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05 January 2009
According to Article 716 of the Code of Obligations, the board of directors shall manage the business of a corporation insofar as it has not delegated the management. To the extent that management has not been delegated, it shall be vested jointly in the members of the board of directors. Thus, under Swiss law, in addition to the right to manage the company, the board of directors has a duty to manage the business unless such management is duly delegated.
The delegation of management competency from the board of directors to individual board members (managing directors) or a third party is allowed and legally effective, provided that (i) there is a provision in the articles of incorporation entitling the board of directors to delegate the management, and (ii) the board of directors has implemented an organizational regulation which:
The members of the board of directors are generally liable only if damage is caused by them directly - for example, through an intentional or negligent violation of their duties. However, if the board of directors delegates all or part of its duties to other persons, its members may also become liable for the actions of those persons. According to Article 754(2) of the code, the board members are discharged from such liability if they have rightfully delegated their duties and applied the necessary care in selecting, instructing and supervising the delegate as required under the circumstances. Therefore, under Swiss law, provided that the delegation of duties to the management is validly executed, a member of the board of directors may become liable for the actions of the management only under very limited circumstances. On the other hand, if the prerequisites for delegation are not fulfilled and the delegation is unauthorized, the board members may become liable without breaching their own duty, but rather based on a breach of duty by the management members.
In two decisions issued on February 22 2008 the Supreme Court reviewed the prerequisites for authorized delegation by the board of directors of a corporation while deciding on the liability of the board members.(1) The decisions involved different board members, but the same facts.
The appeal court had held that as the two board members had not validly delegated the management and therefore could not benefit from the limitations on liability pursuant to Article 754(2) of the code, they were liable to the creditors of the corporation based on the actions undertaken by the management of the corporation. The board members appealed to the Supreme Court, claiming that they had validly delegated the management and therefore were not liable for the actions undertaken by the management. They argued that (i) a delegation may be valid without a formal organizational regulation in writing, and (ii) an organizational decision by the board of directors which implicitly involves a delegation suffices to fulfil the requirements for authorized delegation. In deciding the case, the Supreme Court had the opportunity to lay down the minimum standards for authorized delegation and, in particular, for an organizational regulation as set forth in Article 716b of the code.
The Supreme Court upheld the appeal decisions and held that an organizational regulation requires at least a majority decision by the board of directors, recorded in writing and containing the organizational details required by Article 716b(2) of the code - for example:
However, the Supreme Court decisions also clarified that the organizational regulation can be part of a board resolution and need not be a standalone document.
The Supreme Court decisions should be taken into consideration by board members throughout Switzerland, who may want to take appropriate steps to ensure that they have correctly delegated the management. The board should still draw up an organizational regulation in writing and approve it by board resolution to ensure that the requirements of Article 716b(2) of the code are fulfilled and the delegation of management is valid. In addition, an organizational regulation constitutes conclusive evidence of authorized delegation. Finally, the board of directors may want to adjust the organizational regulation from time to time to align it with the actual organization.
For further information on this topic please contact Markus Dörig or Philipp Schaller at Badertscher by telephone (+41 1 266 20 66) or by fax (+41 1 266 20 70) or by email (firstname.lastname@example.org or email@example.com). The Badertscher website can be accessed at www.badertscherlegal.ch.
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