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19 September 2022 New Corporate Law: The Interim Dividend (no. 9)

The new company law, which comes into force on 1 January 2023, brings many changes. In our current blog series, we present these in detail.

The previous company law did not contain any provisions on interim dividends, i.e. dividends paid out of the business results of the current financial year. The permissibility of such interim dividends has thus been controversial.

However, an interim dividend may serve legitimate interests, e.g. to redistribute liquidity within a group of companies. In addition, many foreign shareholders are accustomed to quarterly dividends due to the legal situation in their home countries.

The new company law therefore provides that interim dividends may be distributed (Art. 675a revCO). A basis in the articles of association is not required for this.

Procedure must be carefully followed because as interim dividends entail the risk of withdrawing funds from the company even though the operating business is already performing poorly, interim financial statements must be prepared in advance.

The interim financial statements must be prepared in accordance with the provisions governing the annual financial statements and shall contain a balance sheet, an income statement and an annex. However, the law permits certain simplifications or reduced requirements, provided that this does not impair the presentation of the course of business (Art. 960f para. 1 and 2 revCO).

When determining the interim dividend, allocations to the statutory and voluntary reserves must be made in advance (Art. 675 para. 3 in conjunction with Art. 671 ff. revCO).

The interim financial statements must be audited by the auditors prior to the resolution of the shareholders' meeting, otherwise the resolution of the shareholders' meeting is null and void (Art. 675a para. 2 f. in conjunction with Art. 731 revCO). There is, however, no duty to audit if the company is subject to neither the ordinary nor the limited audit obligation (Art. 675a para. 2 revCO). Moreover, the duty of due diligence should prohibit the board of directors from proposing an interim dividend to the shareholders' meeting if this would jeopardize the company's required liquidity.

There is still the option that if all shareholders approve the interim dividend and the claims of creditors are not jeopardized by such interim dividend, the audit by the auditors may be waived. Not least because this eliminates a precautionary measure, however, the law makes express reference in connection with interim dividends to the duty to repay in the event of unjustified dividends (Art. 675a para. 3 in conjunction with Art. 678 para. Art. 678 para. 1 revCO; this refund obligation is also being revised, which we will explain in more detail in a separate blog post).

The determination of the interim dividend and the approval of the interim financial statements required for this purpose are among the non-transferable powers of the shareholders' meeting and can therefore not be delegated to the board of directors (Art. 698 para. 2 no. 5 revCO). Companies that do not wish to hold a shareholders' meeting in traditional form to resolve an interim dividend may wish to make use of the new possibilities of virtual or hybrid shareholders' meetings (see our blog: "New Corporate Law: General meeting under the new company law – what is changing? (no. 2)" of March 7, 2022). 

A distinction must be made between an interim dividend and a staggered dividend that is declared at the annual general meeting on the basis of the approved annual financial statements (of a completed financial year). This remains permissible, as does an extraordinary dividend, which is declared by the shareholders and paid from the usable equity as stated in the annual financial statement already approved by the relevant the annual general meeting.

If you have any questions, please do not hesitate to contact our team.

Other articles in the series:

Authors: Thomas Steiner-Krizaj, Peter Kühn, Lukas Züst