Company restructuring in Switzerland

December 29, 2022

Switzerland attracts investors and businessmen as a leading financial center. Some of the best conditions for protecting assets and increasing capital have been created here. International Wealth portal experts offer legal and financial solutions in Switzerland for clients from anywhere in the world.

The most popular legal and financial solution services in Switzerland are:

  • Company registration in Switzerland.
  • Acquisition of a ready-made company, including with a history.
  • Asset protection: holding structures, family funds.
  • Opening a foreign currency account in a Swiss bank.
  • Support for the activities of Swiss companies.

General information

According to the existing version of the Swiss CO, the board of directors of a Swiss limited liability company has a general duty to monitor the financial condition of the companies in Switzerland. If the company faces financial problems, the board of directors must take appropriate measures.

Currently, the legislation provides for two scenarios of financial difficulties. Article 725 et seq. COs define the specific responsibilities of the board of directors.

First, if the last annual balance sheet shows that half of the company’s share capital and legal reserves have been lost and are no longer covered by assets (so-called capital losses), the board of directors must immediately call a general meeting and propose financial restructuring measures.

Second, if there is good reason to believe that the company is over-indebted (the balance sheet shows negative equity) and the audited interim balance sheet shows that the company’s creditors are not covered (at current or liquidation value), the board of directors must notify the court.

The notice requirement may be waived if the company’s creditors subordinate their claims to the claims of all other company creditors within the capital deficiency. According to existing case law, the board of directors also has the right to delay the notification to the court for a certain period of time (the length depends on the specific circumstances; usually 60 days is acceptable) in order to initiate future restructuring actions. . (the so-called quiet restructuring). If the supervisory board does not notify the court in a timely manner, this may become the basis for civil liability claims.

After receiving the notice, the court usually starts the bankruptcy proceedings. The court can, at the request of the board of directors or a creditor, suspend the bankruptcy proceedings if there is a prospect of financial restructuring, and in the meantime order to take measures to preserve the assets of the company.

In practice, these statutory documents are almost never successful, as measures are usually only taken when the company is already suffering from serious financial difficulties. Therefore, most proceedings end in bankruptcy proceedings. The legislator attempted to address these shortcomings by revising Swiss company law.

Revised base and introduction of additional solvency measures

Revised Swiss companies law stipulates that the board of directors must initiate restructuring measures not only in the event of capital loss or excessive indebtedness, but also earlier in the event of insufficient liquidity.

According to Article 725 of the updated CU, the board of directors must also monitor the company’s solvency, which in practice means that it must draw up a liquidity plan. A liquidity plan serves as an early warning system to detect an impending financial crisis. According to current legislation, if the company is in real danger of becoming insolvent and cannot fulfill its obligations at the time of their repayment, the board of directors must take appropriate measures to strengthen the company’s solvency.

Article 725 of the updated Labor Code provides for a cascade system of restructuring in the presence of realistic prospects for enterprise restructuring. The new law directs the board of directors to first choose short-term and simple measures, such as taking out a loan. If additional measures are needed to solve the company’s liquidity problems, the board of directors must agree on more sustainable steps, such as increasing the company’s capital, and, if necessary, propose them to the general meeting.Revised the Swiss company law also provides that the board of directors can apply for a debt moratorium if necessary, which is appropriate if a court-approved settlement agreement with all creditors is required.

In addition to the provisions relating to the solvency of the company, the current rules on loss of capital and excessive indebtedness remain in force with some minor amendments (Articles 725a and 725b of the revised CO).

The capital loss provisions (section 725a of the revised CO) provide that the board of directors is no longer required to call a general meeting in any circumstances, but only if the measures proposed to deal with the capital loss are within the competence of the shareholders. .

Also, unlike the current system, a companies in Swiss usually cannot opt out of having its annual balance sheet audited in the event of a capital loss. An exception can only be made if the board of directors has applied for a debt moratorium.

Article 725b of the revised CO still provides that if the board of directors has good reason to believe that excessive indebtedness exists, an audited balance sheet must be drawn up with assets valued at going concern and liquidation value to determine whether the company’s creditors are secured. .

However, unlike the current system, a company will no longer be required to draw up a balance sheet at liquidation value if the company is deemed to be a going concern and assets valued at going concern value show that the company’s creditors are covered.

If the balance sheet shows that the company is over-indebted, the board of directors must still notify the court. As in the existing statutory framework, the notice can be withdrawn if the company’s creditors subordinate their claims (under the revised law, including interest claims) to the claims of all other company in Switzerland creditors within the existing over-indebtedness limit.

Codifying existing practice, the entry regime provides that court notification may be delayed for a quiet restructuring for a maximum of 90 days after a verified balance sheet becomes available. According to a clear provision of the law, an extension of this period is not possible, even if a longer period may be appropriate in a specific case, for example, in large and complex cases.

Unlike current law, after notification, the court can no longer stay bankruptcy proceedings if there is a prospect of financial restructuring. However, the court may grant a stay if immediate restructuring or settlement is likely.

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