This Note is intended to be used for a loan financing where a borrower, guarantor, or security provider (an obligor) is

incorporated in Switzerland. While the issues to be considered in relation to an obligor when drafting a loan agreement,

guarantee, or security document will be broadly similar regardless of an obligor’s jurisdiction of incorporation, there will

This Note looks at the key legal and documentation issues for a corporate loan made under a loan agreement which is subject

to English law or the law of a US state to an obligor incorporated in Switzerland. It covers the following:

• Legal issues such as corporate authority and corporate benefit, laws of general application to lending, granting of

security interests and guarantees, laws affecting the amount of interest charged, and whether the concepts of facility

agent and security trustee are recognised in Switzerland.

• Documentation issues such as typical contractual terms (for example, representations, undertakings (or covenants), and

events of default), jurisdiction and arbitration provisions, and execution formalities.

This Note assumes the following:

• The obligor is a company incorporated in Switzerland.

• The loan agreement is subject to English law or the law of a US state.

individuals to execute the loan finance documents on behalf of a Swiss obligor are not required as signatories will be directly

authorised in the board resolution of an obligor. Where more than one entity of a group is a party to the loan finance documents,

it is customary that authorisation to represent various parties in the same matter (Doppel-/Mehrfachvertetung) is provided in a

board resolution and to release any signatories from the restrictions under Swiss law regarding self-dealing (Selbstkontrahieren).

Shareholder resolutions are only required where a Swiss obligor provides an upstream or cross-stream guarantee or indemnity,

or provides a security interest for obligations of an affiliate other than a direct or indirect wholly-owned subsidiary.

There are limitations on the granting of upstream and cross-stream guarantees or security interests, as Swiss law treats payments

to or for the obligations of an indirect or direct parent company or sister entity as similar to a dividend distribution.

documents, and signatures for the amendment process.

The relevance of Swiss Acts and ordinances for a particular loan financing transaction may vary from case to case. However,

the following legislation is generally relevant:

• Swiss Code of Obligations of 30 March 1911 (CO), which regulates general contractual obligations and specific

obligations under, for example, a loan agreement, and includes Swiss corporate law provisions.

• Swiss Civil Code of 10 December 1907, which includes provisions regulating security interests such as pledges.

• Swiss Debt Enforcement and Insolvency Act of 11 April 1889 (SDEBA), which includes provisions relevant for certain

insolvency events of default and enforcement matters.

payment or the application of proceeds from the enforcement of transaction security provided by a Swiss obligor to satisfy

upstream or cross-stream obligations are limited to a Swiss obligor's freely distributable equity at the time payment under the

guarantee is demanded or enforcement proceeds are applied. This limitation does not release a Swiss obligor from its obligations

under any guarantee, indemnity, or transaction security provided. Rather, it postpones its payment obligations to a time when

distributions are again permitted. Nevertheless, in an insolvency scenario, these limitations typically have a material adverse

impact on the value of upstream or cross-stream security and guarantees.

However, it should be noted that these limitations are not applicable where the transaction security and guarantees are granted

on an arm's length basis. Secured loan financing transactions are not usually structured to rely on the arm's length exception

as it is difficult to establish what is considered "arm's length." If a loan financing transaction is structured to rely on the arm's

length exception, the risk remains that an upstream or cross-stream guarantee or security provided may be characterised as an

unlawful return of shareholders' equity or as a hidden profit distribution and would render the guarantee or security invalid.

This would also expose the board of directors of the guarantor or the security provider entity to personal liability if the unlawful

upstream or cross-stream payments are not fully recovered from the borrower by the guarantor or security provider.

bank rules." Compliance with such rules is required to ensure that no Swiss withholding tax, currently 35%, becomes applicable

on interest payments under the loan finance documents.

In summary, the Swiss non-bank rules are as follows:

• The ten non-bank rule requires that no more than ten non-bank lenders (that is, entities that are not licensed as banks in

their jurisdiction of incorporation) participate in the loan finance transaction (this rule is tested on a transaction-specific

basis).

• The 20 non-bank rule requires that the Swiss obligor does not have more than 20 non-bank creditors across all of its

borrowings (this rule is tested on an aggregate basis).

Compliance with Swiss non-bank rules is typically addressed through any of the following:

agreement has already been signed and the Swiss entity accedes as a guarantor or security provider at a later stage) that

the loan proceeds will not be used in Switzerland in a manner that would trigger Swiss withholding tax consequences

as determined by the Swiss Federal Tax Authority. This approach, however, is only possible where a Swiss entity acts

restrictions designed to ensure that there will, at no point in the term of the loan financing, be more than ten non-bank

lenders participating in the loan financing transaction or more than 20 non-bank lenders in a Swiss obligor's overall

financing structure.

