SWITZERLAND Law and Practice Contributed by: Shelby R du Pasquier, Patrick Hünerwadel, Valérie Menoud and Marcel Tranchet, Lenz & Staehelin
depending on the cantons where the real estate is located, and will often be calculated as a percentage of the secured amount. 5.2 Floating Charges and/or Similar Security Interests Floating charges and similar security interests over all present and future assets of a company or blanket liens are not available under Swiss law. Such security interests are not in line with the Swiss law requirement that collateral be specifically identified. In addition, the requirement that a security provider must transfer possession of movable assets to the secured party would render any “floating” charge over inventory, machinery, equipment or other movable assets excessively burdensome and impracticable. 5.3 Downstream, Upstream and Cross- Stream Guarantees Under Swiss law, upstream guarantees (ie, guarantees for obligations of a direct or indirect parent company) or cross-stream guarantees (ie, guarantees for obliga- tions of an affiliate other than a subsidiary or a parent company) are subject to certain limitations and formal requirements. Broadly speaking, upstream and cross-stream guar- antees are treated like dividend distributions as far as formal requirements and substantive limitations are concerned. In particular, it is held that upstream or cross-stream guarantees should be limited to the amount of freely distributable equity; ie, the amount that could be distributed as a dividend. Otherwise, sums paid in excess of this amount could be deemed to represent an unlawful return of capital. From a formal perspective, the granting of an upstream or cross-stream guarantee should be approved by both the board of directors and the general meeting of shareholders of the Swiss guarantor. In addition, payments under upstream or cross-stream guaran- tees may be subject to tax, including Swiss withhold- ing tax. By contrast, downstream guarantees are generally not subject to restrictions, except in particular circum- stances – for example, if the relevant subsidiary is in
substantial financial hardship or if it is not a wholly owned subsidiary of the guarantor. 5.4 Restrictions on the Target When a Swiss target grants guarantees or other secu- rity interests for obligations of an acquirer, any such security interest would be upstream in nature and therefore subject to the limitations discussed in 5.3 Downstream, Upstream and Cross-Stream Guaran- tees . The following factors need to be taken into account in this respect. • The articles of association of the Swiss target should expressly permit upstream financial assis- tance. • The guarantees should be approved not only by the board of directors but also by the shareholders of the Swiss target company. • The finance documents should include language that limits such upstream undertakings to the amount of freely distributable equity and possibly also provide for compensation of the Swiss target by a security or guarantee fee, as well as include certain undertakings of the Swiss target to mitigate upstream limitations. • Certain Swiss tax withholding issues should also be addressed in the finance documents. Another issue that arises, in particular where the target is a listed company, is that of minority shareholders. If (and for as long as) a guarantor/security provider is not a wholly owned subsidiary of the parent entity whose obligations are to be guaranteed/secured, minority shareholder considerations can constitute a material issue/risk. 5.5 Other Restrictions The main restrictions concerning the provision of security interests in the context of financings are those related to upstream and cross-stream undertakings (see 5.3 Downstream, Upstream and Cross-Stream Guarantees ). Other restrictions might also apply depending on the context, such as bankruptcy legislation (for avoidance actions, see 7.5 Risk Areas for Lenders ) and general
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