Asset deals: issues in connection with the Swiss Merger Act
June 2014 | SPECIAL REPORT: MERGERS & ACQUISITIONS
Financier Worldwide Magazine
The Swiss Merger Act (MA) entered into force on 1 July 2004. One of its goals was to facilitate the transfer of assets and liabilities (e.g., a business or part of it). However, nearly 10 years after the coming into force of the MA several aspects of the law remain controversial. One of these aspects is of high importance for asset deals in Switzerland: how shall existing contracts with third parties – belonging to the transferred business segment – be treated? Our article outlines the current situation and indicates possible solutions.
Legal framework regarding the transfer of assets and liabilities under the MA (the ‘MA Transfer Regime’)
The MA covers mergers, demergers, conversions and the transfer of assets and liabilities. Its primary purpose is to facilitate the restructuring of companies via the aforementioned institutes. The incorporation of the transfer of assets and liabilities into the MA has to be seen in that context. As this institute is part of the MA, some argue that it should only be used for the restructuring of companies, i.e., to transfer a business or part of it. However, there being no explicit provision regarding the institute’s scope of use in the MA, others argue that the MA Transfer Regime allows for transfers of specific assets also in situations where there is no transfer of a business or business segment.
Transfer of assets and liabilities in one act
Prior to the existence of the MA, each asset had to be transferred by way of singular succession (Singularsukzession). The MA introduced a substantial alteration to the manner in which assets (and liabilities) can be transferred by introducing a concept allowing the transfer of a multiplicity of assets and liabilities in one act via the so-called partial universal succession (partielle Universalsukzession) whereby the general rules (in particular formal requirements) for the respective assets and liabilities do not have to be complied with.
Among other, the following requirements have to be met for such a partial universal succession: (i) a written transfer contract has to be concluded by the supreme managing or administrative bodies of both transferor company and transferee company (if parcels of real estate are transferred, the respective parts of the contract require a public deed); (ii) the transfer contract has to contain an inventory with the precise designation of the items of the assets and liabilities to be transferred; and (iii) the transfer has to be registered in the Commercial Register.
The transfer contract has to be submitted as evidence to the Commercial Register which is publicly accessible. As the inventory forms part of the transfer contract, it is also in the public domain. This can lead to problems regarding confidentiality and data protection in connection with contracts with third parties. At least according to the practice of the Commercial Register of the Canton of Zurich, the requirement of an inventory with “precise designation of the items” is, in connection with the transfer of a business or a business segment, already fulfilled for contracts if they are determinable for third parties. Voices in the Swiss doctrine argue that confidential information can be paraphrased in the inventory. Hence, the problem regarding confidentiality and data protection is somewhat reduced.
According to Art. 73 para. 2 MA, the transfer of assets and liabilities shall become legally effective only upon entry in the Commercial Register, i.e., the entry in the Commercial Register has constitutive effect. As of that date, all assets and liabilities listed in the inventory are transferred by operation of law to the transferee company.
In comparison with a traditional asset deal (using the singular succession) the transfer of assets and liabilities under the MA (using the partial universal succession) seems advantageous. However, there still remains insecurity over whether contracts with third parties can be transferred by partial universal succession under the MA Transfer Regime without the consent of such third parties. It goes without saying that companies interested in using the MA Transfer Regime need to know for certain whether the relevant contracts are indeed transferred irrespective of the contractual third parties’ consent or not.
Controversy regarding the transfer of existing contracts with third parties
This controversy goes back to the legislative procedure where the scope of use for the partial universal succession remained unclear. It was argued that a transfer of contracts with third parties in a partial universal succession (and hence without the consent of the third party) would be in danger of abuse and should therefore not be permitted. Other voices argued that the provisions of the MA would not prohibit such a transfer and that any other interpretation of the MA would be against the primary purpose of the law (to facilitate the restructuring of companies).
The following three opinions in particular have been voiced in the Swiss doctrine (there is no case law yet regarding the MA Transfer Regime): (i) some authors argue that the MA Transfer Regime is not admissible to transfers of contracts with third parties and the third parties’ consent is thus still required; (ii) others argue that the MA Transfer Regime can also be used without reservation for contracts with third parties; and (iii) exponents of the third opinion argue that contracts can be transferred under the MA Transfer Regime (without the counterparties’ consent) if they are part of a transfer of a business segment and the contract itself is linked thereto.
Today, the (clear) majority view in Swiss doctrine is of the opinion that the MA Transfer Regime can be used for transfers of contracts with third parties without the prior consent of such third party. Furthermore, in January 2006 the Swiss Federal Supreme Court ruled in a judgment regarding a demerger that a partial universal succession is in terms of its quality an adequate universal succession and that the ‘partial’ only refers to the scope of the transfer – being limited to the assets and liabilities specified in the inventory (the transfer rules for demergers are very similar to those regarding the MA Transfer Regime). However, as mentioned above, it has to be noted that this controversy has so far not been resolved by case law squarely addressing this issue under the MA Transfer Regime.
Therefore, it still remains somewhat unclear whether transfers of contracts with third parties require their consent. It remains advisable to seek the consent of all involved third parties prior to the transfer of a contract until the situation is finally settled by a judgment of the Swiss Federal Supreme Court.
Dr Andreas Moll is a partner and Reto Herrmann is an associate at Prager Dreifuss Ltd. Mr Moll can be contacted on +41 44 254 55 55 or by email: firstname.lastname@example.org. Mr Herrmann can be contacted on +41 44 254 55 55 or by email: email@example.com.
© Financier Worldwide
Dr Andreas Moll and Reto Herrmann
Prager Dreifuss Ltd