In general, Swiss company law is flexible and has been able to adapt to developments in the economy and technology. A good example is the recent legislative reform of February 2021 that allowed for the introduction of rights-values registered in an electronic registry, such as the blockchain. That said, one topic SA law hasn’t -yet – adapted to is that of interim or interim dividends.
Unlike the regime that exists in many of the jurisdictions around us (for example, in the United States), Switzerland does not allow interim dividends to be paid on the current fiscal year’s profits. This prohibition stems from the principle that the return of capital to shareholders is prohibited (art. 680 al. 2 CO).
Thus, under Swiss law, the payment of a dividend presupposes the end of the financial year, the approval by the shareholders of the audited accounts of the company and a decision of the general meeting to pay a dividend. While there is the option of distributing dividends under certain conditions (as Credit Suisse and UBS did in 2020 for the 2019 financial year), these are linked to the results of the past financial year.
Mismatch with investor expectations
Thus, the current legal regime is not in line with the needs of the economy and the expectations of actors such as groups of companies and institutional investors to receive regular distributions (such as quarterly) during a given financial year.
In practice, solutions can be found for companies with limited ownership, by structuring payments to shareholders based on the current year’s results as advances (loans), which are then repaid with dividends when declared and paid out. However, these solutions are poorly suited for large listed companies.
On June 19, 2020 and after more than four years of work, Parliament finally approved a corporate law reform covering several objects. One of these is precisely the introduction of a new legal provision (Art. 675a Wv) that allows the payment of interim dividends provided certain conditions are met.
Possibly under conditions
The first is the preparation of interim accounts on a specific date, on the basis of which the shareholders decide on the payment of an interim dividend. These annual accounts must absolutely reflect the actual situation of the company at the time the decision is made. It is the responsibility of the Board of Directors to ensure this when paying the dividend. The purpose of this requirement is to ensure the protection of social creditors.
Second, the financial statements must have been audited by the company’s auditors, except in opt-out situations (where such an assessment is prohibited by law). It is also possible to waive such a review if all shareholders agree and the interests of the corporate creditors are not harmed. For the rest, the distribution of interim dividends is subject to the same rules as those that apply to ordinary dividends (Art. 675a al.3 CC).
Good for Switzerland’s appeal
It should also be noted that any company may pay interim dividends, without this possibility having to be provided for in its articles of association. Fortunately, Parliament has not followed what was originally provided for in the bill on this point. This text is now final, as the referendum deadline has passed. However, the date of entry into force of the reform has not yet been set, as the legislative process has been delayed. Unfortunately, entry into force is not expected before January 1, 2023.
Despite this delay, we should welcome this development of legislation which brings an important factor of attractiveness, particularly to Swiss-based groups of companies, at a time when other elements – notably taxes – are being questioned.
Any Swiss company may pay interim dividends provided it presents audited interim accounts