On 27 March 2025, the Court of Appeal in Antwerp delivered a judgment on the consequences of non-compliance with the statutory conditions governing the repurchase of a company’s own shares.[1]
Case law in this area is scarce, primarily because the parties involved in such transactions generally do not suffer any direct disadvantage as a result of the failure to comply with these legal requirements. However, the consequences for creditors may be significant.
- The judgment of 27 March 2025 and earlier case law
When KT Company was declared bankrupt, it emerged that the company had paid an amount of 17.500 euros to a shareholder in connection with a repurchase of its own shares. The receivers took the view that this transaction had been carried out in breach of both the articles of association and the mandatory provisions of the Belgian Companies and Associations Code (CAC), and therefore sought repayment of the amount.
The court held that the mandatory rules governing the repurchase of own shares had indeed not been complied with. In particular, there had been no prior resolution of the general meeting, no verification had been carried out to determine whether the amount to be distributed was permissible under the net asset test and the liquidity test, and no unavailable reserve had been recognised in the company’s accounts.
Pursuant to Article 5:146 CAC, shares acquired in violation of the statutory conditions are null and void by operation of law. The court nevertheless confirmed that the underlying share purchase agreement remains valid. Since the underlying transaction remains valid, the payment of the purchase price cannot be regarded as undue, and the company is therefore not entitled to reclaim the amount paid. Moreover, the nullity of the shares precludes mutual restitution between the parties.
An earlier judgment on this issue dates back to 2006 and reached the same conclusion. In that case, two exiting shareholders brought proceedings against the company after it had failed to pay the purchase price for the repurchased shares. Here too, the statutory conditions governing the repurchase of own shares had not been complied with. In its judgment of 12 October 2006, however, the court held that the nullity by operation of law of the shares did not prevent the purchase price from being due and payable.[2]
- Criticism of the sanction imposed by the CAC
The regulation of share repurchases was introduced to safeguard the interests of a company’s various stakeholders, including its creditors. For that reason, a share repurchase is treated as a distribution and must therefore satisfy the same requirements regarding distributable funds as, for example, a dividend distribution.
In addition, an unavailable reserve must be recognised in the company’s accounts, in principle equal to the book value (or inventory value) of the repurchased shares. On the one hand, this prevents the reserves used to finance the repurchase from being distributed again. On the other hand, the unavailable reserve serves as a warning mechanism, reflecting the fictitious nature of the repurchased shares as assets on the balance sheet: since there is no third-party participation, there is no “real” capital to offset them.
Together with several other authors, we question whether declaring irregularly acquired own shares null and void constitutes an appropriate sanction. Although nullity removes the own shares — and thus the “fictitious” asset — from the company’s balance sheet, the purchase price paid is not restored to the company’s assets.[3] That amount therefore disappears as a potential source of recourse for the company’s creditors.
Legal doctrine accordingly argues, de lege ferenda (as is the case in several other European Member States[4]), that in the event of an irregular acquisition of own shares, the company should first be required to dispose of the shares within a specified period. Only if this obligation is not complied with should nullity be imposed as a measure of last resort.
Alternatively, the sanction could consist in allowing the nullity of the underlying purchase transaction itself to be invoked (which would then necessarily replace nullity of the shares as the applicable sanction). Such an approach would make it possible to remedy more effectively the harm caused to the company and its creditors.[5]
- Exceptions where recovery is possible
The CAC expressly provides that a private limited company (besloten vennootschap) may reclaim any distribution made in breach of the net asset test and/or the liquidity test, irrespective of whether the beneficiary acted in good or bad faith (Article 5:144 CAC). A public limited company (naamloze vennootschap) may recover distributions made in violation of the net asset test only if the beneficiary acted in bad faith (Article 7:214 CAC).
Accordingly, if the purchase price paid for the repurchased shares was not distributable under the applicable tests, the company may, in these circumstances, seek restitution. [6]
A majority of legal scholars go further and argue that the purchase price may also be reclaimed in cases involving irregularities other than non-compliance with the distribution tests, provided that the beneficiary shareholder acted in bad faith. However, the scope and interpretation of the concept of “bad faith” remain uncertain. The 27 March 2025 judgment of the Court of Appeal in Antwerp appears to suggest that a shareholder is not automatically deemed to have acted in bad faith merely because he was aware that the general meeting had not authorised the repurchase — something which, as a shareholder, he could in principle be expected to know. [7]
- Conclusion
Case law in this area remains limited, but the message is clear: Belgian company law does not provide for a general right of recovery in the event of a breach of the rules governing the acquisition of own shares. The underlying sale transaction remains valid, and consequently there is no obligation for the shareholder to repay the purchase price received in violation of the statutory requirements.
As a result, it is not straightforward for receivers or creditors to reclaim such payments. The question of whether the sanction should be amended de lege ferenda therefore remains a relevant and timely issue.
[1] Court of Appeal Antwerp 27 March 2025, DAOR 2025, ed. 4, 120.
[2] Court of Appeal Antwerp 12 October 2006, RW 2007-08, 708, note; see also Enterprise Court Hasselt 23 November 2004, RW 2005-06, 1111.
[3] See also N. HALLEMEESCH, “Art. 5:145-5:151 WVV” in X., Vennootschappen en verenigingen. Artikelsgewijze commentaar met overzicht van rechtspraak en rechtsleer, 2023, 83, nr. 55.
[4] The Second Directive 77/91/EEC allowed Member States to provide that own shares acquired irregularly must be disposed of within one year, and that, in the absence of timely disposal, such shares would be cancelled.
[5] R. TAS, Winstuitkering, kapitaalvermindering en -verlies in NV en BVBA, Biblo, 2003, 318; D. BRULOOT en K. MARESCAU, “Inkoop van eigen aandelen: naar een nieuw juridisch kader”, TRV 2007, (359) 387; R. TAS, “De nietigheidssanctie bij een onrechtmatige verkrijging van eigen aandelen”, note to Enterprise Court Hasselt 23 November 2004, TRV 2005, 49; H. DE WULF, note to Enterprise Court Hasselt 23 November 2004, TBH 2006, afl. 4, 459; N. HALLEMEESCH, “Art. 5:145-5:151 WVV” in X., Vennootschappen en verenigingen. Artikelsgewijze commentaar met overzicht van rechtspraak en rechtsleer, 2023, 84, nr. 55.
[6] N. HALLEMEESCH, “Art. 5:145-5:151 WVV” in X., Vennootschappen en verenigingen. Artikelsgewijze commentaar met overzicht van rechtspraak en rechtsleer, 2023, 84, nr. 56.
[7] See also K. GEENS, M. WYCKAERT, C. CLOTTENS, F. PARREIN, S. DE DIER en S. COOLS, “Overzicht van rechtspraak. Vennootschappen 1999-2010”, TPR 2012, (73) 496, nr. 451.