BADERTSCHER Rechtsanwälte AG
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Company & Commercial
Shareholders of closely held companies often mutually agree on additional contractual rights and duties. However, the company itself cannot be a contract party to a separate shareholders' agreement. Apart from that legal restriction, such shareholders' agreements usually benefit from the contractual freedom of the parties. A recent Federal Court decision confirmed that such agreements may be recharacterised as abusive or contrary to the principle of good faith.
A recent Zug Cantonal Court decision sheds light on the way that Swiss company articles of association must be interpreted under Swiss company law in cases in which they are not only applicable internally among a few shareholders, but also have an effect on third parties. The decision confirms that the observation of merely the letter and not the spirit of company articles by a company board or majority company shareholders in a general meeting can even amount to an abuse of law.
A recent Swiss Federal Court decision clarified the circumstances under which the personal liability of board members or managers of a Swiss company for their business decisions and omissions can be reduced by applying the so-called 'business judgement' rule or, if the related prerequisites are not met in a particular case, based on other grounds.
The Federal Supreme Court recently clarified how to deal with defects in company organisation caused by deadlock between two equal shareholders. For the first time the court has confirmed that courts are authorised to order a share auction in such cases. However, it is strongly recommended that such a harsh outcome be avoided by installing suitable measures to solve conflicts from the outset.
On July 1 2015 a new regime for bearer shares in Swiss companies was enacted, introducing new legal obligations for company boards and shareholders and severe penalties for cases of non-compliance. To achieve transparency the Code of Obligations established a general duty for all owners of bearer shares in non-listed Swiss companies to disclose their ownership, identity and address to the company within one month of their acquisition.
The Federal Supreme Court recently clarified exactly when board members and their close associates and affiliates must return benefits received from a Swiss company because they are manifestly disproportionate to the value of their related performance and the company's overall economic situation.
The Federal Supreme Court recently decided an appeal against a Zurich Commercial Court decision. The Federal Court clarified company law issues in relation to intra-group loans and cash-pooling systems.The decision limits the amount of free reserves which can be paid out as dividends for as long as loan advancements to other group companies exist which are not at arm's length within the Swiss company.
A recent Zurich Commercial Court decision risks jeopardising the use of cash pooling by setting overly onerous standards for the characterisation of an intra-group payment in the cash pool as a legally permitted intra-group loan. Many existing cash pools involving Swiss group companies would violate Swiss law, and the legality of a large amount of dividends already paid by such group companies to their holding companies would be questionable.
Following Switzerland's vote in favour of an initiative against excessive salaries for board members, the federal government has recently adopted the respective implementing ordinance. Swiss listed companies must start early to implement all changes to their articles, regulations, employment contracts and annual general meeting voting procedures, as these decisions fundamentally affect the rights of their shareholders.
The Federal Supreme Court recently clarified that the Lugano Convention offers the possibility to choose Switzerland as a neutral jurisdiction for companies domiciled in any of its member states, even if the companies are not domiciled in Switzerland. The court also clarified that standard form contracts available only by fax are insufficient, but contracts available only online are sufficient to fulfil the conditions of the convention
In the wake of a recent Supreme Court case, diligent board members of Swiss companies would be well advised to minimise their personal liability before launching lawsuits on behalf of their company by seeking legal advice on the related personal liability risk. The consultation should not be limited to a mere assessment of legal issues, but should also include whether a claim on behalf of the company has merit.
Switzerland recently voted in favour of an initiative against excessive salaries for board members and executives. New transparency rules and a rigid regime on a binding say on the pay of board members and executives must be enacted. Once enacted, shareholders must vote annually on the aggregate compensation for the board, advisory board and executive management.
The Federal Court recently considered whether non-incorporated law firms are permitted to adopt the legal form of a company limited by shares. The court held that it is the organisational structure of a law firm which is decisive, not its legal form. A law firm constituted as a company limited by shares is admissible, provided that it is fully controlled by its attorneys, thereby granting it institutional independence.
