Director duty
Over-indebtedness (Art. 725 CO)
The duties whose breach, above all delay, is what crystallises director liability in bankruptcy.
Over-indebtedness (Art. 725 CO)Bankruptcy
proceedings
When a company cannot be saved, the company’s end is fixed, but the manner of it is not, and that is what determines the directors’ exposure and the creditors’ recovery. Bankruptcy is where the board’s conduct as the company failed is examined: a late filing, a preferential payment, a clawback-prone transaction can each crystallise personal liability. We guide the board through an orderly bankruptcy (timely filing, safe conduct, equal treatment of creditors, proper cooperation with the bankruptcy office) to protect the directors from avoidable liability.
At a glance
The end is fixed; the manner is not.
Orderly bankruptcy, directors protected.
- Process
- Run by the bankruptcy office
- Assets
- Realised, distributed by rank
- Risk
- Director liability from conduct
- Watch
- Late filing, preferences, clawback
- Focus
- An orderly, defensible exit
The essentials
What bankruptcy is
Bankruptcy (Konkurs) is the formal insolvency process under the debt-enforcement law for a company that cannot pay. A bankruptcy office takes control, realises the assets, and distributes them to creditors by statutory ranking, after which the company is dissolved. It is terminal, not rescue-oriented. It can be triggered by a creditor or by the board notifying the court on confirmed over-indebtedness under the Code of Obligations. Once unavoidable, the work is doing it properly and protecting the directors.
Who this is for
- boards of companies that cannot be saved;
- directors exposed to liability from the company’s failure;
- companies being driven into bankruptcy by a creditor;
- boards that must notify the court on over-indebtedness.
Where it fits
Bankruptcy is the terminal route from the over-indebtedness duties, the alternative to a composition moratorium, and distinct from solvent liquidation.
The process
How bankruptcy runs
Once declared, the process is run by the bankruptcy office and the board’s role becomes cooperation, and managing its own exposure.
| Stage | What happens |
|---|---|
| Declaration | By creditor enforcement or board notification |
| Office takes control | Assets secured; board loses disposal |
| Realisation & ranking | Assets sold; creditors ranked in classes |
| Distribution | Proceeds paid by rank; company struck off |
The directors’ conduct before and during all this is what is examined: late filing, preferential payments and avoidable transactions are where liability crystallises. The board cannot change the company’s end, but it can ensure its own conduct is timely, equal-handed and documented. That is where we focus.
How it runs
How we protect the board
Ensure the filing is timely, advise on safe conduct, order the records, and cooperate properly, so the directors are defensible.
- Step 1
Read the trigger
Understanding how proceedings are arising: creditor enforcement or the board’s notification duty.
- Step 2
File in time
Ensuring any notification is made promptly, since delay is the most common source of liability.
- Step 3
Advise on conduct
Guiding the board to treat creditors equally and avoid preferential or clawback-prone transactions.
- Step 4
Order the records
Getting the books and records in order for handover and cooperating with the bankruptcy office.
- Throughout
Manage exposure
Keeping the directors’ conduct defensible and documented, with specialists where liability is contested.
Budget
What it costs
The advisory cost reflects the complexity of the company’s affairs and the directors’ exposure. Set against the personal liability that an unmanaged, disorderly bankruptcy can crystallise for directors, the cost of getting the conduct and the process right is modest — it is, in effect, protection.
We scope and quote against the situation. Pricing is on request.
Discuss the position
What it takes
What a defensible bankruptcy requires
Keeping directors defensible through a bankruptcy rests on:
- the filing made in time, not delayed;
- creditors treated equally, no preferences;
- no gifts or below-value disposals in the suspect period;
- books and records in order and handed over;
- proper cooperation with the bankruptcy office.
The damage is done before bankruptcy, not by it
Directors often fear the bankruptcy itself, but the liability that catches them was usually created earlier: in the weeks of delay while the deficit deepened, the payment that favoured one creditor over the rest, the asset moved out cheaply as collapse loomed. Bankruptcy merely examines that conduct. A board that filed in time, treated creditors equally, kept its records and avoided suspect transactions is defensible even in failure; one that did the opposite is exposed regardless of how the bankruptcy itself proceeds. This is why advice in the distressed run-up matters more than anything done after declaration. We focus there, because that is where the avoidable damage is done.
Why Goldblum
The exit, in detail
Ensuring a timely filing, safe conduct, ordered records and proper cooperation (so an unavoidable bankruptcy is orderly and the directors defensible) is the work this firm does.
Timely
The filing in time
The notification made promptly rather than delayed, removing the most common source of director liability.
Equal-handed
Safe conduct in the run-up
Creditors treated equally and clawback-prone transactions avoided, so the board’s conduct withstands examination.
Orderly
A defensible process
Records in order and proper cooperation with the bankruptcy office: an orderly exit, not a damaging one.
Related
Around bankruptcy
Breathing space
Composition moratorium
The rescue alternative to be pursued first where the company is genuinely viable.
Composition moratoriumPreserve value
Distressed M&A
Selling the viable business or assets before or during insolvency to preserve value.
Distressed M&A
FAQ
Bankruptcy proceedings: FAQ
01What is bankruptcy (Konkurs) in Switzerland?
Bankruptcy (Konkurs) is the formal insolvency process for a company that cannot pay its debts. A bankruptcy office takes control of the company's assets, realises them, and distributes the proceeds to creditors according to their statutory ranking, after which the company is dissolved and struck from the register. It is the terminal process: unlike a composition moratorium, it is not aimed at rescuing the company but at winding it up and distributing what there is fairly. It can be triggered by a creditor's enforcement or by the company itself when the board, facing confirmed over-indebtedness, must notify the court. The focus, once it is unavoidable, shifts to doing it properly and protecting the directors.
