<h3>Leading decision of the Federal Supreme Court on equitable subordination provides clarity for loans in distressed situations</h3>
<h3>1. Introduction</h3>
When shareholders and other related parties grant loans to a company in financial distress to bridge an acute liquidity shortfall, the question frequently arises as to whether such distressed loans should rank pari passu with the claims of other creditors in the event of a failed restructuring and subsequent bankruptcy. In cantonal case law and legal doctrine, this has occasionally been affirmed under the concepts of &#171;equity-replacing loan (eigenkapitalersetzendes Darlehen)&#187; and &#171;equitable&#187; or &#171;implied subordination.&#187;
In a recent landmark decision (5A_440/2024 dated March 31, 2025), the Federal Supreme Court confirmed that unsecured loan claims of related parties are generally to be treated as unsecured third-party claims under Swiss law &#8211; namely (after the privileged creditors of the first and second classes) in the so-called third class. Only in exceptional cases involving an obvious abuse of rights are claims of related parties to be equitably subordinated to those of other creditors. A key prerequisite for such abuse is, in particular, that the company was overindebted at the time the loan was granted.
<h3>2. Facts of the Case</h3>
In the present matter, shareholders and members of the Board of Directors of the construction company F. AG provided loans between 2016 and 2018, despite being aware of the company’s precarious financial situation. F. AG consistently reported negative operating results from 2011 to 2017.
According to the decision, F. AG suffered from significant liquidity issues, and &#171;from the end of 2016, the company’s bankruptcy was a serious risk.&#187; Third parties were no longer willing to provide financing. However, at the time the loans were granted, the company was not yet balance-sheet overindebted.
In June 2015, F. AG also transferred assets to A. AG, a company related to its shareholders. Bankruptcy proceedings for F. AG were opened on April 30, 2018. The unsecured loans in question were recorded in the bankruptcy proceedings as &#171;subordinated third-class claims.&#187; The bankruptcy administration justified this classification on the grounds that the loans had been granted in abuse of rights – specifically, to artificially prolong F. AG’s business activities and thereby postpone the timeframe for initiating a clawback action (actio pauliana) concerning the transfer of assets to A. AG.
The lower court upheld the equitable subordination of these loans as claims ranking behind all other third-class claims.
<h3>3. Decision and Considerations</h3>
The Federal Supreme Court overturned the lower court’s decision and ordered that the loans be classified as third-class claims without subordination to other unsecured creditors.
Swiss law does not contain an explicit legal basis for reclassifying loans as equity. The Federal Supreme Court reaffirmed its established case law, confirming that such reclassification lacks legal basis.
For the first time, however, the Federal Supreme Court explicitly outlined the conditions under which the equitable subordination of claims from related parties may be considered, citing the following exceptional cases:
<ul>
<li>Abuse of Rights: 
Subordination is permissible if asserting the claim constitutes an obvious abuse of rights (Art. 2 para. 2 of the Swiss Civil Code). This requires a legitimate expectation on the part of other creditors that the related party failed by asserting the claim unencumbered. Such trust arises only under Art. 725 para. 2 of the former Swiss Code of Obligations (Art. 725b para 4 of the current Swiss Code of Obligations), which stipulates that a company could continue its operations despite balance-sheet over-indebtedness only if subordinations existed to cover the over-indebtedness. 
The Federal Supreme Court therefore held that over-indebtedness at the time of the loan is an objective prerequisite for an obvious abuse of rights. The Court endorsed the lower court’s reasoning on this point. Although the Federal Supreme Court did not explicitly address subjective factors, it is clear from the decision that the shareholders were aware of the company’s distressed situation.</li>
<li>Express, Implicit, or Implied Subordination: 
Subordination is also possible where it has been contractually agreed – whether expressly, implicitly, or by implication &#8211; based on the actual or presumed intention of the related party and the company (Art. 18 para. 1 of the Swiss Code of Obligations), determined through standard contract interpretation principles. In the absence of an express agreement, it must generally be assumed that related parties do not intend to subordinate their claims, as was the case here.</li>
</ul>
The Federal Supreme Court also rejected several alternative tests for abuse of rights that have been discussed in doctrine and lower court decisions:
<ul>
<li>No Third-Party Test: 
Whether an independent third party would have granted the loan on the same terms is irrelevant.</li>
<li>No Restructuring Test: 
It is also irrelevant whether the loan was granted at a time when only a contribution to equity would have had a restructuring effect.</li>
<li>No Obligation to Implement Simultaneous Restructuring Measures: 
Even if a shareholder grants a loan to an undercapitalized company without simultaneously implementing restructuring measures, this alone does not constitute an obvious abuse of rights.</li>
</ul>
Finally, the Court rejected any need to fill a perceived legal gap through case law. Swiss law is not incomplete in this regard; the legislature deliberately refrained from introducing more restrictive rules on equitable subordination of related-party claims as part of the corporate law reform effective January 1, 2023.
<h3>4. Practical Consequences for Restructurings</h3>
This decision provides welcome clarity for practice but also imposes high standards for the careful planning and documentation of restructuring measures:
<ul>
<li>Legal and Planning Certainty: 
Going forward, shareholders and related investors can have greater confidence that their loans will be treated pari passu with other third-class claims in bankruptcy proceedings. In our view, the risk of equitable subordination based on this decision is low.</li>
<li>Importance of the Over-Indebtedness Test: 
It remains crucial to assess carefully whether balance-sheet over-indebtedness exists at the time of the loan. If there is no over-indebtedness, a later allegation of abuse of rights is likely to be difficult to assert.</li>
<li>Proper Documentation of Loans: 
Loan agreements should be clearly documented and explicitly state that no subordination is intended. This effectively rules out an implied subordination.</li>
</ul>
<h3>5. Requirements for Future Restructurings Supported by Related Parties</h3>
This decision illustrates the framework within which related parties can contribute to restructuring efforts while minimizing legal risks:
<ul>
<li>Liquidity Planning and Restructuring Measures: 
The Board of Directors must continuously monitor the company’s liquidity position (Art. 725 of the Swiss Code of Obligations). Loans can serve as temporary bridging measures but should be supported by sustainable restructuring plans.</li>
<li>Early Communication with Creditors: 
Open dialogue with major creditors helps to build trust and mitigate potential allegations of abuse of rights.</li>
<li>Combination of measures: 
Irrespective of this decision, loans should, where possible, be combined with other restructuring contributions such as capital increases, debt waivers or express subordination in order to increase the chances of success of a long-term restructuring.</li>
</ul>
<h3>6. Conclusions and Outlook</h3>
According to this leading decision, the equitable subordination of distressed loans from related parties is justified only in exceptional cases. This development offers greater legal certainty for future restructurings but also demands careful documentation, clear contractual arrangements, and a robust financial analysis of the company at the time the loan is provided.
The decision strengthens the options available to shareholders and investors but also sets clear guidelines for responsible financial planning and corporate governance.

