This article is kindly contributed by Nicolas Cottier, Attorney-at-Law at CDC Avocats. His contact details can be found at the end of the article.
In Switzerland, the most common type of subsidiary company within a multinational group is a private company limited by shares (Aktiengesellschaft (AG) – Société anonyme (SA)). Some subsidiary companies are also organized as a limited liability company (Gesellschaft mit beschränkter Haftung (GmbH) – Société à responsabilité limitée (Sàrl)).
This article provides an overview of the most common procedure for removing a Swiss subsidiary which is a private company limited by shares, namely Members’ Voluntary Liquidation (or “MVL”) – which involves the appointment of an individual or a legal entity to act as liquidator of the company. The company must be solvent.
The key aspects of the MVL procedure for a Swiss AG / SA are summarized below. The procedure is similar for a GmbH / Sàrl.
Overview of the MVL procedure
- A resolution of the general meeting of shareholders must be adopted by at least two-thirds of the voting rights represented and an absolute majority of the nominal value of shares represented.
- The general meeting must take place before a notary
- A liquidator is appointed by the company’s shareholders unless the Board of directors remains in place and acts as liquidator
- The liquidator advertises for creditors in the Official Gazette
- The liquidator pays creditors
- The liquidator may pay surplus to shareholders three months after the last advertisement in the Official Gazette if all debts have been settled and if a licensed audit expert confirms that the proposed payment is in line with the legal requirements. Otherwise payment may only take place after one year.
- Removal from the register of companies may be requested at the end of the liquidation procedure
- The company is removed from the register of companies upon receipt of the tax authorities’ approval
- The company’s books must be kept for a period of 10 years
Liquidator’s exposure to personal liability in an MVL
The liquidator must immediately declare the company insolvent if it appears during the liquidation procedure that the company is overindebted.
The liquidator must manage the liquidation with care and diligence generally.
The tax consequences of an MVL must be carefully considered when choosing between this legal procedure and other types of group restructuring processes (merger, de-merger, transfers of assets, etc.)
Alternative options: mergers, de-mergers and transfers of assets
Swiss law provides for alternative options to the MVL, and these include mergers and de-mergers. Creditors’ and employees’ rights must be duly taken into consideration in these particular procedures as well.
The merger procedure is based on the company’s audited balance sheet and various documents must be issued (merger report, merger contract, etc.). Swiss law provides for a lighter procedure when a company belongs to a group of companies.
With the merger procedure, assets are transferred by way of a universal transfer of assets (and liabilities) and the transferring company is removed from the register of companies without going through the liquidation procedure summarized above. This is a key benefit of the merger procedure.
A Swiss company can participate in a cross-border merger as long as the country of the relevant transferee company recognizes cross-border mergers, as is the case in the EU under European Directive 2005/56/EC. In that case, the Swiss transferring entity will automatically transfer its assets by operation of law to the relevant transferee company. The competent authority in Switzerland to approve a cross-border merger is the registrar of companies for the place of registration of the transferring entity.
A de-merger involves the relevant company transferring all or part of its assets and liabilities to one or more transferee companies. The transferee company or companies issue shares or other membership rights to the shareholders of the transferring company.
This procedure requires that detailed lists of assets (and liabilities) be drafted in order to identify the individual assets (and liabilities) that are to be transferred. There is therefore no universal transfer of assets, and the transferring company would still need to go through the MVL procedure described above.
In short: using an MVL may be more expensive and slower than proceeding with a merger. In any case, the MVL gives the group the comfort that the liquidator will follow a specific legal process for advertising for creditors, realizing assets and making distributions to shareholders.
Cross-border mergers are sometimes used in legal entity reduction projects, and have the advantage that assets and liabilities are automatically transferred by operation of law. However, depending on the legal framework of the relevant transferee company, cross-border mergers may be impossible to execute or may end up being more expensive than an MVL.
Nicolas Cottier, the author, is an Attorney-at-Law at CDC Avocats. He can be contacted by telephone on +41 21 806 34 61 or by email at firstname.lastname@example.org.