The financial plan at incorporation: watch out when the shield becomes a weapon

In a recently published judgment[1] The Commercial Court of Ghent, Dendermonde Division, ruled that an accounting professional is also liable for a defective financial plan if he did not advise the founders not to incorporate the company with such a financial plan. While the financial plan usually protects founders from liability in case of bankruptcy, in practice it can come back to the accounting professional like a boomerang.  

Company founders are responsible for providing an initial capital base that is sufficient for the intended activities. Thus, founders should map out the company's expected revenues and expenses in advance and provide sufficient sources of financing. Financing can consist of a contribution (the former "initial capital") but also external sources of financing, such as bank loans or supplier credits, count.

If it turns out that the initial capital was clearly insufficient for the normal conduct of the planned activities for at least two years, the founders can be held jointly and severally liable for the company's commitments if it goes bankrupt in the first three years.

The financial plan protects the founders from being too easy post factum assessment by the court. In particular, the financial plan allows the founders to prove that they acted as a reasonably foresighted and prudent person at the time of the formation of the company with the knowledge they had at that time.

In the judgment under discussion, the facts were different. Apart from a few formal irregularities, the financial plan did not show too favourable prognoses for the company. For example, the financial plan showed an obvious lack of financing, which would result in a liquidity shortage already in the first year. In addition, the turnover had been manifestly overestimated and the expected costs manifestly underestimated. Any reasonably far-sighted and prudent founder would decide that such a company should not be set up with such limited financial resources. It is therefore not surprising that the court decided in favour of the joint and several liability of the founders.

The founders, however, turned to their numerical expert and asked the court for an indemnification.

The practitioner tried to defend himself using a contractual release clause, in particular that the founders are solely responsible for the accuracy and completeness of the information provided.

However, the point at issue was not the accuracy or completeness of the information provided but rather the forecasts that followed from these figures. The financial plan drawn up by the accounting officer on the basis of the information provided showed that the company would be manifestly short of funds to carry out its planned activities. In making that determination, the accounting professional should have advised the founders not to form the company, at least to provide additional financing. If the accounting professional had complied with this obligation, there was a chance that the founders would have followed this advice, according to the court. For this reason, the accounting professional was held jointly liable for part of the company's debts.

It is noteworthy that the judgment discussed related to facts to which the old Company Code applied. Since the introduction of the new WVV, the name of the external expert who assisted in the drafting must, if necessary, appear explicitly in the financial plan. In legal literature, it was already feared that this would more often lead to the liability of the accounting professional. The judgment discussed here shows that even without this explicit mention of a name, the accounting professional will not escape.

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[1] Ond. Ghent, department Dendermonde 18 October 2021, TRV-RPS 2022, 327, note F. MERTENS.