On January 1 2013 a new accounting and auditing law will enter into force in Switzerland. The new law establishes uniform requirements for all kinds of business, irrespective of their form of incorporation, by introducing the 'same size, same rules' principle. Unlike under certain international reporting standards, consolidated financial statements will usually be required only if the size of a business exceeds certain thresholds.
The Supreme Court recently commented for the first time on the prerequisites under which a board of directors is obliged to place an item requested by a shareholder on the agenda for a general meeting. The court further dealt with the question of whether a company's articles of association may impose certain restrictions on a board's competence to delegate the management of the company's affairs to third parties.
The partial revision of the Federal Act Against Unfair Competition attempts to revive Article 8, particularly by removing the element of deception. Article 8 will clearly influence the drafting and use of general conditions of contract in future, although only to the extent that consumer contracts in the mass-market sector are concerned. Sellers and suppliers should consider reviewing any general contractual conditions in use in this sector.
A creditor which requires access to the annual accounts and auditor's report of a stock corporation must prove both its position as a creditor and a legitimate interest. Recently, the Supreme Court reconfirmed the existing practice in both doctrine and jurisdiction, and took the opportunity to specify in more detail the criteria to find an interest warranting protection pursuant to the Code of Obligations.
Article 731(b) of the Code of Obligations entered into force on January 1 2008. It provides that when a company lacks the required corporate body or if the composition of one of these corporate bodies does not comply with the law, any shareholder, creditor or the commercial registrar may request the court to take the required measures. Article 731(b) of the code is applicable to companies limited by shares, to limited liability companies and to cooperative companies.
The Federal Convention is in the process of revising the regulatory regime in relation to statutory limitations. The revision of the respective legislation will extend the existing one-year period to two or even five years and coordinate the various statutes of limitations. This update examines the key aims of the planned revision.
Companies commonly enter into loan agreements with their shareholders. However, whenever directors of a Swiss company are contemplating granting loans to shareholders, they must be mindful of the specific restrictions and conditions imposed by general principles of Swiss corporate law. The principles of adequate risk diversification and diligent liquidity management must be observed.
In a recent decision the Supreme Court commented on the prerequisites for the delegation of management by boards of directors. A distinction must be made between internal and external corporate acts. While the delegation of powers for internal affairs requires both a provision in the articles of incorporation and a written organisational resolution, powers regarding external acts may be delegated by power of attorney.
Following a Supreme Court ruling, it is now possible to provide in purchase agreements that the seller will forfeit the right to claim part of the purchase price if it breaches contractually stipulated obligations. However, penalty clauses which provide for the loss of the right to claim part of the purchase price in case of breach of the seller's contractual obligations in an excessive manner may be mitigated by the court.
In a recent decision, the Supreme Court had the opportunity to comment on the requirements regarding founders' liability and the calculation method for the respective damages under company law, in particular for a limited liability company. The court held that the common definition of the term 'damages' applied, as opposed to a specific meaning of the term as has been argued for in legal literature.
German law requires notarization when transferring or pledging limited liability shares. In the past it was possible to make significant savings by obtaining notarization in foreign jurisdictions, especially certain Swiss cantons. Following the amendment of a number of relevant provisions of Swiss and German law, controversy has arisen as to whether foreign notarization can still be validly obtained in Switzerland.
An organization's internal control system covers all of the procedures, methods and controls established by its board of directors and management in order to ensure the proper functioning of business operations. The recent revisions to auditing law have resulted in the need for auditors to audit these systems and present their findings to the board of directors.
In light of the global financial crisis, the federal government has extended the revision of the law on corporations and new accounting legislation that will create standardized rules for all company forms in Switzerland. It has also issued an additional opinion as a counter-proposal to a popular initiative submitted in 2008.
In a recent landmark ruling the Supreme Court deviated from its previous practice to hold that, in certain circumstances, exclusive distributors have a claim for mandatory compensation upon termination of the distributorship agreement. The court further held that the distributor's claim for client compensation is mandatory and cannot be waived in the distributorship agreement.
