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Financial restructuring
The substantive cure (refinancing, capital measures, creditor deals) the duties require the board to pursue.
Financial restructuringOver-indebtedness
(Art. 725 CO)
As a company slides toward the point where its liabilities exceed its assets, Swiss law imposes a graduated set of duties on the board (interim accounts at two valuations, remedial measures, and ultimately notifying the court) and the personal liability comes not from the distress but from delay and inaction. “We hoped it would recover” is not a defence. We help boards recognise the stage, prepare the accounts, cure the position where possible, and document the call, so the directors act in time and stay protected.
At a glance
Act in time, document the call.
Liability comes from delay, not from distress.
- Stage 1
- Threatened insolvency (liquidity)
- Stage 2
- Capital loss (Art. 725a)
- Stage 3
- Over-indebtedness (Art. 725b)
- Accounts
- Going-concern & liquidation values
- Defer if
- Subordination or real restructuring
The essentials
What Art. 725 CO requires
The revised Code of Obligations, in force since 2023, sets a graduated escalation of board duties as a company weakens: threatened insolvency, capital loss, and over-indebtedness. Over-indebtedness (liabilities exceeding assets) is the most serious: the board must prepare interim accounts at going-concern and liquidation values and, if confirmed, notify the court under the debt-enforcement law unless an exception applies. The liability flows from delay, not distress.
Who this is for
- boards of companies under financial strain;
- directors unsure which duty stage applies;
- companies approaching or at over-indebtedness;
- shareholders considering subordination or capital measures.
Where it fits
The duties are the backdrop to financial restructuring, may lead to a composition moratorium, or to bankruptcy.
The escalation
The three stages
The law escalates the board’s duties as the company weakens. Recognising the stage and acting on it is the whole task.
| Stage | Board’s duty |
|---|---|
| Threatened insolvency | Act with urgency to secure liquidity |
| Capital loss (725a) | Remedial measures; review of accounts |
| Over-indebtedness (725b) | Interim accounts; notify court unless exception |
| Exceptions | Sufficient subordination, or concrete restructuring |
The earlier the board engages, ideally at threatened insolvency, before over-indebtedness, the more room it has and the more the company can be saved. As the stages advance, the duties harden and the manoeuvring room narrows. We help the board read the stage and discharge the right duty at the right time.
The remedies
The options that avert a filing
Over-indebtedness does not force an immediate bankruptcy filing if the board acts. Two routes remove the duty to notify the court (subordination and concrete restructuring) and several measures restore the balance sheet behind them.
| Measure | What it does | When it works |
|---|---|---|
| Subordination | Creditor ranks claims behind all others | Covers the shortfall; removes the filing duty |
| Capital increase | New equity restores the balance sheet | Shareholders willing and able to inject |
| Debt-equity swap | Converts creditor claims into shares | Creditors prefer upside to liquidation |
| Composition moratorium | Court protection while a plan is built | Viable business, time the only missing piece |
Subordination is the fastest stopgap: it buys time without fixing the underlying position, so it is the start of a restructuring, not the end. A composition moratorium protects a viable business while the plan is executed. The wrong move is to do nothing and hope, because that is the path that converts the board’s distress into the board’s personal liability. We map the realistic measures to the company’s actual position before the window closes.
How it runs
How we guide the board
Read the stage, prepare the accounts, weigh the cure, and document the call, in time.
- Step 1
Read the position
Establishing which stage the company is at and what the board’s duty therefore is.
- Step 2
Prepare interim accounts
Preparing the balance sheets at going-concern and liquidation values, with the auditor.
- Step 3
Weigh the cure
Assessing capital measures, debt conversion and subordination against a genuine restructuring.
- Step 4
Decide & document
Judging whether to defer or notify the court, and documenting the basis for the decision.
- Throughout
Keep the board protected
Ensuring the board acts in time and on a proper basis, so the directors are not exposed by delay.
