Introduction
RevCO articles 653s-653v
Comment
The last package of numerous revisions to Swiss company law will enter into force on 1 January 2023. Articles 653s to 653v of the revised Swiss Code of Obligations (revCO) introduce the capital band – a new concept in the provisions that govern companies limited by shares, which aims at making equity financing more flexible for corporations(1) The shareholders' meeting will be able to use the capital band to authorise the board of directors to increase and/or decrease the share capital in a more flexible way than presently possible.
A previous article outlined the legally defined procedures regarding capital increase and decrease in companies that are limited by shares under current law (for further details please see "Capital band: final amendments to Swiss company law to enter into force in 2023"). This article contrasts these procedures with key aspects of the capital band.
The concepts of "ordinary" (articles 650-652g) and "contingent" capital increase (articles 653-653i) are maintained under the Code of Obligations (CO) as revised, which will enter into force on 1 January 2023 with only slightly amended provisions.(1) The methods of the formerly titled "constructive" and "declarative" capital decrease are now called "ordinary capital decrease" (articles 653j-653o) and "capital decrease in case of a negative net equity" (article 653p). While there were only slight adjustments to the latter, more significant amends were made to the former regulations to render them clearer and more exhaustive.(2) The capital cut also prevails, but with more distinct stipulations (articles 653q s). The instrument of the authorised capital increase, on the other hand, is now integrated in the articles that regulate the capital band, which combine it with a new method of a de facto authorised capital decrease.(3)
The capital band can be set up either by a resolution of the shareholders' meeting (requiring two-thirds of the votes represented and the majority of the nominal share value represented (article 704(1)(5)) or upon the company's incorporation (whereby unanimity is needed).(4) Thereby, the articles of association are changed to authorise the board of directors to increase and/or decrease the share capital once or various times within a maximum of five years.
The articles of association as changed must, among other things, define the capital band's expiration date, whose maximum of five years starts running from the date of the general meeting's resolution (articles 653t(1)(2) and 653s(1)). They must also set an upper and lower limit for the capital changes (article 653(1)(1)). Whereas the upper limit cannot exceed 150% of the share capital registered in the registry of commerce, the lower limit of a capital band must be at least of 50% of the share capital (article 653s(2)) and not lower than 100,000 Swiss francs ($105,400) (article 621(1)).(5) This means that while the capital band allows a capital cut in the sense of article 653q (ie, reducing a part of the company's share capital with a simultaneous new increase of the share capital), it does not permit a capital cut according to article 653r, where all shares are cancelled and the share capital is simultaneously increased again.(6)
As any increase or decrease in share capital bears an inherent risk to the company's shareholders and creditors, there are limits that the law also sets out for the capital band in this regard.
In particular, if the shareholders' subscription right is restricted or cancelled, the articles of association must specify to what extent they might be, and if the right to restrict or cancel the subscription right is delegated to the board of directors, the articles must define on which good cause the latter is allowed to do so (article 653t(1)(7)). The creditors, on the other hand, might be put at risk if new shares are allowed to be paid in kind, instead of in money, due to a potential over-evaluation of the contributions (for further details please see "Capital band: final amendments to Swiss company law to enter into force in 2023"). Accordingly, the general requirements set out to limit the risk of contributions in kind are also applicable to the capital band (article 653u(5) in connection with article 652c; eg, referring to articles 634 and 635(1)).
Further limitations are to be found in the safeguards established to protect the company's creditors in case of a capital decrease, as such leads to a reduction in the company's liability reserves. For one, article 621(1) defines that the share capital may never go below the minimum required amount of 100,000 Swiss francs. In addition, the board of directors may only be authorised to decrease the share capital if the company did not waive the limited audit of the annual financial statement (article 653s(4)). Further, the new law foresees an analogous application (article 653u(3)) of the provisions regarding the securing of creditors' claims, the drawing of an interim financial statement, and the confirmation that the creditors' claims are fully covered despite the capital decrease (articles 653k-653m). Article 653k is to be pointed out in particular, which requires the board of directors to publish a call on creditors in the Swiss Official Gazette of Commerce (SOGC), announcing that they may register their claims to be secured. This is, however, not mandatory if a licenced audit expert has confirmed that these claims are fully covered (article 653k(3)). Further, differing from the currently valid article 733 of the CO, the call will only need to be published once instead of three times. The legislator's reasoning is that, as nowadays all publications can be accessed through the SOGC's website, one publication is sufficient.(7)
In addition to the limitations laid out above, the shareholders' meeting can impose further restrictions, provisos and conditions to the capital band (articles 653s(3) and 653t(1)(3)). In particular, the authorisation of the board of directors may be limited only to either increases or decreases (article 653s(3)) – or even to only one increase or decrease.(8) It is not possible, however, to set up more than one capital band at a time.(9)
If a company has decided on an authorised or contingent capital increase before the new provisions have entered into force, the decision is subject to current law (article 3 of the Transitional Provisions to the amendments of 19 June 2020).(10) It should be noted that since the concept of the capital band replaces the authorised capital increase, these two legal forms are mutually exclusive.(11) Thus, if a company has decided on an authorised capital increase and later wishes to introduce a capital band while the authorised capital increase is still in place, it must first nullify the latter.
