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Trends and climate
What is the current state of the M&A market in your jurisdiction?
Various M&A indexes in Switzerland reached new highs in 2018. This means that an even higher rate of M&A activity can be expected in the coming months. All three of the main drivers of the M&A market are currently at a high level. The financing environment has been consistently favourable, making it easier to finance acquisitions with debt. In addition, many companies have considerable cash holdings and high market capitalisations, which make own shares attractive as an acquisition currency.
Have any significant economic or political developments affected the M&A market in your jurisdiction over the past 12 months?
Recently, confidence in Switzerland’s general economic development has risen steadily. However, most of the M&A index increases can be explained by the increased strategic focus on mergers and acquisitions by many companies. This means that mergers and acquisitions are not only being approached opportunistically by an increasing number of companies, but are also increasingly finding a place in corporate strategy. This is reflected, for example, by the fact that M&A activity is now more important than ever compared with other areas, such as organic growth, cost reductions and efficiency increases and innovation.
One reason for this development is likely to be the fact that many companies have used the strong framework conditions of recent years to become more efficient and grow organically. Now that such companies have implemented these goals and the framework conditions have continued to excel and even improve, these companies are also increasingly using acquisitions to expand their market share or penetrate new geographical markets. In terms of reasons for acquisitions, market entry, geographic expansion and market share gains have also strongly increased. This development is confirmed by the fact that the spectrum of possible target countries for acquisitions is broader than in most previous surveys. While acquisitions in Switzerland, Germany and the United States have always been at the top, participants are planning an increasing number of transactions elsewhere in Europe, as well as in China and other Asian countries.
Are any sectors experiencing significant M&A activity?
M&A activities of Swiss SMEs increased significantly in the first half of 2018. The number of recorded transactions increased by 6.4%, mainly due to cross-border transactions. German companies were the most important acquisition targets abroad, and the number of Swiss SMEs acquired by foreign companies also increased. The industrial sector recorded its strongest M&A activity in the first half of 2018.
Are there any proposals for legal reform in your jurisdiction?
Switzerland is implementing the most comprehensive corporate tax reform (Corporate Tax Reform III) in 50 years, which includes the abolition of so-called ‘holding’, ‘administrative’ and ‘mixed’ companies. The reform is expected to enter into force between 2018 and 2020 (most likely in 2019). The reform’s overriding goal is to strengthen Switzerland's attractiveness as a tax location for international corporations. Various measures are recommended to replace the existing regulations (eg, licence boxes for income from the exploitation and use of intellectual property, a notional interest deduction on equity and a general reduction in corporate income tax rates).
What legislation governs M&A in your jurisdiction?
The following general laws and regulations apply to M&A transactions in Switzerland:
- corporate law, which is codified in the Code of Obligations and stipulates shareholders’ rights and directors’ fiduciary duty and duty of care;
- the Swiss Merger Act, which regulates mergers, demergers and asset transfers, as well as changes in a company’s legal form;
- the Ordinance against Excessive Compensation, which applies to Swiss companies that are listed on a Swiss or foreign stock exchange. This provides, among other things, that compensation for a company’s management must be submitted to the shareholders' meeting for approval. It further contains corporate governance rules in respect of a company’s executive management, independent proxies and shareholders;
- the Listing Rules of the Swiss Six Exchange, which regulate the listing and de-listing of shares and include disclosure requirements in respect of information with price-sensitive content;
- the Federal Act on Cartels and other Restraints on Competition (Cartel Act), which contains provisions on M&A control; and
- the Federal Act on the Acquisition of Real Property by Persons Abroad, which contains restrictions with regard to the acquisition of residential property in Switzerland (ie, real estate not intended or used for industrial or business purposes) by foreign persons (including foreign controlled Swiss companies).
How is the M&A market regulated?
The Takeover Board and the Swiss Financial Market Supervisory Authority (FINMA) supervise public takeover offers. The Takeover Board is authorised to render binding and enforceable orders. Such orders can be appealed to the FINMA, whose decision can be appealed to the Federal Administrative Court.
