One might associate Spreds with our primary service, being the quest to offer interesting investment opportunities in disruptive companies. It is true that this is what is most apparent when you browse our website, but the work we do for our members does not just limit itself to offering you the opportunity to boost our economy by investing in promising young companies. Next to this, we also want to make our members aware of how exactly equity crowdfunding can be a welcome addition to a diversified investment portfolio.

But there is more, because an investment with Spreds does not just stop when having clicked the button and having paid for your investment. Since one invests in the real economy, this means you become an integral part of the journey of a company.

To this end, we gladly share with you the good news we receive on the investments you have made, but we also commit to being as transparent as possible with the information we receive when the news is not necessarily good. For us, transferring information we have received about your investment is more than a legal obligation.

In this particular post we will be taking a look at something that is often ominously referred to as the ‘alarm bell procedure’.

At this time of year, many companies are working on their annual accounting exercise, the results of which are to be presented during the annual general shareholders’ meeting. It is often whilst crunching these numbers that certain developments might surface. One of these is when the net assets of the company, basically its net worth, have fallen below certain thresholds. 

In an established company, this might well be a rare occurrence and a not-so-positive sign. However, in young companies, this is not at all exceptional and sometimes inherent in the growth process as start-ups are often forced to operate creatively with limited reserves and losses are accumulated in order to finance the growth of the company. Very young companies often include suffering losses in their financial plan as a means to finance their growth. The legislators however, wanted to make sure that the administrative body of a company is paying attention to certain warning signs, one of them being that the net assets of the company have fallen below certain thresholds. 

The Belgian Companies and Associations Code prescribes a formal procedure, the ominously sounding ‘alarm bell procedure’, that needs to be followed from the moment that such a situation is discovered with the goal of having the shareholders hold a vote on whether or not the company’s activities should be continued. 

The Belgian Companies and Associations Code differentiates the activation of the alarm bell procedure depending on the legal form of the company.

For public limited companies (NV/SA) the alarm bell procedure is activated when, as a result of a loss, the company's net assets are reduced to less than half the capital. The capital of a public limited company means the ‘subscribed capital’.

For private limited companies (BV/SRL) and cooperative companies (CV/SC), the alarm bell procedure is activated when:

- the net assets of the company are in danger of becoming or have become negative. It is important to note that in this case, it does not necessarily have to be a "loss" in order to establish a decrease in net assets;

- the administrative body considers that it is no longer certain that the company, according to reasonably expected developments, will be able to pay its debts as they are due for at least the next twelve months.

Once the administrative body has formally noted that the net assets have fallen below these thresholds, the alarm bell procedure must be triggered. Concretely this means that the administrative body must propose either the continuation of the activities to shareholders or the dissolution of the company. 

If they want to propose the continuation of the activities, they must write a special report explaining why they propose this, with a special focus on the measures to be taken in order to restore the financial situation of the company (such as a new financing round, the introduction of certain cost-cutting measures or future commercial development). This report must be communicated to the shareholders. 

Within 2 months of having discovered that the alarm bell procedure must be activated, the administrative body must convene an extraordinary general meeting of shareholders. During this meeting, shareholders (after having received the special report if continuation of the activities is proposed and after they have had the opportunity to ask questions to the administrative body) vote on the proposal of the administrative body (i.e. either the continuation of the activities or dissolution of the company).

It can be noted that if the proposal is the dissolution of the company, a special (higher) majority is required, except for public limited companies whenever the net assets have fallen below a quarter of the capital. In this case, the decision to dissolve the company can even be taken with one quarter of the votes. Moreover and still for public limited companies, if the net assets are reduced to less than 61 500 euros, any interested party or the public prosecutor can ask the court to dissolve the company.

This entire procedure is, as you might have noticed, quite formalistic. It is important to stress however that, especially in young companies, this does not signal the impending bankruptcy of the company. Often start-ups will be forced to dig deep and make use of every euro and thus be forced to apply this procedure whilst being fully confident that business is going well.