LEGALESE 101: The alarm bell procedure

— Updates | Other — 5 minutes read

One might associate Spreds with our primary service, being the quest to offer interesting investment opportunities in disruptive enterprises. 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 transferred 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 on the investments you have made, but we also commit to being as transparent as possible when the news is not necessarily good. For us, providing information about your investment is more than a legal obligation, it is something we owe you directly as someone who has embarked on the sometimes bumpy lifecycle of an enterprise. That is why we have decided to dedicate this series of posts to explaining some of the particular issues or opportunities that companies of our #FundedFamily might be facing throughout their lifecycle. Only difference here is we will be explaining the ‘legalese’ or legal jargon instead of using it and acting snooty.

In this particular post we will be taking a look at a little 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’ assembly. 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 decreased significantly because of losses made.

The suffering of losses in itself is not an uncommon thing, especially in very young companies as this is often included their financial plan as a means to finance their growth. The legislators however, wanted to make sure that the board of directors of a company are paying attention to certain warning signs, one of them being that the net assets of the company have dipped below certain thresholds due to loss-making. 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 the continuity of the company.

Whereas in an established company this might well be a rare occurrence and a not-so-positive sign, in starting enterprises this 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.

Once the board of directors has formally noted that the net assets have been reduced to half of its share capital respectively, the alarm bell procedure will be triggered. Concretely this means that the board of directors will have to compose a special report explaining most prominently the proposals of the board with regards to ceasing or continuing the activities. If the board should propose to continue the activities of the company this report should also 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.

The aforementioned report will be submitted to a** purposely-convened extraordinary assembly** which should be held within two months of it being established that the net assets have been affected. This meeting of all shareholders of the company will have the final word on whether the activities of the company will be continued or whether the company will be dissolved. This will happen by means of a formal vote on the dissolution of the company, subject to a three-quarter majority in the case where the net assets have decreased to half of the share capital. Should the net assets have decreased to less than a quarter of the share capital then a total of twenty-five percent of the votes casted will be sufficient to decide upon discontinuation of the activities of the company.

This entire procedure is, as you might have noticed, quite formalistic and daunting. It is important to stress however that, especially in young companies, this does not signal the impending doom of the enterprise. 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. 

Should a company that is part of our #FundedFamily be faced with having to apply the alarm bell procedure then we at Spreds will keep close track of the situation and it will be our financial vehicle Spreds Finance that represents all investors from the crowd at the extraordinary general assembly. Most importantly however we will always keep the crowd investors up-to-date in all transparency either by means of a personal email or an update on your Online Profile.