The alarm bell procedure is one of the creditor and shareholder protection measures provided for by the Company and Association Code.

The administrative body must carry out a test similar to the liquidity test for the distribution of dividends when preparing the annual accounts or any interim statement of assets and liabilities.

Where the net assets are in danger of becoming or have become negative, the administrative body must, unless the articles of association contain more stringent provisions, convene the general meeting to be held within two months of the date on which this situation was established or should have been established by virtue of legal or statutory provisions, with a view to resolving on the dissolution of the company or on the measures announced in the agenda in order to ensure the company’s continuity.

This procedure must also be followed if the administrative body finds that it is no longer certain that the company, according to the developments that can reasonably be expected, will be able to pay its debts as they fall due for at least the next twelve months.

If the administrative body fails to comply with this, any damage suffered by third parties will be presumed to result from the absence of a convocation (or from the irregular convocation) (art. 5:153, § 3, CSA).  This presumption can be reversed.

As an exception, the general assembly does not have to be convened again if it has already been convened for the same reasons within the preceding twelve months.  Furthermore, if the test reveals a normal situation, the board of directors does not have to establish that it has carried out the test.

A negative result of the liquidity test (provided for in article 5:143 of the SHA) following a request by the general meeting to make a distribution not only prohibits the making of the distribution decided by the general meeting, but also requires the administrative body to apply the alarm bell procedure.

 

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