the liability of directors of swiss companies in the event of financial difficulties and bankruptcy is governed by the swiss code of obligations (co), notably articles 725 to 726, revised in 2023. this guide outlines directors' duties, the risks involved, and essential preventive measures for 2025.
legal framework: key articles of the code of obligations
article 725 co: monitoring solvency
directors are required to:
- continuously monitor the company's financial situation
- act immediately in case of capital loss (equity < 50% of share capital + legal reserves)
- convene the general meeting and propose restructuring measures
article 725a co: capital loss
in case of capital loss, directors must:
- immediately convene an extraordinary general meeting
- inform shareholders of the situation
- propose restructuring measures (capital injection, capital reduction, liquidation)
article 725b co: over-indebtedness (2023 revision)
if the company is over-indebted (liabilities > assets) and no realistic prospect of restructuring exists:
- directors must immediately notify the court (bankruptcy judge)
- exception: if creditors subordinate their claims sufficiently to eliminate accounting over-indebtedness
article 726 co: equal treatment of creditors
in financial distress, directors must not favor certain creditors to the detriment of others.
article 754 co: civil liability
directors, managers, and even de facto managers can be held personally liable for:
- intentional or negligent breach of their duties
- damage caused to the company, shareholders, or creditors
risks for directors
1. civil liability
directors may face civil lawsuits if:
- they delayed responding to signs of financial difficulties
- they continued operations when the company was insolvent
- they failed to inform the court of over-indebtedness
consequences:
- obligation to compensate for damages (damages)
- joint liability among several culpable directors
2. criminal liability
in cases of serious misconduct, directors face criminal prosecution for:
- fraudulent bankruptcy (swiss penal code, art. 163)
- dishonest management (art. 158 pc)
- forgery of documents (presentation of inaccurate accounts)
consequences:
- significant fines
- possible custodial sentence
- prohibition from holding management positions
3. tax and social liability
directors may be personally liable for:
- unpaid taxes (vat, withholding tax) if non-payment results from negligence
- unpaid social contributions (avs, lpp, laa)
4. professional ban
in case of serious misconduct, the court may impose a temporary ban on acting as a director.
directors' duty of care
to avoid liability, directors must:
1. active financial monitoring
- implement a regular financial reporting system
- analyze monthly cash flows, balance sheet, and income statement
- anticipate difficulties through cash-flow forecasting
2. rapid response in case of difficulty
- immediately convene the general meeting when equity < 50% of capital
- document all decisions taken (detailed minutes)
- consult experts (lawyers, fiduciaries, restructuring specialists)
3. equal treatment of creditors
- do not selectively repay certain creditors close to insolvency
- respect legal priority rules in case of liquidation
4. declaration of over-indebtedness
- notify the court without delay upon finding irreversible over-indebtedness
- do not delay notification to avoid personal liability
essential preventive measures
1. robust internal control system
- clear procedures for financial management
- regular checks by independent third parties (auditors, fiduciaries)
- performance indicators (kpi) monitored monthly
2. ongoing training and information
- stay informed about legal developments (co reforms, case law)
- attend training on corporate governance
3. directors and officers liability insurance (d&o)
- take out d&o insurance (directors and officers liability insurance)
- note: insurance generally does not cover intentional misconduct or gross negligence
4. rigorous documentation
- detailed minutes of all board meetings
- retention of all financial documents (minimum 10 years)
- transparency with shareholders and authorities
5. early legal advice
at the first signs of difficulty:
- consult a specialized corporate lawyer
- engage a business restructuring expert
- explore restructuring options (capital injection, asset sale, reorganization)
consequences of bankruptcy
if the company is declared bankrupt:
- initiation of proceedings by the bankruptcy court
- appointment of a liquidator to realize assets and pay creditors
- investigation of directors' management by the liquidator
- possible liability action if misconduct is discovered
summary table
| duty | risk if breached | preventive measure |
|---|---|---|
| monitoring solvency | civil/criminal liability | monthly financial reporting |
| response to capital loss | civil liability action | immediate convening of gm |
| declaration of over-indebtedness | civil and criminal liability | immediate notification to court |
| equality of creditors | civil liability | documented payment policy |
| keeping accurate accounts | criminal liability | rigorous audit and internal control |
conclusion
directors' liability in bankruptcy is a serious legal reality in switzerland. the 2023 reforms have strengthened diligence obligations and the risks involved. to protect themselves:
- anticipate difficulties through active financial monitoring
- react quickly at the first warning signs
- document all decisions
- consult experts at the slightest doubt
ark fiduciaire services
we support companies and their bodies in:
- financial monitoring and regular reporting
- crisis management and restructuring
- preparation of compliant minutes
- accounting, vat, and management control
contact our team for secure support.