Arbitration Clauses in Articles of Association Pursuant to the Revised Law on Corporations and the New Supplemental Swiss Rules for Corporate Law Disputes
<h4>1. Introduction</h4>
On January 1, 2023, the revised law on corporations will come into force. According to the revised law, the articles of association of corporations may now provide that corporate law disputes be settled by arbitration (article 697n CO). The same applies to partnerships limited by shares and limited liability companies.
The Swiss arbitral institution, the Swiss Arbitration Centre, has just issued Supplemental Swiss Rules for Corporate Law Disputes (<a href="https://www.swissarbitration.org/centre/arbitration/arbitration-rules/" target="_blank" rel="noopener">Supplemental Swiss Rules, version 2023</a>) to the existing Swiss Rules of International Arbitration (Swiss Rules) in order to conduct arbitration proceedings regarding corporate law disputes that are based on arbitration clauses included in articles of association.
This Bulletin presents the legal situation applicable as of 2023 with regard to arbitration clauses included in articles of association as well as the new Supplemental Swiss Rules. It also sets out the issues that need to be observed when drafting arbitration clauses in articles of association or when conducting arbitration proceedings based thereon.
<h4>2. As of 2023 Arbitration Clauses in Articles of Associations of Corporations Will Be Permitted</h4>
Switzerland has a long tradition of arbitration and is a well-known arbitration center for international and domestic arbitration.
Corporate law disputes are, however, rarely settled by means of alternative dispute resolution or arbitration. The reason for this was the uncertainty regarding the legal situation of arbitration clauses in articles of association until the new law on corporations comes into force at the beginning of 2023. For example, it was controversial whether an arbitration clause in articles of association of a corporation would lead to inadmissible additional duties for the shareholder and would therefore be inadmissible.
As of 2023, article 697n(1) of the Swiss Code of Obligations (CO) will stipulate that articles of association may provide for corporate law disputes to be resolved by arbitration. As of 2023, the validity of such arbitration clauses is therefore no longer at issue.
<h4>3. Reasons to Include an Arbitration Clause in Articles of Association</h4>
There are several reasons why corporate law disputes should be submitted to arbitration rather than to the jurisdiction of the state courts:
<ul>
<li>Efficiency: Corporate law disputes impact a company&#8217;s business performance negatively over a long period of time. All parties involved are therefore dependent on a prompt dispute resolution. The multiple levels of jurisdiction in state court proceedings and the numerous grounds for appeal often lead to protracted proceedings, which frequently last several years. Arbitration proceedings are generally limited to only one level of jurisdiction. There is only one possibility to apply to set aside an award, and that is before the Swiss Federal Supreme Court. The grounds to set aside an award are essentially limited to procedural misconduct. In terms of merits of a case, an award can only be set aside on the ground of arbitrariness, for which the Swiss Federal Supreme Court has defined a very high threshold.</li>
<li>Flexibility: Arbitration allows the parties, together with the arbitral tribunal, to adapt the rules and conduct of the proceedings to the nature and circumstances of the dispute at hand. This allows for flexible and efficient dispute resolution, especially in cases where a large number of parties are involved in corporate law disputes, e.g. the company itself, the company&#8217;s board of directors, the board members or the shareholders. Rules of civil procedure applicable in state court proceedings such as the Swiss Civil Procedure Code (CPC) are designed for adversarial proceedings between two parties and may not sufficiently take into account the possible involvement of third parties. Arbitration proceedings allow for flexible and efficient solutions to enable third parties to participate efficiently.</li>
<li>Confidentiality: Another advantage of arbitration over state court proceedings is its confidentiality. Without the consent of all parties, there are neither public hearings nor publicly accessible judgments in arbitration proceedings. This allows disputes to be settled without proprietary business information becoming publicly accessible.</li>
<li>Expertise of the arbitrators: In arbitration proceedings, parties may select their arbitrators based on their expertise. In contrast, a judge in state court proceedings is often assigned randomly without regard to his or her experience or expertise.</li>
</ul>
In addition, there are other advantages of arbitration proceedings, such as simplified enforcement abroad, which may also be relevant in corporate law disputes, especially in the case of liability actions against (former) board members domiciled abroad.
<h4>4. Framework for Arbitration Clauses in Articles of Association: article 697n CO and the Supplemental Swiss Rules of the Swiss Arbitration Centre</h4>
As mentioned above, article 697n(1) CO will provide as of 2023 that articles of association of corporations may provide for corporate law disputes to be resolved by arbitration proceedings in Switzerland.
An arbitration clause included in articles of association must therefore provide for a seat of the arbitration in Switzerland.
Pursuant to article 697n(2) CO, the provisions of Part 3 of the CPC applicable to domestic arbitration shall apply to the proceedings before the arbitral tribunal; Chapter 12 of the Swiss Private International Law Act is thus not applicable, even in cases where a party does not have his or her residence or its seat in Switzerland. Unlike for contractual arbitration clauses, there is no option to choose between the two statutes for arbitration clauses in articles of association.
