The new company law came into force in Switzerland on January 1, 2023. With some aspects already implemented in recent years (e.g. increased transparency regulations for commodity groups and the gender quota for listed companies have attracted public attention), a project that lasted more than 15 years is now coming to an end.
In addition to more flexible capital regulations and more rights for shareholders, the new law also brings additional duties for the board of directors , in particular with regard to greater financial responsibility in order to avoid a possible insolvency of the company.
In this article we discuss what is meant by “impending insolvency”, how the “financial responsibility” for the board of directors is to be interpreted and what this has to do with rolling liquidity planning.
Warning: this is not legal advice. If in doubt, consult a specialist, a detailed overview of all changes is also available here directly from the federal government .
Obligations in the event of impending insolvency
According to the current interpretation of legislature, there is an imminent insolvency if a company is unlikely to be able to meet its financial obligations over a longer period of time. However, according to the legislator, a temporary liquidity bottleneck, the elimination of which is foreseeable, does not constitute insolvency.
If an impending insolvency is determined with justified concern, the board of directors is obliged to take suitable measures to ensure liquidity and, if necessary, initiate additional restructuring measures (OR 725). In the worst case, it may also be necessary to submit an application for a debt restructuring moratorium, which is also the responsibility of the board of directors.
A detailed overview of OR 725 can be found here.
Financial responsibility lies with the Board of Directors
In order to be able to determine a possible insolvency, the Board of Directors is obliged from January 1st, 2023 to constantly monitor the solvency of the company. According to OR 716a, this obligation is non-transferrable and non-negotiable.
For SMEs, this means in practice: there is no way around continuously updated liquidity planning. However, many companies are still struggling with this topic at the operational level. We have therefore put together some useful tips below, so that this point can be ticked of the agenda as quickly as possible.
Ensuring solvency using liquidity planning: best practices
Liquidity planning is an important tool for monitoring and securing a company’s solvency. It involves forecasting cash inflows and outflows over a period of time and should cover at least 12 months.
Thorough analysis of accounts receivable and payable, regular monitoring of cash flow trends, and comparison of different planning scenarios can help ensure the company’s solvency.
The board of directors should also ensure that the company has sufficient financial resources to cushion possible risks and deal with unforeseen developments. In this way it can be ensured that the company is well prepared to meet the new obligations of the new company law.
To ensure that planning is period-oriented and continuous, rolling liquidity planning has become established in recent years. The approach of this type of planning is the continuous monitoring of the forthcoming periods . The planned time period (e.g. 12 months) is shifted on a rolling (i.e. continuous) basis and always remains constant. Findings that result from everyday business are constantly taken into account and incorporated into the planning. This means that it has a high significance.
The start of any liquidity planning is determining the current situation: how much credit is in the bank accounts at the time of planning, which receivables will be realized in the short term, and which obligations are open?
The annual budget can be a good indicator for medium-term planning, provided it has been prepared with the necessary care. When including the annual budget in the liquidity planning, it should be noted that this was created on the basis of success and not liquidity. Before these figures are transferred and included in liquidity planning, they must be adjusted accordingly: Sales, for example, are recognized in profit or loss as soon as a service has been rendered and invoiced. However, this turnover is only noticeable in the bank account when the invoice is paid. This distinction is important and cash flow should not be confused with profit.
Other important data sources are current contracts with customers and suppliers, interest and repayment obligations from loan agreements, and employment contracts with employees. The hiring plans from HR must also be taken into account.
As soon as the basic scenario is in place, it is then a matter of optimizing it and simulating various what-if scenarios as part of risk reduction. These can serve as a valuable decision-making aid for management and the board of directors.
Automating rolling liquidity planning pays off!
Rolling liquidity planning is very informative, but can also be operationally complex due to the frequent updates. Depending on the situation, an update is recommended on at least a monthly basis, or weekly or daily if the liquidity situation is tight . A (partial) automation of this operational process therefore makes a lot of sense.
TRESIO can be implemented with very little effort. Compared to Excel, the standard solution for Swiss SMEs and start-ups is fundamentally characterised by the reduced susceptibility to formula errors, and the significantly reduced time required for updating thanks to the high degree of automation . Bank reconciliation and the data import from the ERP and HR systems take place automatically and the data flows into the planning in real time.
