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24 June 2022

New Swiss company law- Important resolutions (no. 5)

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.

However, some innovations can only be of benefit if they are properly adapted  by the general meeting. In some cases, this requires a qualified majority. The already existing legal catalogue of these so-called "important resolutions" has, however, also been expanded with reference to transactions that have nothing to do with the specific changes of the company law revision. However, these also deserve attention.

... in connection with specific changes

Art. 704 para. 1 of the Swiss Code of Obligations ("CO") lists under the heading "Important resolutions" those items for which a resolution of the general meeting of shareholders requires at least two-thirds of the votes represented and a majority of the par value of the shares represented.

In connection with the specific changes of the new company law, the following transactions have been newly included in the list of Art. 704 para. 1 revCO:

Item 5:   the introduction of a capital band;

Item 9:   the change of currency of the share capital;

Item 10:  the introduction of the casting vote of the chairman in the general 
                 meeting;

Item 11:  the introduction of a provision in the articles of association 
                concerning the holding of the general meeting abroad;

Item 14:  the introduction of an arbitration clause in the articles of association;

Item 15: the waiver of the appointment of an independent proxy for the 
                holding of a virtual general meeting of shareholders for companies
                whose shares are not listed on a stock exchange.

We have already pointed out in our blog post of January 24, 2022 ("New Swiss company law to come into force on 1 January 2023") that resolutions to amend the articles of association in order to adapt them to the new company law may already be adopted prior to 1 January 2023 (so-called scheduled and conditional amendments to the articles of association). However, the publication EHRA 1/22 from the Swiss Federal Commercial Registry Office ("EHRA") on 17 January 2022 regarding amendments to the articles of association in view of the revision of the Swiss company law does not contain any statements as to whether the revised version of Art. 704 para. 1 CO must already be observed in this context, although it is not yet formally in force. However, this is to be affirmed. It would be contrary to the system and could be qualified as circumvention if, for example, the introduction of an arbitration clause in the articles of association could be resolved by a simple majority in 2022 with effect from 1 January 2023, although a qualified majority is required for this under the new company law.

... with reference to other new items added to the list

However, the catalogue under Art. 704 para. 1 revCO has also been extended to include items that are not related to specific changes of the new company law:

Item 2: the consolidation of shares, insofar as this does not require the 
                 consent of all shareholders concerned;

Item 3:  the capital increase by offsetting against a receivable;

Item 6:  the conversion of participation certificates into shares;

Item 12:  the delisting of the company's equity securities.

Under current law, the consolidation of shares requires the consent of all shareholders concerned (Art. 623 para. 2 CO). In the case of listed companies with a broad shareholder base, this leads to insurmountable hurdles, for example in the case of reorganizations, and therefore proved to be inappropriate. Under the new law, only in the case of unlisted companies the consent of all shareholders concerned is required (Art. 623 para. 2 revCO). In the case of listed companies, on the other hand, a resolution of the general meeting with a qualified majority is sufficient (Art. 704 para. 1 no. 2 revCO).

Under the current law, it was already possible to carry out a capital increase by offsetting against a receivable (so-called contributions by means of set-off). In doctrine and practice, however, it is disputed whether receivables which are no longer fully covered by assets of the company may also be used as a contribution when increasing the share capital. Art. 634a para. 2 revCO now explicitly allows this, since the other creditors are not disadvantaged by this procedure and the company can thereby partially or completely reduce over-indebtedness. At the same time, however, Art. 704 para. 1 item 3 revCO requires that all contributions by means of set-off be resolved by the general meeting with a qualified majority. In addition, the amount of the receivable to be offset, the name of the shareholder and the shares to which he or she is entitled must now be stated in the articles of association (Art. 634a para. 3 revCO). Depending on one's point of view, the new company law thus brings welcome clarification or less welcome new hurdles in connection with contributions by means of set-off.

In practice, the conversion of participation certificates into shares already requires the approval of the general meeting with a qualified majority. This is because this involves the exclusion of the subscription rights of the existing shareholders, which currently requires a qualified majority and will continue to do so in the future (Art. 704 para. 1 item 6 CO). However, the aforementioned conversion is now expressly regulated (Art. 704 para. 1 no. 6 revCO).

In the absence of provisions in the articles of association to the contrary, today the delisting from the stock exchange can be decided by the board of directors (Art. 716 para. 1 CO). However, the delisting represents a serious encroachment on the legal position of shareholders, as the shares can no longer be sold on the stock exchange, there is a risk of stricter restrictions on transferability, transparency requirements are reduced (e.g., no ad hoc publicity and lower accounting requirements) and it is no longer mandatory to have the annual financial statements audited. Due to these major economic and legal consequences, the resolution on delisting will explicitly be a non-transferable power of the general meeting and is subject to a qualified majority (Art. 704 para. 1 item 12 revCO).

... according to the Articles of Association

Under the new company law, the general meeting is also entitled to introduce provisions in the articles of association requiring a majority higher than that provided for by law. In addition, the catalogue of items requiring a majority resolution may be extended. The introduction of such provisions in the articles of association requires the corresponding majority. In practice, this has already applied to amendments and repeals of such provisions of the articles of association. However, this is now explicitly anchored in the new law (Art. 704 para. 2 revCO).

Such statutory quorums are of great importance in practice for SMEs. They allow tailor-made solutions for specific circumstances of the company and the legitimate claims of shareholders or groups of shareholders, some of whom differ in various respects. In particular, minority shareholders can be assigned a blocking minority adapted to the specific circumstances.

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

Other articles in the series:

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

Categories: Corporate and Commercial, Mergers & Acquisitions, Civil Law Notaries, Blog

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