However, there is a choice for arbitration clauses in articles of association regarding the applicable procedural rules. This is stated in article 697n(3) CO, according to which the articles of association may determine the particularities of the arbitration proceedings, in particular by reference to arbitration rules. The articles of association can thus determine the applicable procedure themselves (so-called ad hoc arbitration). In practice, references to institutional arbitration rules of well-known arbitration institutions are likely to be more common.
In order to take the peculiarities of arbitration proceedings on corporate law disputes into account, the Swiss Arbitration Centre has just issued Supplemental Swiss Rules to the Swiss Rules. These Supplemental Swiss Rules are the first rules issued specifically for corporate law disputes of Swiss corporations. The Supplemental Swiss Rules apply to corporate law disputes if an arbitration clause in articles of association refers to the Swiss Rules.
<h4>5. The Scope of Arbitration Clauses in Articles of Association</h4>
An arbitration clause in articles of association must specify which disputes are subject to resolution by arbitration. As a rule, articles of association will likely refer to the term «corporate law dispute» used in article 697n(1) CO, which is also the basic assumption of the Supplemental Swiss Rules. In this case, the arbitration clause covers all disputes concerning claims that have their legal basis in a corporate relationship. In particular, these include the following actions:
<ul>
<li>challenges against resolutions of the shareholders&#8217; meeting,</li>
<li>declaratory actions regarding the nullity of resolutions of the shareholders&#8217; meeting and the board of directors,</li>
<li>actions for measures in case of defects in the organization of the company,</li>
<li>actions for the convocation of a shareholders&#8217; meeting,</li>
<li>actions for information and inspection,</li>
<li>actions for the appointment of a special auditor,</li>
<li>actions for the return of benefits,</li>
<li>liability actions against board members of the company,</li>
<li>actions for the dissolution of the company.</li>
</ul>
The articles of association may also restrict the scope of the arbitration clause and exclude certain corporate law disputes from the jurisdiction of the arbitral tribunal. According to the model statutory arbitration clause proposed by the Swiss Arbitration Centre in connection with the Supplemental Swiss Rules, corporate law disputes subject to summary proceedings pursuant to article 250(c) CPC are excluded. The reason for this is that unlike an arbitral tribunal, the state court can also order enforcement measures, as is customary in this kind of proceedings. It is, however, not permissible to include disputes other than corporate law disputes within the scope of the arbitration clause in articles of association such as contractual disputes in connection with a shareholders&#8217; agreement. That being said, shareholders&#8217; agreements often contain a (contractual) arbitration clause.
Arbitration clauses in articles of association are in principle binding on all persons subject to the articles of association, i.e. specifically: the company, the company&#8217;s board of directors, the board members and the shareholders (as well as the participation certificate holders). Pursuant to article 697n(1) CO, the articles of association may limit the scope of the arbitration clause and only subject certain groups of persons, e.g. the shareholders or certain categories of shareholders, to the jurisdiction of an arbitral tribunal and exempt others from it. Such restrictions are delicate from a corporate law and procedural perspective and are therefore not to be recommended. By contrast, arbitration clauses in articles of association are not binding on persons not subject to the articles of association, such as the company&#8217;s creditors.
<h4>6. Procedural Aspects of Arbitration Proceedings based on Arbitration Clauses included in Articles of Association</h4>
As mentioned, the articles of association may specify the details of the arbitration proceedings, in particular by referring to institutional arbitration rules (article 697n(3) CO). Statutory law merely requires that the articles of association or the chosen arbitration rules ensure that persons who may be directly affected by the award are informed of the commencement and termination of the proceedings, may participate in the appointment of the arbitral tribunal and may intervene in the proceedings (article 697n(3) CO).
With the newly introduced Supplemental Swiss Rules, the Swiss Arbitration Centre has provided a pragmatic solution to procedural issues arising in connection the arbitration proceedings in the corporate law context. The Supplemental Swiss Rules complement the existing Swiss Rules, which are widely recognized for the resolution of commercial disputes. The Supplemental Swiss Rules provide in particular the following solutions for arbitration proceedings in the corporate law context:
<ul>
<li>Information on the Commencement and Termination of the Arbitration Proceedings: The Supplemental Swiss Rules provide that the persons potentially affected by the future award be informed about the commencement and termination of the proceedings, as required by article 697n(3) CO (see article 2 Supplemental Swiss Rules). In particular, this concerns corporate law disputes that affect persons who do not themselves participate in the proceedings as claimant or respondent, e.g. shareholders in proceedings brought by other shareholders to challenge resolutions of the shareholders&#8217; meeting. According to the Supplemental Swiss Rules, the company must inform persons who may be directly affected by the award within five days of the commencement of the proceedings. The five-day period is intended to ensure that persons who may be affected by the award can participate in the proceedings in a timely manner and express their view on the appointment of the arbitral tribunal.</li>
