ARTICLE
4 August 2025

Crisis Situations: Guidelines For Boards Of Directors

BK
Bär & Karrer

Contributor

Bär & Karrer is a renowned Swiss law firm with more than 170 lawyers in Zurich, Geneva, Lugano and Zug. Our core business is advising our clients on innovative and complex transactions and representing them in litigation, arbitration and regulatory proceedings. Our clients range from multinational corporations to private individuals in Switzerland and around the world.
These guidelines aim to provide boards and other decision makers with an overview of key measures, duties and various legal aspects.
Switzerland Tax

In times of crisis, there is a shift of competencies from a company's management to its board of directors. These guidelines aim to provide boards and other decision makers with an overview of key measures, duties and various legal aspects. The following areas require particular attention in our experience:

  • Duty to act: In crisis situations, the board needs to take command, intensify its supervisory control of management and implement suitable reporting systems.
  • Need for a realistic analysis: Faced with the threat of a financial downturn, the board should immediately carry out a realistic analysis of the current situation. We recommend communicating with the auditor early on to address going concern and valuation factors.
  • Liquidity is key: Planning, monitoring and conserving liquidity are all vital. Measures to conserve liquidity and an appropriate monitoring system should be put in place at an early stage (if not already set up).
  • No group perspective under Swiss law: The board needs to safeguard the interests of its respective legal entity (and its creditors). This means examining existing group relationships and dependencies. Special awareness is warranted regarding up / crossstream payments and cash pooling.
  • Quick restructuring measures: In addition to taking steps to protect liquidity, the board should swiftly implement restructuring measures, which may include: (i) operational and organisational changes, (ii) balance sheet restructuring backed by raising of new capital, (iii) balance sheet restructuring without any new capital, or a combination of all three.
  • Payment restrictions: As a general rule, a company in financial distress should avoid: (i) payment of claims before they fall due, (ii) granting collateral for existing obligations and (iii) settlement of monetary claims by unusual means of payment (e.g. delivery in kind).
  • Notification duties: The board needs to observe formal notification duties under credit agreements, D&O insurance etc.
  • Initiate insolvency proceedings: If, despite the measures taken, an out-of-court restructuring no longer appears possible, the board can generally choose between two insolvency proceedings: composition proceedings or bankruptcy. If the company is over-indebted, the board may be obliged to initiate such steps. The choice of the appropriate proceedings depends primarily on whether the future business development is expected to be "U"-shaped (composition proceedings) or "L"-shaped (bankruptcy proceedings).

BOARD'S DUTY TO TAKE ACTION

When a crisis develops, there is a shift of competencies from a company's management to its board of directors. The intensity and frequency of board supervision should be increased and, consequently, so should the number of meetings and the level of interaction with management. The board needs to assess whether the existing governance structure is right for the extraordinary situation or if it can be improved (e.g. by installing committees).

Any decisions and actions taken should be properly documented (in particular in minutes).

REALISTIC ANALYSIS

Faced with the threat of a financial downturn, the board must immediately carry out a realistic analysis of the current situation. It must assess whether the company is capable of a financial turnaround and if it can realistically continue as a going concern over the next 12 months (the latter depends especially on the company's liquidity). The following principles apply:

  • Single entity view of each group company; no group perspective (see below).
  • Impairment test on assets, particularly on equity participations and intra-group receivables.
  • Existing group relationships should face close scrutiny: dependencies, cluster risks, avoid up and crossstream payments.
  • Exchange information with the auditor (impairments, going concern) at an early stage.

LIQUIDITY IS KEY

Planning, monitoring and conserving liquidity are of key importance. The following measures to conserve liquidity should be considered:

  • Increase credit limits with banks.
  • Postpone planned investments.
  • Short-time work (Kurzarbeit).
  • Further personnel measures (incl. salary negotiations and redundancies).
  • Termination of non-essential business contracts (e.g. advertising).
  • Improve the company's accounts receivables management.
  • Prioritise payments. In particular social security contributions should be paid on time.
  • Negotiate deferment in payment of rent, taxes, etc.
  • Sale and leaseback.
  • Reduction of inventory.

If not already in place, a monitoring system should be implemented which allows real time visibility of the liquidity situation (actual and forecast over the next 12 months) for each group entity and on a consolidated basis. Based on this, the liquidity plan can be revised on a rolling basis as needed.

NO GROUP PERSPECTIVE UNDER SWISS LAW

Swiss (bankruptcy) law takes a single legal entity view and does not allow a group perspective in a crisis situation. The board of directors of each group entity must therefore safeguard the interests of its respective legal entity (and its creditors) meaning that the duties described in this briefing apply to the boards of each group company individually.

Accordingly, when assessing the balance sheet situation, the board must determine whether impairments on equity participations or intra-group receivables are necessary or not. Existing group relationships and dependencies should face close scrutiny. Special awareness is warranted regarding up and crossstream payments/ benefits and cash pooling.

POSSIBLE RESTRUCTURING MEASURES

In addition to taking direct action to conserve liquidity, the board needs to implement further appropriate restructuring steps. These may include operational and organisational measures, balance sheet restructuring with or without capital inflow or, as is usual in practice, a combination thereof:

OPERATIONAL AND ORGANISATIONAL MEASURES

  • Cost reduction programmes.
  • Optimisation of processes / structures.
  • Product changes.
  • Amendments to organisation / management.
  • Consultation with experts (turnaround, communication, lawyer, etc.).
  • Redundancies – compliance with potentially applicable mass dismissal regulations.
  • Request payment extensions e.g. for rent and taxes.
  • Sale / closure of unprofitable business units – caveat: fraudulent conveyance.
  • Distress sale of assets, hive-off vehicle – caveat: fraudulent conveyance.
  • Restructuring merger – in particular assessment of withholding tax implications.

