Dividend distributions and the repayment obligation: when does it go wrong?

Dividend distributions and the repayment obligation: when does it go wrong?

Your business is performing well, results are positive, and you decide as a shareholder to distribute a dividend. It feels like a well-earned reward, but there is a significant legal aspect to this decision. What if it turns out later that the private limited company (BV) actually needed those funds to meet its obligations?

In that case, you are dealing with an unlawful distribution. The law then requires you to repay the received dividend to the company. Such a situation can lead to difficult discussions, especially when the company's liquidity is compromised.

When is a dividend distribution actually unlawful?

A BV cannot simply distribute dividends. Under Article 2:216 of the Dutch Civil Code, the management board must perform two critical tests: the balance sheet test and the liquidity test. The balance sheet test examines whether the equity remains sufficient after the distribution.

The liquidity test is equally important: can the BV still meet its due debts after the distribution? If the distribution causes a shortage of liquid assets, making it impossible to pay creditors, the distribution is unlawful. It is the management's responsibility to properly document this assessment.

Who must repay an unlawfully distributed dividend?

The law stipulates that shareholders who knew or should reasonably have known that a dividend distribution was unlawful are required to pay it back. This regulation in Article 2:216 paragraph 4 of the Dutch Civil Code is intended to protect creditors and the continuity of the BV.

In practice, claims for repayment often come from a trustee in bankruptcy or from the company itself when it faces financial distress. The burden of proof lies with the shareholder: you must demonstrate that you acted in good faith and could not have known that the distribution was at the expense of the company's solvency or liquidity.

What happened in this case at the District Court of Amsterdam?

In the recent ruling ECLI:NL:RBAMS:2026:2242, a dividend distribution was central to the context of a share transaction. The seller of the shares had distributed dividends in January 2024, but a conflict later arose with the buyer regarding the permissibility of this withdrawal.

The buyer claimed repayment of the dividend, arguing that it was an 'unauthorized withdrawal' under the agreements made in the share purchase agreement. The core of the conflict revolved around whether the buyer knew about the distribution and whether the valuation of the company had already accounted for this, or if the seller acted unlawfully by withdrawing the dividend.

The ruling

The District Court of Amsterdam ruled in this dispute that the seller had to repay the dividend amount. The judge looked strictly at the agreements made in the Letter of Intent and the Share Purchase Agreement (SPA). Since it was stipulated that no withdrawals would occur after the effective date, the distribution was in breach of the contract.

The court emphasized that commercial parties must be able to assess their risks and that the textual interpretation of contracts carries significant weight between professional parties. The seller's defense—that the buyer was aware or that the price had been adjusted—was rejected by the judge because the contractual agreements explicitly stated otherwise.

What does this mean for you as a shareholder or director?

• As a director, ensure that you carefully perform the balance sheet and liquidity tests before any dividend distribution; document your considerations.
• If you have doubts about the coverage of the distribution, do not take unnecessary risks and refrain from or only partially distribute.
• As a shareholder, keep in mind that an overly generous distribution could leave you with a repayment obligation later on.
• Keep evidence of proper decision-making regarding the distribution, so your good faith can be demonstrated in case of a future claim.
• In the event of the company's bankruptcy: be prepared for the trustee to scrutinize dividend distributions and demand repayment.
• If in doubt about the permissibility of a distribution, immediately consult a lawyer; repayment obligations are substantial and good advice prevents costly procedures.

What should you do now?

Is a dividend distribution pending, or are you being held liable as a shareholder or director for an unlawful withdrawal? Do not wait until legal proceedings are initiated. Early legal advice helps you determine your position and prevents unexpected repayment obligations or expensive lawsuits.

Ruling

This blog post is based on ECLI:NL:RBAMS:2026:2242.