Reserves, Distributions, and the Reach of the De Facto Director
Bundesgericht 4A_62/2024 and 4A_76/2024 (17 December 2024) — the Papierschlamm case. Joint and several liability of the formal vice-chair and the accounting-firm partner, each held liable under Art. 754 OR for distributing CHF 2.15 million while an environmental liability of CHF 8.55 million was foreseeable.
Three features of the Swiss corporate-liability landscape sit together uneasily. The duty to form reserves for foreseeable liabilities — even those currently defended on procedural grounds — is exacting. The doctrine of the de facto director (faktisches Organ) extends responsibility well beyond the formal composition of the board. And Art. 260 SchKG allows a creditor who inherits the bankruptcy estate’s liability claims to pursue them directly against directors and de facto directors, long after the company itself has ceased to exist. 4A_62/2024, decided on 17 December 2024, is the Federal Supreme Court’s most recent articulation of what happens when all three converge. The result is a CHF 2.15 million joint and several liability for two people — one a formal vice-chair, the other the accounting-firm partner who had no title on the board until five years after the events at issue. The case is referred to below as Papierschlamm — a working name for the matter, not its formal designation in Swiss legal sources.
The facts
C. AG had produced paper from 1947 until it ceased operations in 2006. Until at least 1963 it discharged paper sludge into a Swiss lake, where it accumulated. By 2006 the Canton of Zurich had told the company that investigation and, if required, remediation would be needed. The canton took the view that it had a claim against the company running to several million francs; the company defended itself principally on statute-of-limitations grounds.
The board of C. AG during the period at issue had exactly two members: Defendant 1 as vice-chair and her husband as chair. A holding company, D. AG — non-operating, owned by the family and sitting above C. AG from January 2011 as its sole shareholder — had a four-person board of which Defendant 1 was chair, Defendant 2 a member (until 17 July 2012), and two others. Defendant 2 himself was a partner and leading employee at an accounting firm, F. AG, which handled C. AG’s accounting and tax advice. Until May 2016 he was not a formal director of C. AG. From 2007 onward he had, however, Kollektivzeichnungsberechtigung — joint signing authority — and ran the F. AG mandate for C. AG throughout.
The 2010 annual accounts carried no reserve for the canton’s claim. The 2011 accounts carried a reserve of CHF 1 million for the related legal and procedural costs. The 2012 and 2013 accounts increased this to CHF 1.1 million and then CHF 2.02 million. No reserve was ever formed for the remediation itself.
According to minutes eventually produced, an extraordinary general meeting of C. AG on 14 January 2011 resolved to distribute CHF 2,153,052.19 to its new parent D. AG — partly as a cash payment, partly by assignment of receivables C. AG held against Defendant 1 and her husband (and persons close to them). The minutes, however, were not drafted at the meeting. They were prepared by F. AG — Defendant 2’s firm — on 22 August 2012, based on information Defendant 2 received from Defendant 1 and her husband. The minutes were signed by Defendant 1 and her husband on 20 November 2012. The distribution was booked on 24 August 2012.
On 11 July 2017 the canton issued a formal decision ordering C. AG to provide security for its share of remediation costs, which it had calculated at CHF 8.55 million. C. AG appealed to the Federal Supreme Court, which in 1C_17/2019 (29 July 2019) rejected the statute-of-limitations defence. C. AG went into bankruptcy on 22 October 2019. The canton’s claim of CHF 8.55 million was accepted conditionally; the canton suffered a provisional bankruptcy loss of CHF 6.7 million. Under Art. 260 SchKG, the canton took assignment of the estate’s liability claims against the two defendants and, in 2021, sued them in the Handelsgericht of the Canton of Zurich.
The holding
The Handelsgericht of Zurich, on 12 December 2023, held both defendants jointly and severally liable under Art. 754 OR for the full CHF 2,153,052.19 plus interest from 24 August 2012. It rested the liability on three grounds that the Federal Supreme Court has now effectively confirmed in dismissing the two defendants' appeals:
First, the failure to reserve before the distribution. The board’s obligation under Swiss accounting principles to form reserves for foreseeable liabilities — including those defended on statute-of-limitations grounds — applied to the canton’s remediation claim, known since 2006. The fact that the legal defence was ultimately unsuccessful is not itself the point; the point is that the expected remediation cost was a foreseeable obligation whose magnitude had been quantified, however provisionally, long before the distribution. Distributing CHF 2.15 million to the parent while no reserve had been formed for the principal liability was a breach of duty.