In order to ensure a functioning market and protect competition, the Cartel Act requires an acquirer to notify the Competition Commission when certain thresholds regarding turnover are exceeded. The Competition Commission can approve or prohibit a transaction or approve a transaction with certain conditions.
Applicable laws and rules regulating the market
Public M&A transactions in Switzerland are regulated by the Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading (FMIA), which regulates both friendly and hostile public takeovers. The FMIA contains provisions to ensure that takeovers are transparent and fair and that shareholders are treated equally, as well as provisions regarding market abuse (eg, insider dealing).
Based on the FMIA, various other regulations have been enacted which regulate public takeovers:
- The FMIA Ordinance on Financial Market Infrastructure and Market Conduct in Securities and Derivatives of the Swiss Financial Market Supervisory Authority (FINMA) governs the obligation to disclose shareholdings and mandatory offers.
- The Takeover Ordinance contains provisions regarding the information to be provided in an offer prospectus and other obligations of the parties to a merger or acquisition.
- The Ordinance on Financial Market Infrastructure and Market Conduct in Securities and Derivatives provides additional rules regarding the mandatory purchase of a dissenting minority's shares (ie, a squeeze-out) as well as safe harbour rules regarding the prohibition of insider trading and market manipulation.
Are there specific rules for particular sectors?
Specific rules exist for certain industry sectors, such as insurance, healthcare, financial services, transportation and telecoms.
Types of acquisition
What are the different ways to acquire a company in your jurisdiction?
Public companies can be acquired by a public offer. Such offers can be a tender offer for cash, an exchange offer for securities or a combination of the two.
Private companies are commonly acquired by way of a share purchase. The acquisition by way of an asset purchase is also possible, but less common.
Companies can also be acquired by way of a merger.
Due diligence requirements
What due diligence is necessary for buyers?
The scope and depth of a due diligence review mainly depends on the nature of the target's business and the buyer's motivation for the investment (financial or strategic investor).
Due diligence reviews typically include a review and assessment of documents and information with regard to the following areas (the specific areas and the scope of the due diligence mainly depend on the target):
- commercial and business;
- employment, pensions and social security;
- real estate and property leases;
- intellectual property;
- litigation; and
In respect of the acquisition of larger companies or businesses, a separate technical, business, financial and tax due diligence review will usually be conducted in addition to the legal due diligence review.
What information is available to buyers?
Some information and documents are available through public records. In particular, the commercial register provides basic information on corporate matters (eg, a company’s legal form, name, statutory purpose, previous restructuring transactions, capital structure and board composition).
At the beginning of the due diligence review, the potential buyer requests the provision of documents by means of a document and information request list. Based on such list, the seller discloses the information and documents in a virtual or physical data room. In addition, during the due diligence review, the seller usually provides further documents, information or answers as requested by the potential buyer in a Q&A list.
What information can and cannot be disclosed when dealing with a public company?
When dealing with a public company, Swiss legislation prohibits the disclosure of information which is considered to be insider information or could significantly affect the company's market value.
How is stakebuilding regulated?
The Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading regulates stake building in public companies in Switzerland. The act provides that any party who has a direct or indirect shareholding in a company with a registered office in Switzerland whose equity securities are listed in whole or in part in Switzerland – or in a company with a registered office abroad whose equity securities are mainly listed in whole or in part in Switzerland – reaches, falls below or exceeds 3%, 5%, 10%, 15%, 20%, 25%, 33.3%, 50% or 6.6% of the voting rights must notify the company and the stock exchange on which the securities are listed.
What preliminary agreements are commonly drafted?
Letters of intent
As a rule, a letter of intent is entered into when a proposed transaction appears to be complex. In such cases, the process from the beginning of the due diligence until the signing of the acquisition agreement will likely take some time and will result in costs for both parties.
