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04 April 2005
Swiss corporate law does not recognize the overall legal concept of company groups. The legislators of the Swiss Code of Obligations 1911 acted on the assumption that only legally and economically independent companies existed. However, this archetype is no longer a reality. Today, larger, publicly owned companies in particular are often organized as company groups. A 1991 survey showed that out of more than 300 companies listed at the Swiss Stock Exchange, only 89 were not organized as a company group. The number of companies not organized as a company group is likely to have dropped even more within the last 14 years.
However, company group law is not completely overlooked in Swiss legislation. The code contains some provisions on company groups and therefore legally acknowledges the organization of entities as company groups. Article 663e of the code provides that if a company joins one or more companies under one management (group of companies), it shall prepare annual group statements (consolidated accounts). According to Article 727c, auditors must be independent from companies belonging to the same group of companies if a shareholder or creditor so requests. Creditors of new bond issues or similar debt instruments of a company or its group companies can be granted pre-emptive rights to new shares (Article 653). The limitations for a company to acquire its own shares also apply if the acquisition is made by a company's subsidiary (Article 659b).
In addition to these provisions, doctrine and case law have modified several rules of Swiss corporate law to fit company groups. In some cases, new rules were developed for company groups, particularly on the liability of a company group for its subsidiaries. Further examples include the extension of minority shareholders' right to information to company subsidiaries and the protection of minority shareholders against a shift in power by means of a spin-off.
The legislators have created an essential contradiction by acknowledging company groups in the code. On the one hand, Article 663e of the code defines a 'company group' as "a company joined by one or more companies under one management". Therefore, the code considers multiple companies under one management to be lawful. On the other hand, several mandatory provisions of the code's corporate law section oppose the concept of multiple companies under one management:
This inherent contradiction, which derives from the lack of the overall legal concept of company groups in Swiss corporate law, creates legal uncertainty. Therefore, Federal Supreme Court decisions concerning company groups are worthy of attention.
In a recent decision (BGE 130 III 213) the Federal Supreme Court ruled on the duty of care and loyalty of a manager in a company group.
X had been a manager at company B since 1992. Company B was a subsidiary of company D, the parent company. A third company (company C) was also a subsidiary of company D. In 1994 X arranged a sales deal between company C and another company, owned by X's wife. Due to poor market conditions, company C sustained a loss of Ffr226,000 on the resale of the goods. Without commercial grounds, X initiated a payment by company B in favour of company C, its sister company, equivalent to the amount of the loss. After the board of directors of company B discovered the payment at their company's expense, X was dismissed without notice.
The court decided that the duty of loyalty in Article 717 of the code calls for board members and managers to act according to the interests of their company. Company B sustained a loss because of the payment to its sister company, even though there was no damage to the company group. As a manager of company B, X was bound by law to safeguard only the interests of this company, not those of the company group. X was therefore liable to company B for the loss caused by the violation of his duties under Article 754 of the code.
For further information on this topic please contact Markus Dörig at Badertscher Dörig Poledna by telephone (+41 1 266 20 66) or by fax (+41 1 266 60 70) or by email (email@example.com). The Badertscher Dörig Poledna website can be accessed at www.bdp.ch.
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