Insolvency and directors' duties in Switzerland: overview

A Q&A guide to group insolvency and directors' duties in Switzerland.

The Q&A global guide provides an overview of insolvency from the perspective of companies that are operating within a domestic and/or international group of companies, and considers the various complexities that this can introduce into insolvency procedures. It also has a significant concentration on duties, liabilities, insurance, litigation, and subsequent restrictions imposed on directors of an insolvent company.

To compare answers across multiple jurisdictions, visit the Insolvency and Directors’ Duties Country Q&A tool.

This Q&A is part of the Insolvency and Directors’ Duties Global Guide. For a full list of contents, please visit


Corporate insolvency proceedings

1. What are the main out-of-court and court-sanctioned insolvency proceedings involving a liquidation of the company's assets?

Swiss law does not know out-of-court insolvency proceedings, except for in specific areas (for example, for banks). For persons and entities subject to bankruptcy, the law does not regulate out-of-court debt restructurings.

A company in distress can file for bankruptcy itself or can find itself subject to bankruptcy proceedings at the request of a creditor.

On adjudication of bankruptcy, all feasible assets of the debtor form one sole estate, designated for the satisfaction of the creditors. The bankrupt company is controlled by the public bankruptcy official who can, on a motion of the creditors' meeting, be replaced by a private trustee. In most cases, the bankruptcy official will close down the business of the bankrupt immediately after adjudication of bankruptcy. However, subject to the approval of the creditors' committee, he may decide to continue the business of the bankrupt in order to allow for a sale as a going concern.

2. Are there statutory proceedings allowing for a rescue/restructuring of the debtor company's operations and debts?

Corporate moratorium. A distressed company must notify the competent court in case of over-indebtedness, but may simultaneously apply for a corporate moratorium (Konkursaufschub, ajournement de la faillite) under the Swiss Code of Obligations (CO) (see Question 22). The application can also be filed by a creditor. In order to obtain a corporate moratorium, the applicant must show on a prima facie basis that a restructuring is possible and that company's distress may be remedied on a permanent basis. In most cases an administrator is appointed to oversee the restructuring and to ensure that the creditors' interests are protected.

Insolvency moratorium. As an alternative to bankruptcy, a company can apply for an insolvency moratorium (Nachlassstundung, sursis concordataire) under the Swiss Federal Act on Debt Collection and Bankruptcy (FBA). The purpose of the insolvency moratorium is to reach a restructuring during the moratorium or the conclusion of a composition agreement. A composition agreement can take the form of a stay or a dividend payment to the creditors, in which case the distressed company will survive. Additionally, similar to bankruptcy, a composition agreement can lead to the liquidation of the company's assets and the distribution of the proceeds to the creditors in satisfaction of their claims. Compared to the corporate moratorium, the insolvency moratorium is a more formal proceeding. The successful applicant will be given an administrator who oversees the business and who will, together with the company, prepare a composition agreement (unless restructuring can already be achieved during the moratorium). The composition agreement must be submitted to the creditors and the court for approval.

There are also special resolution regimes in specific areas (for example, for banks).

3. What are the general requirements for commencing insolvency proceedings?

Presently, the test which will determine whether a Swiss company must file for insolvency proceedings is entirely balance-sheet driven. Swiss companies must file for bankruptcy (Konkurs, faillite) if, based on both a going concern and a liquidation value balance sheet, their liabilities exceed their assets (that is, if they are over-indebted).

Unlike over-indebted companies, companies with liquidity problems are not under an obligation to file for bankruptcy. However, the shareholders of an insolvent company may decide to liquidate by way of filing for bankruptcy.

Bankruptcy proceedings can also be initiated on the demand of a creditor who is pursuing a claim in debt enforcement proceedings. Bankruptcy proceedings will be adjudicated ex officio if an insolvency moratorium has been revoked or a motion for composition has been rejected. Further, a creditor can file an insolvent company into bankruptcy using an abridged procedure if the company has generally stopped to pay its debts when they fall due.

The general requirement for filing for a corporate moratorium (which can occur simultaneously with a bankruptcy filing) is that the filing entity has a possibility of being restructured.