In two recent decisions the Supreme Court took the opportunity to lay down the minimum standards for an authorized delegation of management competency from the board of directors to individual board members or a third person. Board members in Switzerland may now want to take appropriate steps to ensure that they have correctly delegated the management of their company.
The revised auditing legislation which entered into force on January 1 2008 implemented new requirements for the independence of auditors. The primary principle for both ordinary and limited audits is that independence may not be affected either in fact or in appearance.
Directors have a duty to manage a corporation with due care and are personally liable for damages caused by wilful or negligent breach of this duty. Where a corporation is over-indebted, the directors risk becoming personally liable to anyone that suffers losses if the corporation subsequently goes bankrupt, except where they have complied with their duties under the Swiss Code of Obligations.
The revised auditing legislation has entered into force, which comprises changes to the Code of Obligations and the entry into force of the new Audit Supervision Act. The amendments establish uniform requirements for all legal entities and provide for an overall auditing law which no longer differentiates between the legal form of entities, but rather focuses on the economic importance of the company.
Under Swiss law, a shareholder may request at the shareholders' meeting that certain areas be subject to a special audit if this is necessary for the exercise of shareholders' rights and if the right to information or inspection has been exercised previously. The Supreme Court has reviewed the prerequisites for shareholders to appoint a special auditor.
The Supreme Court has previously outlined the requirements subject to which a company deleted from the Commercial Register can be reregistered. In most cases a creditor requests re-entry, and it must show credibly the existence of its claim and that it has interests in the reregistration of the company worthy of protection. A recent case considers the existence of these interests.
A release from the general shareholders' meeting shelters the board members from liability claims by the company arising from the intentional or negligent violation of their duties. Recently the Supreme Court dealt with a case involving the release of three members of a board of directors. The court defined the scope of application and the effects of a release granted to the board members.
New legislative amendments are intended to adapt the Swiss corporation to reflect current business needs and afford greater flexibility in relation to the organization and incorporation of such companies. The changes are the first step in an initiative to revamp Swiss corporate law to accommodate the needs of modern businesses and to take account of issues that have emerged over the past decades.
According to the Swiss Code of Obligations, at the general meeting of shareholders any shareholder is entitled to request information from the board of directors concerning the affairs of the company, and from the auditors concerning the execution and results of their examination. The Supreme Court recently stated more precisely the scope and limitations of this right.
Weaknesses in the Swiss Company Law mean that small private businesses choose to operate far more often as stock corporations than as limited liability companies (LLCs). In addition, the reputation of the LLC is not as good as that of the stock corporation. To remedy this situation, the government has proposed amendments to the law.
Directors cannot be held liable for violation of duty if they can prove that they acted with the consent of the company which suffered damage. If sued by the company, a director may refer to this principle in his or her defence if he or she acted with the explicit or implicit consent of all shareholders, or executed a lawfully passed resolution of the general meeting which was not challenged in court by a shareholder.
The Supreme Court recently decided a case which involved the question of whether a partner in a partnership had acted within or beyond the ordinary scope of the partnership's business and whether the partner's actions had been binding for the partnership. The court held that the type and magnitude of a legal transaction must be considered when deciding whether a legal transaction is ordinary.
Under Swiss law, every corporation must appoint an auditor to audit its annual financial statement, and auditors must be qualified in order to fulfil their duties. A recent Supreme Court decision provides guidance on auditors' qualifications. More detailed independence rules in the pipeline contain an explicit list of circumstances which prohibit audit firms and auditors from auditing certain clients.
It is controversial in Swiss legal doctrine whether an exit right can be established in a company's articles of incorporation. The traditional view is that this is not possible. More recently, however, some legal commentators have suggested that a right could be introduced if the exit proceedings were in line with the provisions for a reduction in share capital set forth in the Swiss Code of Obligations.
The Swiss Code of Obligations provides that company directors are liable for damage caused by an intentional or negligent violation of their duties. On the other hand, a director or officer cannot be held liable for damage caused by an incorrect business decision. In a liability case, the court must decide where to draw the line between a violation of duty and a decision which proved to be incorrect.
