Marco A Rizzi and Mark Montanari of Froriep
break down the contents of the proposed reform to the Swiss
Stock Corporation Law and warn that a slow legislative system
will delay its effects
On Friday November 28 2014, the Swiss Federal Council
presented the preliminary draft for a comprehensive reform of
the Stock Corporation Law (Draft or dCO). The Draft resumes the
general reform that had been initiated with the aim of
modernising the Swiss Stock Corporation Law, but was
interrupted in 2009, and completes it with topics that have
become relevant in the last years. Additionally, it seeks to
introduce comprehensive say-on-pay legislation for stock
exchange listed companies, which will replace the initial,
preliminary provisions that had been introduced in January
2014, following the famous popular vote of 2013, by way of the
Ordinance on Excessive Compensation in Listed Stock
Corporations (OAEC). The Draft also contemplates the
introduction of gender quota for the board of directors and
management of listed companies, and increased transparency for
large and listed stock corporations in the commodities sector.
The Federal Council opened the consultation on the Draft, which
will last until March 15 2015.
Main contents of the Draft
Share capital and dividend entitlements
The Draft introduces a number of new provisions designed to
increase corporate flexibility. The Draft introduces the
possibility to have a share capital in a foreign currency,
provided that it is the main currency of the company's business
activities (article 621 dCO). Under the new accounting
regulations (articles 957a and 958d CO) entered into force on 1
January 2013, it is already possible to use such functional
The nominal value of a share may be below one cent (which is
the current minimal value), but must be higher than zero, and
the share capital must be fully paid-up (article 622 and 632
"As a true novelty, the
Draft proposes a benchmark for a balanced gender
representation in boards of directors"
Acquisitions in kind will no longer be treated as qualified
capital contributions. Acquisitions in kind will, therefore, be
substantially simplified since statutory reports of the board,
publicity in the articles of association or the commercial
register and audit confirmation would no longer be
A new concept of a share capital band is introduced by the
Draft (article 653s dCO). Such novel concept provides a
flexible instrument for the Board of Directors (BoD) to
increase or decrease the share capital within the range of a
maximum and a minimum band, for a period of up to five years.
Thereby, the current institution of the authorised capital
increase (article 651, 651a CO) would be abolished. In
addition, the call on creditors and the auditor's report for a
share capital decrease may also become redundant. Companies
that implement this will at least need to have their annual
accounts reviewed by an auditor in a limited audit.
The articles of association may implement a dividend system
which incentivises active shareholders participation with up to
20% higher dividend entitlements (article 661 dCO).
The Draft further introduces new rules regarding reserves
and interim dividend payments (article 671ff dCO).
Dispo shares and use of electronic means
The Draft proposes a possible solution to the conflicts that
might arise with a large percentage of dispo shares, as the
voting rights of minority shareholders do have increased
influence in the general meeting compared to the total issued
share capital. Dispo shares are the registered shares of a
listed company that are acquired over the stock exchange
through an intermediary where the acquirer does not request
entry in the shareholders register and therefore does not have
the ability to exercise voting rights. The Draft introduces a
new model, whereby the intermediary is entered in the
shareholders register as a nominee with voting powers. The
intermediary will exercise voting rights based on the
individual or general instructions of the owner of the shares.
The intermediary can invoice the costs for complying with such
nominee-model to the company. As a consequence, such costs
would indirectly be borne by all shareholders. In addition,
article 11 of the OAEC prohibits the governing officer and the
custodian as representative (Organ- und
The Draft provides new provisions regarding the use of
electronic means in connection with shareholders' meetings and
requires companies listed on a stock exchange to implement an
electronic forum for the discussions purposes among
shareholders (article 701g dCO).
Excessive compensation in listed stock companies
By way of the Draft, the provisions of the OAEC, which
entered into force on January 1 2014, will be replaced by
proper statutory law and incorporated in the appropriate
federal acts (namely the CO, and the Federal Law on
Occupational Retirement, Surviving Dependents and Disability
and the Swiss Penal Code).
The Draft provides for clarification of certain points in
the area of say-on-pay for listed companies that had been left
open by the OAEC.
First, criminal prosecution in case of infringement of
certain say-on-pay provisions will apply ex officio, and not
merely upon demand (proposed article 154 of the Swiss Penal
Second, signup bonuses for members of the BoD and management
would only be permissible if they compensate an actual, clearly
verifiable financial disadvantage (article 735c dCO).
Otherwise, such compensation would be illegal.
