Revision of the law on public limited companies: New regulations

Following years of discussion and preparatory work, the Swiss Parliament adopted the revision of the law on public limited companies on 18 June 2020 (see also: FF 2017 353 and FF 2020 5409). The aim of the revision is to modernise the law on public limited companies.

This includes more flexibility for companies, harmonising certain aspects of the new accounting laws, strengthening the rights of shareholders, the obligations of the Board of Directors to monitor the financial situation in order to prevent indebtedness and insolvency, as well as transparency in the organisation of companies.

The date of entry into force of the new regulations discussed below is not yet definitively fixed (except for the provisions relating to gender representation and transparency of commodity companies - already in force). However, it is likely to be on 1 January 2023. Please note that we will pay particular attention to non-listed companies

A. Organisation of the General Assembly:

The General Assembly can be held simultaneously in several locations:

This will only require that the speeches are broadcast live by audiovisual means in all the meeting venues.

The General Assembly may be held abroad:

However, the Articles of Association should specify it. The Board of Directors should designate an independent representative in the convocation, except for companies whose shares are not listed on the stock exchange if all shareholders agree.

The General Assembly can be held virtually:

To do so, the Articles of Association should contain the possibility to hold a virtual General Assembly. The Board of Directors must designate an independent representative in the convocation, with exception of companies whose shares are not listed on the stock exchange, as long as all shareholders agree. It will be the responsibility of the Board of Directors to ensure that participants are correctly identified, that speeches can be broadcast live, that anyone concerned can participate in the debates, make suggestions and that the result of the votes cannot be altered. In case of technical problems, a new assembly must be convened, but the decisions taken prior to this meeting remain valid.

Possibility of substitution of the Assembly by circular decisions:

Provided that no shareholder has requested a discussion on this matter. This possibility only exists for Sociétés à responsabilité limitée (Limited Liability Companies) at the moment.

Possibility of setting up a hybrid solution to hold the General Assembly:

Depending on the different options listed above (e.g. where shareholders cannot be physically present, they have the possibility to participate through digital means).

B. Shareholders’ rights:

Shareholders may ask the Board of Directors for information:

Shareholders together representing at least 10% of the share capital or votes may, outside the General Meeting, make a written request to the Board of Directors for information on the affairs of the Swiss corporation, provided this is necessary for the exercise of the shareholders' rights and does not jeopardise business secrecy or other corporate interests worthy of protection. The Board of Directors must respond within four months. The reply must be presented at the next General Assembly.

After exercising their right to information, shareholders may then propose to the General Assembly the establishment of a special examination:

In case of agreement, the shareholders or the company should request the assignment of an expert to the court. If no agreement is reached, shareholders representing 10% of the share capital or votes should request a special examination by a court within three months.

Shareholders may request the registration of an item on the agenda or proposals concerning an item:

Following the reform, a threshold of 5% of the share capital or votes applies to companies whose shares are not listed on the stock exchange. Shareholders may give a short reason for their request; in which case the reason must be put on the agenda again.

C. Minder compensation Initiative and gender equality quotas

The General Assembly will be responsible for electing a compensation committee to report on the remuneration of the members of the Board of Directors and the Management. Listed companies will be subject to this requirement and non-listed companies may voluntarily comply. The General Assembly will vote on the remuneration paid to the Board of Directors and the Management.

It should be noted that the quotas for representation on the Board of Directors and the Executive Board will only apply to listed companies.

D. Capital structure

The minimum share value of 1 cent is abolished:

The nominal value shall only be greater than zero.

The reform will make it possible to create a capital fluctuation band:

With the approval of the General Assembly, the Board of Directors may increase or reduce the share capital within a certain limit for 5 years. The lower limit will be half of the share capital entered in the commercial register (but not less than CHF 100,000) and the upper limit will be one and a half times the share capital entered in the commercial register. Each fluctuation of the capital must be followed by an amendment of the Articles of Association (by deed). This fluctuation band replaces the authorised capital increase as it serves the same purpose.

It should be noted that interim accounts will have to be drawn up if:

• Capital reduction if the balance sheet date is more than six months prior to the decision of the General Assembly to reduce the share capital.
• Increase of the share capital by using freely disposable equity, if the balance sheet date is more than 6 months prior to the date of the decision of the General Assembly.
• From a fiscal point of view, both withholding tax and stamp duty will adopt the so-called "net value" approach. This means that the tax claim, if any, will be analysed at the maturity of the capital fluctuation band.

It will be possible to denominate the share capital in a foreign currency:

A list of authorised currencies will be published by the Federal Council, but the foreign currency chosen must be the most important currency for the company's activities (functional currency).

However, the following conditions must be met:

• The chosen foreign currency should be the most important one for the company's activities.
• The share capital must have an equivalent value of at least CHF 100,000 at the time of establishment of the company.
• The same currency should be used for commercial accounting and reporting.
• If it exists, the participation capital must be fixed in the same currency as the share capital.

Please note that according to tax law, the net taxable profit must be converted into Swiss francs. The average exchange rate (sales) of the tax period is decisive. If the tax liability is less than 1 year, the average exchange rate of the corresponding period must be taken into consideration. For the taxable capital, the exchange rate on the closing day of the business year applies.