The Swiss Code of Obligations provides that a person acting under a material error at the conclusion of a contract is not bound by it. In principle, an error regarding the motives of the contractual parties does not prevent the formation of an effective contract - but these motives will be relevant if they carry such weight as to constitute preconditions for the conclusion of the contract.
The Swiss Code of Obligations regards multiple companies under a single management as a lawful company model. However, several mandatory provisions of its corporate law section oppose the concept of multiple companies under one management. This inherent contradiction creates considerable legal uncertainty.
Under the Swiss Code of Obligations, any shareholder may propose, at the general meeting of shareholders, that certain facts be subject to a special audit if this is necessary for the exercise of shareholder rights and if the right to information and right to inspection have been already been exercised.
In Switzerland, each member of the board of directors of a stock corporation has an extensive individual right to information and inspection. The right covers information about all matters concerning the company and its subsidiaries. The Swiss Code of Obligations sets out minimum requirements in this regard, which the board may expand if it wishes.
The Supreme Court recently overturned an order obliging a company to provide a former director with certain financial information he had requested after leaving the company. It confirmed that a director's right to information is connected to his position on the board of directors; once he has left the board, a former director can no longer appeal to this right.
The Swiss Supreme Court recently decided that in certain circumstances, a refusal of the board of directors to consent to a transfer of registered shares can violate the principle of equal treatment of shareholders and constitute an abuse of legal right.
In two recent decisions the Swiss Supreme Court considered the question of auditor's liability and the legal qualification of a contract whose subject was the transfer of an enterprise.
The Swiss commercial registrar has the power to dissolve a registered company if that company infringes any mandatory provisions regarding the composition of the board of directors or the company's domicile. The registrar is not obliged to monitor compliance with these rules on an ongoing basis, but must review their fulfilment if changes to the registration are requested.
The Supreme Court recently ruled on whether a company's acquisition of assets after its incorporation was in violation of the Swiss Code of Obligations. It also considered the moment in a sales contract at which risk passes from the seller to the buyer.
The Swiss Supreme Court has reiterated that where the validity of a contract or agreement is disputed, the judge has a duty to look beyond the simple facts to determine the parties' real intent. The judge can employ interpretative methods in order to do so, even where the wording of the contract or agreement appears to be clear.
A new code contains important guidelines which should help executives in public companies to control and run their companies according to the principles of proper corporate governance. The guidelines advocate a system based on checks and balances between shareholders, the board of directors and the executive board.
The Swiss Supreme Court recently considered whether persons who are explicitly acting on behalf of an existing corporation should be released from liability for their actions. It has also examined the legal relationship between a corporation and its management bodies.
In the wake of the financial collapse of Swissair, the liability of board members and auditors has been the subject of much discussion in Switzerland. The Federal Supreme Court recently ruled on three cases in which corporate bodies were sued for violation of their duties.
Before the conclusion of a new franchise agreement, franchisors usually have more knowledge than franchisees about the particular franchise. A franchisee thus risks entering into a permanent binding contract without an accurate prior assessment of the consequences. To counterbalance this information asymmetry, certain duties of care are imposed, of which the franchisor's pre-contractual information obligations are paramount.
Standard form agreements are used regularly in franchising. In principle, contractual freedom applies to such standard form agreements. However, the franchisor must keep in mind certain aspects before submitting a standard form agreement to the franchisee for signing.
For the drafting and implementation of franchise agreements, it is paramount for parties to respect the boundaries of the Act on Cartels and Other Competition Restraints. In all cases, franchisees must ensure that their prices are set independently and franchisors must not restrict passive sales by one franchisee in any market assigned to another franchisee.
Courts must determine whether each franchise relationship is based on all its economic characteristics, or whether it is a partnership franchise or a subordination franchise. A recent court decision provides detailed guidance on how franchise systems may be structured from a business perspective, with a view to avoiding any uncertainty to legal characterisation alternatives.
