The ripple effect: unravelling the potential consequences of non-compliance with the new Code
Updated: Nov 21
On 1 January 2020, the new Companies and Associations Code of 23 March 2019 (hereafter: “Code”) replaced the Law of 27 June 1921, on non-profit Associations, international non-profit Associations and foundations. This reform has brought multiple changes from which Non-Profit Organisations (NPOs) are not spared. The Belgian legislator provided for a transitional period of four years to allow NPOs to bring their statutes/articles of Association/bylaws (hereafter: “Statutes”) into compliance with the new Code, which will end on 31 December 2023, at midnight. Ultimately, all Belgian NPOs will have no choice but to bring their Statutes into conformity with the new Code.
Why does it matter? This article outlines the main consequences NPOs could endure in case their Statutes are still not in conformity with the Code after 31 December 2023.
Liability of the directors
In the event of a failure to bring the Statutes in conformity with the Code, the directors (i.e., the members of the management body of the NPO) are personally and jointly liable for any damage suffered by the NPO or by any third parties resulting from the failure to comply with that obligation. The law of 29 March 2019, introducing the Code (hereafter: “Law”) does not provide for any other specific sanction than the liability of the directors.
Provisions deemed unwritten
It is worth mentioning that the Belgian legislator provided that all mandatory provisions contained in the Code would apply by 1 January 2020. Therefore, the provisions contained in the Statutes that are in contradiction with the Code are deemed unwritten from this date.
Consequently, any decision taken based on a provision deemed unwritten is by definition not valid and could even be challenged by one of the Members of the NPO or a third party having an interest before the competent Enterprise Court.
Less flexibility than the law
By relying on outdated Statutes and rules, NPOs are depriving themselves of much more flexible mechanisms which may prove to be more effective in certain circumstances than what is currently provided for in their Statutes.
By way of example, before the new Code, the Board of Directors of Belgian foundations could adopt decisions via the written procedure only in exceptional cases duly justified by urgency and social interest. This condition is often included in the Statutes of foundations. However, this condition has been abandoned by the Code and the Board of Directors can now adopt any decision by written procedure, at the condition that unanimity is met (i.e., all directors must answer to the written procedure, and all must vote in favour of the decision for it to be adopted). Therefore, as long as the Statutes remain unmodified, NPOs will rely on less flexible provisions than those provided by the Code.
Donations from natural persons
In Belgium, donations to NPOs exceeding 100,000 EUR are subject to a ministerial authorization. The Code provides that the NPOs must file several documents to the FPS Justice (in French: “SPF Justice” / in Dutch: “FOD Justitie”). Among the required documents, the NPOs must provide the coordinated text of the updated Statutes and any further amendments.
Consequently, providing non-compliant Statutes will put the NPO concerned at the risk of being refused the ministerial authorisation, and therefore the right to accept the donation.
An NPO that is not compliant with the Code will also entail a reputational risk. It is more than likely that existing and/or potential stakeholders (including public institutions, donors, funders, etc.) will be more reluctant to support an NPO which does not comply with its legal obligations and, eventually, demonstrates certain dysfunctions because its Statutes are not up to date. Indeed, these could be perceived by stakeholders/donors/funders as an NPO being non-reliable and showing a lack of seriousness.
Generally speaking, although this reform seems to be imposing cumbersome changes on NPOs, we believe that it is an opportunity for them to take a serious look at their governance. By not amending their Statutes, NPOs lose this opportunity to take a close look at how they operate in practice, compared with the theoretical rules laid down in their Statutes which are most of the time outdated or do not reflect their practice.
In concreto consequences
Non-compliance will have consequences in terms of the validity:
First, unmodified Statutes will contain provisions that are not, by definition, in conformity with the Code, meaning that the provisions contained in it are invalid, which in turn will potentially invalidate the decisions taken based on said provisions;
Subsequently, the invalid decisions will in turn result in the following ripple effect:
The invalid decisions can be challenged by Members of the NPO or third parties having an interest before the competent Enterprise Court, which can in turn declare the decisions null and void;
Given that the directors have not taken the necessary steps to bring the Statutes in conformity with the Code, they are engaging their liability regarding the consequences of such invalid decisions; and
The NPO will certainly engage its reputation vis-à-vis the stakeholders.
As a practical example, one could think about the convening period of the General Assembly of a non-profit Association (in French: “association sans but lucratif” / in Dutch “vereniging zonder winstoogmerk”). Before the Code, the convening period was 8 days and has now been changed to 15 days. If the General Assembly was convened according to the previous convening period, it will not be validly convened. Should the NPO not be (politically) stable, there is a risk that there will be a lot of turmoil and perhaps even judicial challenges of the decisions taken during said meeting. The directors would then be liable for any damage resulting from this situation, and the NPO could lose the trust its stakeholders had put in it.
Conclusion: time for action!
All in all, Statutes that are not compliant with the Code could have several more or less serious consequences for the concerned NPO. These consequences must not be taken lightly, as they could affect the trust of the members and stakeholders (including public institutions, donors, funders, etc.) in the NPO (in the best scenario) or could completely block the operations of the NPO (in the worst-case scenario, having litigation in front of the Enterprise Court).
Unfortunately, as the process of bringing the Statutes in conformity with the Code can be time-consuming, we strongly recommend starting your duties to be compliant as soon as possible.
If you have any questions or concerns related to non-profit law, Antoine DRUETZ, Partner, and his team will gladly assist your organisation.
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