<li>Appointment of the Arbitral Tribunal: The new Supplemental Swiss Rules contain a provision on the appointment of the arbitral tribunal, which differs slightly from the Swiss Rules (see article 3 Supplemental Swiss Rules). The Supplemental Swiss Rules in particular provide that possibly affected persons may express their views on the appointment of the arbitral tribunal (article 3(2) Supplemental Swiss Rules).</li>
<li>Participation of Third Persons: As mentioned, an essential feature of corporate law disputes is the possible involvement of third persons who do not themselves participate in the proceedings as claimant or respondent, but who may be affected by the award. The Supplemental Swiss Rules refer to the Swiss Rules regarding the participation of third persons (article 4 Supplemental Swiss Rules). Article 4 Supplemental Swiss Rules, however, specifies that the arbitral tribunal, when deciding on the admission of such third persons to the proceeding, must in particular consider the legal effect of a future award on such third parties.</li>
<li>Information Regarding the Course of the Arbitration Proceedings: According to the Supplemental Swiss Rules, possibly affected persons may request the contact details of the arbitral tribunal and submit a request to the arbitral tribunal for information on the course of the proceedings and for access to the file (article 5 Supplemental Swiss Rules). To that end, the third person must provide evidence that he or she is actually potentially affected within the meaning of article 697n(3) CO.</li>
</ul>
<h4>7. Configuration of Arbitration Clauses in Articles of Association</h4>
An arbitration clause (contractual or in articles of association) must express unequivocally that a dispute is submitted to the jurisdiction of an arbitral tribunal rather than to state court jurisdiction. Furthermore, the arbitration clause must designate the disputes to be submitted to arbitration in terms that allow for a determination which disputes are submitted to arbitration and which are not. In addition to that, an arbitration clause in articles of association must also safeguard the particular procedural rights of potentially affected persons as provided for in article 697n(3) CO. Otherwise, the company is free to draft the arbitration clause and it can establish suitable procedural rules and tailor the arbitration clause in particular to the structure of its shareholding. In this respect, the revised law on corporations and the Supplemental Swiss Rules allow for a large flexibility.
Most companies are likely to use the model statutory arbitration clause of the Swiss Arbitration Centre recommended in the context of the Supplemental Swiss Rules. This clause allows the companies to easily subject the relevant corporate law disputes to arbitration. The recommended contents of the model statutory arbitration clause are as follows:
<h5>1 Any corporate law dispute, excluding matters subject to summary proceedings pursuant to Article 250(c) of the Swiss Civil Procedure Code [and excluding actions for cancellation of outstanding equity shares according to the Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading], shall be resolved by arbitration in accordance with the Swiss Rules of International Arbitration of the Swiss Arbitration Centre in force on the date on which the Notice of Arbitration is submitted in accordance with those Rules. 
2 The seat of the arbitration shall be … (name of the company seat/other city in Switzerland) 
3 The arbitration proceedings shall be conducted in … (insert desired language).</h5>
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In addition, the Swiss Arbitration Centre provides for selected possible additions to the arbitration clause, which the company may – but is not obliged to – adopt in its articles of association. For example, the articles of association may adopt the following additions:
<h5>4 The number of arbitrators shall be («one», «three», «one or three»). 
5 The Arbitration Court of the Swiss Arbitration Centre shall appoint the (arbitrator) / (arbitrators and designate the presiding arbitrator). 
6 The company and the members of the company’s governing bodies shall submit all disputes falling under the present arbitration clause to arbitration and shall object to the jurisdiction of the state courts over such disputes to the extent that any actions relating to such disputes are initiated before them. 
7 The arbitral tribunal may, at the request of a claimant who is a shareholder of the company, order the company to pay the costs of the arbitration provided that, based on the facts and the applicable law, the claimant had reasonable cause to file the action and provided that the action does not conflict with predominant interests of the company. 
8 The arbitral tribunal may order the company to pay any deposit of costs pursuant to Article 41 of the Swiss Rules and to advance the costs reasonably incurred or estimated to be incurred by a claimant who is a shareholder of the company for legal representation and legal assistance. 
9 All notifications regarding the commencement and the termination of the arbitration proceedings shall be delivered pursuant to and in the form provided for in the Supplemental Swiss Rules for Corporate Law Disputes. In addition, delivery shall be made via postal service and e-mail to all serviceable addresses and authorized recipients that have been provided by shareholders of the company for this purpose. 
10 The emergency relief proceedings pursuant to Article 43 of the Swiss Rules shall not apply.</h5>
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Which of these additional elements or which further additions should be included in the articles of association depends on the individual case and must be decided in consideration of all circumstances relevant to the company.
If you have any questions relating to arbitration clauses to be included in articles of association or regarding arbitration proceedings based on such arbitration clauses, our experts will be glad to assist.<a href="#_ftnref1" name="_ftn1"></a>
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New Supplemental Swiss Rules for Corporate Law Disputes

