On 1 July, 2004, the new Swiss Merger Act came into force. By means of a codification of recent practice, supplemented by quite detailed procedural provisions, this law makes available certain important new transactional tools for facilitating reorganisations. Its main focus is on provisions relating to reorganisations of share corporations and limited liability companies. The law also applies, however, to all other types of companies, including general and limited partnerships, as well as to associations and foundations – areas in which, until now, there was no codified law. Furthermore, and importantly, the revision of the relevant tax laws has removed certain hindrances to reorganisations and eliminated some legal uncertainties.

The law covers mergers, demergers (spin-offs), conversions and so-called transfers of assets and liabilities. The latter tool – transfers of assets and liabilities – is entirely new and offers a wide range of possible purposes, such as, for example, the transfer of hand-chosen groups of assets and liabilities to a third party or to a new subsidiary. It also serves as a "backup" transaction tool in instances in which none of the other transaction structures are feasible.

Here are a number of procedural simplifications of practical significance:

Merger of companies with stated capital

The main practical impact of the new Merger Act lies in the procedural simplifications available for intra-group mergers of companies with stated capital (share corporations and limited liability companies). Such transactions can be implemented quite easily and efficiently now as mergers among companies with stated capital may qualify for far-reaching simplifications. This applies in particular to the merger of a wholly owned subsidiary into its parent company and for mergers among wholly owned subsidiaries.

In all of these cases there is no need for merger reports, verifications by a qualified auditor, inspections by shareholders or shareholder resolutions – the latter meaning that there is also no need for a public deed – for any of the companies involved in the merger. What remains is a short merger contract, an audited balance sheet of the dissolving company, the entry into the Commercial Register and the procedures regarding the protection of creditors. This means that, besides the requirement for an audited balance sheet, there is no involvement of outside parties other than the Commercial Register, which considerably reduces the cost and time requirements to implement such mergers. The requirement for an audit of the dissolving company's balance sheet is not expressly provided for by the law, and in cases without a capital increase of the surviving company there is no reason for such a requirement; however, in practice, the Commercial Register tends to ask for such an audit.

Outside intra-group mergers, all of the shareholders of merging companies with stated capital may gain access to the simplified procedure by entering into a shareholders agreement. However, in practice, some of the Commercial Registers are trying to limit this access to simplifications.

Merger and demerger of small and medium-sized enterprises

The Merger Act provides for simplifications of the merger and demerger procedure in case an enterprise qualifies as small- or medium-sized enterprise. If, as is the case for the vast majority of Swiss companies, the relevant criteria are met, the shareholders may unanimously dispense the company from establishing a merger report, having a verification of the financials of the merger contract and giving access to the shareholders to inspect the merger documents. These simplifications have to be agreed by all of the shareholders of the respective company and apply to this company only. It is not required that the shareholders' resolution on the approval of the merger contract is passed unanimously.

The practical impact of these simplifications is considerable. In any transaction where the relevant criteria are met by companies involved, the parties try to get the agreement of all of the shareholders to the simplifications in order to benefit from the reduction in transaction costs.

A little too much publicity

Under the Merger Act, a demerger as well as a transfer of assets and liabilities requires an inventory of all of the assets and liabilities to be transferred. As this inventory is part of the demerger agreement and the transfer agreement respectively, which in turn are to be filed with the Commercial Register, the inventory and all of the details listed therein end up as a document that is publicly accessible to any person. For transfers of assets and liabilities, this also applies for the purchase price, as this information has to be included in the transfer agreement that has to be filed.

The information is not made public on the internet, but is accessible at any time, to any interested person, for inspection at the Commercial Register. This publicity is a disadvantage, particularly as, for a competitor, it may be worth the trouble to inspect the documents – a disadvantage that can have a lasting effect. This compares with the advantages of a demerger or a transfer of assets and liabilities that are primarily procedural (and therefore rather short term).

The first experiences in practice show that, particularly for larger asset deals, the parties prefer to transfer the assets by singular transfers where there is no such publicity, rather than by using one of the transaction tools provided for by the Merger Act. Publicity proves to be quite a deterrent. Although there are some ways to mitigate these effects in practice, the trend for these transaction tools to be used primarily in small transactions will probably continue.

Squeeze outs

Subject to approval by shareholders with at least 90% of the votes, shareholders holding 10% or less of the votes can be squeezed out when their company merges into another. Similarly, shareholders with 10% or less of the votes can also, by means of an asymmetrical demerger, be shunted off into a separate corporation while the remaining shareholders retain ownership of the remaining corporation. As the wording of the relevant provisions of the Merger Act is ambiguous, it is still unclear whether 90% of the votes or of the shareholders are required for such squeeze-outs.

Until now there is no prominent example of a squeeze-out and it remains to be seen what the practical impact of this new feature will be. Presumably, the main impact will be of an indirect nature, as the mere existence of such a tool will influence behaviour and negotiations between small shareholders and the owners of large majority blocks.

Transfer of contracts

Unfortunately, the Merger Act does not explicitly address the question as to whether a transfer by demerger or transfer of assets and liabilities provides for an automatic transfer of contracts. As the question is being disputed among the various authors, it is – for the time being – recommendable in practice to solicit the explicit consent of the contractual parties.

Overall, the first impact of the new Merger Act can be considered to be positive, particularly because the new law provides for simplifications that were previously not available in the cases that make up for the vast majority of transactions. The explicit codification of all transactions for the various legal entities is also a plus. However, there is still potential to improve on efficiency and to develop solutions for practical issues that currently are not yet solvable in a satisfying manner.

Ulysses von Salis is an attorney-at-law at Niederer Kraft & Frey in Zurich.