Group Affiliate

Swiss Concept of Companies on Standalone Basis

Swiss statutory law does not provide for a full formal legal framework for group companies. Basically, the law requires that each legal entity pursue its own corporate scope independently of interests of its shareholders or non-subsidiary affiliates. Therefore, even a fully controlled group company has to act within its own statutory limits; acting in the interest of its shareholders might be limited extensively.

Swiss Financial Assistance Rules

Upstream or cross-stream financial assistance within a group of companies is a controversial topic in Switzerland. In the light of recent case law, the granting of an upstream or cross-stream (i) security (e.g. granting of a guarantee) by a Swiss subsidiary to secure obligations of its parent company or any of its affiliates, other than 100 percent direct or indirect subsidiaries, or (ii) loan (also in the form of cash pools) by a Swiss subsidiary to its (direct or indirect) parent company or to any of its affiliates must:

  • be allowed by the Swiss subsidiary’s articles of association, which shall include the purpose of group support and financial assistance;
  • be in the interest of the Swiss subsidiary (i.e. dealing at arm’s length, service against consideration, review of importance of the loan compared to the other assets of the subsidiary, financial capacity of the parent company and the affiliates to repay the loan); and
  • not constitute a repayment of the equity capital of the Swiss subsidiary or an unjustifiable repayment of benefits or contributions.

Otherwise, in case of any doubt (in particular with regard to whether the relevant case constitutes an arm’s length transaction), the amount of the security or loan shall be limited to the freely distributable funds of the Swiss subsidiary that needs to be blocked in the amount of the security or loan, and the subsidiary’s shareholders’ meeting shall resolve on and approve the granting of such security or loan.

Set-Off and Netting of Intercompany Loans / Receivables?

Set-Off Rights: In principle, a group affiliate can offset claims against debts towards its debtor group affiliate. There are, however, certain limitations: If the counterparty of the bankrupt company only becomes a creditor after the bankruptcy has been declared a set-off is excluded, except if the counterparty becomes a creditor as a result of executing prior obligations or if the creditor’s position is secured. Similarly, if the counterparty of the bankrupt company only becomes a debtor after the bankruptcy has been declared a set-off is also excluded. In other words, it is not admissible to acquire debts or credits after the bankruptcy has been declared merely to be in the position to declare set-off. The same principle applies in composition proceedings.