Swiss Federal Supreme Court Rules That No Shareholder Approval Is Required For Asset Sales During A Composition Moratorium

In a landmark decision BGer 5A_53/2026 of 6 May 2026, the Swiss Federal Supreme Court settled an important controversy at the intersection of corporate and insolvency law. It confirms that, during a composition moratorium, the general meeting does not need to approve asset sales subject to approval by the composition court and that shareholders do not have standing to challenge such court decisions. This also applies in cases where the transaction involves a sale of all or a significant part of the assets of a debtor company and would amount to a de facto liquidation. As such, the ruling provides a path to legal certainty for distressed M&A transactions and, in particular, pre-pack structures.

I. Background: Separation of Powers in Company Law and Asset Sales in Composition Proceedings

Under Swiss corporate law, the board of directors of companies limited by shares (Aktiengesellschaft; société anonyme) and managing officers of limited liability companies (LLC; Gesellschaft mit beschränkter Haftung; GmbH; société à responsabilité limité; Sàrl) have the authority to manage the affairs of the company to the extent they did not delegate it to executive managers (article 716 (2) CO and article 810 (1) CO). This implies that they have the authority to decide on most transactions involving a sale of corporate assets.

Their authority, however, does not extend to resolving the dissolution and liquidation of the company, which is an untransmissible competence of the general meeting (article 704 (1)(16) CO cum article 736 (1)(2) CO and article 804 (2)(16) CO cum 808b (1)(11) CO). It is widely recognized that this rule extends not only to formal decisions on liquidation, but also on transactions where all or substantially all assets are sold and the proceeds are not intended to be used in line with the corporate transactions.¹ As a consequence, under ordinary circumstances, any transaction carried out absent such approval is at risk of being invalidated because it lacked the appropriate authorization.²

As a notable exception to these principles, the Swiss Federal Supreme Court previously held that in situations where the company had no realistic prospect of maintaining its going concern and a general meeting could not be expected to be convened in due time or a decision reached due to a deadlock at shareholder level, the board of directors, taking into account the interest of creditors and employees, could and, possibly, even should act.³ Nevertheless, the contours of this judicial exception remain unclear.

Moreover, the interaction between these principles of corporate law and insolvency law, and, in particular, composition proceedings, was unclear and legal scholars disagreed on whether and how these rules apply in compositions proceedings, during the stay. Indeed, Swiss composition proceedings are court-supervised restructuring processes governed by the Federal Act on Debt Enforcement and Bankruptcy (DEBA), during which, in principle, the debtor retains the power and authority to manage its affairs under the supervision of a court-appointed administrator and the composition court (article 298 (1) DEBA). Article 298 (2) DEBA limits this principle by providing that certain transactions – notably the sale of non-current assets – are subject to the approval of the composition court (or where appointed the creditors' committee). Generally, the composition court approves a sale of non-current assets if time is of the essence and if the sale is in the best interest of the creditors collectively. Once approved by the composition court (or the creditors’ committee), the transaction is protected against avoidance claims (article 285 (3) DEBA), making composition proceedings attractive for distressed acquisitions, including through pre-packed arrangements. 

Notably, the DEBA, which governs debtorcreditors relations, does not delve into the questions of internal authority within the debtor company for such decisions. Therefore, while it is generally admitted that the directors, managing directors and officers retain the power to manage the affairs of the company, the question whether a resolution of the general meeting was also required to approve a sale of substantially all the assets in composition proceedings was subject to legal controversies, with far-reaching consequences in situations, where shareholders, who would otherwise be out of the money, could scuttle a transaction in the interest of the company and its creditors. In a related manner, it was also unclear whether shareholders have standing to challenge the decision of the composition court approving a transaction subject to its approval. These issues were at the heart of the decision of the Federal Supreme Court.