A typical letter of intent provides the key points of the intended transaction – namely:
- the agreed structure (eg, a share deal, an asset deal or a pre-closing restructuring);
- the purchase price or the formula for calculating the purchase price and mechanism of payment (eg, payment in instalments, earn-out, escrow payments, holdback);
- the schedule for the completion of the due diligence, negotiation, signing and closing; and
- the cost bearing.
Letters of intent are usually agreed as non-binding. However, some of the provisions are often agreed as binding (eg, break-up fees, confidentiality obligations, exclusivity and dispute resolution).
Further, the general obligation in a letter of intent to negotiate in good faith requires the parties to inform each other of all matters that they should be aware of in relation to the proposed transaction (eg, that a specific financing solution for the transactions has yet to be guaranteed by a bank or that the transaction requires the board and/or shareholders' approval). A violation of this obligation constitutes culpa in contrahendo liability and may result in compensation payments.
Letters of intent usually include exclusivity obligations. However, parties often wish to have an exclusivity obligation even when a letter of intent is unnecessary or during the early stages of a transaction when such a letter cannot yet be negotiated and entered into.
Confidentiality and non-disclosure agreements
Letter of intent usually include confidentiality obligations. However, if, for instance, an exchange of information and documents is required or desired at an early stage, it might be reasonable to agree such obligations before a letter of intent is negotiated and executed. Further, a confidentially and non-disclosure agreement is advisable even if no letter of intent will be concluded. Therefore, separate confidentiality and non-disclosure agreements are often entered into at the beginning of an acquisition.
What documents are required?
The principal documents in a Swiss acquisition are:
- a purchase agreement (a share or asset purchase agreement); and
- a disclosure letter that qualifies the seller’s representations and warranties.
Which side normally prepares the first drafts?
Normally, the buyer prepares the first draft of the purchase agreement and the seller prepares the first draft of the disclosure letter.
However, in a tender sale, the seller usually prepares the first draft of the purchase agreement so that the bidders can provide a mark-up with their offers.
What are the substantive clauses that comprise an acquisition agreement?
The substantive clauses in a share purchase agreement are:
- the definitions;
- the sale and purchase of the shares;
- the purchase price (including adjustments and the payment mechanism);
- closing (including conditions precedent and closing actions);
- representations and warranties;
- special indemnifications;
- further obligations (eg, non-compete, announcement and confidentiality obligations);
- miscellaneous provisions (including costs, taxes, amendments and notices); and
- the applicable law and jurisdiction or arbitration clause.
The substantive clauses in an asset purchase agreement are:
- the definitions;
- the sale’s object (the assets and liabilities are usually specified in annexes);
- the purchase price (including adjustments and the payment mechanism);
- closing (including conditions precedent and closing actions);
- representations and warranties;
- further obligations (eg, non-compete, confidentiality and announcement obligations and transition agreements);
- miscellaneous provisions (including costs, taxes (particularly value added tax handling), amendments and notices); and
- the applicable law and jurisdiction or arbitration clause.
What provisions are made for deal protection?
Typical deal protection measures are:
- confidentiality or non-disclosure obligations (often stipulated in a separate agreement);
- limited termination rights after the signing of the transaction agreement; and
- break-up fees, including the other party's advisory costs.
What documents are normally executed at signing and closing?
Upon signing, the following documents are usually executed:
- the share or asset purchase agreement; and
- the disclosure letter, if applicable.
At the closing of a share purchase agreement, the following documents are usually executed:
- the endorsement of the share certificates or assignment declarations (in order to effectuate the transfer of the shares);
- a resolution of the board of directors approving the share transfer, if applicable;
- the updated share register (in which the buyer is entered as a new shareholder);
- letters of resignation from the board members, if applicable;
- confirmation from the buyer’s bank confirming the transfer of the purchase price
- an escrow agreement, if applicable;
- other agreements (eg, consulting and employment agreements), if applicable;
- the Anti-money Laundering and Terrorist Financing documentation (ie, notification of the buyer’s beneficial owners and the updated register of beneficial owners); and
- the closing minutes.
