What subordination actually does
When a Swiss company is overindebted — its liabilities exceed its assets — the board must in principle notify the court, which usually means bankruptcy. Art. 725 ff. CO provide one recognised way out: if creditors subordinate their claims to the extent of the shortfall, those claims are set aside in the overindebtedness assessment, and the duty to notify the court falls away.
A subordination is therefore a legal instrument with one precise effect: it neutralises debt for the purpose of the overindebtedness test. The subordinating creditor agrees to rank behind all other creditors and, under current practice, to defer repayment and interest for as long as the crisis lasts. It is a serious commitment — in a later bankruptcy, a subordinated claim is typically worth nothing until everyone else has been paid.
What it does not fix
The most common misunderstanding is to treat a subordination as a restructuring. It is not. The company remains economically overindebted and, above all, subordination adds not a single franc of liquidity: if the company cannot pay its bills, a Rangrücktritt changes nothing about that. The board's duties to monitor solvency and pursue genuine restructuring measures continue in full.
A subordination also has to be done properly to work. It must be in writing, unconditional and irrevocable for the duration of the crisis, and it must cover not only the current shortfall but a margin for the losses still expected — a subordination that is exhausted by next quarter's loss protects no one. Auditors will examine both the amount and the wording, and a defective subordination leaves the board exposed as if none existed. Repaying a subordinated loan while the crisis lasts undoes the protection and creates its own liability issues.
The typical case: shareholder loans
In practice, most subordinations come from shareholders who have financed the company with loans. That is no accident: the shareholder is the party with the strongest interest in avoiding bankruptcy, already carries the economic risk, and loses little by formally ranking behind third-party creditors. Subordinating a shareholder loan converts an acute legal emergency — the duty to notify the court — into breathing space in which a real plan can be built: cost measures, new money, a sale, or a negotiated solution with creditors.
That is the honest frame: a subordination is the bridge, not the destination. It is worth signing when there is a credible restructuring on the other side, and it is dangerous comfort when there is not.
What to do
Assess overindebtedness on proper interim figures before deciding anything. If a subordination is the right bridge, have it drafted to cover the shortfall plus a realistic buffer, in a form the auditors will accept, and record in the board minutes what restructuring it is buying time for. If you are weighing a Rangrücktritt for your company, we are glad to discuss your specific situation.