What to do to qualify for the 10% liquidation bonus levy before it increases on 1 October 2014

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1 What to do to qualify for the 10% liquidation bonus levy before it increases on 1 October 2014 In our previous newsletter we discussed the transitional measure, incorporated into the Programme Act of 28 June 2013, that somewhat sugars the bitter pill of a 25 % - formerly 10 % - withholding tax on the liquidation bonus which companies, who do not wish to wind up their business, will have to swallow as of 1 October In this newsletter, we shall look at the procedure companies, who do want to cease trading before long, will have to follow to qualify for the 10 % rate. Looking at the procedure, it is clear that especially companies for whom the fast-track liquidation procedure is not an option will come under pressure of time. Rules of procedure on the convening of the general meeting - the setting of the agenda - reporting The first step to be taken is to convene an extraordinary general meeting, hereinafter referred to as 'EGM', of the company to decide on its winding up and liquidation. If the company is a cvba (cooperative company with limited liability), a Comm.VA (partnership limited by shares), a bvba (private limited company), an nv (limited company) or a European (cooperative) company, this meeting must be held before a notary. For the majority of companies who still want to avail of this opportunity to wind up their business before 1 October 2014, convening that meeting will be a straightforward matter. It suffices that all the shareholders, represented on foot of a power of attorney or otherwise, appear before a notary. In other words, it will be more a matter of getting your notary to find you a slot in his schedule. In this particular case, there is no need to issue any formal notices of meeting. However, if dematerialised shares come into play or if a minority of shareholders will not appear at the general meeting, not even by proxy, notices of meeting will need to be issued by (registered) letter or, in the case of dematerialised shares, via the press and the Belgisch Staatsblad/Moniteur belge even. These notices of meeting must be issued 15 days prior to the EGM, a term which must be allowed for in the timing. As regards the content of the agenda, 2 issues arise: [- 1 -]

2 - Can the fast-track liquidation procedure (also known as the one-day procedure or turbo liquidation) where the EGM also rules on the completion of the liquidation and hence decides that the company ceases to exist be availed of? - Will the meeting be required to approve the financial statement and hence to decide whether to discharge directors, managers or auditors from liability? We refer to the article 'Company law: Clarification of the conditions for winding up and completing the liquidation procedure in one day' for the conditions governing the fast-track liquidation procedure. These continue to apply, even though they were recently fine-tuned by law. 1 The main requirement is that the company does not have any liabilities vis-à-vis third parties at the moment the EGM is being held. 2 Furthermore, all the shareholders will need to be present or represented at the meeting. The winding up of a company whose EGM must be held before a notary invariably comes with a reporting obligation, regardless of whether the fast-track or the regular liquidation procedure has been opted for. The reports must be ready by the EGM at the latest, or, if there are notices of meeting to be issued, must be sent out together with the notices of meeting, in which case they must be available 15 days prior to the EGM. We are talking about the following documents here: A specific report produced by the administrative body of the company explaining why the company ought to be wound up. A statement of assets and liabilities dating back no more than 3 months (before the date of the EGM) which has been appended to the report. A report on that statement compiled by the company auditor or, if there is no company auditor, by an auditor or external accountant If the EGM also needs to approve the financial statement, the following documents will furthermore be required: the financial statement that needs to be approved the annual report by the administrative body, if required by law - cf. art. 94 Company Code 1 Chapter 5, article 108 of the Act of 25 April 2014 laying down various provisions on Justice, B.S., 14 May 2014, which came into effect on 24 May Any liabilities that emerge from the statement of assets and liabilities (see below) must be paid back prior to the EGM or consignation measures to deal with these debts must have been put in place and these must be evident from the conclusions of the expert's report (see below). [- 2 -]

3 the annual report by the company's auditor, if any The company will, under the fast-track liquidation procedure, cease to exist once the EGM has taken the relevant decisions to that effect. The minutes of the EGM will need to specify where the books and ledgers of the company will be kept for the next 5 years and what consignation measures have been taken to cater for any unsettled creditors' claims. When going down the regular liquidation procedure route, the process is a far more complex one however. The extras that come into play in the regular liquidation procedure 1. Formal confirmation of the liquidator's appointment by the court In the regular liquidation procedure, the EGM must appoint 1 or more liquidators, hereinafter, 'the liquidator', tasked with clearing the debts and dividing the remaining assets amongst the shareholders. In the fast-track liquidation procedure, a liquidator cannot be appointed. The liquidator's appointment must be confirmed or ratified by the president of the commercial court once the latter has checked whether the liquidator has all the necessary credentials. Unless the time limit is suspended, the president will deliver his verdict within 5 days of having a received a simple petition to that effect. What if no decision has been delivered within that period? In that case, the liquidator's appointment is deemed to have been confirmed. It would be prudent to get the EGM to appoint at least 1 alternative candidate liquidator just in case the president decides to reject or refuses to ratify the first appointed liquidator. This avoids any risks of the president appointing a liquidator himself or referring the matter to the EGM again for reconsideration. For timing purposes, you will need to bear in mind that the drafting and filing of the petition itself will take some time and that the president of the commercial court must be allowed a minimum of 5 working days. While considering his decision, the president will also look at the acts the liquidator performed before his appointment was confirmed. They can only be ruled to be null and void if they violate the rights of third parties. In other words, a liquidator can get down to work as soon as his appointment has been carried by the EGM but there is always a risk that his appointment may be turned down in which case any acts he did perform can be declared null and void. [- 3 -]