At the closing of an asset purchase agreement, the following documents are usually executed:
- the documents and instruments required to complete the transfer of the assets and liabilities;
- confirmation from the buyer’s bank of the transfer of the purchase price;
- an escrow agreement, if applicable;
- other agreements (eg, transitional agreements); and
- the closing minutes, if applicable.
Are there formalities for the execution of documents by foreign companies?
In general, there are no specific formality requirements to adhere to with regard to transaction agreements. However, if the transaction entails registrations with or amendments to the commercial or land register, notarised and legalised documents may be required.
Are digital signatures binding and enforceable?
Under Swiss law, digital signatures are binding and enforceable, provided that they are an authenticated electronic signature based on an authenticated certificate issued by a provider of certification services within the meaning of the Federal Act on Electronic Signatures.
Foreign law and ownership
Can agreements provide for a foreign governing law?
Yes, the parties to an acquisition agreement relating to a Swiss target may choose a non-Swiss law to apply to the purchase agreement, provided that the transaction provides for certain minimum international aspects (eg, one or all of the parties to the agreement is or are not Swiss). However, in respect of the completion acts (the transfer of certain assets or shares) and the target’s governance, the applicable Swiss law must be considered and complied with. Thus, unless required for certain circumstances, it is not advisable to choose non-Swiss law as the law governing the purchase agreement in respect of a Swiss target.
What provisions and/or restrictions are there for foreign ownership?
There are no general restrictions against foreigners acquiring a company located in Switzerland. However, depending on the target's business – in particular, if it operates in a protected industry (eg, finance or security and defence) – some limitations or restrictions may apply. Further, a transaction might be prohibited due to international restrictions or embargos on a specific acquirer or its country of residence. Because the acquisition of real estate by persons not domiciled in Switzerland is strictly regulated, transactions involving real estate might be subject to special approval.
Valuation and consideration
How are companies valued?
Public companies are customarily valued at market value (ie, by the prices paid on the stock exchange (trading multiples) or the published takeover prices (transaction multiples)).
Various valuation approaches and methods apply to non-listed companies. All of the methods have their own advantages and flaws, which is why a combination of the valuation methods is usually applied to asses a company's value depending on its business and the specific circumstances and requirements.
The common valuation methods in Switzerland are as follows:
- The net asset value method provides a snapshot of a company's existing assets (ie, its existing substance) and can be seen as a company's minimum value. The net asset value method considers all of the assets listed on the balance sheet. In order to obtain a company’s net asset value (ie, equity value) the financial obligations (all of the company's debts and payables) must be deducted from the gross asset value (all of the company's assets together).
- The capitalised earnings method values a company by considering its expected future earnings through the deployment of its existing assets. Since, in the context of the capitalised earnings method, a company is considered an investment, this method focuses solely on the company’s future profits, as well as on the associated risks and earnings projections. Operating assets are seen only as a way of making profits and no specific value is allocated to them.
- The indirect goodwill valuation method (also known as the ‘Swiss method’ or the ‘practitioner method’) is based on a company’s capitalised earnings for the past two financial years, combined with its intrinsic value. This approach considers the company's net asset and profit values. The tax administration uses this method to calculate a private company’s market value.
- The discounted cashflow method determines a company's value based on future cash flows. The cashflow available after tax is used as the basis, because this method assumes that a company is only worth what it might earn in the future. The free cashflows must be forecasted over an appropriate period and the weighted average cost of capital will be discounted at the point of valuation.
What types of consideration can be offered?
Swiss law contains no restrictions regarding consideration. Consideration may consist of cash, shares, securities or a combination thereof. Cash payments are more common than payments by shares.
What issues must be considered when preparing a company for sale?