Second, the illegality of the distribution resolution itself. The Handelsgericht identified both formal and substantive defects in the alleged general-meeting resolution of 14 January 2011. The minutes had been prepared in August 2012; the substantive distribution decision was taken, on the court’s reading, without the procedural rigor Swiss company law requires. The combined effect was nullity — not merely voidability.
Third, and most instructive for the broader reader: Defendant 2 was held liable as a de facto director of C. AG. He was never a formal director of C. AG until 2016 — after the events at issue. But he held joint signing authority for the company from 2007; he ran the accounting relationship; he prepared the minutes that embodied the challenged distribution; and he was a formal director of the parent and of another group company. On the Handelsgericht’s factual findings, which the Federal Supreme Court declined to disturb, he exercised functions typically reserved to a corporate body; his involvement was structural rather than incidental. That sufficed for faktisches Organ status under the line of jurisprudence descending from BGE 128 III 29.
Why it matters for boards
Three points are worth carrying forward.
1. A foreseeable liability is not a liability to defer. A board confronted with a claim of meaningful magnitude — whether environmental, tax, product-liability, or contractual — cannot rely on the availability of a procedural defence to justify deferring reserve formation. The Swiss reserve duty under Art. 960e OR turns on the probability of realisation; litigation prospects feed into that probability assessment, but a procedural defence whose success cannot be confidently predicted does not extinguish the reserve obligation. A board that distributes substance to shareholders in the interval between a foreseeable liability and its crystallisation — however many years that interval lasts — is building the evidentiary record of the liability case that will follow if the defence ultimately fails. 4A_62/2024 is, at its heart, a case about that evidentiary record.
2. The de facto director doctrine reaches accountants, counsel, and trustees. The Swiss Federal Supreme Court’s reading of the faktisches Organ doctrine is practically minded: what matters is whether the person performs functions that belong to a corporate organ, not whether they hold the title. An accountant who prepares corporate minutes, a tax advisor who participates in structural decisions, a trustee who signs on behalf of the company, a lawyer who does more than advise — each can find themselves inside the Art. 754 OR regime. The traditional professional boundaries between advisor and principal do not, as a matter of Swiss law, provide reliable insulation. Firms that run long-standing mandates with joint signing authority, in particular, should understand that the signing authority is not a neutral administrative tool — it is, in combination with substantive involvement, a route into director-level liability.
3. Bankruptcy is the beginning of the liability question, not its end. C. AG went bankrupt in 2019; the claim against its directors was brought in 2021 and reached the Federal Supreme Court at the end of 2024. The engine was Art. 260 SchKG, the mechanism by which a creditor — here a canton — takes over a bankruptcy estate’s liability claims and pursues them in its own name. Directors of companies that enter bankruptcy with unsatisfied material creditors should assume this mechanism will be deployed. It is the principal route by which the Swiss Art. 754 OR liability regime is enforced in practice.
Implications for the reference work
Director Duties under Swiss Law, at §4 (delegation and oversight), will be updated to include an expanded treatment of the faktisches Organ doctrine, with particular attention to the position of accountants, counsel, trustees, and other professional advisors who combine joint signing authority with substantive participation in company decisions. §5 (consequences of breach) will be updated to discuss the Art. 260 SchKG cession as the practical enforcement mechanism of Swiss director liability.
Litigation Readiness for Swiss Boards, at §2 (documents and records), will be updated to emphasise that reserves for foreseeable liabilities form part of the readiness posture the board owes to the company, independent of the procedural defences currently available; and that ex post preparation of corporate records (minutes, resolutions) is a governance red flag of the first order.
Primary source
Full decision at opencaselaw.ch (4A_62/2024, consolidated with 4A_76/2024). Prior proceeding on the underlying environmental claim: 1C_17/2019 of 29 July 2019. Related authorities cited on the faktisches Organ doctrine: BGE 128 III 29, BGE 117 II 432. On damage and causation in director liability: BGE 132 III 342.