Articles 653s-653v can be seen as a combination of the existing method of authorised capital increase (current articles 651-651a, which will be abolished) with the mechanics of an authorised reduction of the share capital, a form of reduction of share capital that does not yet exist. This will allow the board of directors to act faster and more dynamically. The greater flexibility thus created to increase or decrease share capital (as promoted by the legislator)(12) seems apparent. At the same time, the shareholders and creditors appear to be well guarded by the mechanisms put forward to protect their interests. Time, practice and case law will tell how well the new provisions interlock and whether the capital band becomes a popular instrument with Swiss companies limited by shares, ideally contributing to the Swiss market's attractiveness for foreign companies, as well as foreign and domestic investors.
For further information on this topic please contact Markus Dörig or Georges Clemmer at Badertscher Rechtsanwälte AG by telephone (+41 1 266 20 66) or by fax (+41 1 266 60 70) or by email ([email protected] or [email protected]). The Badertscher Rechtsanwälte AG website can be accessed at www.b-legal.ch.
Endnotes
(1) Dispatch of the Federal Council regarding the amendment to the CO dated 23 November 2016, Revision of Company Law, p 496 and p 501.
(2) Dispatch of the Federal Council regarding the amendment to the CO dated 23 November 2016, Revision of Company Law, p 505 and p 510.
(3) Hans Caspar von der Crone and Giovanni Dazio, "Das Kapitalband im neuen Aktienrecht, Flexibilisierung der Kapitalveränderung durch Art. 653s-653v revOR", SZW/RSDA, 5/2020, p 517.
(4) Marc Bauen/Robert Benet, Schweizer Aktiengesellschaft, N 26.
(5) Dispatch of the Federal Council regarding the amendment to the CO dated 23 November 2016, Revision of Company Law, p 513; Hans Caspar von der Crone and Giovanni Dazio, "Das Kapitalband im neuen Aktienrecht, Flexibilisierung der Kapitalveränderung durch Art. 653s-653v revOR", SZW/RSDA, 5/2020, p 514.
(6) Hans Caspar von der Crone and Giovanni Dazio, "Das Kapitalband im neuen Aktienrecht, Flexibilisierung der Kapitalveränderung durch Art. 653s-653v revOR", SZW/RSDA, 5/2020, p 514.
(7) Dispatch of the Federal Council regarding the amendment to the CO dated 23 November 2016, Revision of Company Law, p 506.
(8) Peter Böckli, Schweizer Aktienrecht, mit Fusionsgesetz, Börsengesellschaftsrecht, Konzernrecht, Corporate Governance, Recht der Revisionsstelle und Abschlussprüfung in neuer Fassung – unter Berücksichtigung der angelaufenen Revision des Aktien- und Rechnungslegungsrechts, 4. Aufl., Zürich/Basel/Genf 2009, § 2 N 51.
(9) Benjamin Büchler, Das Kapitalband, Diss. Zürich 2011, N 275 and N 80.
(10) Federal Gazette (BBl) 2020, 5629 ss. (Official Compilation of Federal Legislation (AS) 2020, p 4061 ss).
(11) Hans Caspar von der Crone and Giovanni Dazio, "Das Kapitalband im neuen Aktienrecht, Flexibilisierung der Kapitalveränderung durch Art. 653s-653v revOR", SZW/RSDA, 5/2020, p 517.
(12) Dispatch of the Federal Council regarding the amendment to the CO dated 23 November 2016, Revision of Company Law, p 513.