II. Facts of the Case

In the case at hand, a limited liability company had filed for and obtained a provisional composition moratorium, which the composition court had decided not to make public in line with article 293c (2) DEBA. Subsequently, the composition court decided to approve the sale of parts of the company’s assets in accordance with article 298 (2) DEBA based on request from the debtor and a report and request from the administrator. A minority quotaholder holding 48% of the quotas in the company and without signatory power as a managing officer challenged this approval, arguing that a resolution of the quotaholders’ meeting⁴ was required pursuant to article 808b CO and that, consequently, the decision of the composition court was fundamentally flawed and therefore null and void and breached its constitutional rights (expropriation of shareholder rights covered by the protection of property rights under article 26 of the Federal Constitution) and constituted a, violation of due process rights protected by article 29 of the Federal Constitution and article 6 of the European Convention on Human Rights. 

Both the Cantonal Court of Basel-Landschaft and the Federal Supreme Court rejected this argument putting an end to the controversies on the interaction between the attributions of authority under corporate law and the approval of an asset sale by the composition court under article 298 (2) DEBA).

This decision is final. However, the minority shareholder could still seek relief from the European Court of Human Rights for a violation of their treaty rights to due process.

III. Holdings of the Decision

The case was, therefore, primarily a matter regarding the standing of shareholders in proceedings before the composition court regarding the approval of the sale transaction. The Federal Supreme Court started by restating its previous ruling holding that the approval by the composition court under article 298 (2) DEBA can extend to the sale of the entire business during the moratorium and that, even then, creditors do not have standing to participate in such proceedings or to appeal the decision of the composition court.⁵

The Federal Supreme Court then affirmed the holdings of the Cantonal Court that the only party directly interested in the proceedings is the debtor, acting through its board of directors respectively managing officers, and accordingly individual shareholders are not directly interested in the proceedings, but, just like creditors, are affected only indirectly, through the company and hence procedurally do not have standing in the proceedings before the composition court or to appeal its decision.⁶

The Federal Supreme Court then turned to the internal attribution of authority within the company to apply for the approval of the composition court. On this issue, the highest court went beyond stating that the approval of the general meeting could be waived depending on the circumstances and considered that, to the extent the board of directors respectively the managing officers of a company have the authority to file for a composition moratorium (article 716a (1)(7) CO and article 810 (2)(7) CO) and propose to the creditors a composition agreement with assignment of assets (article 305 cum article 317 et seqq. DEBA), they should also have the power to decide actions that are subject to the approval of the composition court under article 298 (2) DEBA.⁷ As a further argument, the Federal Supreme Court also considered that, under article 298 (1) DEBA, the composition court can restrict the power and authority to manage the affairs of the debtor and instruct the administrator to sell assets and implicitly grant the administrator the authority to liquidate the company and inferred from the jurisdiction of the composition court the authority to approve an asset deal, even if it implies de facto a liquidation of the company.⁸

At the same time, the Federal Supreme Court also noted that the approval of the composition court does not release the directors or the administrator from their duties and liability should the transaction appear to have caused damages to the estate (see article 754 CO and article 5 DEBA).⁹

Finally, the Federal Supreme Court confirmed that the lower court’s decision does not constitute an anti-constitutional expropriation¹⁰ and held that it was not null, rejecting all arguments of the appellant.¹¹

IV. Key takeaways from the decision of the Federal Supreme Court

The decision of the Federal Supreme Court is important for a number of reasons:

1. No requirement of shareholders' approval for an asset sale approved by the composition court: The approval of asset sales by a composition court supersedes corporate law requirements for a resolution of the general meeting approving such transactions when they amount to a de facto liquidation.
2. Shareholders and creditors do not have standing up in the asset sale process: Shareholders and creditors do not have standing to participate in the process leading to the approval of the asset sale by the composition courts' authorization proceedings and do not have standing to appeal the decision of the composition court. They also do not have the right to make a counteroffer or otherwise participate in the process.
3. Debtor company's executive bodies in charge: The board of directors of a company limited by shares and the managing directors of a LLC have not only the non-transferable and inalienable authority to file for a composition moratorium (article 716a (1)(7) CO and article 810 (2)(7) CO), but also the sole authority to apply for the approval of the composition court under article 298 (2) CO.
4. Safeguards through liability: Shareholder and creditors can, however, hold directors (article 754 CO) and administrators (article 5 DEBA) liable if they breach their duties when proposing an (unfavorable) asset deal during a composition moratorium and cause damages to the debtor's estate. The risks for directors and officers is probably limited as they can rely on the business judgment rule, when they act in good faith in what they believe constitutes the best interest of the company, based on appropriate information and free of conflicts of interest.