Neither over-indebtedness nor a shareholders' resolution are required for a Swiss company to apply for an insolvency moratorium. However, the distressed company must demonstrate that a composition agreement is in the best interest of its creditors and that it has, or generates, sufficient revenue to continue its business during the moratorium. Further, if there is to be a liquidation-type composition agreement, the company must show that the composition agreement will yield a better return for the creditors than a bankruptcy (however, this is normally the case, as a liquidation-type composition is far less formal than straight bankruptcy, granting the administrator more flexibility in dealing with the assets than a bankruptcy trustee would have).


Insolvency of corporate groups

4. Are there joint insolvency proceedings available that can apply to a whole group of companies? Do all members of a corporate group have to proceed under the same type of insolvency proceeding?

Swiss law has neither a group corporate law nor a group insolvency law and therefore does not provide for joint proceedings in the case of the insolvency of a family of companies. Moreover, the insolvency of one member of the family of companies will, from a purely legal point of view, not affect the other group companies. This also holds true for the insolvency of the parent company. However, in practice, the insolvency of one group entity will often have a substantial impact on the other members of the group. As a result of an insolvency of a group entity, creditors may, for example, call on guarantees from the other member(s) of that group or cross-default clauses.

Additionally, there are no joint proceedings for families of companies in Switzerland. As a result, the opening of insolvency proceedings in relation to one company does not necessarily lead to the opening of insolvency proceedings over other companies of the same corporate family.

As Switzerland has no group insolvency rules, each Swiss entity of a family of companies, when it reaches that stage, must file for insolvency with the competent court, which will differ depending on location. A separate proceeding is opened for each of the companies involved and these proceedings remain completely separate. Depending on the nature of the financial difficulties and the prospects of a restructuring of each company involved, proceedings of a different nature may be opened. The collapse of the Swissair Group more than ten years ago and more recently the fall of Petroplus illustrates this. In both cases, some companies were filed into straight bankruptcy, whereas others underwent a composition moratorium (mostly ending in a liquidation composition).

5. Can the same insolvency office holder(s) administer the assets and the liabilities of the entire corporate group? Is a court hearing required to determine whether administration by the same individual(s) is appropriate and, if yes, does notice have to be given to creditors?

The creditors or courts can appoint the same administrator for more than one company of a family of companies. However, as there are likely to be multiple relationships between the entities of a corporate family, and as an administrator has a duty to safeguard the interests of the creditors of each individual entity, a single administrator is likely to face a conflict of interest. There is therefore a risk that a single administrator will not be able to exercise his function efficiently. A possible solution to this problem is the nomination of a second administrator for each corporate entity. The main task of the second administrator would be to deal with intercompany relations.

In case of a bankruptcy, during the first stage of proceedings the local bankruptcy official will take over the business of the bankrupt. In the first creditors' meeting, the creditors can elect for either:

  • Another administrator to replace the public bankruptcy official (extraordinary administration).

  • A creditors' committee, which will oversee the dealings of the administrator.

Both secured and unsecured creditors are entitled to participate and vote at the creditors' meeting. At the creditors' meeting each creditor (whether secured or not) has one vote. This is provided that certain liquidation actions in relation to pledged assets (such as the private disposal of pledge assets) require specific consent by the secured parties.

Both the options of an extraordinary administration and a creditors' committee are normally chosen in large or otherwise complex insolvencies.

In the case of a corporate moratorium, the appointment of an administrator is at the court's discretion. The creditors will only be heard if they filed either:

  • An application for bankruptcy.

  • An application for a corporate moratorium.

However, since the revised rules on the insolvency moratorium entered into force, the insolvency moratorium now commences with a compulsory provisional phase of up to four months. During this phase the administrator must analyse whether or not it is possible for the company to enter into a restructuring. The court will only refuse an application for restructuring if there is obviously no possibility of restructuring the company. There will therefore normally be no hearing on the application. The court can, at its discretion, decide to hold a hearing and to hear the applicant (the applicant will be either the company or a creditor) and/or the creditors. If the administrator's analysis shows that there is a chance for restructuring or a composition agreement, the provisional moratorium will be converted into a definitive moratorium by the court. In this instance, there must be a hearing and the applicant must be heard at that hearing. However, it is left to the discretion of the court whether it will admit other parties, such as non-applicant creditors.

If restructuring is not achieved during the moratorium itself and composition proceedings follow the insolvency moratorium, the creditors can resolve to liquidate the company if a stay or a dividend payment are not an available option. In this case, the creditors' meeting elects a liquidator and the creditors' committee. Each creditor, whether secured or not, has one vote in these elections. It is disputed in academic writing whether the creditors who did not file their claims in due time should have a right to vote in the creditors' meeting.

