SWITZERLAND Law and Practice Contributed by: Daniel Haeberli and Simone Gloor, Homburger
The requirements and limitations that apply to upstream and cross-stream security also apply to upstream and cross-stream guarantees for obligations of direct or indirect shareholders of the guarantor or sister companies of the guaran- tor. This includes guarantees for obligations of direct or indirect shareholders of the guarantor or sister companies of the guarantor, indemnities and certain other benefits, such as the subordi- nation of intra-group claims, and also applies to refinancings. However, despite the restrictions imposed by corporate benefit rules, lenders may still have access to the target’s cash flow through debt “push-down” or “on-lending” structures, which are generally accepted in Switzerland. It is quite common for lenders to make funds available to the target and/or its subsidiaries, which can then be used to repay debt. This is achieved through the upstreaming of funds from subsidiaries to the target, through either dividends or the repay- ment of intra-group loans. However, it is impor- tant to note that this upstreaming is also subject Under Swiss law, there are no specific rules regarding the prohibition of financial assistance. However, a Swiss corporation is prohibited from purchasing more than 10% of its own voting shares. 5.6 Other Restrictions As a matter of Swiss law, a Swiss company is required to prioritise its own interests over those of the parent and the group. The company’s interests are defined in its articles of incorpora- tion and are fundamentally based on its nature as a capital company seeking profit ( Gewinnstre- bigkeit ). Therefore, a Swiss subsidiary must con- clude any transaction for its own benefit and to corporate law restrictions. 5.5 Financial Assistance
requires a valid business reason for any trans- action it conducts, which is usually given if the transaction is conducted on arm’s length terms ( Drittbedingungen ). The principle outlined above also applies to Swiss companies granting upstream or cross- stream security. If such security is granted on arm’s length terms, it is generally valid from a civil and corporate law perspective. However, assessing whether such upstream or cross- stream security is granted on arm’s length terms is subject to uncertainty and is usually not done. To ensure that upstream or cross-stream secu- rity is granted on arm’s length terms, it is nec- essary to adhere to additional requirements, as further outlined in 5.4 Restrictions on Upstream Security . 5.7 General Principles of Enforcement The enforcement of a security is determined by general principles of law and by the specific pro- visions of the security agreement. To be permit- ted to enforce the security, a secured party must have a secured claim that is due. The relevant security agreement may also specify additional conditions for the enforcement of the security. When dealing with pledged assets, there are two primary forms of enforcement. • Private enforcement is only allowed if the par- ties have agreed to it in advance (except for intermediated securities). Private enforcement can take place through private sale, by public auction or, for assets with objectively deter- minable value, by appropriating the assets and offsetting their value against the secured obligations ( Selbsteintritt ). In all forms of pri- vate enforcement, the pledgee must protect the interest of the pledgor and obtain the best possible price. The enforcement must be
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