Pre-litigation tools and procedure in M&A litigation

Shareholder vote

What impact does a shareholder vote have on M&A litigation in your jurisdiction?

The vote of shareholders in an M&A transaction, or the approval thereof, respectively, generally strengthens the board’s position in M&A litigation. A shareholder resolution approving a merger, demerger or conversion of legal form is in principle deemed to have the same effect as a release of liability with respect to this transaction, and provides the board members and officers with a legal defence against liability claims. At the same time, the challenge of shareholder resolutions in the context of M&A transactions is often the primary means for individual shareholders to challenge the M&A transaction as such and to prevent it from closing.

Insurance

What role does directors’ and officers’ insurance play in shareholder litigation arising from M&A transactions?

At least in the case of public or larger private Swiss corporations that regularly contract and pay for directors’ and officers’ insurance, this insurance plays an important role in liability actions brought by shareholders against directors or officers (including those arising from M&A transactions).

Burden of proof

Who has the burden of proof in an M&A litigation – the shareholders or the board members and officers? Does the burden ever shift?

In the case of liability actions against board members or officers, the plaintiff shareholder bears the burden of proof to establish that the defendant breached a legal duty under Swiss corporate law or the Swiss Merger Act (MA); that this breach caused loss or damage to the corporations involved or to the plaintiff shareholder; and that there is an adequate causal nexus between the breach of duty and this loss or damage. It depends on the specific claim, and it is controversial whether the plaintiff shareholder must also establish the fault of the defendant or whether fault is presumed (in which case the defendant must prove that he or she was not at fault to escape liability).

In the case of challenge actions against resolutions adopted by the shareholders or (under the MA) against resolutions adopted by the board, it is generally the plaintiff shareholder who bears the burden of proof that the challenged resolution was in breach of provisions or principles of Swiss corporate law, the MA, or the corporation’s articles of association.

Pre-litigation tools

Are there pre-litigation tools that enable shareholders to investigate potential claims against board members or executives?

Shareholders in a Swiss corporation have the statutory right to ask the board of directors at the general shareholders’ meeting for information on company matters. The board is obliged to provide this information to the extent required for the proper exercise of shareholders’ rights but may refuse to provide information when doing so would jeopardise the corporation’s business secrets or other interests worth protecting. Furthermore, a shareholder may only inspect the company’s accounts or business correspondence upon express authorisation by a shareholder or board resolution, and if the appropriate measures are taken to protect the corporation’s business secrets. If the board refuses to provide the requested information without just cause, the shareholder may apply to a court, which may order the corporation to provide the requested information.

Moreover, any shareholder may request that the general shareholders’ meeting have specific company matters investigated by means of a special audit when this is necessary to properly exercise the shareholders’ rights. The main purpose of this special audit is, in fact, to investigate potential liability claims against board members or executives and to enable shareholders to decide on whether to bring these claims. The right to request a special audit presupposes that the shareholder has exercised his or her statutory right to information and inspection. If the general shareholders’ meeting approves the special audit, the corporation or any shareholder may apply to a court within 30 days to appoint an independent special auditor. If the general meeting does not approve the special audit, shareholders who together represent at least 10 per cent of the share capital or hold shares with a nominal value of 2 million Swiss francs may apply to a court within three months to appoint an independent special auditor. They are entitled to this audit despite the general meeting’s refusal if they can establish prima facie that directors or officers of the corporation have violated their duties and caused damage or loss to the corporation or the shareholders.

Forum

Are there jurisdictional or other rules limiting where shareholders can bring M&A litigation?

Under Swiss law, both in a domestic and an international context, challenges against shareholder resolutions must be brought at the seat of the corporation. Subject to certain limitations or additional requirements in cases where the defendant resides in a member state of the Lugano Convention, liability actions against directors or officers may either be brought at the seat of the corporation or at the individual defendant’s domicile.

Since 2021, Swiss law expressly provides for the possibility to include an arbitration clause in the articles of association of a corporation. Pursuant to an amendment to Swiss corporate law (which has not yet entered into effect), such arbitration clause may provide that corporate law disputes, including challenge actions against shareholder resolutions and liability claims against directors and officers, are subject to the jurisdiction of an arbitral tribunal sitting in Switzerland. It remains to be seen if these developments will increase the practical relevance of arbitration for challenges to shareholder resolutions or liability actions.

Expedited proceedings and discovery

Does your jurisdiction permit expedited proceedings and discovery in M&A litigation? What are the most common discovery issues that arise?

Discovery is not available under Swiss procedural law.

In M&A litigation, expedited (summary) proceedings are applicable in the case of requests for interim or injunctive relief. If an M&A dispute is subject to arbitration, expedited arbitration proceedings may be available depending on the arbitration clause or the procedural rules agreed upon by the parties (eg, by reference to the rules of an arbitration institution, such as the International Chamber of Commerce or the Swiss Chambers’ Arbitration Institution).