SWITZERLAND: An Introduction
Switzerland Overview 2023
Switzerland's political and financial landscape was slightly disrupted by recent turmoil. The most notable event being the acquisition of Credit Suisse by UBS, amongst growing concerns over the bankruptcy of the former. Fears of an energy shortage are decreasing, but remain a key factor to consider. Conversely, reservations regarding the global economic situation remains high, considering the uncertainty brought by recent conflicts and still rising interest rates, especially in the first half of 2023. Nevertheless, Switzerland's ability to retain and attract both private and public companies occupying major roles in the global economy has been unwavering. The country's banking sector continues to be highly regarded with UBS at its center. In the sectors of food, beverage and agriculture, Nestlé remains the most renowned entity. The chemical and pharmaceutical industries are also highly recognized with flagship entities such as Roche, Novartis and Sandoz. In the field of engineering, specialized machinery and high technology, highly praised ABB, Schindler, Georg Fischer and OC Oerlikon pave the way. Finally, the country is also home to some of the leading companies in logistics and shipping as well as a hub for trading companies. Furthermore, Switzerland can count on its flourishing small and medium cap market in several business areas. As it is, Switzerland continues to be one of the world's leading economies, mainly capitalizing on its political stability, modern public infrastructures, highly skilled workforce, low corporate tax rates, stable capital markets and efficient legal system.
Market Developments
Mergers and Acquisitions
The first half of 2023 was subject to a decline in M&A activity, especially regarding megadeals. During the first half of 2023, 216 transactions were recorded, as opposed to 362 over the same period in 2022. Yet, the transaction volume remains constantly above the ten-year average. Nonetheless, acquisitions of foreign assets by Swiss companies hit an all-time high in 2023. Similar to last year, the highest level of activity for the first half of 2023 was recorded in the Technology, Media and Telecommunication sectors, amounting to over a quarter of all transactions, followed by the Life Sciences and the industrial sectors.
Transaction Financing
Over the first half of 2023, the interest rates kept on rising. This affected greatly the private equity sector as there was a trend to use a great deal of leverage to finance transactions. Nonetheless, in the third quarter of 2023, firms seemed to be getting a better grasp of the evolution of interest rate trajectories, which would in turn enable more accurate valuations of businesses. This climate adds even more importance to securitization, as it allows to reduce funding costs depending on the quality of the assets pledged as collateral.
Capital Markets
In the first half of 2023, the Swiss capital market activity displayed a clear decline in trading turnover (around 21%). The most notable transaction of the first half was the spinoff of Sandoz. The relationship between the Swiss and Chinese markets keeps on growing with the new listing of five Chinese Global Depository Receipts (GDRs), generating gross proceeds of approximately USD 1.2 billion. Finally, marking a first in the regulated financial market infrastructure, the City of Lugano issued the first ever municipal digital bond on the SIX Digital Exchange (SDX).
Recent Key Political and Legal Topics Discussed
Acquisition of Credit Suisse by UBS
As this most notable event of the year, this transaction was particularly marked by the enactment of a special ordinance which provided for specific guarantees against potential losses (since then voluntarily terminated by UBS) and amendments to the Merger Act, authorizing the board of directors of the respective entities to approve the merger without seeking prior authorization from the shareholders. This transaction will remain a recurrent topic in the foreseeable future, considering the numerous ongoing proceedings connected to it. In particular, due to the CHF 15.50 billion write-off of the AT1 bonds of Credit Suisse, which unsurprisingly led to at least 230 appeals by the concerned bondholders before the Federal Administrative Court.
Reform of the Civil Procedure Code
On September 6th, 2023, the Federal Council announced that the reform of the Civil Procedure Code would enter into force on January 1st 2025. The new Civil Procedure Code is fairly well received by the business community.
A notable amendment is the newly enacted right of companies to refuse to cooperate in civil proceedings with regards to their in-house legal department's activities. This will further even out the remaining discrepancy that Swiss companies faced compared to foreign companies who were allowed to invoke their in-house counsel's attorney-client privilege. This possibility will nevertheless be limited to companies with legal departments headed by a person licensed to practice law (in Switzerland or abroad) and to the scope of "typical" lawyer's professional activities.
Increased Transparency in the Identification of Economic Beneficiaries
Following the path of the latest developments on the European level and the guidelines of the Financial Action Task Force on Money Laundering, the Federal Council is looking to further enhance the disclosure requirements regarding ultimate beneficial owners. A draft law has been put out to consultation and the Federal Council has already announced its intention to submit the draft to parliament in 2024. The cornerstone is the proposed creation of a centralised State register for the sole purpose of identifying economic beneficiaries. Additional disclosure requirements would be integrated in the legal framework to ensure that this centralised register will be kept up to date with companies' changes of beneficiaries. This centralised register will be only made available to the State's authorities and will, therefore, not be made available to the public. As such, the limited disclosure duties vis-à-vis the public, currently in effect, should remain untouched as the cornerstone of the Swiss public disclosure standards.
Regulation of Automated Decision-making
On September 1st, 2023, the new Data Protection Act and its Ordinance came into effect. This reform of the data protection regulation gave an opportunity to the State to regulate the ever-growing automated decision-making functions used mainly by financial actors. This form of decision is becoming more and more recurrent in the banking sector, especially with regards to loan and credit systems and anti-money laundering investigation processes.
Following the path of the European Union, Switzerland now provides for a specific set of regulations targeted at ensuring the rights of natural persons with regards to the processing of their personal data in the context of automated decision-making. Contrary to its EU counterpart, the Swiss regulation allows such decisions to be taken without any human interaction, subject to an information right and/or a right to request a second human opinion on the results in case of a negative decision.
The Data Protection Act does go one step further than its EU counterpart. Companies subject to the Data Protection Act, can exempt themselves from any obligation to provide information on the taking of such an automated decision in the case of a decision taken in the context of a contractual relationship and the decision resulted in a positive outcome or the natural person's express consent was obtained prior to rendering such decisions.
Tightening of Bankruptcy Rules
For the past years, the Federal Council and the Swiss legislator have been drafting amendments to the bankruptcy regulations. An (almost) done deed, as the final set of amendments to several regulations have been already sent for consultation, with an estimated entry into effect in January 2024.
The amendments aim to make it more difficult for debtors to abuse the Swiss bankruptcy procedures, in particular to avoid their obligations, pass on part of the loss to the social security system and resume promptly their business under a new company name.
The most notable changes relate to the codification of the long-standing case law of the Federal Court under which the sale of overindebted shell companies are to be considered null. Accordingly, the Registries of commerce will be tasked with supervising and reporting any suspicious transfers, whilst the criminal authorities will be encouraged to order prohibitions from carrying on a professional activity in the event of an abusive use of the bankruptcy regulations leading to criminal proceedings.
Finally, the opting-out mechanism, which is widely used by companies, ie the possibility of waiving the obligation to audit the company's accounts, will only be allowed for future financial years and no longer retroactively for a past financial year.
Municipal Frameworks for Green, Social and Sustainable Bonds
Paving their way into the green, social and/or sustainable bonds market, some Swiss municipalities have enacted frameworks to clarify their position and the objectives of their future bond issues. At the forefront, the cities of Zürich (in June 2023) and Geneva (in September 2023) have published their bond issuance frameworks. The aim is to issue green bonds in order to finance and accelerate projects aimed at transitioning to a greener, more sustainable local economy. Thus, the proceeds will first be invested into the transition of municipal infrastructures, buildings and properties of the cities and will then be extended to broader projects.