Previous provisions of OR 725 (capital loss and over-indebtedness)

If the last annual balance sheet shows a capital loss within the meaning of the Stock Corporation Act, the Board of Directors must immediately convene a General Meeting and propose restructuring measures to it. A capital loss within the meaning of company law (Art. 725 para. 1 CO) is deemed to exist if half of the total share capital and legal reserves have been exhausted, but not all of them.

Over-indebtedness within the meaning of Art. 725 para. 2 of the Swiss Code of Obligations exists if the balance sheet loss has completely consumed the share capital and any reserves still available; the existing assets therefore no longer cover the liabilities.

While in the case of obvious over-indebtedness the situation is immediately obvious to any reasonable balance sheet reader without further clarification, the board of directors must first prepare an interim balance sheet at going-concern and disposal values if there are justified concerns about over-indebtedness and then have this audited by an auditor. If the interim balance sheet shows that the claims of the company's creditors are not covered at either continuation or sale values, the Board of Directors must notify the judge unless restructuring measures that can be implemented at short notice can be initiated or a sufficient subordination can be agreed.

Reasonable concern of over-indebtedness, obligation to notify the judge in accordance with Art. 725 Para. 2 CO, taking into account the COVID-19 Regulation Insolvency Law

The COVID-19 regulation exempts companies from the obligation to notify the judge if they were financially sound at the end of 2019 and if there is a prospect that the over-indebtedness after the corona crisis can be overcome by 31 December 2020, i.e. if there is a prospect of restructuring. It is important to note that COVID-19 credits up to the amount of CHF 500,000 are not to be counted as debt capital when calculating and assessing whether half of the capital loss or even over-indebtedness exists (limited until 31 March 2022). The obligations under Art. 725 of the Swiss Code of Obligations (preparation of an interim balance sheet at going-concern and disposal values, examination by an approved auditor, notification of the judge) basically continue to apply even with the ordinance. The decision to waive notification of the judge must be carefully considered by the Board of Directors and justified in writing and documented in a comprehensible manner (minutes of the Board of Directors, balance sheet and income statement, liquidity plans, etc.). Only if the assessment of the board of directors clearly shows that a balance sheet restructuring is possible can the audit of the interim balance sheet required by Art. 725 para. 2 OR be omitted.

Companies cannot waive notification of the judge if they have already reported over-indebtedness as at 31 December 2019 or could waive notification of the judge due to subordination. The latter are considered to be over-indebted because subordinations do not constitute a restructuring measure.