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The comprehensive Swiss corporate law reform will modernize Swiss corporate law and further foster Switzerland’s attractive legal environment for the set-up of new companies. In essence, the reform provides for new regulations regarding general corporate law matters, compensation of top-level executives, gender quotas and disclosure obligations for companies in the natural resources sector. In the following, we will highlight the main changes to Swiss corporate law with a focus on how financial service providers may benefit from the new rules.
1. Introduction
While there is a global trend to a tightening regulatory environment for financial services providers, the Swiss corporate law reform pursues a different approach: The new statute aims at modernizing Swiss corporate law and introduces relaxations as well as more flexibility about various corporate law aspects, such as share capital structure, shareholders’ meetings, interim dividends, etc. Most of the new provisions are expected to enter into force in 2023. However, financial service providers are advised to start reviewing their corporate documents in order to assess how they can benefit from the increased flexibility of the new corporate law while still ensuring compliance with regulatory requirements.
2. Key take-aways
Swiss financial service providers should take note of the following key changes to Swiss corporate law:
Flexibility and clarification on general corporate law matters: The reform introduces a range of relaxations and clarifications on general corporate law matters, including more flexibility in the share capital structure, a legal basis for interim dividends and the permissibility of virtual general shareholders’ meetings. These relaxations also apply to financial service providers as which must in addition also comply with regulatory requirements and, in particular, requirements regarding minimum capital and liquidity.
Corporate restructuring and insolvency: The new law provides for «early warning systems» to raise the awareness of the board of directors for insolvency and equity risks as well as the respective duties which are focused on solvency. Financial service providers may have to comply with stricter regulatory liquidity and capital requirements.
Gender quota (for listed companies only): Listed companies must comply with a target gender quota of 30% for the board of directors and 20% for the executive committee on a "comply or explain" basis (entered into force in January 2021).
Implementation of OaEC (Ordinance against Excessive Compensation in Listed Companies): In essence, the new law implements the rules currently covered in the Ordinance against Excessive Compensation in Listed Companies (OaEC) and relating to, inter alia, the compensation for non-competition clauses and sign-on bonuses for current or former members of the board of directors, management and advisory board members. These provisions are stricter and require more transparency than the minimum standards for remuneration schemes according to the FINMA Circular 2010/1 which large financial institutions need to comply with since January 2010.
Transparency rules in the commodities sector: In accordance with EU Directives 2013/34 and 2013/50, larger companies that are active in the exploitation of natural resources must disclose payments in excess of CHF 100,000 to public authorities (entered into force in January 2021).
3. General corporate law matters
The changes in the area of general corporate law particularly relate to the share capital structure, interim dividends and shareholders’ meetings. As a result, financial service providers can/should assess whether they can benefit from the new rules while also complying with the applicable regulatory framework.
3.1 Capital band
The corporate law reform introduces the instrument of a so-called “capital band”: The general shareholders’ meeting may authorize the board of directors to increase or decrease the share capital within a range between plus 50% and minus 50% of the registered share capital during a maximum period of five years. Based on the current regime, companies are only able to authorize their board of directors to increase (but not decrease) their share capital by means of "authorized share capital". Regardless of the new corporate law, financial service providers will still have to comply with liquidity and capital requirements according to prudential rules. In other words, if and when introducing a capital band, financial service providers must ensure that the minimum capital threshold set by regulatory provisions is still respected. Nevertheless, the newly introduced capital band will serve as a quick and efficient instrument to amend the share capital in accordance with the company’s liquidity and capital needs.
3.2 Minimum par value
According to the current law, the shares of a company must have a minimum par value of at least CHF 0.01. Under the new law, companies (including financial service providers) are only required to have issued shares with a par value at any amount greater than CHF 0.00. This provides for more flexibility in order to structure the company’s capital as well as issued shares and may be of particular relevance in the context of recapitalization measures as more options regarding share splits are available.
3.3 Currency of share capital
The share capital of existing and new companies (including financial service providers) may be denominated in certain foreign currencies. In other words, the share capital of a company (as well as the company’s books) does not necessarily need to be denominated in CHF. However, companies may only state their share capital in a foreign currency if the respective foreign currency is deemed eligible by the Swiss Federal Council and material to the company’s business activities. In particular, holding companies will benefit from this new option as upstreaming profits/dividends of foreign operational companies do not need to be converted into CHF and it facilitates the distribution of dividends in a foreign currency by the holding company itself. Furthermore, the new relaxation will facilitate the corporate immigration process into Switzerland as the books as well as the share capital do not need to be converted into CHF in case the foreign currency is deemed eligible by the Swiss Federal Council.
