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Companies whose share capital consists of bearer shares had eighteen (18) months from 1 November 2019 to convert their bearer shares into registered shares. This eighteen (18) month period expired on 30 April 2021.

The purpose of this newsletter is to analyse the steps to be taken following the automatic conversion of bearer shares into registered shares on 1 May 2021, including the updating of the share register and the commercial register, as well as the recognition of the shareholder status in case of late notification to a court.

Introduction

Following international pressure from the Global Forum on Transparency and Exchange of Information for Tax Purposes of the Organisation for Economic Co-operation and Development (the "OECD"), Switzerland has amended its legislation to abolish certain types of shares. These are bearer shares for companies that are not listed on a stock exchange or for shares that are not in the form of intermediated securities and that are deposited with a depository in Switzerland designated by the company or registered in the main register.

Below are the key dates for the deadlines related to the conversion of bearer shares into registered shares:

  • 1 May 2021: automatic conversion of unauthorised bearer shares into registered shares if this has not been done before;

  • 1 November 2024: automatic cancellation of shares of non-registered shareholders; and

  • 31 October 2034: expiration of the right to compensation for shareholders who have lost their rights through no fault of their own.

The Federal Act of on the Implementation of the Recommendations of the Global Forum on Transparency and Exchange of Information for Tax Purposes 21 June 2019 (RO 2019 3161). Since this date, according to Art. 622 para. 1bis Federal Act on the Amendment of the Swiss Civil Code of 30 March 1911 (“OR”; SR 220), the issuance of new bearer shares in public limited companies is only permitted for companies whose shares are listed on the stock exchange or if the bearer shares are issued in the form of intermediated securities[1].

However, these exceptions must be recorded in the commercial register. Indeed, the board of directors that rightfully issues new bearer shares must, when issuing the new shares, request the registration of the reason for exception (quoted company or existence of intermediated securities) in the commercial register and submit the supporting documents[2]. In the absence of such grounds, the Commercial Register Office will reject any application for registration of the issue of new bearer shares.

Legal consequences for the company

If the company has not complied with its obligation to convert its bearer shares into registered shares by the deadline of 30 April 2021, its shares will be converted by the Commercial Register Office in accordance with Art. 4 para. 1 Transitional Provisions of the Amendment of 21 June 2019 ("TP"; RO 2019 3161) as of 1 May 2021[3].

According to Art. 4 para. 1 TP, the conversion becomes effective for all persons, regardless of statutory provisions and commercial register entries to the contrary, and regardless of whether securities have been issued for the bearer shares. The converted shares retain their nominal value, their rate of payment, their voting and property rights. Their transferability is not limited (Art. 4 para. 3 TP).

It should be noted that the conversion of shares also takes place if the company owns listed equity securities or if its bearer shares are issued in the form of intermediated securities, but it has failed to apply for registration of one of these exceptions at the Commercial Register Office[4].

The conversion of shares does not, however, exempt the company concerned from adapting its articles of association and implementing the conversion of shares[5]. The company must also update its share register, while the Commercial Registry Office is responsible for amending the entry in the commercial register.

The General Meeting must amend the articles of association following the conversion of shares in accordance with Art. 5 para. 1 TP. There is no time limit for this, however, it must be done at the next amendment of the articles[6].

The Commercial Register Office will then make the changes to the entries relating to the conversion of shares (Art. 4 Para. 2 TP)[7]. The law does not set a deadline for the commercial register offices to amend the entries, but it must act promptly if the entry is made ex officio[8]. The Commercial Register Office will therefore reject any further application for registration of a change in the articles of association as long as the amendment of the articles of association relating to the conversion of shares has not been carried out (Art. 5 para. 2 TP).

The Board of Directors has the authority to update the share register. If a shareholder has not complied with the obligation to register, the Board of Directors enters a note in the share register stating that the shareholder has not complied with the obligation to register and that the rights attached to the shares cannot be exercised[9]. This update of the share register must be done immediately after the conversion.

A company that does not keep the share register in accordance with the legal requirements may be subject to proceedings for organisational deficiencies[10].

Legal consequences for shareholders

According to the former Art. 697i para. 1 OR, persons who acquire bearer shares in a company whose securities are not listed on the stock exchange are required to notify the company of this acquisition.

As of 1 May 2021, holders of bearer shares who have not yet notified the acquisition of such shares may only validly request their entry in the share register by way of a court order and with the consent of the company[11]. Shareholders who have not announced their acquisition of bearer shares have their corporate rights suspended and their property rights extinguished[12].

Steps to be taken to remedy the lack of shareholder registration and following the automatic conversion of bearer shares into registered shares

Under Art. 7 (1) TP, these shareholders still have five (5) years from the entry into force of the new law, i.e. until 31 October 2024, to apply to the court for registration in the company's share register[13]. Pursuant to Art. 7 (2) TP, they must prove their shareholder status in a summary procedure in order to apply for registration in the share register[14].

As proof, the presentation of the share and the share certificate is not sufficient.  The shareholder shall present other evidence such as the subscription form or a contract of sale[15]. If the court approves the application, the company shall proceed with the registration of the shareholders concerned and the property rights shall be revived without retroactive effect (Art. 7 para. 3 TD)[16]. However, if the company objects to the registration in the shareholder’s register, the shareholder has to take action against the company first to have his rights recognised[17].