<h4>What are SPACs?</h4>
SPACs (also known as «blank check companies») are companies with no operating activities whose sole purpose is to raise money in an initial public offering (IPO) in order to acquire one or more target companies within a certain period of time (so-called de-SPAC). For the shareholders of a target company, a de-SPAC is an exit option with greater transaction security and price certainty than an IPO.
SPACs are typically launched by one or several investors (including private equity firms), who act as so-called sponsors and who are responsible for the search of a suitable target company after the SPAC&#8217;s IPO. The sponsors assume the risk of failure of the SPAC; in return, they are able to acquire a stake in the SPAC (combined with the target company) on preferential terms. The SPAC investors are able to vote on a de-SPAC and have a redemption right regarding their SPAC securities.
<h4>What requirements do Swiss SPACs have to comply with?</h4>
SIX has established a regulatory standard for SPACs that is tailored to the particularities of SPACs. Under this standard, shares and convertible bonds of Swiss SPACs can be listed.
Requirements for a SPAC: In order to be listed under the new regulatory standard, a SPAC must meet the following requirements:
<ul>
<li>the SPAC is a Swiss stock corporation (Aktiengesellschaft) whose exclusive purpose is the direct or indirect acquisition of a target company and which is dissolved after a maximum of three years from the first trading day if no de-SPAC has been completed by then;</li>
<li>the IPO proceeds have to be deposited in an earmarked escrow account;</li>
<li>the SPAC investors are able to vote on a de-SPAC;</li>
<li>at least those SPAC investors who vote against the de-SPAC have a redemption right in respect of their shares or convertible bonds;</li>
<li>the founders, sponsors, directors and members of the executive committee of the SPAC undertake not to sell their securities for a period ending at least six months after the completion of the de-SPAC (lock-up); and</li>
<li>in case of a liquidation of the SPAC, the SPAC investors have a liquidation preference over the sponsors.</li>
</ul>
Disclosure requirements regarding the SPAC IPO: Beyond the usual content of an IPO prospectus, SPACs have to disclose additional information at the time of the IPO, including information on the dilution in a de-SPAC, a description of potential conflicts of interest of the founding shareholders, sponsors, directors and officers and the banks involved, as well as information on the de-SPAC, including information on the target market in which potential target companies will be searched for.
Disclosure requirements regarding the de-SPAC: In view of the vote on a de-SPAC, SPACs must publish information on the intended de-SPAC and the target company, either in the prospectus (if one has to be prepared, e.g., for purposes of a capital increase) or in a separate information document. This information must also include an independent fairness opinion on the valuation of the target company. Furthermore, SPACs must publish quarterly financial statements in the two fiscal years following the de-SPAC if the target company does not have financial statements covering three fiscal years in accordance with a recognized accounting standard.
<h4>Are there any particularities in the listing of convertible bonds by SPACs?</h4>
As a special feature compared to other jurisdictions, Swiss SPACs can list not only shares but also convertible bonds. This makes it easier to implement the investors&#8217; right of redemption; in addition, there may be tax benefits of such a structure. The rules on SPACs also apply—with certain technical modifications—to convertible bonds issued by a SPAC.
<h4>Are other legal principles also relevant for SPACs?</h4>
As Swiss corporations, SPACs benefit from the flexibility of Swiss corporation law, which will be modernized in 2023. The corporate governance and majority requirements in the SPAC (e.g., for the de-SPAC) can generally be freely chosen, and investors benefit from the high standards of Swiss capital markets law. In addition, Swiss capital market practice is familiar with PIPE transactions, which are often carried out in order to validate the valuation of the target company in a de-SPAC.
Swiss SPACs are neither subject to the Collective Investment Schemes Act (CISA) nor to Swiss anti-money laundering legislation.
<h4>New rules make Swiss stock exchange more attractive</h4>
SPACs are an additional investment, financing and exit opportunity. Following the rule change as of December 6, 2021, Swiss investors and companies will be better able to benefit from the advantages of SPACs. This strengthens the attractiveness of Switzerland as a financial center.

