As part of the revision of corporate law, new legal provisions came into force on January 1, 2023, particularly regarding the duties of the board of directors, audit firms, and licensed auditors in situations involving imminent insolvency, capital loss, or over-indebtedness.
These changes impose clear responsibilities on both the board of directors and the audit firm.
Duties in Cases of Imminent Insolvency, Capital Loss, and Over-Indebtedness
Duties in Cases of Imminent Insolvency, Capital Loss, and Over-Indebtedness
Capital Loss
If the most recent annual financial statement shows a capital loss, the board of directors must take steps to eliminate the capital loss. If necessary, it must adopt further recovery measures or propose such measures to the general meeting, to the extent within its authority (Art. 725a Abs. 1 OR).
Art. 725a Abs. 2 OR also provides that if a company does not have an auditor (Opting-out), the most recent annual financial statement must undergo a limited audit before approval by the general meeting.
In such cases, the limited audit is carried out under a contractual agreement, focusing solely on the review of the annual financial statement. Any proposals to the general meeting, such as offsetting the balance loss or using reserves, are not subject to this audit.
A review can only be waived if the board of directors submits a request for deferral of payments.
Over-Indebtedness
If there is justified concern that the liabilities of a company are no longer covered by its assets, the board of directors must immediately prepare interim financial statements at both going concern values and liquidation values.
Even a justified suspicion of over-indebtedness triggers the duties of the board of directors.
A review of the interim financial statement at liquidation value can be waived if the assumption of going concern is present and the interim statement at going concern values shows no over-indebtedness.
The board of directors must have the interim financial statements reviewed by the auditor or, if one is not available, by a licensed auditor chosen by the board of directors.
If over-indebtedness under Art. 725b OR is present, the conditions of capital loss under Art. 725a Abs. 1 OR are also met, meaning the annual financial statement must be reviewed by a licensed auditor.
This continues until no capital loss exists. This is also true if over-indebtedness is covered by subordination agreements. The effect of subordination agreements extends only to the fact that notification to the court can be waived. The review of the annual financial statement remains obligatory.
The effect of the subordination only extends to the fact that the notification to the court may be omitted. The audit of the annual financial statement remains mandatory.
Non-compliance with the duties may render the approval of the annual financial statement by the general meeting invalid or even lead to liability cases for the board of directors.