Those entrusted with the management of a commercial company (members of the board of directors, managers, officers, de facto bodies) occupy a position which, as a corollary, requires them to respect certain duties laid down by law (Code of Obligations; CO), the content of which has been specified by court practice (case law). These duties are essentially the same for the two most common types of company in Switzerland, namely the company limited by shares (société anonyme; SA) and the limited liability company (société à responsabilité limitée; Sàrl).
The members of the board of directors, respectively the managing directors of an Sàrl, and the officers and top managers are thus obliged to exercise their powers with all due diligence (duty of care) and to look after the company’s interests faithfully (duty of loyalty) (art. 717 para. 1 CO for SA; art. 812 para. 1 CO for Sàrl). They must also treat in the same way shareholders or partners who are in the same situation (duty of equal treatment) (art. 717 para. 2 CO for SA; art. 813 CO for Sàrl). These duties also apply to persons who, although not formally corporate bodies, actually exercise a decisive influence on the company’s decisions (de facto corporate bodies, e.g. a majority shareholder, or even, under certain restrictive conditions, a creditor).
A breach of these duties may give rise to liability on the part of the perpetrator, who is obliged to pay an indemnity for any damage caused to the company, a shareholder/partner or a creditor (art. 754 CO for SA, to which art. 827 CO refers in the case of Sàrl).
The conditions of liability are as follows:
• Breach of duty by the board member or managing director, or by a person entrusted with the management or liquidation of the company (cf. art. 754 para. 1 CO): by duty is meant in particular the duties listed above, namely the duty of care, the duty of loyalty and (albeit more rarely) the duty of equal treatment. The law does not, however, limit liability to the breach of one of these duties, and liability may be incurred for the breach of other duties incumbent on the persons entrusted with management (even if, generally speaking, these duties can generally be traced back to one of the above-mentioned general duties, in particular the duty of care and the duty of loyalty);
• Damage: the liability of a company’s director or manager assumes that the breach of duty has caused damage to the company, a shareholder or a creditor of the company. According to the general definition of damage under Swiss law, it corresponds to the difference between the current state of the injured party’s assets and the state they would be in had the breach of duty, as described above, not occurred. This may involve a decrease or non-increase in assets, on the one hand, or an increase or non-decrease in liabilities, on the other;
• Fault (negligence): the body in question can only be held liable for the damage caused if the conduct of which it is accused is at fault (i.e. is linked with negligence). Wrongdoing may be the result of active behavior or omission, and is analyzed according to objectivized standards of behavior. In concrete terms, faulty misconduct will be deemed to have occurred if it does not correspond to the behaviour which a conscientious and reasonable person in the same position and in the same circumstances would have adopted. Negligence is not presumed, and it is therefore up to the claimant party to prove the existence of a fault on the part of the accused body.
• Causality: the culpable breach of duty must appear to constitute the natural and adequate cause of the damage for which the claimant seeks compensation. Determining whether a natural causal link exists amounts to assessing whether or not the damage would have occurred without the wrongful breach of duty. Adequate causal link, on the other hand, is a legal concept which consists in determining whether the breach in question is likely, according to the ordinary course of things and the general experience of life, to bring about a result of the kind that has occurred.
The law provides for a alleviation in the liability of the board members or managing directors when they have validly and lawfully delegated a task to another body. In such a case, the board member or managing director are liable for damage caused by the body in question only if it was not selected, instructed and supervised with the care required by the circumstances (art. 754 para. 2 CO). For this relief to apply in the event of delegation, the delegation must have been implemented formally and materially in compliance with the law.
The risk of liability borne by those in charge of the company’s management and administration can be covered, to a certain extent, by the conclusion of an insurance policy for the benefit of the company’s governing bodies. In practice, the need to attract the best talent for positions of responsibility has also led to the development of contractual commitments, taken either by the company itself, or by a shareholder (usually the sole or majority shareholder), to assume the financial consequences of a liability claim. This type of commitment, which also covers the risk of liability, is valid within certain limits.
When a dispute arises in connection with a breach by a governing body of its duties, or when the warning signs of such a dispute are detected, it is important to quickly circumscribe the problem and identify the commercial, operational and reputational stakes for the company. This analysis requires a thorough understanding of the company’s operations, organizational structure and business model.
Purely procedural aspects will also need to be rapidly addressed, which will generally involve identifying relevant evidence and ensuring their preservation for a potential trial.
The rules applicable to liability claims are complex, particularly in terms of determining who is entitled to claim compensation for the alleged damage (outside bankruptcy, this is generally the company, unless a shareholder or creditor can claim to have suffered direct damage, i.e. damage that does not result solely from the damage suffered by the company; once bankruptcy has been declared, the right of action of shareholders and creditors is generally recognized). Taking these aspects into account requires a detailed examination of the situation and a thorough grasp of the procedural and substantive applicable rules.
THEVOZ & Partners has extended expertise in crisis situations and disputes involving the management bodies of commercial companies with respect to liability issues.
If you would like legal advice or guidance on this or any other issue in the field of commercial law, our team will be pleased to provide you with professional, personalized assistance.