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Homburger advised Santhera in connection with its CHF 20 m Royalty Monetization and Convertible Bond Financing

On September 23, 2025, Santhera Pharmaceuticals Holding AG (SIX: SANN) announced that it had secured an USD 13 m royalty monetization financing with R-Bridge, an affiliate of CBC Group, Asia’s largest healthcare-focused investment firm. Santhera is monetizing 25% of net royalties on its product AGAMREE®. In addition, Santhera has agreed with Highbridge Capital Management, LLC on an additional CHF 10 m of funding and the exchange of the existing CHF 7 m private convertible bond for a new convertible bond.
Homburger advises Santhera on the transaction. The Homburger team is led by Daniel Häusermann (Corporate / M&amp;A, Capital Markets) and includes Stefan Oesterhelt (Tax), Eduard De Zordi and Daniel Hulmann (both Financing, Investment Products, Capital Markets) as well as Daniel Bötticher (Corporate / M&amp;A). Ropes &amp; Gray acts as U.S. counsel to Santhera.

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Homburger advised Madrigal in connection with its new USD 500 m financing

On July 17, 2025, Madrigal Pharmaceuticals, Inc., a biopharmaceutical company focused on delivering novel therapeutics for metabolic dysfunction-associated steatohepatitis (MASH), a serious liver disease with high unmet medical need, secured a USD 500 m senior secured credit facility from Blue Owl Capital to advance its pharmaceutical pipeline. On September 4, 2025, Madrigal’s Swiss subsidiary, Madrigal Pharmaceuticals GmbH, acceded as guarantor and security provider to this financing.
Homburger advised Madrigal, in particular its Swiss subsidiary Madrigal Pharmaceuticals GmbH, with regard to all Swiss legal aspects of the financing transaction.
The Homburger team was led by Daniel Haeberli and included Fabrice Eckert, Luca Gmür and Yulia Shaburnykova (all Financing) as well as Stefan Oesterhelt (Tax).

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Homburger advised The SPAR Group Ltd on the sale of its Swiss retail and wholesale business to Tannenwald Holding AG

On September 8, 2025, The SPAR Group Ltd entered into an agreement to sell its entire shareholding in SPAR Holding AG including its Swiss business operations (SPAR Switzerland) to Tannenwald Holding AG. The sale has been completed with immediate effect. SPAR Switzerland operates approximately 358 stores and owns 11 cash &amp; carry outlets and one distribution centre in Switzerland, all under several formats including SPAR, SPAR Express, EUROSPAR, Maxi and TopCC.
The transaction reflects an equity value of CHF 46.5 m and includes potential earn-out payments of up to CHF 30 m due at the end of FY27 based on certain EBITDA milestones.
The Homburger team was led by Frank Gerhard and comprised Patrick Schmidt, Carlo Sulser, Florian Bruggisser, Jannis Zafeirakos and Leon Indov (all Corporate / M&amp;A), Richard Stäuber, Andreas Burger and Kristina Martinovic (all Competition), Stefan Oesterhelt, Reto Heuberger, Juliette Buob and Philippe Weber (all Tax), Stefan Bindschedler (Financing and Investment Products) as well as Luca Dal Molin and Noëmie Beck-Schär (both IP / IT) and Jeremy Reichlin (Employment).

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Shareholder Loans to Companies in Financial Distress

Der Rettungsschirm für die Strombranche ist aufgespannt

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Homburger advised Santhera in connection with its CHF 20 m Royalty Monetization and Convertible Bond Financing

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