The new restructuring law has been in force for a year now. Below we take stock, analyze its impact on companies and highlight the challenges for the BoD. We explore possible stumbling blocks and show where the BoD needs to pay attention in each situation.
The revised Swiss company law came into force on 1 January 2023. Owing to the transitional period of two years for amending their articles of association, companies do not always necessarily need to take immediate action. However, for companies in (imminent) financial distress, the new provisions will become relevant as soon as they come into force. In addition to the new obligations for the BoD, (i) the subordination and its structure and (ii) the 90-day period for out-of-court restructuring are particularly noteworthy.
To be in a position to recognize an imminent insolvency in good time, the BoD is now required to monitor the company's solvency on a permanent and ongoing basis. Continuous monitoring is key to being able to implement a timely response.
Appropriate measures must be taken in the event of imminent insolvency, whereby the BoD must act with required urgency. Priority must be given to measures that have a direct impact on the company's solvency.
Loss of capital / overindebtedness
Loss of capital is now regulated in Article 725a CO. Alongside the unchanged duties of the BoD to restructure, a new audit requirement in the event of a capital loss has been introduced in para. 2 CO, according to which the BoD must have the last annual financial statements audited with at least a limited audit. Where a company has not elected an auditor (so-called opting-out), the last annual financial statements are still subject to a limited audit prior to their approval by the general meeting. In this case, it is up to the BoD (and not the general meeting) to appoint a licensed auditor.
In the event that there is even a justified concern of overindebtedness, the BoD must immediately prepare interim financial statements at going concern and sale values. These interim financial statements must also be audited (even if the company has decided to opt out). Where the audited interim financial statements reveal the existence of over-indebtedness, the BoD is obliged to notify the court of this by filing the balance sheet (notice of overindebtedness).
Out-of-court restructuring and subordination
A notification of overindebtedness can only be omitted if there are subordinations in the amount of the overindebtedness or if there is a reasonable prospect of eliminating the overindebtedness within 90 days at the latest.
The 90-day period for out-of-court restructuring begins when the audited interim financial statements have been submitted. It could therefore be tempting to artificially extend the deadline by delaying the preparation of the annual financial statements or, in the absence of an auditor, by delaying the search for a licensed auditor. It is important to note, however, that such behavior could be qualified as a breach of the duty to act with required urgency.
Following the entry into force of the new restructuring law, the inclusion of interest in the corresponding subordination has to be ensured; failing this, the subordination would not be considered sufficient. This raises the question of how to treat “old” subordination agreements that do not meet the new requirements, i.e. do not include interest. Under the transitional provisions, existing agreements must be adapted to the new legislation within two years (i.e. by 31 December 2024). Whether this transitional provision applies to subordination agreements is, however, legally controversial, which is why the BoD should always conclude an addendum to the subordination agreement with the relevant creditor in order to create legal certainty. In light of the legal uncertainties, this should be resolved as quickly as possible, at the latest by 31 December 2024.
According to prevailing doctrine, a subordination does not exempt the company from taking further restructuring measures, as subordinations are not considered to have a restructuring effect. A subordination with the sole aim of delaying a notification of overindebtedness and artificially keeping a company alive will therefore not release the BoD from the obligation to notify the court of the overindebtedness. This type of institutionalized subordination (without taking further restructuring measures) can be classified as an abuse of rights, in which case the auditors may have to notify the court themselves.