Missing Board of Directors

From martin@m-win.ch and hauser@m-win.ch, +41 (52) 269 21 11

According to an incredibly formal legal practice of the Federal Court that is out of touch with reality, the AG no longer has a board of directors if it was elected for a term of office until the next AGM and this AGM does not take place within six months of the end of the financial year. The consequences and legal uncertainty are serious.

The ordinary general meeting takes place annually within six months of the end of the financial year, Art. 699 para. 2 OR . The term of office of the members of the board of directors of companies whose shares are not listed on a stock exchange is three years, unless the articles of association provide otherwise; the term of office may not, however, exceed six years, Art. 710 para. 2 sentence 1 OR .

Federal Court decision BGE 148 III 69

The Federal Supreme Court ruled in BGE 148 III 69 that the term of office of the Board of Directors ends at the end of the sixth month after the end of the relevant financial year if no general meeting was held in accordance with Article 699, paragraph 2 of the Swiss Code of Obligations or if the election of the Board of Directors was not included on the agenda. There is no "tacit extension".

The fact that many companies have become and will become incapable of acting does not seem relevant to the Federal Court. Nor does the great legal uncertainty due to a long series of "insignificant" actions in the period leading up to the new election. On the other hand, the consequences are not consistently consistent, for example:

• Third parties in good faith in the commercial register entry: This is not at risk, third parties may in principle rely on the commercial register entry unless they are positively aware that the term of office of the registered members has ended (Art. 936b para. 3 OR).
• Liability according to Art. 754 OR: The company, shareholders and company creditors remain protected because the liability according to Art. 754 OR also continues to exist for boards of directors acting as de facto bodies.

In its more recent decision BGer 4A_387/2023, 4A_429/2023, the Federal Supreme Court confirmed the decision BGE 148 III 69 and at the same time made it worse by holding that an administrative board which is no longer a board due to lack of timely re-election cannot, as a de facto body, convene a general meeting and the resolutions of a corresponding general meeting are void.

In an earlier decision BGer 6B_697/2014, the Federal Supreme Court had taken the view in E.2.3: "Since the complainant had the status of a de facto member of the Board of Directors, the lower court rightly assumes that he was obliged to convene the General Meeting (Art. 717 para. 1 OR)."

So far, a short, highly simplified summary. We have written a more detailed description of the matter, which you are welcome to obtain from us. We are also available to analyze and resolve situations that your company has found itself in or could find itself in due to this, in our opinion, highly inappropriate case law. Unfortunately, there are hardly any simple "patent solutions," especially in retrospect: in most cases, only a comprehensive assessment of the situation leads to a practical solution with as little legal risk as possible.

Note: This article was originally published by the independent law firm “ Martin Rechtsanwälte GmbH”.