The consequences of Swiss Corporate Law Reform
The Swiss Federal Council published its dispatch for a reform of the Swiss corporate law on 23 November 2016. The bill amending the Swiss Code of Obligations aims to modernise the corporate governance by strengthening shareholder rights and promoting gender equality.
Shareholders Rights and Shareholders Meeting
- The Federal Council aims to strengthen the position of shareholders, particularly in unlisted companies. In comparison to public companies, their information and access rights are more limited under the applicable law. As a future goal, shareholders representing at least 5% of the share capital or votes should at all times be allowed to ask for information and insights, which must be provided by the board of directors within four months. Additionally, and as is already the case under current law, any shareholder will, on the occasion of a general meeting, be entitled to information from the board of directors on the affairs of the company and from the external auditors on the methods and results of their audit.
- The Federal Council also aims to reduce the thresholds in order to exercise certain shareholder rights. In particular, the threshold required in order to convene the shareholders meeting of a listed company should be 5% of the share capital or votes, instead of the current 10%. Furthermore, the right to place items on the agenda and to table motions should be reduced from 10 to 0.5% of the share capital or votes for public companies and from 10 to 5% of the share capital or votes for private companies.
- The bill contains new provisions allowing more flexibility with respect to the organisation and conduct of the shareholders meeting. In particular, it authorises virtual (by electronic means) shareholders meetings, outside of Switzerland and/or in more than one location simultaneously (subject to direct transmissions to all locations).
- Another novelty is that the decisive figure for establishing the majority shall be the number of share votes actually cast, instead of the number of share votes represented. This makes genuine abstentions possible, since abstentions are no longer counted in establishing the numerical basis for decisions and elections and are therefore no longer deemed to be votes against.
- According to the new legal provisions, the delisting of shares shall require a decision by the shareholders meeting, taken by a qualified majority. Currently, delisting is in the authority of the board of directors.
In order to increase the flexibility for the incorporation, the bill generally makes capital requirements more flexible. The following proposals are noteworthy:
Capital in general
- Under the new bill the share capital can be stated in a foreign currency, under the condition that this currency is also the reporting currency, which will be used for the financial statements.
- The bill specifies that the minimum par value can be any value greater than zero (currently CHF 0.01).
Capital increase, reduction and capital band
Generally, the rules on capital increases and reductions shall be simplified in several aspects. The concept of authorised share capital will be renewed; companies would be allowed to have a so-called ‘capital band’. Under this capital band, the board may be authorised in the articles of association to increase and/or reduce the capital within a pre-defined bandwidth, similar to the authorised capital of Anglo-Saxon legislation.
Interim dividends shall be permissible under the condition that they are allowed under the articles of incorporation and based on an audited interim balance sheet.
New liquidity rules
The bill proposes that the company’s obligations in the event of insolvency do not only focus on the equity situation, but also on the liquidity. The purpose of these new rules is to take the field reality into account more, because companies frequently fail due to lack of cash flow.
Executive Pay ('Minder')
The bill transfers the provisions of the existing ordinance against excessive compensation in listed companies (Minder-Ordinance) to the Swiss Code of Obligation, whereby the core of the Minder-Ordinance remains unchanged.
Gender Diversity on boards of directors and in executive management of public companies
The bill suggests a legal quota of female and male representation; each gender shall be represented with at least 30% in the board of directors and at least 20% in the executive management of public companies. Following the 'comply or explain' approach, companies would have to justify the reasons for non-compliance in its compensation report and set out the measures planned or already introduced to promote the underrepresented gender. These provisions will, however, be subject to a phasing-in period of five years for the board of directors and ten years for the executive committee.
Disclosure by Commodity Firms
The bill suggests that companies operating a business for the purpose of exploitation of natural resources (minerals, oil, natural gas or clear-cutting primary forests) must disclose all payments to public authorities exceeding CHF 100,000 per year. Non-compliance shall be subject to criminal sanctions.
Status of Bill
Parliamentary committees and the two chambers of the Swiss parliament are currently reviewing the bill. We expect the new law to enter into force in 2020 at the earliest, depending on the course of the forthcoming deliberations in the legislative process.
MarcoToniAttorney at law Partner
Marco Toni is a partner of our office in Zurich. He focuses on domestic and international M&A transactions, private equity, corporate governance and general corporate, stock exchange and capital markets laws.T: +41 43 434 67 15 M: +41 79 557 62 15 E: email@example.com