Abolition of commercial register blockage increases transaction security

Abstract

Until the end of 2020, anyone was able to block a Swiss commercial register without going to court for up to 10 days. This possibility has been abolished as of January 1, 2021. The rule change will reduce execution risk for transactions that require a commercial register filing (e.g. capital increases, mergers, certain restructurings). As of 2021, a third party wishing to block the commercial register will need to obtain a court injunction, against which the company can defend itself.

Rule change increases transaction security

Until the end of 2020, anyone was able to block the registration of commercial register filings by a specific company for up to 10 days, free of charge, without having to go to court, without having to have standing as a shareholder or creditor, and without having to provide a reason for the request or to allege a claim. As a result, commercial registries blocked transactions requiring an entry into the commercial register based on a simple request to do so. The applicant was able to extend the blockage beyond the initial 10-day period by showing that it had applied to the competent court for a more permanent blockage. In that case, the blockage would have remained in place until the court decided to lift it.

This possibility of a register blockage was occasionally misused to put pressure on a counterparty. Also, there was a temptation to circumvent the obligation to initiate legal proceedings within 10 days in that another person requested a new commercial register blockage towards the end of a 10-day blocking period (so-called «chain blockage»).

As of January 1, 2021, the possibility to block the commercial register in this way has been abolished. The rule change was implemented in the revised Commercial Register Ordinance that came into effect on that date.

The rule change is good news for Swiss companies. Although commercial register blockages were relatively rare, the mere possibility of a blockage without any proper justification created execution risks and hold-out power in various kinds of transactions, such as mergers, acquisitions, capital market transactions, and certain restructurings. This risk will be significantly reduced as of 2021.

Courts could still order a commercial register blockage …

From now on, a party wishing to block the commercial register will need to obtain a preliminary injunction (vorsorgliche Massnahme) from a competent court. Such injunction will only be granted if the applicant credibly shows a violation or an imminent violation of the applicant’s rights that could not be easily remedied after its recording in the register. The applicant would also be asked to pay a court fee retainer before the court takes any action.

In court proceedings, the company which is the defendant will be heard before a preliminary injunction is issued unless the applicant can convince the court that the matter is so urgent that a hearing of the defendant would not be appropriate (so-called ex parte injunction or superprovisorische Massnahme).

… but companies can defend against it much better

There are various ways how companies can defend themselves against a court injunction blocking the commercial register (and potentially ordering other remedies).

To defend against a potential ex parte injunction, a company may file a protective writ (Schutzschrift) with the competent court(s) for a moderate fee. The writ will be kept on file with the court for 6 months and enables a company to present its standpoint to the court, thus reducing the risk that the court grants the injunction. A protective writ will only be made available to the counterparty if that party actually files a petition for an ex parte injunction.

Second, a company may claim damages from the applicant for an injunction if that injunction turns out to be unjustified, unless the applicant proves it has acted in good faith. Sometimes, a court would also order the applicant to provide security for such potential damage claim.

Third, even without providing security, an applicant would have to pay court fees and part of the defendant’s attorney’s fees if the injunction is not granted. This cost risk is significant if the value in dispute is high, for instance if an injunction is sought against a large company.

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