Budget
What it costs
The advisory cost depends on the urgency and complexity: preparing interim accounts, arranging subordinations and capital measures, and coordinating any restructuring or moratorium. Against the personal liability a board faces for getting this wrong, and the value preserved by acting in time, the cost of proper guidance is small.
We scope and quote against the situation. Pricing is on request.
Discuss the position
What it takes
What protecting the board requires
Keeping the board on the protected side rests on:
- recognising the duty stage correctly and early;
- interim accounts at both valuations, properly reviewed;
- genuine measures, not hope, to cure the position;
- a documented basis for any deferral;
- timely court notification where it is required.
“We hoped it would recover” is not a defence
The liability that catches directors is almost never the company’s distress itself: it is the delay. A board that keeps trading while the deficit deepens, telling itself recovery is around the corner, is exactly the board that becomes personally liable for the additional loss its delay caused, however understandable the optimism. Swiss law holds directors to a real standard of diligence here, and hope is not diligence. The protection is in acting: recognising the stage, preparing the accounts, taking genuine measures, and either curing the position or notifying the court in time. We keep boards on that side of the line, because the too-late outcome is the one that hurts everyone, directors most of all.
Why Goldblum
The duty: how we run it
Reading the stage, preparing the accounts, weighing the cure and documenting the call, so the board acts in time and stays protected, is the work this firm does.
In time
The stage read early
The duty stage recognised and acted on before delay becomes the problem, ideally before over-indebtedness is even reached.
Proper
Accounts and the call
Interim accounts at both valuations and a documented decision to defer or notify, the basis that protects the directors.
Cured
Rescue and duty together
Capital measures, conversion and subordination pursued alongside the duties, giving the company its best chance.
Related
Around the duty
Breathing space
Composition moratorium
The court protection that can be sought instead of bankruptcy when over-indebtedness is notified.
Composition moratoriumInsolvent
Bankruptcy proceedings
Where the company cannot be saved — handled to protect directors from avoidable liability.
Bankruptcy proceedings
FAQ
Over-indebtedness & Art. 725 CO: FAQ
01What is over-indebtedness under Swiss law?
Over-indebtedness (Überschuldung) is the state in which a company's liabilities exceed its assets, so that the assets no longer cover the debts. It is distinct from a liquidity problem (not being able to pay on time) and from a capital loss (part of the share capital being eroded); the revised company law in force since 2023 addresses all three as a graduated set of board duties. Over-indebtedness is the most serious: when there is reasonable concern of it, the board must prepare interim accounts and, if they confirm it, notify the court unless specific conditions allow it to defer. Because the consequence is so significant, the threshold and the duties around it have to be understood precisely.
02What are the three stages of board duty?
The revised law sets a graduated escalation. First, threatened insolvency (a risk the company cannot meet its obligations as they fall due) requires the board to act with urgency and take measures to secure solvency. Second, a capital loss, when half of the share capital and the legal reserves is no longer covered, requires the board to take remedial measures and, where the company has no auditor, to have its accounts reviewed. Third, over-indebtedness requires interim accounts and, if confirmed, court notification, subject to the exceptions. Each stage carries specific duties, and the board's task is to recognise which stage it is at and act accordingly. We help boards read the position and discharge the right duty at the right time.
03What are the interim accounts the board must prepare?
When there is reasonable concern of over-indebtedness, the board must prepare interim balance sheets on two bases: at going-concern values (assuming the company continues) and at liquidation values (assuming it is wound up). These are normally reviewed by a licensed auditor. If both bases show that the company's liabilities are not covered by its assets, over-indebtedness is confirmed, and the board's notification duty is engaged unless an exception applies. The dual valuation matters because a company can be over-indebted on one basis but not the other, and the law looks at both. Preparing these accounts correctly and promptly is the pivot of the whole duty, and we ensure it is done right.
04When must the board notify the court?
