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Switzerland When in distress


Alexander Vogel, Wolfgang Muller and Debora Durrer- Kern of Meyerlustenberger Lachenal explore the restructuring options available to Swiss companies in times of difficulty


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wiss corporate law provides that the board of directors of a severely financially trou- bled company has to take specific formal measures to address its difficulties. These duties are inalienable and non-transferable, whether for stand-alone companies or


within corporate groups. The type of measures depends on the level of losses incurred com- pared to the affected company’s equity capital. Swiss law differentiates in particular between the status of (i) capital loss (partial loss of registered equity capital) and (ii) overindebtedness (complete loss of equity or negative equity). If the last annual accounts show that half of the share capital and the legal reserves are


no longer covered by assets (when there has been partial loss of the registered equity capi- tal) Swiss corporate law obliges the board of directors to call a general meeting of share- holders without delay in order to propose a financial reorganisation of the company (arti- cle 725 paragraph 1 of the Swiss Code of Obligation (CO)). In the case of a substantiated concern of overindebtedness, (that is, there is a serious


concern that the company might have negative shareholder equity and, thus, the aggregate liabilities of the company exceed its aggregate assets) the board of directors is obliged to have an interim balance sheet prepared and audited by an accredited auditor (article 725 paragraph 2 CO). If the interim balance sheet confirms the negative equity both on a going concern basis and on a liquidation scenario basis, the board of directors is obliged to notify the competent bankruptcy court, unless creditors of the company agree to subordi- nate sufficient amounts of their claims to those of all other company creditors in order to fully compensate such negative equity (plus any losses to reasonably be expected in the foreseeable future). It is therefore important for the board of directors of a Swiss company in distress to have


precise information at hand at all times. The equity situation of the company must be monitored carefully and in the case of negative developments, the board of directors must ensure early enough that interim reports (including interim balance sheets) are established to be able to initiate adequate measures and discharge statutory duties. In a group of com- panies, the board of the parent company has on the one hand to ensure that it receives ade- quate information to be able to monitor the financial situation of the holding company and the group on a consolidated basis, since the board of the parent is responsible accord- ing to court precedent for the financial monitoring and planning of the group as a whole. On the other hand, the board of the parents has to consider very carefully whether a cap- ital injection into a financially troubled subsidiary is advisable or not, since according to a recent decision by the Swiss Federal Supreme Court, the transfer of liquidity to a sub- sidiary may be considered to be negligent if at the same time serious steps of restructuring are not initiated at the subsidiary level, which ensure a realistic chance of a successful turn- around and eventually a repayment of the amounts transferred to the ailing subsidiary. If the members of the board of directors of a company incorporated in Switzerland do not


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directors has at its disposal a wide variety of restructuring possibilities


“ ” IFLR|RESTRUCTURING & INSOLVENCY 043


A board of


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