In general, some of the main issues that should be considered are:
- the transfer of know-how and knowledge – a common fear for buyers is that a large part of the target’s knowledge will be lost when it is sold. A such, targets should pass on their knowledge, develop their management structures and document guidelines and procedures that previously existed only as unwritten rules;
- maintaining updated financials – complete and well-documented business figures are essential in the event of a sale and make the entire sales process much easier. Targets should ensure that their figures are up to date and that they know and can show their actual profitability;
- building business relationships – buyers think long-term and are therefore also interested in the sustainability of the yield. Targets should investigate existing contracts with suppliers and customers to ensure that they do not expire or renegotiate. They should also reduce their dependence on key customers or suppliers and document important business relationships. Where possible, all verbal agreements with suppliers and customers should be converted into written agreements, as these will strengthen a target’s corporate image and build the trust of a potential buyer; and
- choosing good advisers – experienced consultants can have a big influence on a sale’s success and a target’s sales price.
What tips would you give when negotiating a deal?
The following tips should be considered:
- Companies should choose experienced advisers for both the financial and transactional aspects and the legal aspects of a sale.
- Professional preparation is crucial for a successful negotiation. This can include the preparation of documents, preparation for the first meeting (eg, a management presentation), the preparation of a professional information memorandum and preparation for the due diligence.
- Before any negotiation, all options should be considered. During negotiations, a proposal from the other side should not be immediately agreed (it is better to interrupt the negotiation and evaluate the options in another room). Whether there is any room for manoeuvre, as well as the limits, bandwidths and priorities, should be defined before the start of the negotiation.
- At the beginning, the parties should list all of their deal breakers and summarise the points of the contract that they want to negotiate.
- The roles of the individual members of the M&A team with regard to the contract negotiations should be decided (eg, good guy/bad buy or moderator).
- Companies should act professionally and not interpret the other party’s approach as a personal attack. The other party will usually test the scope for negotiation and play for time.
- During the M&A process, the target should talk to other interested parties in order to encourage a bidding competition. Alternatives will significantly improve a target’s negotiating position.
- Targets should submit their own draft contract so that the buyer must negotiate new points into it. The results of the negotiations should be recorded in writing by the target and incorporated into the contract. The target should maintain control and an overview of the various contract versions.
Are hostile takeovers permitted and what are the possible strategies for the target?
Yes, hostile takeovers are generally permitted. Possible strategies which targets can employ to fight against a hostile takeover include as follows:
- The search for a ‘white knight’ (ie, a friendly company for which an entry makes strategic sense and which is financially strong) has proven to be one of the most promising strategies. Another option is to employ a ‘white squire’ (ie, a party that can acquire a significant stake to block a hostile takeover).
- Efficient legal measures include the early elimination of the opt-out clause, which allows an investor to take control of a company without having to submit an offer to buy to minority shareholders.
- In public companies with registered shares, the board of directors may restrict the transferability of the shares. The tightening of an existing restriction may also be considered as a means of preventing a surprising change of control. The transfer restriction regime itself can be abolished only by a resolution of a general meeting.
- A further possibility for limiting the weight of registered individual shareholders or shareholder groups is the limitation of voting rights. One difficulty may be to prove such links.
- A board of directors may be granted the right to raise additional capital without granting subscription rights to existing shareholders. Instead, the rights to subscribe for new shares can be allocated to a white squire. In this way, the voting power of an attacker can at least be diluted.
- In practice, the rule that certain contracts (eg, credit agreements) lose their validity in the event of a change of ownership is effective only to a limited extent. Such clauses must also ultimately be in the company’s interest and must not, in principle, exclude unfriendly takeover bids.
Warranties and indemnities
Scope of warranties
What do warranties and indemnities typically cover and how should they be negotiated?