BALANCE SHEET RESTRUCTURING WITH CAPITAL INFLOW

  • Bank loans.
  • Bridge loan from shareholders / affiliates.
  • Regular cash capital increase (CO 650) – 1% stamp duty on contribution, subject to one-time exemption of CHF 10 million in case the amount can be set off against balance sheet losses; further tax exemption is possible upon request in cases of hardship. Generally, there are no corporate income tax implications (tax losses carried forward remain unchanged).
  • Capital reduction to zero and simultaneous capital increase (Harmonika) (CO 653r) – 1% stamp duty on contribution, subject to the above exemptions. Typically, without corporate income tax implications (tax losses carried forward remain unchanged).
  • Contributions into equity for no consideration – 1% stamp duty on contribution, subject to the above exemptions. Usually, no corporate income tax implications (tax losses carried forward remain unchanged).

BALANCE SHEET RESTRUCTURING WITHOUT CAPITAL INFLOW

  • Release of silent reserves (stille Reserven) – corporate income tax on profit resulting from the revaluation.
  • Write-up of real estate or equity participations (CO 725c) – corporate income tax on profit resulting from the revaluation.
  • Refinancing (extend term of liabilities).
  • Subordination of claims (CO 725b IV 1).
  • Set off available reserves (CO 674) – caveat: reduction of reserves from capital contributions can reduce future tax benefits.
  • Declarative capital reduction (CO 653p).
  • Debt / equity swap (CO 634a) – must be disclosed in the articles of association; 1% stamp duty on contribution, subject to the above exemptions. Generally, this has no corporate income tax implications (tax losses carried forward usually remain unchanged).
  • Debt / asset swap – caveat: fraudulent conveyance; corporate income tax in case of capital gain (to the extent not covered by tax losses).
  • Waiver of claims (possibly in return for debtor warrants; Besserungsschein) – 1% stamp duty on contribution in case of waiver by shareholder, subject to the above exemptions may trigger corporate income tax at the level of the benefitting distressed entity in case of extraordinary profit (which, however, can be set off against tax losses carried forward, even if they are older than seven years). In addition, a revival of debt may trigger withholding tax at the level of the debtor. Likewise, from the perspective of the waiving shareholder / affiliate, a tax assessment is recommended (deductibility of waiver for income tax purposes and possible taxation in case of revival of debt). 

RESTRICTIONS ON PAYMENTS (FRAUDULENT CONVEYANCE)

Based on fraudulent conveyance laws (Paulianische Anfechtung), creditors must be treated equally if a debtor is in severe financial distress. No payments may be made to individual creditors in preference over higher or equally ranking creditors.

As a general rule, companies in financial distress should avoid: (i) payment of claims before they fall due, (ii) granting collateral for existing obligations and (iii) settlement of monetary claims by unusual means of payment (e.g. delivery in kind). In case of threatening illiquidity / bankruptcy subject to certain exceptions, (non-privileged) claims should no longer be paid (including due claims). An assessment of each individual case is required.

NOTIFICATIONS AND FURTHER POINTS

The board needs to observe formal notification duties under credit agreements, D&O insurance, etc.

As an exception to the general rule that only the company is liable for its obligations, directors can ultimately be held liable for unpaid social security contributions in case of violation of social security provisions - the board should therefore ensure payment of these liabilities on time.

Although a successful restructuring may still be highly likely, it is only prudent to take time early on to consider and, where appropriate, prepare a plan B (e.g. hive-off vehicle, composition proceedings or bankruptcy filing).

INSOLVENCY PROCEEDINGS

If, despite the measures taken, an out-of-court restructuring appears no longer possible, the board can generally choose between two insolvency proceedings: composition proceedings or bankruptcy. If the company is over-indebted, the board may be obliged to initiate such proceedings. The choice of the appropriate proceedings depends primarily on whether the future business development is expected to be "U"-shaped (composition proceedings) or "L"-shaped (bankruptcy proceedings).

DUTY TO FILE FOR BANKRUPTCY

If the board of directors has founded concerns (begründete Besorgnis) that the company is overindebted (liabilities are no longer covered by assets; Überschuldung), it must prepare interim balance sheets at both going concern and liquidation values and have them audited by an approved auditor. 

If both such balance sheets show an over-indebtedness, the board must then file for bankruptcy with the court (balance sheet deposition; CO 725b III).

If a continuation of business activities over the next 12 months is likely not possible (no going concern; in particular due to lack of liquidity), financial accounting must switch to – usually substantially lower – liquidation values (CO 958a II); and the board must file for bankruptcy if the interim balance sheet applying liquidation values shows an over-indebtedness. Therefore, illiquidity often leads to over-indebtedness, which in turn triggers the duty of the board to file for bankruptcy.

No filing for bankruptcy is required: (i) if creditors subordinate claims at a level sufficient to cover the overindebtedness, (ii) if there is a reasonable prospect that the over-indebtedness can be remedied within 90 days after availability of the audited interim accounts, provided the claims of creditors are not additionally jeopardised, or (iii) if the company files for composition proceedings. If the board does not file for insolvency proceedings despite obvious over-indebtedness, the auditor is obliged to make a bankruptcy filing instead.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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