Regulating distributions to shareholders through balance sheet and solvency tests: The Belgian and Dutch Example
In this paper, we intend to explore the optimal design of rules on distributions to shareholders. To this end, we commence by examining why and in what scenarios rules on shareholder distributions might be useful from a creditor protection perspective. Against this backdrop, we proceed by assessing the traditional continental approach and its net assets and retained earnings test. More specifically, we map out the benefits and drawbacks of the continental approach. Subsequently, we examine how the Dutch legislator has aimed to mitigate the downfalls of the traditional continental European approach by fundamentally altering its approach to shareholder distributions in closed companies. In a very similar way, we analyze the recent proposal from the Belgian legislator to amend the rules on distributions to shareholders. Finally, we assess to what extent the Dutch and Belgian approaches come close to an optimal regime for distributions to shareholders in closed companies.