When the interim accounts confirm over-indebtedness on both bases and none of the statutory exceptions applies, the board must notify the court (historically described as depositing the balance sheet) which typically opens bankruptcy. The duty is to act without undue delay; carrying on while the deficit deepens is what exposes the directors. The exceptions that allow deferral are specific: sufficient creditor subordination, or a concrete and short-term prospect of restructuring that justifies waiting. The board cannot simply hope things improve. Judging whether an exception genuinely applies, and documenting that judgement, is where careful advice matters, because getting it wrong carries personal liability. We help the board make and evidence that call.
05What is a subordination, and how does it help?
A subordination (Rangrücktritt) is an agreement by a creditor (often a shareholder or related lender) to rank their claim behind all other creditors, so that it is not repaid until the others are satisfied. If creditors subordinate claims to an extent that covers the over-indebtedness, the board may defer notifying the court while it pursues a restructuring, because the subordinated claims effectively shield the other creditors. It is a common and legitimate tool to buy time for a genuine turnaround, but it must be properly documented and sufficient in amount, and it is a bridge to a restructuring, not a permanent fix. We arrange subordinations correctly and use them as part of a real restructuring plan, not as a way to ignore the problem.
06What personal liability does the board face?
Directors who breach their duties as the company slides toward and into over-indebtedness can be held personally liable for the resulting damage, particularly the additional loss caused to creditors by delaying notification while the deficit deepens. Swiss law holds the board to a real standard of diligence here, and 'we hoped it would recover' is not a defence. There are also specific exposures, such as unpaid social-security contributions. The liability flows from inaction, delay and continuing to trade improperly, not from the company's distress itself. A board that takes the prescribed steps in time, documents its decisions, and acts on proper interim accounts is protected; one that looks away is exposed. We keep the board on the protected side.
07Can the company still be rescued at this stage?
Often yes, if it acts. Reaching the capital-loss or even the over-indebtedness stage does not automatically mean the end: capital measures, a debt-to-equity conversion, fresh financing, or a creditor subordination supporting a concrete restructuring can cure the position or justify a deferral while a turnaround is executed. What changes at these stages is that the board's room for manoeuvre narrows and its duties harden, so action has to be both genuine and prompt. The earlier the board engages, ideally at the threatened-insolvency stage, before over-indebtedness, the more can be done. We pursue the rescue and the duty in parallel, so the company is given its best chance without exposing the board.
08How does this connect to financial restructuring and a moratorium?
Closely, the Art. 725 duties are the legal backdrop against which restructuring happens. Financial restructuring is the substantive cure (refinancing, capital measures, creditor deals); the Art. 725 framework is the duty that requires the board to act and sets the deadlines. Where a consensual restructuring needs protection and time it cannot get out of court, a composition moratorium can provide breathing space and, importantly, can be sought instead of bankruptcy when over-indebtedness is notified. The three fit together: watch the duties, pursue the restructuring, and use the moratorium where the situation needs court protection. We work them as one integrated response rather than separate steps.
09What happens if the board acts too late?
The company is likely forced into bankruptcy in a worse position than if the board had acted earlier, creditors recover less, and the directors face the personal liability that delay creates, exposure for the additional loss caused by trading on while over-indebted. Acting too late is the single most common and most damaging failure in this area, and it is almost always driven by understandable but mistaken optimism. The whole point of understanding the Art. 725 duties is to act in time: to recognise the stage, prepare the interim accounts, take the measures, and either cure the position or notify the court before the delay itself becomes the problem. We help boards avoid the too-late outcome, which is the one that hurts everyone.
10Can Goldblum guide the board through Art. 725?
Yes. We help the board recognise which stage it is at, prepare the interim accounts at going-concern and liquidation values, assess honestly whether the position can be cured, arrange subordinations and capital measures where they help, and judge and document whether a deferral genuinely applies or the court must be notified, coordinating with the auditor and, where needed, the moratorium or restructuring. Throughout, the priority is that the board acts in time and on a proper basis, so the directors are protected and the company gets its best chance. The exposure in this area comes from delay and inaction; our job is to keep the board on the right side of the line.
Is your board near the over-indebtedness line?
Tell us the position honestly. A partner prepares the interim accounts, weighs the cure, and guides the board's duties — so the directors are protected and act in time.