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18/03/2020
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by Christian Meisser

Corona Legal 101 - What you need to know as a business leader in times of COVID-19

“Losing your head in a crisis is a good way to become the crisis.” ― C.J. Redwine

The current pandemic is upending the way we live, interact, and do business. While it is the healthcare sector that is at the frontline of this crises, it is also crucial that business leaders and entrepreneurs work together to ensure the safety of their employees and soften the blow to our economy. As legal professionals, we have the role and responsibility to provide our customers with the information they need to take the right decisions and the legal assistance to execute them.

This is a first blog post to outline the most important topics. We are working on free online questionnaires and webinars to provide the relevant information to as many as possible and will automate the process of generating required legal documents. Please let us know what is most urgent for your business so we can prioritize accordingly.

 

The key topics to know in times of COVID-19 from a Swiss law perspective are:

HR

  • Safety of your employees: You as the employer have a general duty of care towards your employees. Strictly follow the guidelines by the government agencies, inform all employees of the hygiene measures and ensure they can and do actually comply with them. On the website of the Federal Office of Public Health, you will find the most up to date information.
  • Remote work: At the time of writing, approval of remote work is compulsory only for particularly endangered persons (i.e. persons above the age of 65, and persons with severe illnesses), but it is advisable to enable remote work for all employees, where possible. To set the ground rules for remote work, e.g., regarding data and IT security measures at home, a Remote Work Policy should be adopted.
  • Salary payments: In principle, salary payments continue as before. The exceptions are if an employee refuses to work despite being healthy, the employee cannot reach the workplace due to travel restrictions, or if the employee cannot work for other reasons that are in the sphere of risk of the employee. If a particularly endangered person (as mentioned above) is not able to perform his or her work from home, such person may stay home, while salary payments remain due. (There is an extensive FAQ in German here – of course, not all lawyers agree on all statements so before taking a decision with a major impact, consult with professionals).
  • Reduced hours and insurance: Employers and employees can agree on reduced hours and request the unemployment insurance to reimburse part of the foregone salary. The reimbursement needs to be approved by the Cantonal authorities and is subject to certain criteria (work time tracking system etc.). There is a FAQ in German here.

 

Corporate & Finance

  • Over-indebtedness: The board of directors is legally required to draw up an interim balance sheet and get it audited in case there is good reason to suspect that the company is overindebted (i.e., the debt of the company is not covered by its assets, neither at going concern nor at liquidation values). Unless certain creditors subordinate their claims in a sufficient amount, the board of directors must notify the court. The board members may be liable personally for damages suffered by creditors in case of a delay in such notification. Quick action in case of doubts of the health of the balance sheet are essential.
  • Solvency: Cash is king, and while the balance sheet may still look good, liquidity may be affected by the crisis. There are many potential sources of cash: The government has pledged additional assistance to struggling businesses, likely also in the form of guarantees to loans so that banks are more willing to lend. We are also working on a digital bond and share offering that allows companies to raise funds directly on their website (see a live example here). Also, Systemcredit can assist you with a bridge loan by a bank or startups may ask current investors to bridge the gap with a convertible loan as a fast and easy way to obtain cash.
  • Digital general assembly: As from 17 March 2020, Swiss companies can conduct their general assembly in digital form (see details in article 6a of the COVID-19-Ordinance-2 here). This is an important step for social distancing, but also allows companies to act quickly in case restructuring measures need shareholder approval.

 

Contracts

  • Termination: Can you terminate a contract because of the pandemic? First, check the actual contract for termination rights (there may be a force majeure or material adverse change clause or even a general right of termination). If there is no suitable clause regarding termination, you may be able to rely on the general Swiss law principles. A company may be able to terminate a contract if the delivery has become impossible. Also, continuous contracts can be terminated for important reason (wichtiger Grund) at any time. The reason must be so important that the continuation of the contract is intolerable (unzumutbar) for the terminating party in light of all circumstances, and the termination must be handed without undue delay. If you do want to get out of a contract, there is no one-size fits all answer other than acting quickly is important in order to mitigate any losses, and the right to terminate may expire if you wait too long. Also, seeking the direct communication with the contracting partner can be the fastest way to find a mutually acceptable solution in a (legally) uncertain situation.
  • Letter of intent / term sheet: We have signed a letter of intent (or a term sheet), do we have any legal obligation? Generally, letters of intent are non-binding and the parties are not bound until they have signed a binding contract. However, review the letter of intent carefully as to whether there are binding clauses such as break-up fees.
  • E-signature: E-signature solutions are a great way to sign contracts even during lock down. There are two factors to consider: What e-signature solution is used, and what are the form requirements of the legal document. There are only a few providers in Switzerland that offer e-signatures that are equivalent to an ink signature (the 'qualified electronic signature'). The most commonly used solutions are not equivalent to an ink signature – however, almost all contracts under Swiss law can be signed with any electronic signature solution. The most notable exceptions are the transfer of claims and shares (without the consent of the debtor) and certain clauses in employment agreements which require ink signature (or a qualified electronic signature). Also, corporate documents often do require a notarization, in which case an e-signature is not sufficient.

 

General

If your business is not directly affected, you may also make the best of the time at hand to get your house in order, be it with focusing on product development, beefing up your IT security and data protection, setting up a solid contract management system, revising your core contracts, setting up an employee participation plan, or simply enjoying the sun.

Stay safe and stay sane, your LEXR Team.