3.4 Interim dividends
Like other jurisdictions, the new corporate law regime will expressly permit the distribution of interim dividends, i.e. dividends paid out of the profits of the current financial year. Interim dividends will be permitted if they are declared and distributed on the basis of an interim balance sheet. The interim balance sheet needs to be audited unless the company has opted out from the audit requirement or all shareholders approve the distribution of the dividend and creditors' claims are not put at risk by the distribution of an interim dividend. In addition, financial service providers have to observe stricter regulatory minimum capital, reserves or liquidity requirements when distributing profits. As an example, banks and account-holding securities firms may only distribute profits to the extent that the minimum and adequate capital as well as the liquidity requirements according to the Capital Adequacy Ordinance and the Liquidity Ordinance are still complied with.
Interim dividends may be of particular use with regard to the intra-group cash and liquidity management as it provides for more options regarding the distribution of funds within a group structure. As dividends may not only be distributed once a year at a particular time, profits may be distributed within a group when and where it is needed the most.
3.5 Shareholders’ meetings
The corporate law reform provides for a modernization and more flexibility for the organization of shareholders’ meetings for non-regulated companies as well as regulated financial service providers:
By introducing these new measures, Swiss law meets the needs of many Swiss-based companies with foreign shareholders or which form part of globally acting groups. They will significantly benefit from the corporate law reform as the new organizational options will allow them to pass shareholders’ resolutions in a more efficient and quick manner compared to the current regime. As a result, we expect virtual shareholders’ meetings as well as written or electronic shareholders’ resolutions to become the new normal for non-regulated companies as well as regulated financial service providers.
4. Corporate restructuring and insolvency
The new law provides for «early warning systems» to raise the awareness of the board of directors for insolvency and equity risks as well as respective duties in this regard. Under the new regulations, the board of directors’ obligations are focused on solvency, in addition to the current equity-related triggers:
In general, the aforementioned duties also apply to regulated financial service providers. However, depending on the importance and the risk profile of a financial institution, stricter regulatory requirements in case of insolvency and equity risks may apply. Banks, fund management companies, securities firms as well as insurance companies are, for example, subject to stricter measures in case of the risk of insolvency and bankruptcy according to art. 25 et seq. Banking Act and art. 51 et seq. Insurance Supervision Act, respectively.
5. Implementation OaEC (Ordinance against Excessive Compensation in Listed Companies)
The Ordinance against Excessive Compensation in Listed Companies (OaEC) entered into force in 2014 and aims at restricting excessive compensation of top-level executives in listed companies by introducing a say on pay and other executive compensation rules. The OaEC will be replaced by the new corporate law and most of the provisions of the OaEC have been adopted. However, a few changes will be made and may be summarized as follows:
Private companies (including non-listed financial service providers) may adopt on a voluntary basis the provisions regarding compensation of top-level executives partially or in full in their articles of association according to the above-mentioned requirements.
In addition to the provisions against excessive compensation, large regulated financial service providers need to comply with the minimum standards for remuneration schemes according to the FINMA Circular 2010/1 since January 2010. Large banks, insurance companies, securities dealers, financial groups and conglomerates are required to adhere to the ten principles set out by FINMA which define minimum standards for the design, implementation and disclosure of remuneration schemes in financial institutions. It is worth to note that the provisions against excessive compensation are generally stricter and more specific regarding, inter alia, transparency duties compared to the minimum standards for remuneration schemes according to the FINMA Circular 2010/1.
6. Gender quota
The corporate law reform introduces a benchmark regarding the representation of both genders in the board of directors and the executive board of major listed companies. In case each gender is not represented by at least 30% in the board of directors or at least 20% in the executive board, the company must (i) outline in its compensation report the reasons for not meeting the target quotas and (ii) explain the measures taken to foster gender diversity. This "comply or explain" rule already entered into force in January 2021. However, the requirements regarding the target quotas are subject to a transition period of five years for the board of directors and ten years for the executive board.
7. Disclosure obligations for companies exploiting natural resources
In line with the EU Directives 2013/34 and 2013/50, the new corporate law regime introduces enhanced transparency requirements for companies that are subject to a full audit and which, directly or indirectly through a controlled entity, extract minerals, oil, natural gas or primary forest wood. They are required to publish electronically a special report on a yearly basis reporting each payment or series of payments made to governmental authorities (including government-controlled enterprises) in the aggregate amount of CHF 100,000 or more per financial year. These provisions need to be complied with for the first time in respect of the financial year starting one year after 1 January 2021. Financial service providers active in commodity trading are not subject to this transparency requirement. However, the Federal Council is authorized to extend the scope of these provisions to include commodity traders in line with concerted international efforts.
8. Conclusion / EY support
As financial service providers are subject to regulatory as well as corporate law rules, compliance with all applicable regulations may pose challenges in practice. Hence, the corporate law reform introducing various relaxations and more flexibility is in general positively perceived by financial service providers. In particular, financial service providers may benefit from the enhanced flexibility regarding the organization of shareholders’ meetings, share capital structure and interim dividends to the extent permissible by regulatory requirements. As a result, it is advisable to start reviewing the corporate documentation to assess the extent to which financial service providers may benefit from the increased flexibility in line with regulatory as well as corporate law requirements and to ensure compliance with the new regulations.
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