Third, the Draft sets out a number of limitations to
competition bans and non-compete obligations, which must be
viewed within the context of the illegality of severance
payments under the OAEC and say-on-pay provisions. Under the
OAEC, severance payments agreed by contract or foreseen in the
articles of association qualify as inadmissible compensation
and are subject to the OAEC's penal provisions. Many listed
companies have so far included in their articles of association
a non-competition clause (often with a duration of more than
one year), combined with the possibility of paying compensation
for such non-competition. Whilst the conclusion of a
non-competition clause is in principle permitted by the CO
(article 340 CO), criticism had been voiced that
non-competition clauses of excessive duration may be seen as
hidden, and therefore illegal, severance payment. By setting a
maximum duration of one year to non-compete obligations, the
Draft provides for clarification that: (i) compensation not at
arm's length and based on a non-competition ban, or a
compensation based on a competition ban which commercially is
not justified, should qualify as inadmissible and therefore be
prohibited; and (ii) non-compete obligations should not exceed
a duration of 12 months.
Compared to the OAEC, the Draft proposes to tighten the
scope of a prospective shareholders' vote on say-on-pay. Whilst
the OAEC permits conducting a retrospective or prospective vote
over fixed and variable compensation, the Draft would only
permit a retrospective vote on variable compensation.
Therefore, a prospective vote would only be permissible for
fixed compensation (article 735 dCO).
As a true novelty, the Draft proposes a benchmark for a
balanced gender representation in the BoDs and the management
of large companies. Large companies are those exceeding two of
the following thresholds in two successive financial years: a
balance sheet total of SFr20 million ($21 million); turnover of
SFr40 million; and, 250 fulltime positions on annual average).
According to article 734e dCO, there should be at least a 30%
representation of both genders in the board of directors and
the management. If this threshold is not reached, the
compensation report has to state the reasons for the shortfall
and describe the measures to promote the representation of the
less represented gender.
The Draft proposes a further strengthening of shareholders'
rights of both listed and private companies by reducing the
thresholds of shareholding for: a request of special
investigation (article 697e dCO); a convocation of a general
meeting (article 699 dCO); the placement of an item on the
agenda of the general meeting (article 699a dCO); the right to
make requests during a general meeting (article 699a dCO); the
right to request the dissolution of the company through lawsuit
(article 736 dCO); and, requesting a lawsuit at the company's
expense (article 697f dCO). In addition, the existing lawsuit
regarding the return of benefits (article 678 dCO) will be
For non-listed companies, the Draft proposes to require the
BoD to disclose information regarding compensation to the
members of the BoD and the management at the general meeting
(article 697 dCO).
"The Draft proposes a
further strengthening of shareholders’
rights of both listed and private companies"
Further, the Draft proposes an extension of the statute of
limitation period for filing claims of shareholders if the
company suffered damage. Such period will be extended from six
to 12 months (article 758 dCO). On the other hand, the judge
may decide to allocate or divide the procedural costs between
the claimants and the company (article 107 dCPC) in order to
mitigate the risk of high costs for the claimant, usually a
The Draft provides for the possibility of holding
'cyber-general meetings' (shareholders meetings without a
physical venue). Whilst the first draft reform of the stock
corporation law of 2007 still excluded the applicability of
such cyber meetings for resolutions to be publicly notarised,
the Draft would allow a cyber-meeting also for such resolutions
(article 701d dCO). In case of technical problems occurring on
the side of the company, the BoD would in any event have to
repeat the vote, without the possibility of providing evidence
that the technical problems did not have an influence on the
result of the respective vote (article 701f dCO)
The proposed articles regarding restructuring and measures
focus on the company taking restructuring measures at an
earlier stage and encouraging the BoD to make use of the new
Where there is good cause for impending insolvency of the
company, an up to date liquidity plan, including an assessment
of the economic situation, must be drawn up by the BoD by
partial inclusion of the auditors and the shareholders'
meeting, so that the solvency of the company is ensured at all
times (article 725 dCO).
Further, and if certain conditions are met, the court
notification will be omitted during a tolerance period of 90
days, if there are good prospects of recovering of solvency
(article 725b dCO).
Transparency of commodities sector
The Draft proposes improvement of transparency in the Swiss
commodities sectors. The proposed provisions follow the
requirements of the corresponding EU and US rules. Further, the
new articles agree with the requirements and recommendations of
the Commercial Accounting Rules.
Listed companies and companies engaged in the raw material
mining sector (logging, timber, and mining of metals and
minerals) must prepare and publish a written report regarding
payments (minimum amount of SFr120,000) made to public
authorities during a company's business year. The Federal
Council may extend these obligations (article 964a dCO) to
other companies in the Swiss commodities sectors.
The consultation period on the Draft ends on March 15 2015.
It is expected that the Federal Council will analyse the
results of the consultation period until the end of 2015 and
publish its message to Parliament at the end of 2016 or the
first half of 2017. Considering the length and complexity of
the Swiss legislative process, it will then take several years
before an amended Swiss Stock Corporation Law will come into
Marco A Rizzi
T: +41 44 386 60 00
T: +41 44 386 60 00