As Switzerland maintains a quite strict legal regime governing the director’s liability, it is immanent for each person holding a board function to know the rules and risks as well the legal consequences in this respect. During the last couple of years Switzerland has introduced various new rules influencing the director’s liability (new transparency rules for management compensations in listed companies, a comprehensive revision of the audit legislation and new statutory rules governing financial accounting), which are mainly applicable for listed companies. Although not-listed company do not have to follow these rules by law, they are well advised to consider and apply them too where appropriate in order to fulfil a good corporate governance and control the directors’ liabilities. In this article, we would like to give you a broad overview over the actual legal situation of the director’s liability in Switzerland as well as of some recent court cases dealing with questions of director’s liability. At the end, we list some rules, which each board member can apply in its activities to limit the risk of liability.

1.Management Duty of the Board

The board of director is generally in charge of managing the business and affairs of a corporation and it may make decisions on all matters not mandatory assigned to the general meeting by law or the articles of incorporation. At the same time, the board has a non-transferable and inalienable duty the ultimate supervision over the persons entrusted with the management.

Pursuant to Article 716b para. 1 of the Swiss Code of Obligations (CO), the management function of the board can be delegated to individual board members (managing directors) or third parties (officers), the latter also including legal entities. However, under Article 6 para. 1 of the Swiss Ordinance against Excessive Remuneration of Listed Companies (VegüV) the delegation of management to legal entities is no longer permitted. This flexibility allows for far-reaching modifications of the traditional statutory allocation of powers, ranging from the delegation of management to an Executive Committee, to the concentration of management powers and the chairman position in one person (creating a position similar to a ‘Président-Directeur Géneral’ or ‘Chairman and CEO’), to the delegation of management of operational matters to outside officers, thus largely separating the management function from the inalienable and non-transferable supervisory duty (Article 716a para. 1 and 5 CO) of the board.

Important requirement for a full or partial delegation of the management power is an explicit provision in the articles of incorporation containing the authorisation to the board to delegate its operational management in accordance with an organizational regulation (Article 716b para. 1 CO and Article 12 para 2 and 4 VegüV). Such organizational regulation must include provisions regarding the organization of the management, the individual managerial positions, their responsibilities and the reporting of the management to the board (Article 716b para. 2 CO). Only where the delegation of managerial duties was duly authorized and delegated as mentioned, board members can excuse  themselves from liability for damages caused by the delegates, provided the board members are individually able to prove that they applied the necessary care in selection, instruction and supervision of the delegates. Notably, certain core duties of the board are neither transferable nor otherwise alienable (see Article 716a para. 1 CO; see also Articles 5 and 13 VegüV).


Questions around director’s liability have been the subject of various claims during the past years and the Swiss courts have provided quite a substantial bundle of decisions answering them, that such a claim is not anymore an unpredictable expedition. However, it has to be well considered that filing a claim for director’s liability may be even in so called “clear cases” very costly and lengthy as liability claims often involve multiple parties and are dealing with complex facts and situations, which need to be described in a well prepared manner to the court. Thus, many of the liability claims have been settled before a final court decision has been rendered as the costs and lengthy of the procedure have brought the parties to a settlement rather to spend many years in the courtroom. Where a D&O insurance exists, it might be helpful to involve such insurer in a settlement discussion, as they prefer to save costs with a settlement rather to finance and pay a lengthy and expensive procedure.

In the following we highlight some typical constellations where a liability claims may arise.

-Claims of the Company in Good Standing

The number of claims brought by corporations in good standing or their shareholders against its officers for liability issues is rather small due to the high procedural costs and the lack of information of minority shareholders.

Nevertheless, the pressure has been mounting in recent years, especially on the board of listed stock companies, to evaluate taking action against board members and senior management in the aftermath of a crisis. In a recent decision, the Swiss Federal Tribunal (SFT) addressed the question of whether directors can ward off liability if they can prove that they were acting with the approval of all shareholders. The case concerned a lease agreement that was detrimental to the corporation. The agreement had been entered into by a director who at the time also was the corporation’s sole shareholder. The directors’ liability claim was raised by the heirs of the sole shareholder against the two other directors who had held qualifying shares in trust for the sole shareholder at the time the lease agreement was concluded. The SFT upheld the defence of volenti non fit iniuria of the two directors, arguing that the approval of the sole shareholder may be held against the corporation and the shareholders filing suit for the corporation. It is to be noted that the legal situation would have been different had the corporation gone bankrupt: in the case of a bankruptcy, the claims of the corporation are replaced by claims of the creditors as a whole with the effect that objections against the corporation as such can no longer be raised. In order not to unduly impede shareholders wishing the company to take action against its directors, officers, or executives, the SFT held in BGE 132 III 707 that this provision – and thus the same majority requirement – applies also to the decision as to whether counsel for the corporation to pursue this action is elected or not.