Although Swiss law provides for statutory liability provisions, the parties to a transaction usually replace the statutory regime with contractually agreed remedies. While buyer-side representations and warranties are usually short (they usually include only the buyer's due corporate and financial status and its capacity and authority to enter into and execute the agreement), the seller's representations and warranties typically cover a wide range of facts with regard to the target, its business, certain financial numbers and its contractual relationships with third parties. Typical representations and warranties include:
- the seller's right and authority (eg, its right to enter into and perform the obligations under the agreement and its obligation not to violate any constituting documents);
- the target’s corporate status (eg, confirmation of its due incorporation and valid existence and that it has no bankruptcy or voluntary dissolution);
- the parties’ title to shares or assets (eg, the seller's sole legal and beneficial ownership of the shares, free and clear of any encumbrance);
- the parties’ financial statements (eg, proof that they have complied with the relevant financial statements and accounting and reporting standard and statements that are an adequate reflection of their financial position);
- contracts material to the target’s business and the fact that the parties have no right to terminate or default on the contracts and that all contracts are at arm's length;
- details of the target’s intellectual property (eg, proof that it has full unencumbered title to its intellectual property, due registrations in the relevant countries and classes and a valid licence for all necessary IP rights not owned);
- details of the target’s employees (eg, disclosure of all terms and conditions of its employment contracts and proof that no key employee has handed in their notice);
- details of the target’s social security and pensions scheme (eg, proof that the pension plan complies with all statutory requirements and that there has been due and timely payment of all social security and pension contributions);
- the target’s real estate and property leases (eg, valid title to real property and premises);
- details of the target’s environmental obligations (eg, proof that it has fully complied with all applicable environmental laws and regulations and has all necessary environmental permits);
- details of the target’s taxes (eg, proof that there has been due and timely filing of all tax returns and all taxes due and that there are no contingent taxes);
- details of the parties’ authorisations (eg, that the parties hold all necessary authorisations and permits to conduct the business);
- details of the target’s compliance with laws and regulations;
- details of any litigations and proceedings (eg, proof that there are no pending litigations, proceedings, prosecutions, investigations or arbitrations involving the target); and
- details of the parties’ insurance (eg, proof that they have the customary insurance policies (in full force and effect) and no claims).
Limitations and remedies
Are there limitations on warranties?
There are no specific statutory limitations on representations and warranties. However, sellers usually seek to negotiate and include limitations on representations and warranties in the transaction agreement. The seller's liability is often one of the main negotiation topics in an M&A transaction.
What are the remedies for a breach of warranty?
Since the parties to an M&A agreement usually replace the statutory liability regime with a contractual framework, there are no universal remedies. Contractual remedies typically include:
- restitution in kind (the seller's obligation to put the buyer in the same position in which it would have been in if no misrepresentation or warranty breach had occurred); and
- compensation for the damage and loss that the buyer and target would have suffered.
Sellers must usually compensate the buyer by means of a cash payment only if it fails to cure the breach by restitution in kind within a certain period.
Are there time limits or restrictions for bringing claims under warranties?
Although Swiss law contains various time limits for bringing a claim (depending on the cause of action), the parties usually agree on limitation periods deviating from the statutory limitation periods. Typical limitation periods range from six months to 10 or 15 years after closing, whereby each representation and warranty might be subjected to a separate limitation period independent from the other representations and warranties' limitation period, depending on the importance of the representation and warranty.
Tax and fees
Considerations and rates
What are the tax considerations (including any applicable rates)?
The decisive factor for the tax assessment is the company’s legal form. A distinction is made between sole proprietorships or partnerships and corporations.
The tax considerations for sole proprietorships and partnerships are as follows:
- The owners of a sole proprietorship or partnership (ie, a simple, general or limited partnership) profit during their business activity from the fact that they are not affected by the double taxation of company profits compared with owners of corporations (ie, public limited (AG) and limited liability (GmbH) companies). However, when it comes to succession, such companies are clearly at a disadvantage from a tax point of view.
