The revision of the law on joint stock companies is a fact. The changes will enter into force on January 1, 2023. In January 2021, we already gave an overview of the main novelties of the company law revision (link). Now is the time for all Swiss companies to adapt their statutes to the new law on joint-stock companies.
The revision also regulates the term of office of the members of the board of directors. In this regard, a historic decision of the Federal Supreme Court was issued at the end of 2021, to which we also refer.
1. Introduction
The revision of the law on joint stock companies contains numerous modifications and simplifications which a company can, but is not obliged to make use of. For example, changing the currency of the share capital or introducing the possibility of a virtual general meeting of shareholders (AGG) requires an amendment to the articles of association. This can only be validly decided by the GA, and the decision must also be certified by a notary.
2. Overview of the most important changes
2.1 Virtual General Meeting and circular resolution
The most important change concerns the virtual GA. If there is a legal basis, the GMS can also take place in the future electronically or by videoconference (eg via MS Teams/Zoom). Listed companies need an independent proxy for this, which is not required for other companies.
A “GMS circular resolution” is now also possible, which is common today with SA. If all shareholders sign, the legal notice period of 20 days can be waived and the resolution is adopted with signature. This is a welcome practical simplification for small, clear ownership structures.
A GMS can now also be held in different meeting places at the same time and/or abroad provided that the statutes allow it and that the votes of the participants are transmitted directly (video and audio) to all the meeting places. .
Following the Covid 19 regulations (still) in force, first positive experiences of electronic and/or written GAs have already been made. These innovations are now also anchored in the law and greatly facilitate the practical conduct of a general meeting.
2.2 Capital Band
The articles of association can now allow the board of directors (CA) to increase and/or reduce the share capital within a certain range for a maximum period of 5 years. Previously, this “authorized change in capital” only existed for capital increases, but not for capital reductions; moreover, the period was limited to 2 years.
The capital portion may not exceed half of the share capital. Once anchored in the Articles of Association, only a Board resolution is required (ie without further approval by the GM) for effective capital increases.
Introducing a capital band provision in the articles of association is particularly useful when acquisitions or investments are planned and the board must react quickly and modify the capital accordingly.
2.3 Change of currency of the share capital
Maintaining the share capital in a foreign currency can be particularly advantageous for companies in the group whose parent company is foreign or for those which realize their turnover mainly in a foreign currency. The share capital may be in foreign currency according to the articles of association, provided that it amounts to at least CHF 100,000. The permitted foreign currencies are set by the Federal Council (eg EUR, USD, GBP). If the share capital is in a foreign currency, the books of account may also be kept in that currency.
2.4 Introduction of a statutory arbitration clause
It is now possible to stipulate in the articles of association that any dispute between the company and the shareholders or legal persons will be settled by a private arbitration tribunal having its seat in Switzerland rather than by a state court. Depending on the needs, the scope of the arbitration clause may be limited and apply, for example, only to certain legal relationships or to certain claims. Finally, a reference to this legal provision should be entered in the commercial register so that new shareholders are also informed.
The main advantage of a legal arbitration clause is that the company, its bodies and the shareholders submit themselves, in the event of a dispute under public limited company law, to a confidential arbitration procedure, the essential points of which (initiation of the procedure , number of arbitrators, structure of the procedure, etc.) are either already regulated in the statutes or determined by reference to the existing arbitration rules.
2.5 Restructuring law
The entire “early warning system” of the Restructuring Act has been reorganized and made more detailed, thus increasing the chances of a successful restructuring. In addition to the known facts of capital loss and over-indebtedness, the content of which has not been changed, “imminent insolvency” has been enshrined in law as a preliminary step. Accordingly, the Board must constantly monitor the solvency of the company and take appropriate measures to ensure it. In practice, failure to do so is a major instance of board liability.
If the existing provisions of the articles of association contained references to loss of capital and over-indebtedness, these would have to be adapted to the new legal order.
2.6 Rights of shareholders and interim dividend
For the sake of completeness, two changes should be noted which, however, generally do not require a change in the articles of association.
Firstly, the following shareholder rights thresholds have been raised in accordance with the summary below.
The right to information outside the GMS used to be a practical problem for shareholders because, unlike listed companies, no regular information was generally provided to shareholders. Shareholders holding together at least 10% of the share capital or votes can now request information from the Board, which must respond within four months. These answers must be available for consultation by the other shareholders at the next AGM.
Second, interim dividends are now expressly permitted, which was previously controversial, if audited interim financial statements and a GMS resolution are available. The auditor’s review can then be waived if all shareholders accept the distribution to GMS and creditors’ claims are not compromised.
The payment of an interim dividend can also be decided relatively “spontaneously” at an extraordinary general meeting. These changes will simplify the distribution of cash, particularly in group structures, but also in companies whose shareholders are used to distributing quarterly dividends because of their origin, as is customary in the USA or in England.
3. Term of office of members of the Board of Directors
In addition to the revision of the law on joint-stock companies, a recent judgment of the Federal Court relating to the term of office of the members of the Board also gives rise to an amendment of the statutes.
Most of the articles of association provide that a director is elected for a term of 13 years (the legal maximum term is 6 years). The Federal Court recently considered the question of whether a director’s term of office is tacitly renewed if no AGM takes place within six months of the end of the last financial year corresponding to the term of office and no re-election. therefore takes place on time. Part of the doctrine affirmed a tacit extension of the mandate until the next GA, another part argued that the non-reelected CA no longer acted as a de facto body and that there was a deficient organization. Another doctrine differentiated if the GMS did not take place at all or if a GMS took place but the election was forgotten.
The Federal Supreme Court has now clarified the situation and decided that the term of office of the board of directors ends in any case 6 months after the end of the last financial year for which the respective member of the board of directors was elected. The decision is based on the fact that the Code of Obligations stipulates that the ordinary GMS must be held no later than June 30 each year and that the GMS is responsible for the election.
If a company does not have a validly elected CA because the re-election was forgotten or did not take place in time, there is a deficiency in the organization. The fact that the unelected CA is still registered in the commercial register does not change this. The consequences of a lack of organization can be serious. As in such a case a company no longer has a validly elected board of directors, no GMS can be convened and its resolutions would be null and void. This can be resolved by the auditors convening a GMS or by all the shareholders holding a universal meeting during which the CA is newly appointed. If none of these options succeeds, a shareholder or a creditor can ask the court to appoint a new member.
In order to avoid any misunderstanding, it should be specified in the statutes that the CA is elected until the next ordinary GA. A provision of the articles could read as follows:
“The board of directors is made up of one or more members. The term of office is one year until the next ordinary general meeting. Re-election is possible.
4. Registration of the modification of the articles of association
As the revision of the law on joint-stock companies does not come into force until January 1, 2023, there is uncertainty as to the deadline for the modification of the articles of association. Although the Federal Office of the Commercial Register (OFCR) already authorizes the modification of the articles of association “subject to change”, the respective modifications will in any case only come into force on 1 January 2023. We therefore recommend that the modification of the articles of association be on the agenda of the ordinary GMS 2023 and that the statutes be subject to a general overhaul. A notarial deed is required for the modification of the statutes. For the sake of simplicity, this can be done through proxies so that shareholders do not have to be physically present.
5. Closing
The new law on joint-stock companies offers many possibilities for designing and simplifying the organization of a modern limited liability company. In order to benefit from the changes, the statutes must be revised and adapted to the new law. It is advisable to plan the modification of the statutes at an early stage and submit them to the ordinary GMS in 2023.