Entities that have obtained a loan, surety, guarantee, non-refundable contribution, or other financial support under any Swiss

public financial support scheme in connection with the COVID-19 pandemic must not distribute any dividends or make loans for

a certain period of time. This will limit the relevant Swiss entity's ability to send funds upstream to an affiliate for debt servicing

purposes. It will also adversely affect the value of upstream and cross-stream guarantees and security interests provided by

distributions in an enforcement scenario. To address this topic, a representation is typically given in a loan agreement that no

Swiss group company has obtained such governmental support. If such support has been obtained, loan agreements typically

provide a representation that any support has been repaid in full before execution of the loan financing documents, if possible,

or an undertaking that repayment will occur within a certain period of time after the loan financing transaction closing date.

that the court that has jurisdiction must be sufficiently determinable by specifying a town or city, for example, "The courts of

Sydney, New South Wales, Australia have exclusive jurisdiction [...]."

If a Swiss obligor is involved in a merger (Fusion), demerger (Spaltung), or transfer of assets and liabilities

(Vermögensübertragung) under Swiss law, the secured parties only learn about the transaction through the respective

publication in the Swiss Official Gazette of Commerce, as under Swiss law there is no statutory obligation of the obligor to

inform the secured parties about the contemplated transaction. There is also no statutory right of the secured parties to prevent

this type of transaction. Also, a contractual prohibition in the loan agreement or the relevant security agreement may not prevent

an obligor from entering into the transaction. Therefore, a Swiss company whose shares have been pledged to the secured parties

An agreement that default interest will be compounded with the overdue amount and bear interest may be null and void, pursuant

to Article 314, paragraph 3 of the CO, if the agreement is reached prior to the due date of the overdue amount.

Under Swiss law, agreements with an unlawful, impossible, or immoral purpose are void from the outset (Article 20, CO).

If a borrower uses the loan proceeds for an unlawful or illegal purpose, lenders may have remedies based on contract (Vertrag)

(Article 97 et seq, CO) and tort (Delikt) (Article 41 et seq, CO). From a practical perspective, lenders would, as a first step,

for the purpose described in the loan agreement.

Lending in Switzerland or to borrowers incorporated in Switzerland for the purposes of financing transactions with financial

instruments including shares (for example, Lombard lending) qualifies as a financial service (Finanzdienstleistung) under the

purpose. This means that lenders essentially need to be compliant with the rules and requirements that come with the provision

There are no restrictions on the repayment of a loan in instalments or voluntary early prepayments of a loan by a Swiss

incorporated borrower.

In addition to the usual set of representations and warranties provided for in the Loan Market Association (LMA) or Loan

Syndications and Trading Association (LSTA) recommended forms of loan agreement, the following representations and

as a bank.

General Application Relating to Lending, Granting of Security, and Guarantee for more information regarding a no-

flowback undertaking; see also Non-Bank Rules).

the purpose of a loan agreement does not contravene environmental laws and an undertaking by an obligor is included to

require compliance with relevant environmental laws, it is unlikely that a lender would be held liable for any adverse actions

or omissions by an obligor. If, however, in an enforcement scenario, the lenders enforce their security interests in certain assets

(for example, shares in an obligor) and an obligor continues with any polluting activities, then a lender may incur liability under

environmental laws for any damage caused.

Subject to certain limitations, an undertaking in a loan agreement or security document not to grant security to another creditor

is from a Swiss law perspective primarily enforceable against the respective obligors. A "negative pledge" undertaking is not

directly enforceable against a third party unless the third party is a party to the relevant transaction documents or has provided

or US state law governed loan agreement.

A provision stating that a lender is entitled to early repayment without the need for a lender to make demand is enforceable

from a Swiss law perspective.

From a Swiss law perspective, there are no statutory provisions that could restrict a lender's ability to waive an event of default.

There are, however, certain principles under Swiss law that could restrict a Swiss obligor's right to remedy an event of default,

for example, negligence or fault, misuse of rights, breach of general principles of good faith, or prohibition of abusive behaviour.

Insolvency-related events of default are amended to include jurisdiction-specific wording or definitions to avoid any ambiguity.

The following are typical Swiss insolvency events of default:

• A Swiss obligor or other relevant group entity is over-indebted (überschuldet) within the meaning of the Swiss Code of

Obligations and its board of directors becomes obliged to notify the competent bankruptcy court.