shareholders were the members on the board of directors since the company’s incorporation. One of the minority shareholders was also the controller of the company and so had to supervise and imple- ment the business plans. At the end of 2006 the board of directors would
have had to notify the court (based on article 725 paragraph 2 CO) due to an impending overindebt- edness. The majority shareholder subordinated his claims out of a loan to the extent of the capital deficit and thus, the court did not have to be noti- fied. An extraordinary shareholders’ meeting was
called for February 18 2008 so that the sharehold- ers could decide on a capital reduction followed by an immediate increase in capital. At the sharehold- ers’ meeting no information of further restructur- ing measures was provided, although one of the minority shareholders had requested such informa- tion in writing. The shareholders’ meeting then resolved to reduce the capital to zero and immedi- ately increase the capital by SFr500,000. Immediately after, the board of directors executed the increase in capital and passed a resolution regarding the ascertainment of the ordinary capital increase. One of the minority shareholders demanded
from the district court that the resolutions passed at the extraordinary shareholders’ meeting should be declared void or annulled based on article 706 CO. The district court and, then the cantonal court rejected the appeal by the claimant. The claimant then filed an appeal to the Swiss Federal Supreme Court. The company in the case was in a situation of
overindebtedness. Therefore, the shareholders’ meeting could rightfully decide on a capital cut according to article 732a CO. However, the reduction in capital followed by
an immediate increase in capital did not lead to a removal of the overindebtedness of SFr4 million – it only alleviated the overindebtedness to some
Supreme Court lay down very clearly how far the duties of the board of directors go
“ ”
The Federal
degree. The board of directors was obliged to inform the shareholders’ meeting of further restructuring measures, which it did not do. Therefore, the shareholders’ meeting could not evaluate whether the accordion recapitalisation contained a restructuring purpose as required by article 732a CO. Additionally, the shareholders could not take a decision regarding the use of their pre-emptive rights and further participation in the company as they were insufficiently informed. The prerequisites according to article 732a CO were not fulfilled, resulting in the resolution being unlawful. Since the resolutions passed violated the law, they
could be appealed within two months. One of the minority shareholders launched an appeal within the given timeframe. The Federal Supreme Court then retrospectively annulled the resolutions passed by the shareholders’ meeting. This was effective for and against all shareholders. The ascertainment by the board of directors in the form of a public deed, which followed the resolutions passed by the share- holders’ meeting, no longer had any ground and thus was invalid (according to article 714 CO).
A duty of care A board of directors has at its disposal a wide vari- ety of restructuring possibilities, which it should implement in a timely fashion. If a situation of overindebtedness exists, the reduction in capital followed by an immediate increase in capital, according to article 732a CO, may be considered. However, the board of directors must inform the shareholders comprehensively of this mode of restructuring if the capital cut does not remove the overindebtedness directly. This is necessary so that the shareholders can decide whether the restructur- ing measures are sustainable and whether they want to make use of their pre-emptive rights. The Federal Supreme Court layed down very clearly in its ruling how far the duties of the board of direc- tors go in such a case.
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