Is a merger possible in the event of capital loss and over-indebtedness? We provide an overview here:

Companies can find themselves in a difficult economic situation. If this results in a loss of half of the capital or even over-indebtedness in accordance with Art. 725 of the Swiss Code of Obligations, the law requires immediate action by the company's governing bodies. In addition to traditional reorganisation measures such as capital injections or cost reductions, Art. 6 of the Merger Act (FusG) opens up the possibility of a so-called Reorganisation merger.

 

Requirements pursuant to Art. 6 FusG

Special conditions must be met for a merger with a company in need of reorganisation to be permitted:

 

  • Para. 1 - Freely usable equity
    The absorbing company must have Freely usable equity that at least covers the shortfall of the company in need of reorganisation. Only equity that is not bound by legal or statutory provisions - e.g. retained earnings or free reserves (reference to example calculation) - can be used freely.

 

  • Para. 1bis - Subordination and deferral
    If the freely usable equity is not sufficient, the merger may still be permissible if creditors are not covered to the extent of the shortfall. Subordination and explain their demands hours. Interest must also be included.
    Important: Subordination does not create any new funds - it is a legal bridging instrument, but not an actual reorganisation measure.

 

  • Para. 2 - Audit confirmation An authorised audit expert must confirm that either sufficient freely usable equity is available or that subordinations exist in the required amount. This confirmation is based on the merger balance sheet and the contractual documents and is a mandatory requirement for entry in the commercial register. There are no exceptions - even in the case of simplified mergers or mergers decided unanimously, the audit remains in accordance with Art. 6 para. 2 FusG. In addition, the audit expert also checks the accuracy of the merger balance sheet and the completeness of the contractual documents.

 

Creditor protection

In addition to these requirements, the FusG provides for clear protection mechanisms:

  • The merger must be Swiss Official Gazette of Commerce (SHAB) be published.
  • Creditors can demand security for their claims within a certain period of time if these appear to be jeopardised by the merger.
  • In addition, the companies involved are jointly and severally liable for existing liabilities.

 

Important: These protective mechanisms are mandatory and cannot be circumvented by a waiver by the shareholders.

 

Calculation example - merger with an overindebted company

The Alpha AG has a share capital of CHF 500,000 and reserves of CHF 100,000. Due to losses, equity has been reduced to - CHF 200'000.- (overindebtedness).

The Beta AG would like to take over Alpha AG. Its balance sheet shows, among other things CHF 300,000 free reserves from.

Beta AG thus covers the shortfall in full - the merger is completed after Art. 6 para. 1 FusG permissible.

Variant: If Beta AG had only CHF 100,000 in free reserves, the merger would only be possible if creditors of Alpha AG declared subordination for CHF 100,000 and deferred their claims (Art. 6 para. 1bis FusG).

Tax considerations at a glance

Even if legal issues often take centre stage in a restructuring merger, tax aspects can be decisive for the economic effect. These are particularly relevant:

  • Remediation gains: Arise from debt waivers and are tax-free, provided they effectively contribute to the reorganisation (Art. 24 para. 3 StHG / Art. 61 para. 3 DBG).
  • Loss carryforwards: Loss carryforwards can be transferred to the acquiring company in the event of a reorganisation merger, provided that the economic identity is retained. The prerequisite is that the business activities are continued and there is no tax avoidance.

Other tax implications, such as withholding tax or issue tax, must also be examined on a case-by-case basis.

Conclusion

A merger pursuant to Art. 6 FusG can be a valuable instrument in a crisis: at best, it strengthens the equity base, secures the company's continued existence and enables the utilisation of synergies - while at the same time providing clear creditor protection.

At the same time, the following applies: subordination does not create any new inflow of funds, the obligation to notify the judge in accordance with the Swiss Code of Obligations remains in place, and coordination with creditors, auditors and tax authorities makes the process complex. In addition, the board of directors and management are responsible for ensuring that the legal requirements are met - otherwise there is a risk of personal liability.

 

This means for board members: Anyone considering a reorganisation merger should know the legal requirements and carefully weigh up the opportunities and risks.

 

Do you need a statutory confirmation in accordance with Art. 6 FusG or other auditing services? Our authorised audit experts will provide you with competent and independent support.