No automatic extension of board mandates

Directors are elected for three years, unless the articles of association provide otherwise. The articles of association of many public limited liability companies provide for a term of office of between one and a maximum of six years or a term of office from the last ordinary general meeting to the next. If no general meeting is held within the first six months after the end of the financial year, which is quite possible in practice, the term of office of the board members concerned ends on 30 June of the year in which the term of office expires, according to the case law of the Swiss Federal Supreme Court.

The reason given by the Federal Supreme Court is that the ordinary general meeting of shareholders must be held by 30 June of each year in accordance with Art. 699 of the Swiss Code of Obligations. If this is not done and no elections for the Board of Directors have been held by then, there is no automatic or tacit extension of the term of office. This means that the company suffers from a lack of organisation after 30 June, at least if all members of the Board are to be elected for the same term of office. The same applies if the agenda item for the election of the board of directors has been completely forgotten at the general meeting.

What does this mean for the public limited company? Non-election or untimely election means that the company no longer has any directors and therefore suffers from a lack of organisation. As long as no one complains about this, the situation is not obvious because the commercial registry offices do not automatically check the term of office of the directors or demand proof of election. For this reason, directors who are not elected on time or who are not duly elected remain entered in the commercial register and are therefore still authorised to represent the company externally. However, this board no longer formally exists, which means that its members can no longer convene a general meeting. If they do so anyway because they are unaware of the deficiency, all resolutions of a general meeting convened by the non-elected directors are null and void. Void resolutions are deemed not to have been passed and have no effect from the outset. In particular, a void resolution cannot be remedied by the passage of time. This also applies to the re-election of the Board of Directors by the Board of Directors that was not validly elected.

This organisational deficiency can only be remedied by the following options: If the company has at least one validly elected auditor, the auditor can call a general meeting and have the elections carried out. However, if there are no auditors or their term of office has expired, this option is out of the question.

In simple circumstances, a universal meeting can also be held as a meeting of all shareholders. A universal general meeting can be held at any time and without formal convocation. In particular, it can also pass all resolutions with legal validity. However, all shareholders must be present or represented, which effectively means unanimity for the elections to be held.

If both options are not feasible, the company suffers from an organizational deficiency that it cannot remedy itself. The only remaining option is to go to court. Once all members of the Board of Directors have been re-elected or appointed by the court, the void resolutions passed by the General Meeting since the organizational deficiency occurred must be repeated or retroactively approved in order to ensure that there are no further consequences that have not been considered.

It should be noted that this case law of the Federal Supreme Court also applies to limited liability companies and the managing directors to be elected by the shareholders' meeting.

Our notaries will be happy to advise you on all questions relating to company law.