By Antoine Druetz, Partner, Alix Degrez, Counsel, and Léa Cartier, Junior Associate at EY Law
On January 1st, 2020, the Law of June 27, 1921, on non-profit associations, international non-profit associations and foundations was replaced by the new companies and associations Code of March 23, 2019, (hereafter: “Code”) . Non-profit organisations[1] (hereafter: “NPOs”) were not spared by the multiple changes brought by this reform. However, the Belgian legislator had 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 December 31, 2023, at midnight. Ultimately, all Belgian NPOs have no choice but to bring their Statutes into conformity with the new Code.
But concretely, why is it important? This article outlines the main consequences your NPO could endure in case its Statutes are not in conformity with the Code after December 31, 2023.
1) Liability of the directors
If your NPO failed to bring the Statutes in conformity with the Code, the directors (i.e., the members of the management body of your NPO) are personally and jointly liable for any damage suffered by the NPO or by any third parties resulting from this failure. No other specific sanction than the liability of the directors is provided by the law of March 29, 2019, introducing the Code.
2) Provisions deemed unwritten
It is worth mentioning that all mandatory provisions contained in the Code apply since January 1st, 2020. Consequently, any provisions within your Statutes conflicting with the Code are deemed unwritten from this date onward. As a result, decisions made based on such provisions are inherently invalid and could potentially be challenged by a member of your NPO or a third party having an interest before the competent Enterprise Court.
3) Less flexibility than the law
By relying on outdated Statutes and rules, your NPO is depriving itself of much more flexible mechanisms which may be more effective in certain circumstances than what is currently provided for in its Statutes.
For instance, prior to the implementation of the new Code, the Board of Directors of Belgian foundations (in French: “Fondations” / in Dutch: “Stichtingen”) could only make decisions via written procedure in exceptional cases justified by urgency and social interest. This requirement was commonly included in the Statutes of foundations. However, under the new Code, this requirement is no longer provided by the new Code. As a result, the Board of Directors is now allowed to adopt decisions via written procedure under the condition of unanimity (i.e., all directors must participate in the written procedure, and all must vote in favour of the decision for it to be adopted). Consequently, until the Statutes are amended, the concerned foundations will operate under less flexible regulations compared to those provided by the Code.
4) Donations from natural persons
In Belgium, donations to NPOs exceeding 100,000 EUR are subject to a ministerial authorization. In order to obtain such authorization, the Code provides that the NPOs must file a number of documents to the FPS Justice (in French: “SPF Justice” / in Dutch: “FOD Justitie”). The NPOs must, amongst other, provide the coordinated text of the updated Statutes and any further amendment.
Consequently, providing non-compliant Statutes will put your NPO concerned at risk of being refused the ministerial authorisation, and therefore the right to accept the donation.
5) Reputational risk
If your NPO is not compliant with the Code, it also entails a reputational risk. Indeed, existing and/or potential stakeholders (including public institutions, donors, funders, etc.) will be more reluctant to support your NPO if it does not comply with its legal obligations and, eventually, demonstrates certain dysfunctions due to the fact that its Statutes are not up to date. Your NPO could be perceived by stakeholders/donors/funders as being non reliable and showing a lack of seriousness.
6) Missed opportunity
Generally speaking, while this reform may appear as burdensome, we believe that it is an opportunity for NPOs to thoroughly reassess their governance. By not amending its Statutes, your NPO may lose an opportunity to take a close look at how it operates in practice, compared with the theoretical rules laid down in its Statutes which are most of the time outdated or do not reflect their practice.
7) In concreto consequences
Non-compliance will also have consequences in terms of the validity:
- First, the Statutes of your NPO may contain provisions which are not, by definition, in conformity with the Code. This means that these provisions are invalid, which in turn will potentially invalidate the decisions taken on the basis of said-provisions;
- Subsequently, the invalid decisions will in turn result in the following domino effect:
o The invalid decisions can be challenged by Members of your NPO or third parties having an interest before the competent Enterprise Court, which can in turn declare the decisions null and void;
o 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 (see above item 1); and
o Your NPO will certainly engage its reputation vis-à-vis its 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”). Under the former legislation, the convening period was 8 days, whereas it has now been extended to 15 days. If the General Assembly was convened according to the previous convening period, it will not be validly convened. Should the concerned 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. Under this scenario, 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: now is the time to act!
All in all, if the Statutes of your NPO are not compliant with the Code, this could have a number of more or less serious consequences on your 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 your NPO (in the best scenario) or could completely block the operations of your NPO (in the worst-case scenario, having a litigation in front of the Enterprise Court).
As the process of bringing the Statutes in conformity with the Code can be time consuming, we strongly recommend starting your duties in order 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.
[1] Belgian non-profit associations, international non-profit associations, private foundations and foundations of public utility.