as of the initiation of the proceeding". The outcome was always the same: the creditor could not demand any securities. Naturally there were also counter-arguments, but judges here often took the side of the debtor.  

The legislature therefore intervened (somewhat unhappily) at the end of 2013.

Independent of the issue of whether the debt claim exists or is exigible, a new category was added of creditors with "debt claims for which an objection was filed in court or via arbitration". As is often the case, this essentially ad hoc reactive legislative response could have been better done on many points. 

The amending law not only had textual shortcomings, it also appeared to be quite simply incomplete. Specifically, it amended the Companies Code for the NV [Naamloze Vennootschap = public limited liability company] (art. 613), but it ignored the issue of providing parallel provisions for the BVBA [Besloten Vennootschap met Beperkte Aansprakelijkheid = private limited liability company] (art. 314) and the CVBA [Coöperatieve Vennootschap met Beperkte Aansprakelijkheid = Cooperative Limited Liability Company] (art. 426). 

It is this omission that is now causing a fuss. A creditor who is involved in a proceeding with a BVBA and saw this BVBA announce a capital reduction turned to the President of the Commercial Court of Antwerp, logically enough asking why he shouldn´t enjoy the same protection as he would if his debtor had been an NV. This issue has now been submitted to the Constitutional Court, but the answer seems to be predictable.

For more information on this particular topic, you can consult Joost van Riel (author) and Gwen Bevers (head of department).