The Supreme Court recently dealt with the scope of a full and final settlement clause in an insurance matter. The decision confirms the rules for interpreting settlement agreements in insurance matters and emphasises the importance of carefully drafting the wording of such agreements if they are intended to be full and final settlement agreements of certain insurance claims.
The European Court of Human Rights recently concluded that Switzerland violated Article 8 of the European Human Rights Convention due to surveillance of an insured party. The case brings uncertainty regarding the extent of observation under Swiss law. Article 8 guarantees the fundamental right to respect private and family life. In its statement, the court held that Swiss federal law offers no precise legal basis for photo and video surveillance of insured parties.
In the context of loss of earnings insurance, the Federal Supreme Court recently had to decide whether sickness or the inability to work due to the respective sickness constitutes an insured event and therefore triggers the insurer's duty to provide insurance benefits. The court abandoned its existing case law in which it had appraised the sickness as a primary event for the determination of when the insured event had occurred.
The Federal Supreme Court recently ruled that the regulation in the Freedom of Movement Agreement concerning the liability of new daily benefits insurance for ongoing claims that started before the conclusion of an insurance contract under a previous insurance contract does not breach the prohibition of retroactive coverage according to Article 9 of the Insurance Contract Act.
In 2013 the Federal Parliament rejected a bill for a total revision of the Federal Act on Insurance Contracts, with an order to the Federal Council to elaborate a partial revision on selected subjects. In its second attempt to adapt the law to existing standards and policyholders' need for reasonable and feasible insurance protection, the Federal Council drafted an amended bill and recently initiated consultation proceedings on the proposals.
The Federal Court has ruled that no or insufficient disclosure of indicating circumstances by an insured party falls under Article 6 of the Insurance Contract Act if this information was relevant in determining the probability of the risk which later was realised and caused damage. Further, the court held that the insurer is freed from its contractual payment obligation if it terminated the insurance contract within the required time.
The Federal Supreme Court recently rendered a rare judgment on the temporal scope of liability policies and the claims-made principle. Although it may lead to a broader scope of covered claims, the decision should be seen in a positive light, as it brings additional clarity with regard to the interpretation of claims-made clauses in insurance policies.
The need for further revision to the Insurance Supervisory Law has been revealed through the introduction of risk-based solvency measuring methods, including the Swiss Solvency Test. The establishment of the test as the sole instrument for testing solvency and a focus on Solvency II will result in harmonisation, while revisions to the Insurance Supervisory Ordinance should see increased reporting efforts.
As highly qualified specialists in risk assessment, reinsurers deal with nanotechnology as an emerging risk. The small amount of available data regarding nanoparticles complicates insurers' risk assessments and has led to calls for future-oriented coping strategies that identify, record and analyse risks and implement appropriate measures. Not all risks are insurable: a risk must be measurable and financially definable to qualify for insurance.
The Federal Supreme Court recently issued a decision on the rule of ambiguity in the context of the interpretation of general insurance terms. The court found that a provision which excludes accidents as a result of the deliberate causation of a crime or offence is neither considered unusual nor ambiguous, and can therefore validly be relied upon by the insurer.
The Federal Supreme Court recently held that general terms and conditions can be validly included in an insurance contract even if no reference is made to a particular version or edition, provided that the reference to the general terms and conditions is made expressly in the application form. In such a case, the general terms and conditions in force at the time of signing of the application will apply.
The Federal Supreme Court recently quashed a criminal verdict and held that insurance fraud by omission requires a qualified duty of the perpetrator to act. The ruling makes it clear that insurers should enquire regularly into changes in insureds' circumstances. By continuing payment of insurance benefits without enquiry, an insurer cannot hold an insured criminally liable for fraud.
Revisions to the Professional Pension Insurance Act specify requirements for the management of Swiss professional pension insurance assets. The Upper Supervisory Authority for Professional Pension Insurances can now admit both Swiss and foreign financial service providers to manage Swiss professional pension insurance assets. The new law provides for extensive examination of integrity before admission.