6. If the law does not permit a single insolvency office holder, are there provisions allowing different office holders to co-ordinate with each other so that the value of the group's assets can be maximised?

No such provisions exist, as insolvency proceedings will be conducted separately from each other.

7. Can professional advisers work for the entire corporate group?

To work for more than one company of a corporate family does not per se constitute a conflict of interest. However, similar to the situation in the case of administrators (see Question 5), professionals cannot represent different companies in matters being discussed amongst those different companies, or in which their interests are otherwise not aligned.

8. Are the rules regarding members of a corporate group transferring assets to one another different when one or more members are insolvent?

The insolvent group entities must protect the interests of their respective creditors. Transactions with other group entities must therefore be made at arm's length. Depending on the nature of the transaction and the insolvency proceeding applicable to it, the insolvent entity must in addition seek the approval of the administrator, the competent court or the creditors' committee. For example, if the insolvent entity has been granted an insolvency moratorium, any sale of non-current assets (Anlagevermögen, actif immobilisé) will require the approval of the administrator and the competent court or, following the approval of the composition agreement, the creditors' committee. Moreover, the insolvent entity can no longer pledge its assets, grant guarantees or enter into transactions which are not at arm's length without the approval of the administrator. The administrator's approval is not only important for the insolvent entity and its directors, but also for the counterparty to any transaction. This is because, following the adjudication of bankruptcy or the granting of a moratorium, only debt which accrues with the approval of the administrators will be treated as debt of the estate. Any other debt will be regarded as pre-moratorium debt, which in liquidation will entitle the creditor to a dividend only.

Accordingly, if a group entity enters into a contract with an insolvent member of the group, it must ensure that the administrator of the insolvent entity approves the transaction. Additionally, a solvent Swiss family member company must consider that loans granted to parent or sister companies may be qualified as either a dividend or, where the borrower has no distributable reserves, an illicit repayment of capital. There are a variety of views on the question of when a loan to a parent or sister company constitutes a repayment of capital. The strictest view argues that any loan to a parent or sister company which is not covered by distributable reserves is a repayment of capital and should therefore not be permitted. A less strict (and more generally applied) view is that a loan to a parent or sister company only constitutes a repayment of capital if the borrower never really intended, or was never in a position, to repay it, or if the loan is not at arm's length. We are not aware of any reported case that clarifies the issue. However, where a loan is granted to an insolvent parent or sister company there is a considerable risk that the loan will qualify as a dividend or illicit repayment of capital.

Loans by parent companies to their subsidiaries are less problematic. A Swiss parent company can support its distressed subsidiary, if the transaction is in line with its business purpose. The support granted must be proportionate to the financial means of the borrower and must be approved by the competent corporate body of the borrower. Additionally, as is the case for any loan, it should be kept in mind that the Swiss Federal Supreme Court in a recent landmark decision held that a repayment of a loan may constitute a voidable preference if the loan is repaid within a defined time period before the opening of bankruptcy proceedings and, among other things, the lender should have anticipated that such repayment is to the detriment of other creditors.

9. How are claims of one member of a corporate group against other members of the group treated in a formal insolvency processes for those members?

Such claims are treated as any other claims that an insolvent company is faced with (that is, they are generally neither invalid nor unenforceable).

Where subsidiaries have been thinly financed, there have been a few lower court cases that have either disallowed or subordinated claims of parent companies against subsidiaries arising out of intercompany loans granted by parent companies. However, Swiss law (except for tax purposes) does not contain provisions requiring companies to maintain a specific debt/equity ratio. The cases have therefore been criticised and the Federal Supreme Court has held that Swiss corporate and insolvency law does not recognise the concept of thin financing. While it appears that a full disallowance is an improper measure, it is at this stage not quite clear whether it would still be possible to subordinate excessive intercompany loans. Given that Swiss law does not require a company to maintain a specific debt/equity ratio, this should, in general, not be the case. However, if a parent company, at a stage where the subsidiary is over-indebted and therefore under a duty to file for bankruptcy, chooses to finance a subsidiary with shareholder loans in order to avoid that filing, the parent company is acting in abuse of rights. If the subsidiary then later has to file for bankruptcy, these additional loans are likely to be subordinated.

