The Good Board
Agenda · The board facing a decision

Dividend or distribution with a foreseeable liability

The classic Swiss liability trap. Get the reserve analysis right before the distribution, not after.

Status
First edition · 2026-05-05
Category
Facing a decision
Last reviewed
2026-05-05

Note

Cases cited are real; doctrinal positions should be checked against the author’s current practice understanding before reliance.

Your company is considering a distribution — an ordinary dividend, a return of share premium, an intra-group distribution to a parent. Your statutory reserves are sufficient, your auditor has signed. There is also, somewhere on the balance sheet or at its edge, a contingent exposure: an environmental claim, a tax uncertainty, a pending product-liability action, a regulatory investigation whose quantum is not yet established. The question on the agenda is whether to distribute. The question the board should be asking is what reserves the foreseeable exposure requires — and whether, after those reserves, there is enough left to distribute. Getting this sequence wrong is the most common route in Swiss practice to personal director liability long after the company has ceased to exist.

1. The duties that bear on this

Form reserves before distributing. The general duty of care under Art. 717 OR requires directors to act in the company’s interest, which includes preserving the company’s ability to meet its foreseeable obligations. A contingent liability whose realisation is reasonably foreseeable demands a reserve calibrated to its expected exposure. Distributing cash the company may need to meet that exposure is, in the Swiss authorities' consistent position, a breach of the care duty even where the balance sheet nominally permits the distribution.

Proximity to Art. 725 OR triggers amplifies the duty. If the reserve analysis reveals the company is close to — or would, after distribution, be within reach of — the half-capital loss test of Art. 725a OR or the over-indebtedness test of Art. 725b OR, the procedural duties of the 2023 capital-law reform engage. Distributing through that zone is a qualified error.

Personal liability runs against every director who voted. Art. 754 OR imposes joint and several personal liability. Absent dissent recorded in the minutes, a director who “was not really involved” in the distribution is, in Swiss courts' consistent treatment, as liable as any other. The faktisches Organ doctrine additionally reaches accountants, counsel, and shadow directors who participated in shaping the decision without formal appointment.

2. The process

  1. Inventory every foreseeable contingent exposure. Not only litigation — environmental, tax, regulatory, product, warranty, earn-out, indemnity obligations under prior share sales, pension funding, lease and supply commitments in distress.
  2. For each exposure, obtain a quantified range from counsel or the relevant adviser. Insist on ranges, not point estimates; insist on worst-case scenarios, not expected value.
  3. Commission or update a written reserve analysis that sets the reserve at a level proportionate to the probability-weighted exposure, with transparent conservatism on the margin of error.
  4. Engage the external auditor on the reserve analysis before the board decision — not on the distribution, but on the reserve.
  5. Run the post-distribution balance sheet through the Art. 725a and 725b tests, using the updated reserves.
  6. Only then decide whether, and in what amount, to distribute. Document the analysis in a board memo distinct from the minutes.
  7. Record the decision, the reasoning, and any dissent in the minutes with enough substance that a reader three years later can see what was considered.

3. Questions to ask management

4. The record to leave

The reserve analysis is the record. A board that distributes with a thin single-paragraph minute entry and no supporting memo is a board whose reasoning cannot be reconstructed three years later. The essential documents are: (a) the written reserve analysis with its assumptions, ranges, and auditor input; (b) a board memo recommending distribution on the basis of the reserved position; (c) minutes that reflect the substantive discussion, including any dissent; (d) any contemporaneous external legal or tax opinion on which the board relied. Contemporaneous means contemporaneous — an opinion procured six months later in anticipation of dispute does not help.

5. Failure modes

Papierschlamm — 4A_62/2024 (17 December 2024). The canonical Swiss authority. A CHF 2.15 million distribution to the parent, a known CHF 8.55 million environmental remediation liability inadequately reserved, and multi-year personal-liability litigation against the formal vice-chair and the accounting-firm partner who had acted as faktisches Organ. Art. 260 SchKG cession by a creditor was the vehicle. Both directors joint and severally liable, both bankruptcies of the company long since closed, the litigation outliving everyone’s mental model of liability.

Sequana — [2022] UKSC 25. The UK Supreme Court held that an equivalent dividend, paid when insolvency was not proximate, did not breach the creditor duty under English law. Do not be reassured: the English creditor-duty trigger is later than the Swiss reserve duty. On comparable Swiss facts, the Swiss reserve analysis engages years before the English trigger bites. Swiss directors who take comfort from Sequana are misreading the differential.

The dissenting director who did not dissent. A director who was uncomfortable at the time of decision but did not record dissent in the minutes is, in the Swiss doctrine, treated as having concurred. The moment of dissent — expressed, recorded, unambiguous — cannot be reconstructed after the fact.

Cognitive register. Distribution decisions with foreseeable liabilities engage the optimism bias (Weinstein, 1980) at its most dangerous: directors systematically under-estimate the probability that known contingent exposures will materialise, particularly where the exposure is abstract-legal rather than concrete- operational. Temporal discounting compounds this — the immediate distribution is vivid, the future remediation cost is abstract — and historical distribution patterns create an anchor that makes interruption feel more costly than it is. The Papierschlamm record reads as a textbook illustration of the structural failure: a known contingent exposure, a reserve not calibrated to it, and a distribution that proceeded on the more optimistic assumption. The written reserve analysis (process step 3) works because it forces a probability-weighted calculation that the optimism bias would otherwise paper over.

6. See also