-Late Filing for Insolvency

The most claims for director’s liability arise in connection with their duty to inform the respective court about the insolvency of the company. Very often directors do not execute their duty in this connection on time and are therefore confronted with a claim for late filing for insolvency.  According to Article 725 par. 2 CO, in case of a substantiated concern of over-indebtedness, the board must prepare an interim balance sheet and must submit it to the auditors for examination. If this shows that the claims of the company’s creditors are covered neither if the assets are appraised at ongoing business values nor at liquidation values, then the board must notify the bankruptcy court, unless creditors of the company subordinate claims to those of all other company creditors in an amount sufficient to cover the indebtedness (Article 725 para. 2 CO). This inalienable duty to notify the judge (Article 716a para. 1 and 7 CO) has been the subject matter of numerous court decisions. The SFT has stated that the notice can be postponed as long as there are concrete chances for a successful financial restructuring and as long as there is no worsening of the financial situation that puts the claims of the creditors at risk. It further stated that the board does not act culpable if it does what can reasonably be expected from an entrepreneur in a difficult situation.

- Liability for the Issuance of Prospectuses

Founders, board members, and all persons participating in the incorporation process of a corporation are liable vis-à-vis the company, the individual shareholders and the creditors for any damages caused by intentional or negligent misrepresentations of financially relevant facts in the articles of incorporation, founder’s report, report on a capital increase, and so forth.

Many court decisions have dealt with the question of when the damages can be deemed the consequence of incorrect or misleading information in a prospectus. In a leading case, the shareholder at issue had bought these shares after the subscription period for a capital increase had expired. After the corporation’s bankruptcy, the shareholder filed suit against three directors. The Court first held that the shareholder had no claim based on the liability for the issuance of prospectus, as there was no causal link between misleading information in the prospectus and his decision to buy the shares.

Second, the Court held that the shareholder had no direct damage because the decrease in value of the shares primarily had an impact on the corporation itself and not directly on the shareholders. While the damage to the corporation was already addressed in a settlement agreement between the receiver in bankruptcy and the fallible directors, there was no possibility left for the shareholder to raise a claim on behalf of the corporation. As to the causality requirement in the liability for prospectuses, the SFT clarified that the necessary causality is given if the investor either directly relied on the information in the prospectus (direct causal link), or – in the assumption respectively under the condition that an efficient market exists – if the investor relied on the investment climate, which in turn was based on the prospectus (indirect causal link). On the other hand, a causal link does not exist if the investment climate is not based on the prospectus, but on other (newer) information, such as new company data, new press reports, economic forecasts, and so forth.


While a Swiss corporation has the possibility to insure its directors and officers with directors’ and officers’ (D&O) insurance, it is regarded as unlawful for the corporations to agree in advance on indemnifications against directors’ liability claims in the articles of incorporation or in individual agreements. It is, however, quite common and permissible to include indemnity clauses in contracts between shareholders and their nominees for the appointment as board member, at least insofar as damages are concerned that do not arise from grossly negligent, wilful, or even criminal acts of the director or officer. In addition, agreements of shareholders not to sue their directors and officers are considered binding for all consenting shareholders. Shareholders who have not consentedtosuchagreementsorcreditorsofthecorporationwillnotbeboundbysuch agreements and may still sue the directors and officers for damages.


D&O liability insurance has become more and more widespread in Switzerland not only for directors of publicly traded companies, but also for directors of small and medium-sized non-listed companies. Such policies are often bought by the corporation itself. The insurance premium may be paid by the corporation; it is considered a tax-deductible expense for a corporation. Professionals who also act as directors may purchase D&O liability insurance as an extension to their professional liability insurance policy. Normally, the limits are per claim and in the annual aggregate for all claims and all directors and officers together. Intentional wrongful acts or intentional violations of the law are typically excluded from D&O liability insurance. Any indemnity may be reduced if the director acted grossly negligent. Besides this, penalties, punitive damages, as well as claims for social security contributions and tax duties are equally excluded. The claims-made principle usually applies to D&O insurance policies. Such policies usually have a contract period of only one year and are not automatically renewed.


In order to avoid or to minimise the ground for any director’s liability claim, we suggest to respect the following rules as a director:

  • Delegate the management of the operational business to managing directors or to officers, and make sure the statutory prerequisites for such a delegation are fulfilled.
  • Take due care in the selection, instruction, and supervision of the delegates.
  • Make sure that enough board meetings with agenda and minutes are organized. A minimum of four to six board meetings per year is advisable.
  • Ensure that periodical reporting to the board is guaranteed.
  • Have the auditors inform you directly about their significant findings at least once a year.
  • Make sure that intra-group financing techniques (such as upstream financing) are justified transactions. Directors’ liability is focused on each legal entity separately and not on group structures.
  • Make sure that all social security contributions are routinely and timely paid. Where the corporation fails to make its contributions, the directors are regularly held liable for the missing contributions.
  • Check the content of the agreement you might have with the shareholder.
  • Ask for a copy of the corporation’s D&O insurance policy and find out details about the coverage, limits, deductible and exclusions on an annual basis.