Directors have a general duty of loyalty towards the company and must safeguard its interests. In a group of companies, a director must generally safeguard the interests of the company where he/she is a director and not of the group as a whole (however, when determining the individual interests of a specific company, the fact that such company belongs to a group of companies may be considered).
Directors must perform their duties with due care, i.e. with that degree of care which an ordinarily prudent person in a like position would use under similar circumstances. Further, the shareholders must be treated equally in like circumstances.
A director’s general duty of care under Swiss law entails numerous specific duties, which cannot all be listed here.
The law defines some particularly important duties of the board which are non-transferable and inalienable. The decision-making process as regards these non-transferable duties cannot be delegated to a committee of the board, to a managing director or to independent outside officers; however, the board of directors may “delegate” the preparation and implementation of its decisions. The following duties are non-transferable:
- strategic management of the company and the issuing of necessary directives
- establishment of the organisation of the company
- organisation of the accounting, financial control and financial planning systems as required for the management of the company
- appointment, supervision and removal of persons entrusted with managing functions
- preparation of the annual report and the financial statements as well as – for listed companies – the compensation report
- preparation of the shareholders’ meetings, and
- notification of the courts in case of over-indebtedness of the corporation.
With the exception of these non-transferable duties, the board of directors may fully delegate (including the delegation of the decision-making process) the management of all or part of the company’s business. If the board has validly delegated all or part of its transferable duties to a committee of the board, to a managing director or to an independent external officer, the standard of care to be observed by the respective delegates is determined by the specific scope of the delegation.
With regard to the company’s creditors, directors are under a legal duty to call a shareholders’ meeting and propose adequate restructuring measures if the last annual balance sheet shows a capital loss (i.e. half of the share capital, and the legal reserves are no longer covered by the company’s net assets). Moreover, in case of substantiated concern of over-indebtedness, an interim balance sheet must be prepared and submitted to the auditors for examination. If the interim balance sheet shows that the company’s liabilities are no longer covered (whether the assets are appraised on a going concern basis or at liquidation value), the board of directors is under a legal duty to notify the court unless certain company creditors subordinate their claims to those of all other company creditors in the amount of the over-indebtedness.
Upon receiving such notification, the court opens insolvency proceedings. Nevertheless, on application by the board of directors or by a creditor, the court may grant a stay of insolvency proceedings provided that there is a prospect of financial restructuring (i.e. prospect of sustainable financial reorganisation of the company and recovery of its profitability); in such case the court prescribes measures to preserve the company’s assets. Further duties of the directors concern the timely and duly payment of social security contributions for the company’s employees and the payment of certain taxes.