Substantive consolidation

10. Is pooling of assets and liabilities of some or all members of a corporate group allowed, so that a creditor of one member becomes, in essence, a creditor of all members?

There is no pooling of assets and liabilities of members of a corporate family in Swiss insolvency proceedings. Proceedings are kept entirely separate as Swiss law does not provide for joint insolvency proceedings for members of a corporate family (see Question 5). In the case of an insolvency of a corporate family, separate insolvency proceedings will be initiated for each group member.

Whilst the administrator(s) of the individual companies can co-ordinate procedural steps, they are mandated to safeguard the interests of the creditors of the individual entity and not of the group as a whole. As a result, they will have to enforce intra-group claims (including claims for directors' liability and fraudulent conveyance).

11. What proceedings are required for the court to order the pooling of assets and liabilities?

Not applicable (see Question 10).

12. Is the partial pooling of assets and liabilities allowed? What conditions apply?

Not applicable (see Question 10).

13. If the pooling of assets and liabilities is permitted, are there any protections for certain types of creditors?

Not applicable (see Question 10).

Secured creditors

14. How are secured creditors treated in relation to a group of companies?

A creditor who has obtained collateral or a guarantee from another member of the group may, due to the fact that Switzerland does not have special group insolvency rules, file its claim (whether due or not) under the insolvency proceedings of the relevant Swiss debtor(s). The creditor will not receive more than the nominal amount of its claims (in most cases plus any interest accrued on it prior to the insolvency event). Any surplus resulting from the enforcement of a pledge will belong to the estate of the company that has provided the pledge. Claims derived from guarantees are admitted in bankruptcy proceedings even if they have not matured at the time the bankruptcy is adjudicated. The estate will subrogate into the rights of the creditor vis-à-vis the principal debtor and any co-debtors. In addition, if the creditor has already been partially satisfied by a co-debtor of the bankrupt, he may nevertheless file the entire claim. Again, the creditor may not recover more than the nominal amount of the claim. In addition to the creditor, the co-debtor can file a claim equivalent to the amount for which he has a right of recourse against the bankrupt.

Additionally, as a matter of Swiss corporate law, the validity and enforceability of any security or guarantee granted by a Swiss subsidiary for, or with respect to, any obligation of another group company that is not a direct or indirect subsidiary of such Swiss subsidiary will be limited to the freely disposable equity capital of the Swiss subsidiary at the relevant time. Such freely disposable equity capital will be determined on the basis of an audited statutory balance sheet of the Swiss subsidiary in accordance with Swiss law and Swiss accounting principles. The freely disposable equity capital may be reduced by:

  • An amount corresponding to the value of such up-stream or cross-stream benefits.

  • The aggregate amount of the inter-company loans, if any, granted by the Swiss subsidiary to any affiliates or related parties (other than its direct or indirect subsidiaries).

  • Other adjustments.

In addition, further corporate actions (including board resolutions and unanimous shareholders resolutions based on an audited balance sheet) may need to be taken to effect the validity and enforceability of the security or guarantee and/or to authorise the relevant payments, realisations or distributions.


Insolvency proceedings for international corporate groups

15. What extra considerations are necessary if one or more members of the corporate group is incorporated under or governed by the laws of another jurisdiction?

The rules mentioned above generally only apply to Swiss companies and, in certain cases, Swiss branch offices of foreign companies (see Question 18). As Switzerland does not have group insolvency rules, the position with regard to Swiss companies does not change if one or several other group members are incorporated under the laws of another jurisdiction.

16. If insolvency/restructuring proceedings are started for corporate group members in different countries, do international treaties or EU legislation apply?

There are no applicable international treaties. EU legislation does not apply in Switzerland.

17. Do domestic courts typically attempt to exercise jurisdiction over all the assets of a company filing locally (regardless of where the assets are located) or do they limit their jurisdiction to local assets?

Swiss insolvency law theoretically claims all the assets of the estate, wherever they are located, to satisfy the bankrupt's obligations towards its creditors. However, this claim will be limited by the competing claims of the jurisdiction where the assets are situated. Whether the Swiss estate will be able to reach assets located abroad therefore depends on local law (except for a small number of countries with which Switzerland has entered into treaties).

18. Do local courts enforce court orders from foreign jurisdictions that attempt to exercise jurisdiction over assets located in your jurisdiction that are owned by a company subject to foreign insolvency proceedings?

