SWITZERLAND Law and Practice Contributed by: Urs Hoffmann-Nowotny, Marcel Jakob and Benno Strub, Schellenberg Wittmer Ltd
Imminent Insolvency (drohende Zahlungsunfähigkeit; Article 725 CO)
by creditors are also rare because they must prove direct damage. Indirect harm, or when the company suffers a loss that diminishes the value of creditor claims, does not provide grounds for a creditor claim. In the event of bankruptcy or a composition agree - ment leading to liquidation, creditor claims from direc - tors’ liability are more common. However, creditors may only act if the bankruptcy estate itself does not pursue the relevant claims. Certain creditors may demand assignment of the relevant claims. In this case, recovery is first allocated to the pursuing credi - tor. Any surplus funds then revert to the estate. Common Scenarios of Liability Frequent scenarios for cases of director liability are: • wrongful delay of bankruptcy in the event of delayed notification to the court in case of the company’s over-indebtedness; • preferential treatment of certain creditors; • unlawful distributions to shareholders or related parties; • entering into transactions that could be subject to claw-back (see 8.1 Circumstances for Setting Aside a Transaction or Transfer ); • general mismanagement that worsened the com - pany’s financial position; and These scenarios may lead not only to civil but also criminal liability. 7.3 Duties and Personal Liability of Officers Generally, officers (management) must comply with the same statutory duties of care and loyalty as direc - tors (Article 717 CO) and may incur personal liabil - ity if they breach their duties through negligence or intent. They are required to act diligently within their delegated responsibilities and keep the board fully informed. In financial distress, they must escalate issues so the board can comply with its duties and, if required, implement measures. Officers may incur personal liability if they breach their duties through negligence or intent.
The board is required to continually monitor the com - pany’s solvency. Although not required by law, best practices recommend a liquidity plan with a 12-month forward window. If the risk of insolvency is imminent, the board must take the necessary steps to ensure solvency with the appropriate level of urgency. The law does not prescribe specific deadlines, so the time allotted for action depends on the severity of the distress and the complexity of the situation. While the board must consider a court-supervised restructuring, there is no obligation to attempt it. 7.2 Personal Liability of Directors Personal Liability Members of the board of directors, management and liquidators can be held personally liable to the com - pany, its shareholders and its creditors for damages resulting from intentional or negligent breaches of their duties. They can be held liable for direct misconduct and for delegating a task to another person, unless they can demonstrate that they exercised appropri - ate care in selecting, instructing and supervising that person. Directors cannot be exempted from liability for certain specific core duties (Article 716a CO), nota - bly including financial oversight. Although the board acts collectively, each director is held individually liable based on their personal conduct and oversight responsibilities. In addition to formal directors, de facto directors – individuals or entities that assume board-level respon - sibilities without formal appointment – can be held liable. This is particularly relevant in the case of a group of companies in which a group entity is acting on the instructions of its parent. Liability Towards Company and Creditors Primary liability is owed to the company. Besides the company, shareholders may initiate liability claims, but they are rare because any resulting benefits would go to the company, not the shareholder who filed the claim. In the absence of bankruptcy or a composi - tion agreement resulting in liquidation as a result of a court-supervised restructuring, independent actions
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