The Dividend Payment Test

Friday 29 November 2016

As of October 2012, new legislation applies to Dutch limited liability companies ('BV'). One of the changes introduced in this new legislation includes the so called ‘dividend payment test’ (‘uitkeringstest’), which aims to provide higher protection for creditors. This article will examine the relevant legal framework involved, as well as a recent case that sheds light on the dividend payment test.

Legal Framework
A shareholder’s resolution pertaining to the distribution of dividends only has legal effect once it has been approved by the BV’s Board of Directors (‘Directors’). Directors of a BV can only approve the payment of a dividend in accordance with the dividend payment test. According to this test, Directors may only distribute dividends if they know, or should reasonably have foreseen, that the BV will be able to continue to pay its due debts after the distribution of dividends occurs (Article 2:216 BW). If a BV is unable to pay its due debts after the Directors approve a distribution of dividends, then the Directors are jointly and severally liable for any resulting deficit. However, a Director will not be held liable if it can be proved that he/she is not to blame for the distribution of dividends, and/or if it can be proved that he/she was not negligent in taking measures to prevent the consequences thereof. Article 2:216 does not stipulate any specific timeline for the amounts of the debts repayable. However, it is assumed that it involves due debts over a period of at least 12 months after the distribution.

Case law
One judgment that sheds some light on the dividend payment test is the recent case of the Rechtbank Gelderland van 16 Maart 2016 (ECLI:NL:RBGEL:2016:1758).


  • The sole shareholder of P.M.R (‘Seller’) owned 4 subsidiaries, including Walas Europe B.V. (‘Walas’) and its respective subsidiary Carbon6 B.V (‘Carbon’) – the lowest-tier subsidiary in the chain. The Seller agreed to sell its shares in Walas to Mr. Van Straaten ('Purchaser') for a price of € 600,000. In this transaction, Walas’ subsidiary, Carbon (less than one year old), would also be transferred to the Purchaser.
  • The parties agreed that, prior to the sale of the shares, Carbon would distribute €250,000 in dividends to its sole shareholder (and sole director), who would in turn distribute that amount to its sole shareholder (and sole director), up until the point that the Seller would receive the €250,000 dividends. In other words, prior to the transaction, the parties agreed to make a dividend distribution of €250,000 through the entire chain, so that the shares would be sold to the Purchaser ex-dividend of €250,000.
  • After the transaction had occurred, the Purchaser discovered that Carbon’s administration was incomplete and many costs of the company had not been considered during the distribution of the dividend. Following the distribution of dividends, to avoid bankruptcy, Carbon had to accept unfavorable payments and take out a loan.
  • The Purchaser (and all the companies it acquired) argued that the dividend distribution was in violation of the dividend payment test because the future existence of Carbon was left in danger after the distribution.


  • The court held in favor of the Purchaser and stated that the Directors had approved the dividend decision without having a good understanding of Carbon's financial situation.
  • Although a company’s financial statements present an account of the past performance of an entity, the dividend payment test requires an estimation of the future performance of the company. Since the company was still in the start-up phase, the Directors should have acknowledged that they did not have full insight into the company's financial situation.
  • The court concluded that the dividend payment test was not carried out properly. If this had been the case, then the directors would have concluded that it would have resulted in payment problems and should have denied the request to distribute the dividend. As such, the directors were held liable for the resulting deficit.

The decision to approve dividend payments by Directors requires a good understanding of a BV’s financial situation. This involves looking at a BV’s financial statements, but also considering the future performance of the company (especially in the case of start-ups). Directors should be cautious during this process since they face the risk of being held liable for any resulting deficits. 

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