V. Practical implications and conclusion

The decision provides significant legal certainty for distressed M&A transactions. Sellers and purchasers may rely on court-approved asset sales without exposure to shareholder challenges, enabling quicker and more robust execution of transactions. This strengthens the use of composition proceedings as a restructuring tool, as they provide deal security, especially given that such asset sales may not be vetoed by creditors either (see BGE 147 III 226) nor are they subject to claw-back and avoidance actions (see article 285 (3) DEBA).

Based on this decision, composition courts can authorize asset sales without involving shareholders and creditors even in a silent provisional composition moratorium, at an early stage of a restructuring, where obtaining a resolution of the general meeting would not be practicable due to timing constraints and adverse publicity risk, in particular if the debtor company has a dispersed shareholder base.

As a result, only the debtor, acting through its board of directors or managing officers, may challenge the decision of the composition court regarding a transaction in accordance with article 298 (2) DEBA.

The ruling clarifies that Shareholders’ rights are curtailed where the company is economically distressed, while boards and administrators must continue to document and justify transactions carefully in order to mitigate liability risks.

While the ruling related specifically to a LLC, the reasoning based on the fact that the authority of the board of directors to file for a composition moratorium and the subsequent approval of the composition court regarding the sale of non-current assets take precedence on the authority of the general meeting to resolve the liquidation of the company should also apply to companies limited by shares which are subject to the same statutory regime.

However, the decision applies only to matters falling within the scope of article 298 (2) DEBA. In other words, it does not cover any other cases that do not require the approval of the composition court. Therefore, commentaries stating that insolvency law prevails over company law overstate the scope of the decision and its underlying rationale. For instance, the general meeting retains its competence with regard to restructuring measures, such as capital reductions, which are governed by corporate law.

In conclusion, the Federal Supreme Court has delivered a clear ruling: shareholders have no role in court-approved asset sales during a composition moratorium. By confirming the primacy of the insolvency law approval process over corporate law on the authority of the general meeting, the decision enhances legal certainty and facilitates the use of prepacks and distressed M&A, more generally, in Switzerland.

Footnotes

1 It is generally recognized that these principles also apply in less dramatic situations, where the asset sale would amount to a change of the corporate purpose and would require an amendment of the articles of association approved by the general meeting (article 698 (2)(1) CO and article 804 (2)(1) CO).

2 See BGE 116 II 320.

3 See BGE 116 II 320.

4 For the sake of simplicity, references to the general meeting extend to the quotaholders meeting in an LLC and references to the board of directors also extend to the managing officers of an LLC.

5 BGer 5A_53/2026 of 6 May 2026, consid. 3.2 citing BGE 147 III 226, consid. 4.3.1 and 4.3.3 and 4.3.4.

6 BGer 5A_53/2026 of 6 May 2026, consid. 3.2.1 and 3.2.2.3 and 3.2.2.4.

7 BGer 5A_53/2026 of 6 May 2026, consid. 3.2.2.5.

8 BGer 5A_53/2026 of 6 May 2026, consid. 3.2.2.6.

9 BGer 5A_53/2026 of 6 May 2026, consid. 3.2.2.7.

10 BGer 5A_53/2026 of 6 May 2026, consid. 3.2.2.8.

11 BGer 5A_53/2026 of 6 May 2026, consid. 3.2.3.