Duties of the Board of Directors
The board of directors is the highest executive and supervisory body of a joint-stock company. According to Article 716a of the Swiss Code of Obligations (CO), the board has non-transferable and inalienable duties, including the overall management of the company, the determination of its organisational structure, financial control and planning, as well as the duty to notify the court in the event of over-indebtedness.
In particular: Financial Competence
The board of directors is responsible for the overall financial management of the company. Pursuant to Article 725 CO, it must monitor the company’s solvency.
If problems arise regarding liquidity or the company’s financial position, the board must take immediate action. Three situations are distinguished:
- Insolvency (Article 725 paragraphs 2 and 3 CO)
In the event of impending insolvency, the board must take measures to restore solvency. A company is deemed insolvent if it is unable to meet its current payment obligations and thus lacks sufficient liquid assets or cannot obtain the necessary credit to settle its liabilities. The measures must have a direct impact on liquidity – that is, they must either prevent cash outflows or generate new funds. Possible measures include: selling non-essential assets, reducing expenditures, or extending payment terms.
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Capital Loss (Article 725a CO)
A capital loss occurs when the most recent annual financial statements show that the company’s assets (i.e. assets minus liabilities) amount to less than half of the share capital and the statutory capital and retained earnings reserves.
The board must take measures to remedy the capital loss. These include balance sheet adjustments such as releasing hidden reserves or revaluing properties and investments. Furthermore, a capital loss can be addressed by a capital reduction followed by a capital increase (commonly referred to as a capital cut). Alternatively, a direct capital increase can be carried out. All measures must be proposed by the board to the general meeting of shareholders and approved by it. -
Over-indebtedness (Article 725b CO)
If there is justified concern that the company’s liabilities exceed its assets, the board must immediately prepare interim financial statements based on both going-concern and liquidation values. These must be audited by the statutory auditor or, if none exists, by a licensed auditor.
If over-indebtedness is confirmed, the board must notify the court by filing the balance sheet and request either bankruptcy proceedings or a debt restructuring moratorium.
However, notification of the court is not required if creditors subordinate their claims to the extent of the over-indebtedness and defer repayment, or if it is expected that the over-indebtedness can be remedied within 90 days without putting creditors at further risk (Article 725b paragraph 4 CO).
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