Author: Lawyer Enrico Germano.
The Federal Act on the Amendment of the Swiss Civil Code (Part Five: The Code of Obligations, hereafter CO) states that “the members of the board of directors and all persons engaged in the business management or liquidation of the company are liable both to the company and to the individual shareholders and creditors for any losses or damage arising from any intentional or negligent breach of their duties.”
According to Swiss law, there are two forms of damage which corporate bodies are liable for: so-called direct damage and indirect damage.
Shareholders and creditors suffer direct, primary, or individual damage as a result of the culpable conduct of governing officer, when their assets are directly harmed, without the company itself being harmed. By way of example, this could be the case of a creditor who grants credit to an insolvent company based on a false balance sheet and thus suffers direct damage.
Such an action, however, presupposes that the conduct attributable to the governing officer constitutes an unlawful act, which may give rise, towards the proceeding creditor, to a liability under Article 41 CO arising from unlawful acts, or that it violates a rule of company law intended for the exclusive protection of creditors.
On the other hand, indirect damage will be deemed to exist if the shareholders or creditors rely solely on the violation of legal provisions relating to the obligation incumbent on the board of directors, i.e. rules enacted not only in the sole interest of the creditors, but also in that of the company itself
By way of example, one speaks of indirect damage when a company suffers damage that, in most cases, affects its shareholders and creditors. In the event of a decrease in the company’s assets, the shareholders suffer indirect or secondary damage, because the value of their share decreases. The company’s creditors also suffer a loss, as they do not, or only partially, recover their claims in the context of the company’s bankruptcy. With respect to any negligence on the part of the management bodies, their loss is only indirect, because it results from the insolvency of the company.
According to a ruling of the Federal Supreme Court in 1996 – later refined by a further ruling in 2006 – the possibility of liability claims by creditors against governing officers of the company depends on whether the creditor suffers direct or indirect damage.
A creditor, who’s victim of a direct damage, may act against the liable governing officer at any time to obtain compensation, whether the company is bankrupt or not.
According to the Federal Supreme Court, damage is direct when it results from governing officier’s violation of a rule of company law designed solely to protect creditors; when the obligation to grant compensation is based on the governing officier’s unlawful conduct within the meaning of the Art. 41 CO or even in situations in which it arises from culpa in contrahendo.
The classic example is the creditor who grants a credit to the company based on a false balance sheet or false information on the financial situation. Another example is when a liquidator distributes the company’s assets to the shareholders, without the creditors having been previously paid off. Another example is the case of someone who becomes a creditor of a company after the creation of the obligation for the board of directors to depose the company’s balance sheet and who therefore suffers damage, which entitles him to claim compensation for his direct damage from the board directors, who failed to notify the court pursuant to Art. 725(2) CO.
On the contrary, the creditor has no right to an individual action in case of indirect damage. According to the Federal Supreme Court, the damage is indirect when it results from the violation of a rule of company law whose purpose is to protect the interests of the company and its creditors. More precisely, as long as the company is not in bankruptcy, the creditor has no right of action against the governing officers of the company.
Only the company (or its shareholders under the conditions of Art. 756 CO) is allowed to bring a liability action against the governing bodies, provided that the general assembly has not adopted a resolution of release in the meantime – which is effective only for disclosed facts and only as against the company and those shareholders who approved the resolution or who have since acquired their shares in full knowledge of the resolution, pursuant to Art. 758 CO.
Finally, it should not be forgotten that directors are liable for taxes and contributions. In that case, each member of the board of directors shall be personally liable. In this regard, a recent ruling by the Cantonal Insurance Court of 8 June 2017 also recalled that “the new director is liable not only for current contributions, but also of the debt due during the period before he takes office. The new director must see to it that the current contributions are paid, as well as the contributions due back when he was not yet in office, as between the board’s inaction and the non-payment of contributions there is a cause-effect relationship. On the other hand, the new director shall not be liable for the damage caused to the compensation fund before he takes office, in the event that he couldn’t do anything because the company was already insolvent, respectively indebted to the point that the contributions were irrecoverable for legal or factual reasons. In such a case, the director is only liable for the aggravation of the damage, i.e. for further contribution debts”.
1 Ruling of the Federal Supreme Court – DTF 128 III 180, para. 2c p. 182 ff.
2 Ruling of the Federal Supreme Court – DTF 4P.213/2004 of January 18th 2005.
3 Schulthess Juristische Medien AG, Zürich – Basel – Genf 2006, Andrew Garbaski 58-71.
4 Basler Kommentar, Helbing Lichtenhahn Verlag 2008, p. 1450, no 17.
5 Responsabilité des organes : jurisprudence actuelle sur la qualité pour agir des créanciers et le dommage, Isabelle Romy, Prof. Université de Fribourg, Cedidac-56 1-23.