RZ_Preview_SPACs_JR_01

SPACs in Switzerland: A new investment and exit opportunity

On November 17, 2021, SIX published the legal basis for a new regulatory standard for SPACs.
The revised Listing Rules and a new Directive on SPACs define SPACs as companies whose sole purpose is to directly or indirectly acquire an operating company within a maximum of three years after the first day of trading (so-called De-SPAC). The new rules incorporate other typical features of SPACs, such as the deposit of IPO proceeds in an earmarked escrow account, investor consent to a De-SPAC, investors&#8217; redemption right (especially if they do not consent to the De-SPAC), and investors&#8217; liquidation preference.
In preparing the IPO prospectus, SPACs must comply with additional disclosure requirements. Later, in case of a De-SPAC, SPACs have to publish an information document that provides information about the target and the De-SPAC transaction. This document must also include an independent fairness opinion on the valuation of the target company. Furthermore, SPACs are required to publish quarterly financial statements in the two fiscal years following the De-SPAC if the target company does not have financial statements covering three fiscal years in accordance with a recognized accounting standard. Finally, any management transactions must be disclosed.
When the new rules take effect on December 6, 2021, there is nothing to prevent the launch of a SPAC in Switzerland.

SIX Enables SPAC Listings as of December 6, 2021

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Homburger advised U.S. Cotton on this transaction, with Claude Lambert as senior relationship partner. The Homburger team was led by Daniel Häusermann (Corporate / M&amp;A) and comprised Gregor Bühler (Employment), Luca Dal Molin (IP / IT), Peter Müller (Tax), Patrick Schmidt, Oliver Dalla Palma, Aron Belegu and Erik Habich (all Corporate / M&amp;A), as well as Simone Gloor (Financing and Investment Products).

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On May 4, 2023, GAM Holding AG (GAM) announced that it had entered into an agreement with Liontrust Asset Management plc (Liontrust) relating to the launch by Liontrust of a public exchange offer for all publicly held shares in GAM. As further set out in the pre-announcement by Liontrust dated May 4, 2023, Liontrust expects to launch the exchange offer on or about June 9, 2023 and to offer approximately 0.0589 Liontrust shares per GAM share, corresponding to an aggregate approximately 9.4 m Liontrust shares in exchange for all GAM shares. The offer is subject to the approval by Liontrust shareholders expected for July 7, 2023, on occasion of a Liontrust shareholders&#8217; meeting and, once launched, will be subject to a minimum acceptance ratio of 66⅔%. Completion is subject to customary regulatory approvals.
Following a strategic review of GAM on which Homburger AG advised on all aspects of Swiss law, Homburger AG advises GAM on the transaction. The Homburger team is led by Claude Lambert (Corporate / M&amp;A) and includes Lorenzo Togni (Corporate / M&amp;A), Stefan Kramer (Regulatory and Financial Market Regulation) and Richard Stäuber (Competition) as well as Micha Fankhauser, Stefan Luginbühl, Anna Peter, Margrit Marti, Olivier Bühlmann, Simone Schmid, Timo Hasler, Patrick Schmidt, Isabelle Cordey and Florian Gasche (all Corporate / M&amp;A), Alexander Wherlock and Sarah Fasel (both Regulatory and Financial Market Regulation).

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Homburger advises PHOENIX Pharma Switzerland on the transaction. The Homburger team is led by Frank Gerhard (Corporate / M&amp;A) and comprises Andreas Burger (Regulatory / Competition) as well as Patrick Schmidt (Corporate / M&amp;A), Allegra Arnold, Daniel Lütolf (both Regulatory / Competition), Angela Casey (Employment), and Fabio Gasser (Corporate / M&amp;A).

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Homburger advises U.S. Cotton on the sale of FLAWA Consumer GmbH in a management buy-out

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SPACs in Switzerland: A new investment and exit opportunity

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Homburger advises U.S. Cotton on the sale of FLAWA Consumer GmbH in a management buy-out

Homburger advises GAM on the expected public exchange offer from Liontrust for all shares in GAM

Homburger advises PHOENIX Pharma Switzerland on its joint venture with Voigt Group

New Supplemental Swiss Rules for Corporate Law Disputes

SPACs in Switzerland: A new investment and exit opportunity

SIX Enables SPAC Listings as of December 6, 2021

SPAC ante portas: Schweizerische SPACs und De-SPAC-Transaktionen

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