Board duties when liquidity gets tight

Most companies do not fail suddenly. The numbers deteriorate over months, each individually explainable: a lost customer, a delayed round, a market that turned. For the board of a Swiss company, this slow slide is precisely the danger zone: it is the phase in which duties sharpen, personal exposure grows, and the habits of good times (quarterly reviews, optimistic forecasts, decisions deferred) become liabilities.

The monitoring duty comes first

Financial oversight is a core, non-delegable duty of the Verwaltungsrat. Management prepares the numbers; the board must ensure it actually sees them, understands them, and reacts to them. In stable times that can mean periodic reporting. When liquidity tightens, the required intensity rises with the risk: shorter reporting cycles, a rolling liquidity view, and forecasts the board has genuinely stress-tested rather than politely received.

The most common failure is not ignoring bad numbers, it is not having numbers current enough to know how bad things are. A board that cannot say, today, roughly how long the company's cash lasts is not in a position to perform its duties, whatever its intentions.

The escalation ladder of Art. 725 ff. CO

Swiss law structures the deterioration of a company into stages, each with its own duties for the board. The framework of Art. 725 ff. CO is, at its core, an escalation ladder:

• Imminent insolvency (Art. 725 CO). When there is reason to fear the company cannot meet its obligations as they fall due, the board must act with appropriate urgency to secure solvency, assessing the situation and taking or proposing measures.
• Capital loss (Art. 725a CO). When the balance sheet shows that a qualified portion of equity is no longer covered, the law requires the board to respond with measures to remedy the situation, involving the shareholders where the measures require it, and the relevant accounts must be audited even where the company has opted out (Art. 727a CO).
• Overindebtedness (Art. 725b CO). When there is reason to believe liabilities exceed assets, the board must have the question examined on the basis of interim accounts and, if the concern is confirmed and no adequate remedy is available, involve the court, which opens bankruptcy ex officio (Art. 192 DEBA). At this stage the room for discretion narrows sharply.

The precise triggers, valuation questions and available exceptions are exactly where legal analysis belongs: they depend on the facts, and this is a framework, not a manual. What matters at board level is the logic: each rung has its own trigger, its own mandated response, and less room for judgment than the one before. Waiting does not pause the ladder; it moves you down it, and the additional loss caused by waiting is exactly what a later claim under Art. 754 CO will try to quantify, along the lines BGE 136 III 322 sets out.

Decide, document, escalate

In this phase, three verbs describe the board's job.

Decide. A board facing tight liquidity must actively choose: which measures to pursue (cost reduction, asset sales, new money, standstill discussions with key creditors) and on what assumptions the company remains viable. Letting management "keep trying" without an explicit board-level assessment is itself a decision, and the worst-documented kind.

Document. If the company later fails, everything the board did will be examined in hindsight, often by a liquidator looking for someone to hold responsible. The protection is a record showing the board knew the situation, took it seriously, and acted on a reasoned basis: the figures reviewed, the alternatives weighed, the advice obtained, the reasons for each step. Minutes from this period should be written with that future reader in mind.

Escalate. Each rung of the ladder has an addressee. Some measures need the general meeting. Overindebtedness concerns involve the auditors and, absent a viable cure, the court. And well before that point, the board should consider whether the moratorium instrument (Nachlassstundung, the court-supervised breathing space for restructuring) offers a better path than hoping. Used early, it is a tool; considered too late, it is an epitaph.

Why speed of analysis matters

Every option on the restructuring menu is time-sensitive. New investors want time for diligence; creditors negotiate differently with a company that approaches them early; a moratorium protects more when there is still something left to protect. The board's real enemy is rarely the crisis itself: it is the weeks lost establishing what the situation actually is: what the contracts allow, which obligations bite first, where the security sits, what a realistic balance sheet looks like.

This is also where modern tooling has changed the economics of crisis work. Reading a company's contract base for termination rights, cross-defaults and change-of-control triggers used to consume the scarcest resource: time. Structured systems now do that reading in days, with a named lawyer challenging the analysis and answering for the conclusions the board relies on. The judgment remains human; the speed no longer has to be.

Boards that come through tight liquidity well share one habit: they treated the first serious warning as the start of the process, not as something to watch for another quarter. If your numbers are starting to point the wrong way, the useful conversation is the early one: we are happy to have it.