The body of law governing the recognition and enforcement of foreign bankruptcies and other insolvencies is incorporated into Switzerland's Federal Act on Private International Law (PILA), embodying the vast majority of Switzerland's conflict of law rules. In addition, there are specific provisions governing the bankruptcy of Swiss branches of foreign corporations.

Prerequisites to recognition

The PILA provides that a foreign insolvency-related decision must meet the following three prerequisites in order to be recognised in Switzerland:

  • The decision adjudicating a person or corporation in bankruptcy (Bankruptcy Adjudication) must have been rendered in the country of that person's residence or that corporation's principal office. A corporation's principal office is determined by its articles of incorporation. Only if the articles are silent will the place where the corporation is actually governed from be deemed to be the principal office.

  • A decision cannot be recognised if it is incompatible with Swiss public policy. The PILA gives the following specific reasons for non-recognition:

    • the defendant was not properly served with process;

    • the judgment was rendered in violation of essential principals of Swiss procedural law, which is specifically the case if the defendant was not granted the right to be heard in court; and

    • the same matter is already subject to legal proceedings between the same parties in Switzerland or, provided the decision which is awaiting adjudication would be recognisable in Switzerland once it is given, in a third country (this provision hardly bears any relevance in the case of bankruptcy adjudications).

  • A bankruptcy adjudication stemming from a country which would not recognise a Swiss bankruptcy adjudication, or would not recognise foreign bankruptcy adjudications in general, cannot be recognised in Switzerland. Although Switzerland, when enacting the PILA, has abandoned the prerequisite of reciprocity for judgments in civil matters in general, the prerequisite stays for insolvency adjudications. However, a project has been launched to facilitate recognition of foreign insolvency adjudications, which would drop this prerequisite. It is far too early to say whether the project will ever become law and if so when.

Procedure for recognition

  • In order for a foreign bankruptcy adjudication to be recognised in Switzerland, there must be assets located in Switzerland. The court of the place in Switzerland where the assets of the bankrupt company are situated is competent to hear a petition for recognition. Claims of the bankrupt are also assets. They are deemed to be located at the principal office of its debtor. Assets may also be located in several jurisdictions. In these cases, the court where the first application for recognition has been filed will be exclusively competent.

  • An application for recognition of foreign bankruptcy adjudications can be filed by both the representative of the foreign bankruptcy estate and any bankruptcy creditor. Any creditor, as well as the bankrupt, can oppose the application. Once recognition has been applied for, the judge can order conservatory measures.

Effects of recognition: the "mini-bankruptcy"

If the Swiss decision on recognition of a bankruptcy adjudication has become final, the assets of the foreign bankrupt are subject to the same restrictions as in a Swiss bankruptcy. This generally means that all assets situated in Switzerland will no longer be subject to dispositions of the debtor and a bankruptcy administration must take over. The main task of the bankruptcy administration, aside from locating and listing these assets, will be to establish a claims schedule. Attachment taken against such assets will lapse.

The claims schedule will result in a limited bankruptcy proceeding in Switzerland, called "mini-bankruptcy", to which only a limited range of creditors are admitted, namely:

  • All creditors secured by assets located in Switzerland.

  • Unsecured, but privileged, creditors with residence or a principal office in Switzerland.

These creditors will be satisfied out of the bankrupt's assets seized in the mini-bankruptcy.

Following this, the foreign bankruptcy administration must submit its own claims schedule for approval. The court, having recognised the foreign bankruptcy adjudication, will review the claims schedule and establish whether the claims of creditors with residence or a principal office in Switzerland have been adequately taken into account. These creditors have a right to be heard in the approval procedure.

If the foreign schedule of claims is approved, the excess of funds (after satisfaction of the abovementioned creditors) is transferred to the foreign estate or foreign bankruptcy creditors entitled to that excess.

If the foreign claims schedule is not recognised, the excess will be distributed to unsecured and non-privileged creditors with residence or a principal office in Switzerland in accordance with the Bankruptcy Act.

The PILA further provides that, if assets which have been subject to a fraudulent transfer are situated within Switzerland, the transfer can be challenged within the mini-bankruptcy. The lawsuit is subject to the respective provisions of the Bankruptcy Act. The lawsuit can be brought either by the foreign bankruptcy administration or a creditor, if the foreign bankruptcy law so permits. Absent a choice of foreign jurisdiction, the suit must be filed at the defendant's Swiss residence or principal office. In the absence of this, the court at the place of the Swiss mini-bankruptcy is competent.