It will be possible to schedule the payment of an interim dividend provided that an interim balance sheet is prepared:

An audit of the latter will be compulsory, except for companies that have waived the limited audit of its accounts. In addition to this obligation, such a dividend will be subject to the following two additional conditions:

• Agreement of all shareholders
• The interests of the company's creditors are not compromised.
• No changes to the Articles of Association will be required.

It should be noted that where interim accounts are to be prepared, the rules applicable to annual accounts also apply here. However, simplifications are allowed, except for the items which appear in the latest annual accounts, provided that the business activity shown by the interim accounts is not altered. In the case of simplified interim accounts, these must be disclosed in the notes to the accounts, accompanied by an explanation of the purpose of the interim accounts and any other significant deviations or factors to be highlighted.

From a tax point of view, it should be noted that such an interim dividend should be considered extraordinary. Thus, the yield value of the parent company, which benefits from such a dividend, would be increased. In such a case, interim dividends should not be considered in determining the yield value because of their unique and extraordinary nature.

Presentation of equity and reserves for own shares:

Equity should now be presented as follows:

• Share capital
• Legal reserve from capital

From now on, the legal reserve from capital may be reimbursed to the shareholders if the legal reserves from capital and profit after deduction of the amount of any losses exceed 50% of the share capital entered in the commercial register. For holding companies, the legal reserves from capital and profit must exceed 20% of the share capital entered in the commercial register. Finally, the legal reserve for own shares in the group and the legal reserve from the resulting profit are not considered in the calculation of the 50% or 20% threshold mentioned above.

• Legal reserve from the profit, with separate indication of the reserve:
• For own shares in case of acquisition within a group (see below on this subject).
• Revaluation (properties or holdings whose real value exceeds the acquisition price or cost price may be revalued up to a maximum of this value. A written certificate from the auditors, or from an approved auditor if there is no auditor, must be sent to the Board of Directors).
• Optional reserves (provided for in the Articles of Association or decided by the General Assembly)
• Own shares of capital (minus)
• Profit/loss reported
• Profit/loss for the year

Regarding acquired treasury shares, the obligation to set up a reserve for treasury shares is no longer required, in accordance with the practice following the new accounting law. The entry of the treasury shares in the balance sheet is a reduction of the equity capital at the acquisition value. This accounting entry must also be made by analogy by the company when a subsidiary acquires its shares.

From a tax point of view, it should be remembered that the Federal Court confirmed that the acquisition of treasury shares results in a reduction of the assets of the company. Therefore, it must also be considered that the negative reserve for own shares reduces the capital tax basis.

Repeal of the current Art. 628 CO:

As a consequence, the proposed acquisition of assets from shareholders or persons closely related to them will no longer be regarded as a qualified foundation requiring compliance with the formal requirements (e.g. amendment of the articles of association and entry in the commercial register). However, such takeovers will still be subject to the regulations on the preservation of assets and liability.

E. Insolvency :

The concept of insolvency has finally entered the Code of Obligations. The Board of Directors will have to monitor the solvency of the company:

In the event of a risk of insolvency, the Board of Directors will have to take measures to ensure its solvency without, however, having a legal obligation to draw up a liquidity plan. It will then take additional reorganisation measures or propose such measures to the General Assembly, if this falls within its competence. The Board of Directors must, if necessary, apply for a debt-restructuring moratorium. In all cases, it must act promptly.

The new provision in the Code of Obligations will clarify the concept of capital loss:

A company is in such a situation when its assets, after deduction of losses, no longer cover half of the share capital, the legal capital reserve and the reserve of profits which may not be repaid to the shareholders. In such a case, the Board of Directors is obliged to convene a General Assembly immediately and to propose reorganisation measures. In addition, the Board of Directors must submit the annual accounts to a limited audit before they are approved by the General Assembly; in the event of an opting-out, the Board of Directors must appoint an approved auditor. Like the Board of Directors, the appointed auditor or auditors must act promptly.

A company is over-indebted when its assets no longer cover its debts:

The reform maintains the obligation for the Board of Directors to draw up interim accounts at the operating value and at the liquidation value. These accounts will have to be reviewed, and if they show that the company is indeed over-indebted, the Board of Directors will have to notify the court. The latter must then either declare the company bankrupt or proceed with a debt-restructuring moratorium. Postponement of the bankruptcy will no longer be possible.

However, the Board of Directors will not be required to inform the court in two situations:

• In case of post positioning of a claim, as stipulated by the legislation in force.
• Or where there are serious reasons to believe that the over-indebtedness may be eliminated within 90 days of the preparation of the interim accounts, without jeopardising the performance of the claims during that period.

F. Transparency in commodity companies:

• Companies subject to ordinary control and active in the production of ore, oil, natural gas or in the exploitation of wood from primary forests, will be obliged to draw up an annual report on all payments of at least CHF 100,000 made to governments in connection with the exploitation of raw materials (Swiss or foreign).
• In the interests of transparency, the report should remain publicly available for at least 10 years.
• Rules applicable from the 2022 financial year (from 01.01.2022).

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