The Good Board
Agenda · The board in distress

Civil litigation commenced

What the first board meeting after service needs to decide.

Status
First edition · 2026-05-05
Category
In distress
Last reviewed
2026-05-05

Note

If the clock is running now, call directly.

A statement of claim has been served. A contractual counterparty alleges breach; a former employee brings a wrongful-dismissal and discrimination claim; a customer brings a product-liability action; a creditor — by Art. 260 SchKG cession from a bankruptcy estate — sues the directors themselves under Art. 754 OR. The mechanical work of civil procedure begins with deadlines, but the board’s work begins with decisions that must be taken before those deadlines pressure the choice. D&O notice, document hold, counsel engagement, privilege protection, settlement framework, disclosure posture — each is a decision, each has a window, and each has downstream consequences if deferred.

1. The duties that bear on this

The duty to defend the company’s interest. The board’s Art. 717 OR duty to safeguard the company includes running a considered defence. A board that defends on autopilot, leaves counsel unsupervised, or settles on terms the substantive record did not support has failed this duty.

Document preservation. From the moment litigation is served — and in practice, from the moment it is reasonably foreseeable — the company’s ordinary retention cycles in the affected scope must be suspended. The doctrine is familiar from Litigation Readiness; its application to newly served claims is immediate.

Confidentiality discipline. Swiss attorney professional secrecy (Berufsgeheimnis, Art. 13 BGFA / Art. 321 StGB) protects communications with Swiss-admitted external counsel in their professional capacity, with the corresponding refusal-to-testify rights under Art. 166 ZPO and Art. 171 StPO. Since 1 January 2025, in-house counsel benefit from a limited refusal-to-cooperate right in civil proceedings under Art. 167a ZPO, where the company is a registered legal entity, the legal department is led by a person with a cantonal Anwaltspatent (or equivalent foreign qualification), and the activity is profession-specific; in criminal proceedings, in-house counsel still do not enjoy equivalent protection. For foreign-exposure matters the landscape is more complex still. The board’s instructions about how communications are routed — through counsel, on what distribution — shape outcomes materially.

Director personal exposure in adjacent claims. Where the claim is against the company, the directors are typically not personal defendants at first service. That can change: Art. 754 OR actions filed later; Art. 260 SchKG cessions after insolvency; foreign parallel proceedings that name individuals. The litigation- funding landscape extends this exposure window materially.

2. The process — first thirty days

  1. Open a litigation file at board or audit-committee level. The file, not the counsel correspondence, is the board’s primary record.
  2. Instruct external counsel within days. Select counsel with specific competence in the subject matter — not a generalist. For high-stakes matters, consider a second-opinion engagement at the outset.
  3. Issue a preservation notice to IT, HR, and functions holding in-scope records. Suspend ordinary retention cycles. Document the scope of the notice.
  4. Notify D&O insurers. Most policies require notice within defined windows; late notice can prejudice coverage. Keep the notice accurate — premature factual characterisations become exhibits.
  5. Screen for director personal exposure. Which directors were involved in the facts at issue? Are they exposed to a subsequent claim? Do they need separate counsel now?
  6. Assess the merits early and honestly. A realistic range-of-outcomes memo from counsel, commissioned within the first thirty days, is worth more than quarterly updates afterwards.
  7. Consider settlement framework. Even if settlement is not the near-term intention, the range within which settlement would be acceptable should be understood early by the board.
  8. Decide disclosure posture. For listed companies, consider SIX Listing Rules disclosure obligations. For private companies, consider lender, rating, and customer communications.

3. Questions to ask counsel and management

4. The record to leave

The preservation notice; the instructions to counsel; counsel engagement letters; the early merits assessment; the D&O notice and insurer correspondence; substantive board minutes on strategy decisions; settlement-authority resolutions; communications-posture decisions; and — for listed companies — the disclosure record. The file that a litigation-defence team returns to three years later is the file that a disciplined board built in the first thirty days.

5. Failure modes

The missed D&O notice. Counsel engaged immediately; D&O notification deferred for six weeks pending internal assessment; the policy condition on prompt notification breached. When coverage is later sought, the insurer’s late-notice defence becomes the first dispute the board has to fight.

Privilege compromised through casual communication. Internal management distributes the litigation-strategy memo to a wider internal audience “for awareness.” The privilege, even in jurisdictions that would initially have recognised it, is now fragile. Foreign-court discovery later reaches the memo through a third party who was also on the distribution.

The uncalibrated settlement. The CEO settles under pressure, without formal board authority or within an authority framework that was never established. The settlement is later challenged internally; the board’s subsequent posture — accepting, disputing, re-opening — is itself a liability event.

Cognitive register. Directors asked to assess their own company’s litigation exposure are systematically over-confident — the research on expert judgement (Tetlock, 2005) finds even sophisticated professionals over-estimate favourable outcomes, and the effect is stronger where the judgement concerns their own conduct. The advocacy trap compounds this: the defence posture, once adopted, hardens in ways that reduce settlement flexibility beyond what the merits would justify. Anchoring on the first settlement figure creates a reference range the board treats as the field of play, where the merits might justify a different field. The range-of-outcomes memo from external counsel (process step 6) is the counter-measure — a disciplined, independent, deliberately pessimistic assessment that counter-balances the board’s own motivated view of its defence.

6. See also