Key decision of the Federal Supreme Court – no automatic re-election of the Board of Directors in the event of a violation of Art. 699(2) of the Swiss Code of Obligations (CO)
June 2022

The Federal Supreme Court recently ruled on a long-controversial issue among lawyers as to how a breach of Article 699(2) of the Swiss Code of Obligations (conducting a general meeting within six months of the end of the financial year) affects the mandate of the Board of Directors whose re-election would have been on the agenda of the ordinary general meeting. Previous doctrines were predominant, which assumed at least tacit re-election. However, in judgement 4A_496/2021, the Federal Supreme Court has now ruled – going against case law – that board members who are not re-elected within six months of the last financial year of their term of office are no longer legally in office. What sounds harmless at first could have serious consequences for many companies.

 Companies with a non-re-elected Board of Directors are no longer able to act (so-called organisational deficiency) and resolutions of the non-re-elected full Board of Directors are null and void or constitute non-resolutions. The non-re-elected Board of Directors may not convene a general meeting to elect new members of the Board of Directors; such a meeting would also be null and void. Restoring the power to act requires either a universal meeting of all shareholders (because the universal meeting does not require an invitation from the Board of Directors to be valid) or a court hearing. In this case, the court shall convene the general meeting or appoint an administrative receiver with the mandate to convene a general meeting. Alternatively, if available and still legally in office, the auditor could also validly convene the General Meeting.

The consequences of a general meeting not being held or not being held on time or a failure to (re-)elect the Board of Directors may therefore be serious. If persons registered in the commercial register as members of the Board of Directors whose term of office has expired convene a general meeting out of ignorance, all resolutions of this general meeting are null and void, as the general meeting has not been legally convened. This also means that the re-election, which is put on the agenda at such a late general meeting, is null and void, and the whole thing will continue in the following years. Until this situation has been resolved, all resolutions of the general meeting (except resolutions of a universal meeting) are null and void. Convening the general meeting is a non-transferable task of the Board of Directors. It is responsible for the formal, correct and timely convening of the meeting. If it fails to convene the meeting or fails to do so on time, it may be subject to liability claims pursuant to Art. 754 of the Swiss Code of Obligations (CO) (responsibility of the BoD in the event of damages).

For this reason, it is essential to convene a general meeting no later than six months after the end of the financial year (e.g. on 30 June) and to place the election of the Board of Directors (and, if necessary, the auditor) on the agenda. If it is not possible to hold an ordinary general meeting by this date, an extraordinary general meeting must be convened at which the Board of Directors is then re-elected. It is also advisable to enshrine a multi-year term of office of the Board of Directors in the articles of association and nevertheless to place the re-election on the agenda each year. If necessary, there is a time buffer within which a re-election can be held.

Treureva and GHM Partners will be happy to assist you in restoring and maintaining corporate governance and corporate housekeeping. Please do not hesitate to contact us!

 

Oliver Habke
Shareholder and Head of Legal
+41 41 500 41 10
E-Mail
Oliver Habke

In the team since: 2014
lic. iur. Attorney and notary
Many years of experience in advising companies on commercial, stock exchange and corporate law issues; also on restructuring and M&A transactions. Advises private individuals on various civil law issues. As a lawyer and notary, he provides support in the above areas with regard to both certification and court proceedings.
Jannis Flachsmann
Attorney and notary
+41 41 500 41 10
E-Mail
Jannis Flachsmann

In the team since: 2018
lic. iur. Attorney, notary, LL.M.
Jannis Flachsmann’s preferred fields of practice include corporate law, commercial and business law, financial market law, contract law, employment law, tenancy law, construction and real estate law, civil procedural law and debt enforcement and bankruptcy law. He acts in an advisory capacity as well as in litigation. Being licensed as a notary, he also provides certification services to clients.