The transfer of assets of the foreign estate without the conduct of a mini-bankruptcy once the foreign insolvency administration has been recognised in Switzerland is permitted (under certain circumstances).

Recognition of foreign composition and comparable proceedings

  • The PILA provides that decrees issued on the basis of a composition agreement or similar proceeding by a foreign authority will be recognised in Switzerland.

  • The provision indicates that only agreements between a debtor and its creditors can be recognised if there has been an authoritative approval mechanism. Bi- or multi-partite agreements between a debtor and one or more of his creditors without this approval therefore cannot be subject to recognition.

Necessity to apply for recognition

In order to obtain access to the assets of the foreign estate located in Switzerland, and to safeguard rights of the estate generally, there is no way for the foreign trustee to avoid applying for recognition of the foreign insolvency proceeding in Switzerland. In recent years there have been a number of judgments rendered by the Federal Supreme Court establishing the "do's" and "don'ts" for foreign administrators acting in Switzerland. The essence of these judgments is clear: the only power a foreign administrator has as regards acting in Switzerland is to apply for recognition. Holders of assets in Switzerland will not be permitted to turn over those assets to the foreign trustee directly. The foreign trustee will not have the standing to protect the rights of the estate by filing a lawsuit in Switzerland or even by filing a claim in the insolvency of a Swiss debtor of the estate. This obviously causes an issue in cases where recognition has to be denied. The main reason for such denial is the lack of reciprocity (see above, Prerequisites to recognition). In its latest decision, the Swiss Federal Court has acknowledged that problem, but has stated that, given the clear statutory provision, it could not deviate from the prerequisite of reciprocity.

In addition, a foreign trustee acting in Switzerland may be violating a provision of the Swiss criminal code which prohibits foreign officials from acting on Swiss soil. If there is no need for a full recognition (because, for example, the foreign estate does not have assets in Switzerland, but wishes to communicate with creditors of the estate), that hurdle can be overcome by the foreign trustee applying to the Swiss Federal Office of Justice to be granted a permit to act accordingly. If a permit is granted, no criminal sanction is applicable.

Bankruptcy of branch offices

If a foreign corporation that maintains a branch in Switzerland becomes bankrupt, it is possible that two separate proceedings will have to take place: one for the branch and its assets, and another one for assets directly belonging to the bankrupt foreign company.

Financial institutions

It is noteworthy that with respect to the recognition of foreign insolvency adjudications concerning financial institutions (including banks), the applicable rules in many respects deviate from those for other companies as described in this chapter.

19. Can the courts co-operate with foreign courts to co-ordinate the administration of group assets?

There are no formal rules on this subject and courts will handle this informally on a case-by-case basis.


Directors' duties

20. Does your jurisdiction encourage or discourage overlapping boards or management teams for separate members of a corporate group?

Swiss law does not have any specific provisions on overlapping boards or management teams for separate members of a corporate family, and overlapping boards are quite common.

However, each board member or manager of a company in a family of companies must safeguard the interests of the company that they manage. If the board member/manager fails to do that, they can be held personally liable for the damages suffered by the company, its shareholders and creditors. Additionally, the parent company can be held liable if its director, who acts as a manager or a board member of a subsidiary, causes damage to the subsidiary or the subsidiary's creditors.

In insolvency situations, the interests of individual companies in a family of companies may not be aligned with those of other family members or the group as a whole. As a result, directors serving on the boards of more than one group entity will have a conflict of interest. Typically, issues arise with regard to intragroup loans and security provided to the other group members (see Question 8). In addition, the directors of overlapping boards will still have a legal obligation to file an insolvent group entity into bankruptcy if the prerequisites are met, irrespective of any divergent group interests (see Question 22). If a director fails to do so, they risk the administrator or the creditors holding them liable for any damage that occurs as a result of their failure to file.

21. What legal consequences are there for the directors of a parent company where they are not directors of the subsidiary but do manage the subsidiary's affairs?

If either another family member company, or one of its directors, takes decisions on behalf of a subsidiary or acts on its behalf, that director or family member company will be deemed to be a de facto director.

