Analyzing the Financial Health of Swiss Companies: Is Over-Indebtedness a Concern?


Swiss companies are renowned for their stability and resilience in the global business landscape. However, like any other business entities, they are not immune to financial challenges. One critical aspect that demands attention is the level of indebtedness. In this article, we will delve into the factors that contribute to the financial health of Swiss companies and assess whether over-indebtedness is a prevalent concern.

When is a Swiss company considered  over-indebted?

Over-indebtedness occurs when a company's liabilities exceed its assets. The simplest example is lets say a company in Switzerland is incorporated as an AG and therefore the founders contribute 100,000 CHF in capital. In the first year, let’s say the company makes a loss of 50,000 CHF and in the second year the company makes a loss of 60,000 CHF. In this example, the company would be deemed over-indebted because the carry over losses from the 1st and 2nd year of 110,000 CHF would be greater than the share capital that was injected into the company for 100,000 CHF. 

What options to Swiss companies have if they are over-indebted

There are a few options for companies which are over-indebted. 

Raise Capital

The company could raise additional share capital. In the example above, if the company were to raise 900,000 CHF in capital, this would allow it to carry over an additional 890,000 CHF of losses. This is calculated by taking the total share capital 900,000 CHF plus the initial share capital 100,000 minus the carried over loss of 110,000 CHF. 

Restructure with creditors

You can negotiate with creditors (i.e the people you owe money) and ask them if they would be willing to wait until the company gets out of over-indebtedness before they get paid. Creditors have an incentive to do this because should the company go into liquidation, creditors receive on average 0.05 to 0.10 cents on the dollar of the amount they are owed. Meaning if they had a 1,000 CHF invoice the max they would receive is 100 cHF. 

Issue a loan

As a director or shareholder, you can inject a loan into the company however the terms of the loan must wait until the company gets out of over-indebtedness before they get paid back. 

What happens if your Swiss company is over-indebted? 

Here are some key outcomes and steps that typically follow if a Swiss company is over-indebted:

  1. Obligation to Report:

Swiss law mandates that company management promptly informs the board of directors if the company is over-indebted. 

  1. Board of Directors' Responsibilities:

Upon being informed of over-indebtedness, the board of directors is required to implement a financial restructuring plan or seek external assistance as outlined above. 

  1. Insolvency Proceedings:

If the over-indebtedness cannot be resolved through restructuring or other measures, the board of directors is obligated to file for insolvency proceedings. This involves initiating a formal process to address the company's financial difficulties, protect the interests of creditors, and work towards a fair distribution of assets.

  1. Appointment of an Administrator:

In insolvency proceedings, an administrator is typically appointed to manage the affairs of the company. The administrator works to maximize the value of the company's assets and facilitate the settlement of debts to creditors.

  1. Debt Restructuring:

In some cases, the company may attempt a debt restructuring process. As mentioned above, this involves negotiating with creditors to modify the terms of existing debts, such as extending payment periods or reducing interest rates. Debt restructuring aims to make the company's financial obligations more manageable.

  1. Liquidation:

If the over-indebtedness is severe and cannot be resolved through restructuring, the company may go through a liquidation process. During liquidation, the company's assets are sold, and the proceeds are used to settle outstanding debts. Shareholders may not receive any distribution until creditors are fully satisfied. 

  1. Legal Consequences for Directors:

In cases where the board of directors fails to take appropriate action upon discovering over-indebtedness, individual directors may face legal consequences. Directors have a fiduciary duty to act in the best interests of the company, and failure to fulfill this duty can result in personal liability.

Who gets paid first in the case of a Swiss company liquidation? 

If a Swiss company goes into liquidation, the following order of payments are made:

  1. Employees - A company must ensure employees get paid first
  2. Social Security - A company must pay its share of social security such as AHV, insurance and pension
  3. Creditors - A company must then pay its vendors for the invoices they sent and work completed. 
  4. Shareholders - Last on the list is shareholders. They have the most upside if a business does well but are also last in line in case of insolvency. 


While Swiss companies generally enjoy a reputation for financial stability, it is essential to recognize that economic conditions and industry-specific challenges can impact their financial health. By closely monitoring financial statements and key ratios, stakeholders can gain a clearer understanding of whether a Swiss company is over-indebted. Proactive management, adherence to regulatory guidelines, and a thorough analysis of economic trends are crucial in ensuring the continued success and stability of Swiss businesses.

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