In our September issue of Brussels to the Point, we described the so-called alarm bell procedure which must be complied with when a company has sustained significant losses. Since 24 May 2014, the alarm bell procedure is applicable to non-profit organisations and foundations. This article describes the procedure and its scope.  

Non-profit organisations are subject to specific legislation (the Act of 27 June 1921 on non-profit organisations, international non-profit organisations and foundations), with a limited number of provisions. For matters not specifically governed by the legislation, reference is made to the Company Code. However, some provisions of the Company Code are not applicable to non-profit organisations. This was the case with the alarm bell procedure, which is intended to draw shareholders' attention to potential financial difficulties so that they and the company's directors can take the appropriate actions to avoid bankruptcy or the collapse of the company. Until recently, no such procedure existed for non-profit organisations.

However, the Act of 25 April 2014, published in the Belgian State Gazette on 14 May 2014, amended the Act of 27 June 1921 on non-profit organisations, international non-profit organisations and foundations to provide that Article 138 of the Company Code applies to non-profit organisations (VZW/ASBL), international non-profit organisations (IVZW/AISBL) and foundations (stichting/fondation). This article provides for an alarm bell procedure. This procedure is not exactly the same as that set out in Articles 332, 431 and 633 of the Company Code, which refer to certain capital thresholds. Indeed, these articles cannot be extended to non-profit organisations and foundations since these types of legal entities do not have corporate capital. Nonetheless, the legislature has introduced a procedure to inform the members of a non-profit association if the association is experiencing financial difficulties and to oblige them to deliberate on the future of the non-profit association and its financing.

More precisely, the statutory auditor (commissaris/commissaire) can call a meeting of the management organ (but is not obliged to do so)  if, in the performance of his or her duties, serious, corroborating facts are found which indicate that continuing the organisation's business could be harmful. The management organ is obliged to deliberate on measures to ensure the continuity of the organisation for a reasonable period of time. If the statutory auditor is not informed of the management organ's deliberations or the measures taken within one month's time, the auditor may disclose his or her findings to the president of the competent court of first instance. This is also possible when the statutory auditor is not convinced that the proposed measures will be sufficient to ensure the continuity of the organisation for a reasonable period of time. It should be noted that the statutory auditor has discretion in this regard and is not obliged to inform the president of the court of first instance.

Scope

The alarm bell procedure is only applicable to Belgian and international non-profit organisations and foundations which have appointed a statutory auditor (commissaris/commissaire). It should be noted that only large non-profit organisations and foundations are obliged to appoint a statutory auditor, when:

  • the annual average number of employees exceeds 100 full-time equivalents; or
  • at the end of the financial year, at least two of the following three criteria are met:
    • annual average number of employees of more than 50 full-time equivalents;
    • total income (excluding VAT) of more than EUR 7,300,000, other than extraordinary income; and
    • a balance sheet total of more than EUR 3,650,000.

The alarm bell procedure shall also apply if a Belgian or international non-profit organisation or foundation voluntarily appoints a statutory auditor. Company auditors (bedrijfsrevisor/réviseur d'entreprises) who are not statutory auditors are not bound by the alarm bell procedure.