- Tax is levied on the difference between the book value and the selling price. The corresponding amount (ie, liquidation profit) is subject to income tax (ie, canton and municipality) and direct federal tax. The tax burden varies from canton to canton and amounts to up to 40% of the liquidation profit achieved. Since this profit is taxed as earned income, additional social security contributions from the old-age and survivors and disability insurance and income compensations are levied at a maximum rate of 9.5%. In the event of termination of employment after the age of 55 or disability, the sum of the hidden reserves realised in the past two years is taxed separately from other income and thus privileged.
The tax considerations for corporations are as follows:
- While the taxation of sole proprietorships and partnerships takes place directly with the owner, corporations (eg, AG and GmbH companies) are regarded as separate tax subjects and taxed accordingly. When selling corporations, it is not individual assets that are transferred to the buyer, but rather shares or ordinary shares.
- Compared with sole proprietorships and partnerships, the sale of corporations does not result in a taxable liquidation gain, but rather a possible tax-free capital gain. However, if individual assets from the company are sold, they must be taxed. Therefore, owners of corporations are strongly advised to sell shares rather than individual assets.
- In the following cases, the capital gain from the sale of corporations is not tax-exempt:
- payments to related parties – this includes payments made by the company to the owner of the company without appropriate consideration, such as the repurchase of the company's own shares with no intention of reselling them. Also included are transfers of equity securities held by the company owner to a company that it controls; and
- indirect partial liquidation – this represents a tax risk in the case of company successions because the tax authorities can in certain cases reclassify capital gains as taxable investment income. This is the case if the sale price achieved indirectly flows to the company owner – for example, if the share purchaser refinances the purchase price from the substance of the acquired company (ie, by means of a substance dividend or a loan from the company to the seller without the prospect of repayment).
Exemptions and mitigation
Are any tax exemptions or reliefs available?
Please see the above section with regard to a possible tax-free capital gain.
What are the common methods used to mitigate tax liability?
In order to mitigate tax liability, it is essential to choose the right legal form for the company and the right form for its sale (eg, a share deal versus an asset deal). Please also see above section.
What fees are likely to be involved?
The fees incurred in connection with a transaction typically include:
- adviser fees (ie, legal, tax and financial fees);
- notary and register fees (eg, commercial register fees and land register fees if real estate is transferred); and
- other administrative fees.
Management and directors
What are the rules on management buy-outs?
Swiss law provides no specific rules regarding management buy-outs. However, each manager is subject to the general duty of care and fiduciary towards the company and its shareholders and is thus required to always act carefully and in the company's interests. In order to not come into conflict with loyalty duties and to avoid liability, the management considering a management buy-out should disclose its intentions to the shareholders and openly discuss the possibility of a management buy-out with them.
What duties do directors have in relation to M&A?
In particular, directors have the following duties:
- a fiduciary duty (ie, a duty to act in the company’s interest);
- a confidentiality obligation (eg, an obligation not to disclose the intended transaction or undertake insider dealing);
- a duty of equal treatment of shareholders;
- a duty of care (eg, a duty to involve and engage professionals if a transaction is complex and the required knowledge and experience is not ensured within the involved persons); and
- publication and notification obligations in accordance with listing regulations.
Consultation and transfer
How are employees involved in the process?
In respect of asset deals, Article 333a of the Code of Obligations imposes information and consultation obligations on:
- employers that sell their business or part thereof in an asset deal; and
- employers that are involved in a merger.
The employees' representatives or, if there are none, the employees, must be informed before a transfer takes places about the reason of the transfer and its legal, economic and social consequences for the employees. If the transfer measures raise concerns for employees (eg, dismissals or a change in workplace), the employees' representatives or, if there are none, the employees, must be consulted.
As a rule, Article 333a of the Code of Obligations does not apply to share deals. Therefore, in the case of a share deal, employees have no right to be involved or informed prior to the deal’s closing.
Applicable collective labour agreements may provide further obligations for employee involvement.
What rules govern the transfer of employees to a buyer?
If the seller sells its business or part thereof by way of an asset deal, Articles 333et seq of the Code of Obligations provide for an automatic transfer to the buyer of the employment relationship with all rights and obligations, unless the individual employee objects to the transfer. In the event that an employee objects to the transfer, the respective employment relationship terminates on the statutory notice period’s expiration.