4 2. Interim statements on the liquidation situation In this context, there is little point in discussing the interim obligations of the liquidator after 6 months, 12 months, etc. as that would bring us well beyond the deadline of 30 September 2014 in which case the withholding tax of 10% can in principle no longer be availed of anyhow - see below. 3. Asset distribution plan Before the liquidation can be completed, the company must, by simple petition, submit a plan, compiled by the liquidator, of how the assets will be divided amongst the various categories of creditors to the court for approval. That plan must have been approved before the liquidation can be completed and the liquidator can start paying out the shareholders. Article Company Code provides in fact that the liquidators cannot begin to distribute assets amongst the shareholders until such time as all the claims have been settled or the funds needed to clear those debts have been deposited. Getting the distribution plan approved is another formality that takes time and will need to be timely planned for. Knowing that the commercial courts will not be short of liquidation applications to process, it would be wise to submit that plan for approval as soon as possible. Here the Company Code does not set a time limit within which the commercial court must give its approval. The fact remains however that approval must have been obtained before liquidation can be completed. 4. EGM to complete the liquidation In its article 194, the Company Code stipulates that once the liquidation has been concluded and at least 1 month prior to the general meeting that will complete the liquidation, the liquidator must file the accounts, together with the supporting documents, at the registered office of the company. The auditor, or in the absence of an auditor, the shareholders themselves are entitled to check these documents during that period. If there is an auditor, the latter shall compile a final report and present it to the EGM. Another formality that is going to take time! It is worth knowing however that the shareholders are free to wave that period of 1 month if they deem it unnecessary to exercise their supervisory powers. This term has only been put in place for their own protection and it is entirely up to them whether they rely on that protection or not. [- 4 -]

5 In terms of ensuring that the 10 % withholding tax can still be availed of, this final session is slightly less relevant. Once the liquidator has paid all the company's creditors or deposited the necessary funds to pay them, he can start distributing the remaining assets amongst the shareholder (as mentioned above). Payment of the liquidation bonus What exactly is a liquidation bonus? A liquidation bonus is the balance that remains after all the capital contributions have been paid back to the shareholders and all the debts have been cleared. The liquidation bonus is determined at the moment the EGM establishes that the liquidation has been completed at the very latest 3. In the fast-track liquidation procedure, the administrative body is in control of the timing, unless the company owns real estate (see below). As already pointed out above, the opposite is the case in the regular liquidation procedure. Nevertheless, it is generally accepted that the liquidator, on his own responsibility, can also pay an advance on the liquidation bonus. He can even do so ever before the court has approved the asset distribution plan. The only prerequisites are that the EGM has decided to wind up the business and that the president of the commercial court has confirmed the appointment of the liquidator. Once these have been complied with, the liquidator can pay out. It goes without saying that he will need to make sure that he doesn't end up being held personally liable for having failed to respect the rights of creditors. As a general rule, it is accepted that the rate to be retained from the advance of the liquidation bonus is the one that prevails at the moment the advance is paid. If payment is issued before 1 October 2014, the 10 % rate will continue to apply even if the final EGM is held after 30 September In many cases, it will be a matter of proving that the advance was paid prior to 1 October Making sure that Revenue has received the 10% withholding tax seems to be the ideal way of doing that. Procedure for companies with real estate Another issue worth bearing in mind is that the presence of real estate in the company is going to delay matters: 3 When opting for a notarial EGM to close down the business, the date will be known in advance. [- 5 -]

6 - Firstly, you will invariably have to call on a notary even if the form of your company would allow it to be wound up without his intervention. - Secondly, the notary will first have to perform a number of searches and fulfil a series of formalities in relation to the property. 4 In the fast-track liquidation procedure, the EGM establishes that, in pursuance of the completion of the liquidation, the property now appertains to the shareholders in accordance with their participation in the company. Indeed, the completion of the liquidation process means that all the assets, including any real estate, ipso jure accrue to all the shareholders. In a transfer like this, the searches and formalities can be kept to a minimum. After the EGM, the shareholders are also free to allocate the property to 1 of them only. In the regular liquidation procedure, there are 2 options: - Either the property stays in the company until the final EGM, which, like in the fast-track liquidation procedure, establishes that the property accrues to the shareholders in accordance with their participation in the company. - Or the liquidator allocates the property to 1 or more of the company's shareholders prior to completion by way of advance on the liquidation bonus. In the latter case, there will be more searches to be performed and formalities to be fulfilled. An apportionment of this kind is in actual fact treated as a transfer agreement. Conclusion It is not too late to wind up your company at a liquidation tax of 10%, but you do no longer have any time to lose. The fast-track liquidation procedure offers you the most guarantees, even if there is real estate involved. Peter Van Melkebeke, notary, partner at Berquin Notarissen Note: would you like more concrete information after reading this text? Unfortunately Berquin Notarissen cvba is unable to advise you by . If you wish, you can phone to make an appointment with one of our lawyers or notaries. 4 On the aspect of registration duties, we refer you to Taking property out of your company. [- 6 -]

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