A family member company risks being qualified as a de facto director if it exercises control over its subsidiaries and takes decisions on the group's strategy, finances and organisation and implements these decisions at subsidiary level. If a family member company or a director of another group entity is qualified as a de facto director, they can be held liable as if they were appointed as directors of the company. Further, if an individual is deemed to be a de facto director and if he or she serves as a director of another entity of the family of companies, that other entity can also be held liable for the acts and omissions of its director.

22. What are the main duties and responsibilities of directors and officers to the company, shareholders and third parties? Do they change when the company becomes insolvent?

As with insolvency proceedings, Swiss corporate law does not contain special rules for families of companies. The focus is on the individual group entity and not the group of companies. In general terms, the directors of a Swiss company are (ultimately) responsible for:

  • Financial planning.

  • Financial control.

  • Accounting.

This position is the same for the board of directors of a corporate entity within a group of companies. Officers and directors have a general duty to protect the interest of the company, or the group, while the company is solvent.

In insolvency, the duties and responsibilities of officers and directors are no longer to protect the interest of the company or the group, but to safeguard the interests of the creditors of the respective group entity. Swiss law further explicitly deals with the directors' duties in cases where there is a loss of capital, and in cases of over-indebtedness.

A company faces a loss of capital if half of its share capital and its statutory reserves are no longer covered by assets. Where a loss of capital is established on the basis of audited accounts, the directors must immediately call a shareholders' meeting and propose restructuring measures in order to restructure the balance sheet.

A Swiss company is deemed over-indebted if its liabilities exceed its assets. If the board of directors has substantiated concerns that the company may be over-indebted, it must establish statutory interim accounts on a going concern and liquidation basis. If the interim accounts establish the over-indebtedness, the board of directors must notify the competent bankruptcy judge. There are two exceptions to this:

  • No notification is required if creditors subordinate their claims to the claims of all other creditors in the amount of the over-indebtedness.

  • The board of directors can abstain from notifying the bankruptcy judge for a short period of time if it has sufficient grounds to believe that the company can restructure within a short period of time. However, a mere hope or a vague expectation of a restructuring does not justify the postponement of the filing for bankruptcy.

The insolvency of one or several member entities will also influence intra-group relationships. For example, the managers of the solvent entities will have to review the existing commitments vis-à-vis the distressed entities in order to preserve the interests of the (still) solvent entities and its creditors (see Question 8).

23. How are competing duties addressed where directors and officers of different group company members overlap and there are conflicts of interest between the group members?

If a conflict arises, the relevant officer or director will have to abstain (see Question 20).

24. What specific types of conduct are in breach of the duties and responsibilities of directors and officers?

The following types of conduct are in breach of the officers' and directors' duties (among other things):

  • Failure to take reasonable steps to minimise losses to creditors.

  • Misappropriation of corporate assets.

  • Undervaluation of corporate assets in a preference or other transaction to the detriment of creditors. There are a number of transactions that will constitute a fraudulent transfer. Undervaluation of assets is one explicitly mentioned. Depending on the circumstances, the hardening period is one year or five years (calculated backwards from the opening of insolvency proceedings).

  • Continuing to trade when there is little prospect of being able to pay when debts fall due.

In addition to the above, if a company is in financial distress, it must treat creditors of equal standing equally. It can no longer fully pay certain unsecured creditors if it has reason to believe that in the near future it will no longer be able to continue to fully satisfy all unsecured creditors.

There is not generally any breach of duty where there is a failure to inform creditors of insolvency. However, depending on the circumstances, there may be a duty under good faith rules or other regulations (such as stock exchange rules) requiring such disclosure. In any case, the failure to file for insolvency proceedings if the company is over-indebted will constitute such a violation.

25. What civil and criminal liability exists for directors and officers if they breach their duties and responsibilities?

From a civil claim viewpoint, aside from mismanagement generally, directors and officers can become liable if they permit the company to enter into a voidable transaction prior to insolvency. From a criminal claim viewpoint, there are a variety of provisions that can apply (though these are not only specific to insolvency). Insolvency-specific criminal liability includes:

  • Mismanagement.

  • Omitting to properly keep the books of the company.

  • Diminishing the company's assets.

  • Permitting voidable transactions.

Once an insolvency proceeding has been commenced, depending on its type, the power of the directors is either removed or substantially reduced and falls under supervision of an administrator. It is unlikely that civil or criminal liability will be incurred in that phase. Officers and directors can be subject to imprisonment, criminal fines and restitution for criminal liability, subject to the facts of the case.