A recent Federal Supreme Court case clarified that the general limitation regime applies with regard to the underlying right for loss-of-income insurance, unless a special rule is stipulated. According to the court, the scope of the Insurance Contract Act is limited to individual instalments paid under the insurance contract. The court also defined the point in time at which the limitation period starts running.
A revised Financial Market Supervisory Authority circular containing rules on market conduct now applies to insurance companies. Insurers must take the organisational measures necessary to fulfil the duties laid down by the circular. While the insurance industry is sceptical, it remains to be seen what the practical impact on insurers will be.
The Federal Supreme Court recently dismissed the appeal of an insured individual who challenged the rescission of a private insurance contract for misrepresentation. The court confirmed the strict rules for the disclosure of conclusive risk factors when concluding private insurance agreements and outlined the reasons which entitle an insurer to terminate a policy for misrepresentation.
The Federal Supreme Court recently ruled on the applicable prescription period for loss-of-income insurance. The decision clarifies the prescription period regarding the underlying right for this type of insurance with periodic payments. The draft of the revised Insurance Contracts Act suggests that the prescription period should be amended from two years to five years.
The Federal Court recently rendered two decisions in favour of state insurers which hold a monopoly. In its leading case, the court ruled that when insuring buildings under state monopoly, state insurer Glarnersach of Glarus Canton may also compete with private insurance companies. In its second decision, the court dismissed a licence challenge by the Swiss Insurance Association and two private insurers.
The Swiss Financial Market Supervisory Authority (FINMA) recently published for consultation a draft of its new circular that aims to illustrate in detail the provisions of supervisory law regarding risk management by defining principles for reporting on liquidity. FINMA requires that insurers file a liquidity report covering the points raised and the criteria outlined in the circular at least once a year.
The Financial Market Supervisory Authority has proposed a new Insurance Bankruptcy Ordinance and recently commenced the consultation procedure. The purpose of the draft ordinance is to strengthen the rudimentary framework for bankruptcy proceedings. The common legislative intent behind the new legal provisions is the protection of insureds in the case of an insurer's bankruptcy.
Due to a lack of legislation which would effectively protect insureds against unfair terms in general insurance conditions, the Federal Supreme Court has traditionally looked for other means to correct undesired results. The revised Article 8 of the Federal Act Against Unfair Competition, which will soon enter into force, is likely to offer insureds better protection.
The existing Insurance Contract has been in force for over a century, although it has been partially revised several times in that period. A bill to reform the act completely has now been finalised and is awaiting consideration by the the National Council and the Council of States. This update considers the impact that the proposed new act will have on insurance brokers and agents.
The insured's main contractual duty is the payment of the premium. Non-payment or late payment may have serious consequences, but only if the insurer meticulously adheres to the pertinent procedure. A relatively recent Federal Supreme Court ruling concludes a series of four decisions on non-payment of premiums which, due to a lack of care on the part of the insurer, have all been rendered in favour of the insured.
Insurance premium payments are subject to 5% stamp duty. There are a number of exemptions, including credit insurance, provided that the debtor of the insured claim is domiciled abroad. In its longstanding practice, the Federal Tax Administration has granted the exemption only to the extent that the risk insured is the foreign debtor's insolvency for economic reasons. The Supreme Court has now ended this practice.
The Supreme Court has passed judgment on an insurance claim which raised issues of a plaintiff's right to privacy versus the insurer's right to carry out surveillance. The Civil Code declares any violation of personality rights illegal unless it is justified by the victim's consent, by an overriding private or public interest or by law. In this case the court concluded that the surveillance was warranted and the violation was justified.
Non-disclosure or misrepresentation is regulated by Articles 4 to 8 of the Federal Law on Insurance Contracts. Articles 6 and 8 were revised in December 2004 and entered into effect in their new form in January 2006. Two Federal Supreme Court rulings in which the court dealt with issues that relate to both the previous and current versions of the law have recently been published.