Shareholders who have not requested registration in the share register by 1 November 2024 will have their shares cancelled by law and replaced by the company's own shares[18].

It is not possible to object to the cancellation of the shares. The Board of Directors shall take note of the cancellation of the shares and adjust the share register accordingly, as well as decide on the use of the own shares. Members of the Board of Directors who do not take the necessary measures following the cancellation of the shares are in breach of their duty of care under Art. 717 OR[19].

If a person proves that he was a shareholder at the time of the cancellation of his shares and that he was not at fault, he may claim compensation from the company until 30 October 2034 in accordance with Art. 8 para. 2 TP[20].

Conclusion

In conclusion, although the deadline for converting bearer shares into registered shares has expired, shareholders can still, and must, proceed with the recognition of their shareholder status through the judicial process. Companies, on the other hand, have to adapt their articles of association and share register. The deadline for doing so is 1 November 2024, after which the shares of shareholders who have not registered will be automatically cancelled.

Footnote

[1] Communication OFRC 3/21 du 1er avril 2021, Information concernant la pratique de l’Office fédéral du registre du commerce « Conversion de par la loi des actions au porteur non autorisées en actions nominatives », p. 1.

[2] Instructions du Secrétariat d’Etat aux questions financières internationales SFI relatives à la loi fédérale sur la mise en œuvre des recommandations du Forum mondial sur la transparence et l’échange de renseignements à des fins fiscales, p. 3.

[3] Communication OFRC 3/21 du 1er avril 2021, Information concernant la pratique de l’Office fédéral du registre du commerce « Conversion de par la loi des actions au porteur non autorisées en actions nominatives », p. 1.

[4] Instructions du Secrétariat d’Etat aux questions financières internationales SFI relatives à la loi fédérale sur la mise en œuvre des recommandations du Forum mondial sur la transparence et l’échange de renseignements à des fins fiscales, p. 6.

[5] Instructions du Secrétariat d’Etat aux questions financières internationales SFI relatives à la loi fédérale sur la mise en œuvre des recommandations du Forum mondial sur la transparence et l’échange de renseignements à des fins fiscales, p. 8.

[6] Instructions du Secrétariat d’Etat aux questions financières internationales SFI relatives à la loi fédérale sur la mise en œuvre des recommandations du Forum mondial sur la transparence et l’échange de renseignements à des fins fiscales, p. 8.

[7] Christophe Chatelanat, Transparence dans la société anonyme : Vers la disparition des actions au porteur, publié le : 04 novembre 2019 par le Centre de droit bancaire et financier.

[8] Communication OFRC 3/21 du 1er avril 2021, Information concernant la pratique de l’Office fédéral du registre du commerce « Conversion de par la loi des actions au porteur non autorisées en actions nominatives », p. 2.

[9] Instructions du Secrétariat d’Etat aux questions financières internationales SFI relatives à la loi fédérale sur la mise en œuvre des recommandations du Forum mondial sur la transparence et l’échange de renseignements à des fins fiscales, p. 6.

[10] Instructions du Secrétariat d’Etat aux questions financières internationales SFI relatives à la loi fédérale sur la mise en œuvre des recommandations du Forum mondial sur la transparence et l’échange de renseignements à des fins fiscales, p. 7.

[11] Instructions du Secrétariat d’Etat aux questions financières internationales SFI relatives à la loi fédérale sur la mise en œuvre des recommandations du Forum mondial sur la transparence et l’échange de renseignements à des fins fiscales, p. 9.

[12] Christophe Chatelanat, Transparence dans la société anonyme : Vers la disparition des actions au porteur, publié le : 04 novembre 2019 par le Centre de droit bancaire et financier.

[13] Instructions du Secrétariat d’Etat aux questions financières internationales SFI relatives à la loi fédérale sur la mise en œuvre des recommandations du Forum mondial sur la transparence et l’échange de renseignements à des fins fiscales, p. 8.

[14] Christophe Chatelanat, Transparence dans la société anonyme : Vers la disparition des actions au porteur, publié le : 04 novembre 2019 par le Centre de droit bancaire et financier.

[15] Instructions du Secrétariat d’Etat aux questions financières internationales SFI relatives à la loi fédérale sur la mise en œuvre des recommandations du Forum mondial sur la transparence et l’échange de renseignements à des fins fiscales, p. 9.

[16] Christophe Chatelanat, Transparence dans la société anonyme : Vers la disparition des actions au porteur, publié le : 04 novembre 2019 par le Centre de droit bancaire et financier.

[17] Instructions du Secrétariat d’Etat aux questions financières internationales SFI relatives à la loi fédérale sur la mise en œuvre des recommandations du Forum mondial sur la transparence et l’échange de renseignements à des fins fiscales, p. 9.

[18] Christophe Chatelanat, Transparence dans la société anonyme : Vers la disparition des actions au porteur, publié le : 04 novembre 2019 par le Centre de droit bancaire et financier.

[19] Instructions du Secrétariat d’Etat aux questions financières internationales SFI relatives à la loi fédérale sur la mise en œuvre des recommandations du Forum mondial sur la transparence et l’échange de renseignements à des fins fiscales, p. 9.

[20] Christophe Chatelanat, Transparence dans la société anonyme : Vers la disparition des actions au porteur, publié le : 04 novembre 2019 par le Centre de droit bancaire et financier.

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