02How does bankruptcy begin?
By one of two main routes. A creditor can drive the company into bankruptcy through the debt-enforcement process, where an unpaid, unobjected debt subject to bankruptcy enforcement leads to a court declaring bankruptcy. Alternatively, the company itself triggers it: when the board has confirmed over-indebtedness through the interim accounts and no exception lets it defer, it must notify the court, which opens bankruptcy. There are also specific grounds on which bankruptcy can be declared directly. Which route applies shapes the timing and what the directors should be doing. We help the board understand how proceedings are arising and act correctly in response, rather than being overtaken by them.
03What does the bankruptcy office do?
Once bankruptcy is declared, the bankruptcy office takes over: it secures and inventories the company's assets, takes control away from the board, invites and verifies creditors' claims, realises the assets, draws up the ranking of creditors, and distributes the proceeds accordingly. The company's management loses its powers of disposal over the estate. The board's role becomes one of cooperation (providing information, the books and records, and access) and of ensuring its own past conduct is defensible. Working correctly with the bankruptcy office, rather than obstructing or disengaging, matters both practically and for the directors' position. We help the board cooperate properly and manage its own exposure through the process.
04How are creditors ranked?
Swiss law ranks creditors in classes, and the proceeds are distributed to each class in order, with a class paid in full before the next receives anything. Broadly, certain employee claims rank first, certain social-security and pension claims next, and all other ordinary creditors in the final general class, where there is usually a shortfall and they receive only a percentage if anything. Secured creditors are satisfied separately out of their security. The ranking determines who recovers what, and it is fixed by law rather than negotiable in bankruptcy. Understanding where claims fall is important both for creditors assessing their position and for directors, since some priority claims carry personal-liability implications. We explain the ranking as it applies.
05What personal liability do directors face in bankruptcy?
Bankruptcy is where directors' past conduct is examined, and exposure can crystallise. Directors can be personally liable for damage caused by breaching their duties, particularly delaying the bankruptcy filing while the deficit deepened, making preferential payments to favoured creditors, or worsening the position once insolvency was clear. Specific exposures, such as unpaid social-security contributions, are commonly pursued. The bankruptcy estate, and creditors, can bring claims against directors. This is why how the board behaved as the company failed matters so much: directors who acted in time, treated creditors equally and documented their conduct are defensible, while those who delayed or preferred are exposed. We work to keep directors on the defensible side.
06Can transactions before bankruptcy be challenged?
Yes. Swiss law allows certain transactions made in the period before bankruptcy to be challenged and clawed back through avoidance actions: broadly, gifts and below-value disposals, and payments or security granted that improperly preferred one creditor over others, made while the company was already in difficulty. The purpose is to protect the body of creditors from having the estate stripped or unfairly distributed in the run-up to collapse. For directors, this means decisions taken in the distressed period can be unwound and can feed liability claims. It is another reason that conduct in the final phase must be careful and equal-handed. We advise the board on what is and is not safe to do as bankruptcy approaches.
07Is there anything to be done once bankruptcy is unavoidable?
Yes, a great deal, focused on doing it properly and protecting those involved. Even when the company cannot be saved, how the bankruptcy is approached affects the directors' exposure, the creditors' recovery, and whether the process runs cleanly or messily. Ensuring the filing is made in time rather than late, that creditors have been treated equally, that the books and records are in order and handed over, that no avoidable transactions complicate matters, and that the board cooperates properly with the bankruptcy office all matter. The company's end is fixed; the manner of it is not. We focus on the manner: an orderly, defensible bankruptcy rather than a damaging one.
08How does bankruptcy differ from a composition moratorium?
A composition moratorium is rescue-oriented: it shelters a viable company so it can reorganise or agree a composition; bankruptcy is terminal: it winds up a company that cannot be saved and distributes its assets. The board's choice, where there is one, turns on viability: a genuinely viable company facing over-indebtedness may seek a moratorium instead of notifying for bankruptcy, while an unviable one should not prolong matters. The two are connected, since a failed moratorium can lead to bankruptcy. The honest assessment of whether rescue is realistic determines which route is right, and pursuing a moratorium with no genuine prospect adds cost before the same end. We make that assessment candidly.
09Does Goldblum represent the company in the bankruptcy?
Our role is to guide the board and protect the directors: we help the company understand how proceedings are arising, ensure any filing is made correctly and in time, advise on conduct in the distressed period so creditors are treated equally and avoidable transactions are not made, prepare the books and records, and help the board cooperate properly with the bankruptcy office while managing its own exposure. Where formal court representation or contested liability litigation is required, we work with the appropriate specialists. Our focus is the commercial and governance substance that determines whether the bankruptcy is orderly and the directors defensible, which is where the avoidable damage usually lies.
10Can Goldblum guide the board through bankruptcy?
Yes. When a company cannot be saved, we guide the board through an orderly bankruptcy: ensuring the filing is timely, advising on safe conduct as insolvency crystallises, treating creditors equally and avoiding clawback-prone transactions, getting the books in order, and cooperating properly with the bankruptcy office, all aimed at protecting the directors from avoidable liability. Where a rescue is genuinely realistic, we will have pursued restructuring or a moratorium first; where it is not, an orderly bankruptcy is the honest course. The company's end may be fixed, but the manner of it determines the directors' exposure and the creditors' recovery, and that is what we manage.
Facing an unavoidable bankruptcy?
Tell us the position honestly. A partner ensures the filing is timely, advises on safe conduct, and guides the board through — protecting the directors.