Cantonal differences prevail for hardship cases Cantonal differences prevail for hardship cases

Corona (COVID-19) continues to affect the Swiss population and businesses alike. With the arrival of the new year the number of infections remains high, but vaccinations are being rolled out across the country, indicating that a modicum of normalcy might return soon. Nonetheless, in light of recent developments concerning the more contagious virus mutation, the Swiss government imposed even stricter measures to curb the spread of the virus on 13 January 2021. At the same time, the Swiss government also increased its hardship compensation fund for the hardest hit sectors of our economy by an additional CHF 1.5bn to CHF 2.5bn (or an increase of 150%)! The funds will be provided jointly by the Swiss Federation (CHF 1.9bn) and the Cantons (CHF 0.6bn). Below, we provide an overview of the financial support for hardship cases as well as the Cantonal implementation of the distribution of funds.

On 13 January 2021, the Swiss Federal Council relaxed the conditions that a company must meet in order to receive hardship aid. Among other things, businesses that have been officially closed for at least 40 calendar days since 1 November 2020 are now considered hardship cases without evidence of a revenue decline. The upper limits for non-refundable contributions will be increased to 20 percent of revenue or CHF 750,000 per legal entity. In addition, compensation for any decrease in revenue that occurred in 2021 can now also be claimed. To determine the extent of the decline in revenue, the revenue of the last 12 months may be used instead of the 2020 annual revenues. However, the non-refundable contributions may not exceed 20% of the average revenues of 2018 and 2019. For all companies receiving financial support the dividend ban will be shortened from 5 to 3 years or until the funds have been repaid.

In addition to these contributions, loans and guarantees with a maximum duration of ten years may be granted and can amount to a maximum of 25 percent of average annual revenues generated in 2018 and 2019, but may not exceed the amount of CHF 10,000,000 per legal entity. This regulatory amendment allows cases of hardship to be supported broadly. More than half of the cantons are already starting to accept applications for hardship benefits during January and all cantons are expected to pay out support by February 2021.

How can you find out whether your company is eligible for financial support? In order to obtain funding under the new regulation, the following basic requirements need to be met:
 

• the company had to be incorporated before 1 March 2020, and had to have a
• minimum revenue of CHF 50,000,
• salary expenses primarily within Switzerland, and
• be able to show documentation and evidence (such as annual financial statements and monthly financial reporting)

Furthermore, the decrease in revenue during the last 12 months needs to be at least 40% or the government-ordered shutdown needs to be at least 40 calendars days since 1 November 2020.

Further, it is important to note that in the event of a company restructuring, the cantons are to be given the additional option of increasing the cap to a maximum of CHF 1.5 million. The prerequisite for this is that the shareholders and the debt providers together make an additional contribution of at least the same amount. For example, a prerequisite for increasing the state contribution to CHF 1 million would be a contribution from shareholders and/or debt providers totaling CHF 250’000 (e.g. an increase in equity of CHF 150’000 and a debt waiver of CHF 100’000). Only freshly contributed equity capital counts as an additional contribution by the shareholders, not the conversion of shareholder loans into equity capital.

The fact that the upper limit of non-refundable contributions is limited to CHF 750’000 for each legal entity causes unequal treatment of companies in the same sector. A business structured into many legal entities may get more state support than a business of the same size which subsumes its activities in one legal entity. This treatment is deemed unfair as well as unpractical by many.

The most hard-hit sectors of the Swiss economy, such as restaurants, bars and nightclubs, sports and leisure centers, as well as libraries, museums and other cultural institutions have been closed since 22 December 2020. In fact, the government-ordered lockdown has been extended to the end of February 2021. For many companies active in these sectors of the economy, financial support cannot arrive early enough.

The table below shows the Cantonal differences concerning the application process and the timing of disbursement of funds for the financial support measures. Strictly from a legal perspective, first disbursements of funds were possible after the referendum period has expired, meaning as of 4 February 2021 at the earliest.

Following the amended regulations of 18 December 2020, a company’s share of fixed costs also needed to be disclosed. The new hardship rules require companies to certify to the canton that the decline in revenues by year’s end results in a proportion of uncovered fixed costs that jeopardizes its survival. This provision was criticized by many cantons as difficult to implement.

Because of this push-back, companies now only need to confirm that the decline in revenues results in a significant proportion of uncovered fixed costs. This will further facilitate access to the cantons' hardship programs. Further, the Swiss Federal Council came to the conclusion that closures due to lockdown orders for at least 40 days between 1 November 2020 and 30 June 2021 are presumed to have brought about a decline in revenues high enough to constitute a hardship. Therefore, evidence of a decline in revenues will no longer be required.

In short, there is still much work to be done. Depending on what canton a company is located in, the work may have to be delivered at very short notice, possibly requiring help from external sources in order to navigate the application process (e.g. in certain cantons any corporation applying for funds on behalf of more than one legal entity will be faced with administrative hurdles such as providing separate email addresses for each legal entity application).

_Addendum:

_{Here is a list of documents and important prerequisites that need to be considered prior to application. All applying companies shall}

• _{Confirm that it was not in debt collection proceedings for social security contributions on 15 March 2020}
• _{Confirm that it is not in bankruptcy, composition proceedings or in liquidation.}
• _{Provide current excerpt from the relevant Swiss commercial registries}
• _{Provide current extract from the relevant debt collection register}
• _{Provide closing accounts for 2018 & 2019 (incl. balance sheet, profit & loss statement and audit report)}
• _{Provide simple 1 to 3-year business plan (balance sheet and profit & loss statement for 2021, 2022 and 2023); the difference is due to cantonal preferences (e.g. ZH requires a 1-year budget, GR a 2-year business plan and SG a 3-year business plan)}
• _{Relevant information and documentation concerning the recognized revenues in 2020 and the incurred revenue decline compared to 2018 and 2019 as result of government-ordered shut-downs due to COVID-19}
• _{Documented salary declarations (from OASI/DI or AHV) for the year 2020}
• _{Documented receipt of short-time work compensation}

_{It should be noted that for some cantons a proof of viability needs to be included. These cantons require proof that the company can continue at the latest once the lockdown measures have been lifted (presumably by mid-2021) and that it is likely that – in the case of repayable aid – repayment appears realistic in view of the expected revenues and expenses as well as the requested hardship contribution.}

Find more information in our brochure (PDF).