In order to facilitate the reorganisation of businesses in insolvency proceedings, the buyer and seller may waive the applicability of the automatic transfer.
The former employer (seller) and the buyer are jointly and severally liable for any claims of an employee which became due prior to the transfer or which become due between that juncture and the date on which the employment relationship could normally be terminated or is terminated as a result of the objection to the transfer.
As a rule, in respect of a share deal, Articles 333et seq of the Code of Obligations do not apply.
Applicable collective labour agreements may provide for further protection rights of employees in the case of acquisition transactions.
What are the rules in relation to company pension rights in the event of an acquisition?
Employers must set up an employee pension scheme that complies with the mandatory laws. The pension scheme can be set up:
- by the employer alone, as a separate legal entity (as a rule a foundation); or
- as an accession agreement with an insurer or another third party.
As a rule, an acquisition (either as a share or asset deal) has no effect on a pension fund. However, depending on the structure and the transaction, it might be necessary to partly or fully liquidate the pension fund. The proceeds from such liquidation will then be passed to the pension fund of the new employer of the respective employees. The conditions and the process of a liquidation are regulated by the applicable pension regulation and laws and supervised by the authorities.
Other relevant considerations
What legislation governs competition issues relating to M&A?
Competition issues in Switzerland are governed by the Federal Act on Cartels and other Restraints of Competition (Cartel Act). If the planned concentration of the buyer's and the target's business meets or exceeds certain turnover thresholds, the Competition Commission must be notified prior to the concentration’s implementation. According to Article 9, Paragraph 1 of the Cartel Act, such notification is required when:
- the undertakings concerned together reported a worldwide turnover of at least Sfr2 billion or a turnover in Switzerland of at least Sfr500 million; and
- at least two of the undertakings concerned each reported a turnover in Switzerland of at least Sfr100 million.
The Competition Commission can prohibit or approve a transaction or approve a transaction with certain conditions.
Are any anti-bribery provisions in force?
In Switzerland, bribery in the public and private sectors is governed by the Criminal Code. The code includes penalties (ac custodial sentence or monetary fine) for both active bribery (ie, the offer, promise or grant of an undue advantage) and passive bribery (ie, the solicitation, elicitation of a promise or acceptance of an undue advantage).
What happens if the company being bought is in receivership or bankrupt?
When a company becomes insolvent and becomes the subject of bankruptcy proceedings, its management loses its authority to act on its behalf and the bankruptcy court will appoint a receiver. The receiver and the bankruptcy court will decide on further proceedings.
As a rule, bankruptcy proceedings end with the company’s liquidation. However, if there is a chance to successfully restructure the company, a debt restructuring proceeding might be initiated. In an acquisition of a bankrupt company by means of a share purchase, only the shareholder (owner) of the company changes; the bankruptcy proceeding continues with the appointed receiver disposing of all assets for the creditors’ benefit. Since this is usually not in the interest of the buyer of shares, bankrupt companies are rarely acquired by means of a share deal.
Asset deals are much more common when it comes to the acquisition of bankrupt companies or, more specifically, their assets. In an asset deal transaction, the buyer can pick and choose the assets and liabilities and also better control and avoid assuming unwanted liabilities. In an asset deal with a bankrupt company, the potential buyer must negotiate the desired transaction with the receiver and the creditors must approve the transaction.
In order to facilitate a restructuring of financially distressed companies, Swiss law provides for special exceptional provisions. For instance, as an exception to the automatic transfer of the employment relationships in a transfer of a business by way of an asset transfer, Article 333b of the Code of Obligations stipulates that if the company or a part thereof is transferred during a debt restructuring moratorium, in the course of bankruptcy proceedings or under a composition agreement with an assignment of assets, the employment relationship can be transferred to the buyer only if this has been agreed with the buyer and the employee does not object to the transfer.