26. Is potential personal civil or criminal liability a factor in officers and directors deciding if and when to put the company into a formal insolvency/reorganisation procedure?

The existence of potential personal civil or criminal liability is a factor in officers and directors deciding when and if to put the company into a formal insolvency/reorganisation procedure, mainly because there is an increased risk of a director becoming personally liable if he continues the business while there is already a duty to file for insolvency (the creditors' argument being that they would not have entered into business (and occurred a loss) with that company had the directors filed in time).

27. Is insurance available to protect directors and officers from claims arising while operating a financially distressed company?

There is, to the authors' knowledge, no specific insurance covering that risk, only general directors' and officers' liability insurance.

28. Can directors and officers resign from their positions if the company becomes financially distressed and what difference will this make to their potential liability?

Officers and directors can resign, but they weigh the possibilities of steering the distressed company into a safe haven against the risk of increasing the liability profile.

29. How common is litigation against directors and officers for violation of their duties after commencement of insolvency/reorganisation proceedings? Is the litigation typically successful?

Litigation against officers and directors for violation of their duties on the commencement of insolvency/reorganisation procedures is relatively rare, and where initiated, it is often unsuccessful.

30. What defences against civil and/or criminal sanctions are available to directors and officers?

There is no general good faith defence available. In principle, the directors cannot delegate their responsibility to comply with their statutory duties to outside consultants or professionals. The officers and directors remain responsible for their acts and decisions. However, relying on advice from outside consultants or professionals may mean that the actions of the officers and directors comply with the statutory requirements, or that these actions will not be considered negligent, provided the outside consultants or professionals were given correct instructions and full facts and information.

While the courts still tend to look at matters with hindsight, the "business judgement rule" is gaining ground. Courts will certainly apply a higher standard in instances where continuing the business would mean that the business debt would have to be increased. However, the business judgement rule will not apply once a company is over-indebted, where the board becomes under a duty to file for insolvency.

31. If it appears that "going concern values" will result in a higher return to creditors than a liquidation of the assets, can directors and officers be protected if they decide to continue operations to protect the values for the benefit of all creditors?

If both the going concern and the liquidation balance sheet show over-indebtedness (and none of the exceptions apply, see Question 22), the company must file for insolvency. If it appears that the going concern values will yield a better return for the creditors, the company can choose an insolvency moratorium/composition agreement rather than bankruptcy.

The position is the same if the result is an increase of debt owed to creditors, even though the officers and directors were acting in good faith.

32. If a company becomes insolvent, is a director or officer of the insolvent company legally restricted from acting as a director or officer in another company, or from obtaining credit as a promoter of another company?

There is no general restriction on an officer or director of an insolvent company which prevents them from acting as an officer or director in another company.

33. If a director or officer becomes personally insolvent, is he legally restricted from continuing to act as a director or officer of his current company or another company?

Current company

There is no legal restriction preventing an officer or director from continuing to act as an officer or director, but the shareholders will likely ask a director to leave the board, and will not elect him.

Another company

There is no legal restriction preventing an officer or director from continuing to act as an officer or director for another company, but he is unlikely to be elected/appointed.


Online resources

Swiss Federation (Schweizerische Eidgenossenschaft (Federal Law))


Description. Official site of the Swiss Federal government. Translations of legal texts into English are non-official.

Contributor profiles

Ueli Huber

Homburger AG

T +41 43 222 1000
F +41 43 222 1500

Professional qualifications. Switzerland, attorney-at-law; lic. iur. (University of Zurich); LL.M. (University of California in Los Angeles).

Areas of practice. Restructuring; insolvency; corporate law; M&A; employment and pensions.

Professional associations/memberships. Ueli Huber heads the Restructuring/insolvency working group and is a member of the corporate/M&A practice team and the employment law working group at Homburger. He is a member of the expert commission on restructuring in corporate law installed by the Swiss Federal Department of Justice.

Stefan Kramer

Homburger AG

T +41 43 222 1000
F +41 43 222 1500

Professional qualifications. Switzerland, attorney-at-law; Dr. iur. (University of Zurich); LL.M. (Harvard Law School)

Areas of practice. Capital markets and banking law; insolvency law; asset based financings; derivatives markets regulations; insolvency law; financial markets infrastructures.

Professional associations/memberships. Stefan Kramer is a member of the Restructuring/insolvency working group and the financial services practice team at Homburger.

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