When Delayed Bankruptcy Creates Liability
Boards of directors must act swiftly when a company faces financial distress. In this decision, the Swiss Federal Supreme Court confirms that delaying bankruptcy proceedings may result in personal liability for board members if the delay causes additional losses to the company. The judgment underlines the importance of timely action under Art. 725 ff. CO and reinforces the board’s duty to monitor solvency and over-indebtedness carefully.
Background
The case concerned a liability claim against the former sole board member (A.) of C. SA. Following the bankruptcy of the company on 1 December 2016, B. SA obtained an assignment of the bankruptcy estate’s claims pursuant to Art. 260 DEBA in order to assert liability claims under Art. 754 ff. CO against A. The claimant argued that A. had wrongfully delayed filing for bankruptcy and thereby caused a continuation loss (“Fortführungsschaden”). B. SA sought damages of CHF 2,893,879.15. Both the court of first instance and the Cantonal Court of Ticino partially upheld the claim and ordered A. to pay CHF 404,173.75 in damages.
Court Decision
The Swiss Federal Supreme Court confirmed the application of Art. 42 para. 2 CO regarding the calculation of damages. Under this provision, damages that cannot be established with mathematical precision may be estimated by the court based on the ordinary course of events and the measures taken by the injured party. However, the claimant must still provide all facts reasonably available to support the existence and estimation of the damage.
The Court held that the damage resulted from the difference between the net assets of C. SA at the actual opening of bankruptcy proceedings on 1 December 2016 and the net assets at the point when bankruptcy should properly have been initiated on 25 January 2016. The lower courts had relied primarily on an expert opinion to estimate the continuation loss caused by the delayed bankruptcy filing.
Implications
The judgment highlights the significant responsibilities of board members in situations of financial distress. Under Art. 725 ff. CO, boards must continuously monitor the company’s solvency, act promptly in the event of capital loss or over-indebtedness, and notify the court without delay where restructuring is no longer possible.
The decision demonstrates that a delayed bankruptcy filing may expose board members to substantial personal liability for continuation losses incurred during the delay period. It also confirms the practical importance of proper financial oversight, timely interim financial statements, and immediate action in cases of over-indebtedness.
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