Consequences of a late or forgotten election of the Board of Directors

According to Art. 710 of the Swiss Code of Obligations, the Board of Directors of listed companies must be elected annually and individually.

For non-listed companies, the term of office of a Board of Directors is generally three years. The articles of association can extend the term of office to a maximum of 6 years or specify a shorter period.

In December 2021, the Federal Supreme Court found an organizational deficiency at a company where the election of the Board of Directors was not carried out on time and appointed a trustee to restore the legal situation. As a consequence, all subsequent resolutions of a general meeting must be deemed null and void, as the meeting should not have been held due to the organizational deficiency. If, for example, profit distributions had been resolved, these would have had to be cancelled.

For this reason, we recommend the following:

- Take a look at the Articles of Association to ensure that the election is held at the correct frequency.

- If the annual financial statements are not yet available after 6 months, the Board of Directors can be elected in advance at an Extraordinary General Meeting.

- Hold a universal general meeting (but all shareholders must be in favor of this) to rectify the shortcoming retrospectively.

Conclusion

In the case of a heterogeneous, possibly even disputed shareholder base, it is certainly advisable to strictly observe the formal requirements in order not to risk the appointment of a custodian. If necessary, an extraordinary general meeting should be held to elect the members of the board of directors in good time. In simpler circumstances, a universal general meeting with a unanimous resolution can subsequently remedy the defect.