Criminal and Civil Liability of the Fiduciary Director in Switzerland

A comprehensive guide to understanding the risks, legal duties, and best practices for serving as a director of a public limited company (SA) in Switzerland, aimed at curious non-specialists.

Introduction

Acting as a director on the board of a public limited company (SA) in Switzerland is a position of high importance that entails numerous responsibilities. For those unfamiliar with the subtleties of corporate law, these issues may seem complex or even somewhat abstract. In reality, it’s straightforward: being a director—or a member of the board of directors—places you in a position of authority that carries strict legal constraints and substantial risks.

A fiduciary director often serves as a proxy: appointed to steer the company’s affairs, ensure compliance with legal obligations, oversee accounting, and advise management. In Switzerland, many small and medium-sized enterprises (SMEs) outsource part or all of their governance by hiring a fiduciary who sometimes acts as the formal director. However, holding a director’s mandate is more than just appearing in a register: the law demands heightened vigilance and diligence, especially given that certain board of directors (BoD) tasks are deemed “non-transferable” and “inalienable.” Put differently, just because you delegate day-to-day tasks to an employee or an external party doesn’t mean you can avoid liability if errors or misconduct occur.

In this article, we will detail:

  1. The role and mission of the board of directors within the Swiss legal framework (Code of Obligations).
  2. The “non-transferable and inalienable” duties that directors must fulfill without fail.
  3. The various forms of criminal liability a director may face (disloyal management, fraudulent bankruptcy, forgery of documents, tax or social security violations, etc.).
  4. Civil and tax liabilities: how a director may be personally responsible for unpaid social contributions, taxes, or negligent wrongdoing while performing their duties.
  5. Concrete examples of directors being prosecuted—including fiduciaries—to illustrate the real-world risks.
  6. Best practices and precautions for safely carrying out this mandate, especially regarding delegation, oversight, accounting, and reporting.
  7. The special case of traffic fines involving company vehicles, to show how a director may be held accountable for road violations by employees.

The aim is to provide an accessible overview for those who are not legal experts but want clear insights into real-world implications. We will see that a director’s responsibility goes well beyond a nominal function: it is a personal commitment that can lead to severe financial and legal consequences if poorly managed.

1. The Role and Responsibilities of the Board of Directors in Switzerland

In Switzerland, the board of directors (BoD) is the supreme governing body of an SA. The Code of Obligations (CO) sets out in detail its duties and competencies. The BoD:

  • Defines the company’s strategy and guides its development.
  • Oversees day-to-day management, whether performed by in-house executives or by a hired fiduciary.
  • Represents the company before third parties (signing contracts, entering into agreements, etc.).
  • Enforces laws and the company’s bylaws, reporting to the general meeting (GM) of shareholders and preparing the annual reports.

The GM elects the board members, who must perform their duties with loyalty and diligence. Even though the board can internally structure itself (chairperson, vice chair, etc.), all members share overall responsibility. The legislature insists that directors must act in the company’s best interest, rather than their own or that of a specific majority shareholder.

1.2 Collective and Individual Responsibility

A notable feature of Swiss law is the concept of collective responsibility among directors. Nevertheless, liability can also be applied individually if a particular director committed a specific breach. When exercising their functions, directors must observe the “diligence of a prudent manager.” Failure to do so can lead to civil penalties and, in severe cases, criminal charges.

It’s vital to understand that the board’s responsibility is not merely moral but grounded in law. Directors cannot free themselves from legal duties by claiming ignorance of day-to-day management or by fully delegating their powers. Swiss law states that certain tasks are non-transferable, precisely to ensure that the board plays an active—not purely symbolic—role.

2. Non-Transferable and Inalienable Duties of the Board

To prevent a board of directors from acting as a “front” that allows a few individuals or a shadow manager to make all the decisions unchecked, Swiss law (Article 716a CO) lists fundamental competencies that the BoD cannot delegate. These tasks notably include:

  • Overall management of the company and setting clear guidelines for conducting business (general strategy).
  • Defining the internal organization (organizational chart, regulations, scope of authority and signing powers).
  • Establishing accounting standards, financial oversight, and financial planning.
  • Appointing and dismissing the people in charge of management and representation.
  • High-level supervision of those entrusted with management, ensuring they respect legal requirements, the bylaws, and the board’s directives.
  • Preparing the management report (annual financial statements, annual report), convening the GM, and carrying out its decisions.
  • In a crisis: requesting a moratorium or notifying the court in the event of over-indebtedness.
  • For publicly listed companies: drafting the annual remuneration report.

These “non-transferable” competencies protect the company’s interests and guarantee at least a minimum level of board control. In practice, this means the BoD must at least:

  1. Actively participate in defining strategy and ensure the internal organization is coherent.
  2. Specify the main accounting principles, supervise cash flow and expenditures, and ensure taxes and social contributions are paid.
  3. Oversee the work of managers or directors by asking for periodic reports and verifying that delegated tasks are fulfilled properly.
  4. Act swiftly in the face of major risks (looming bankruptcy, conflicts, lawsuits, etc.).

In concrete terms, even if everyday bookkeeping is handled by a fiduciary, the board cannot simply ignore what happens. It must ensure that accounts are accurate, that all tax and social security obligations are met, and that the company is not over-indebted. If a director delegates everything without further inquiry, they face serious repercussions once irregularities are uncovered.

3. Criminal Liability of the Director in Switzerland

3.1 Major Offenses Under the Criminal Code

A director can face criminal prosecution for a variety of offenses if their actions—or lack of oversight—facilitate unlawful acts. Common examples include:

  • Disloyal management: misappropriation of assets, fraudulent use of company resources, undeclared conflicts of interest, etc.
  • Breach of trust: illicit use of funds that do not belong to you (e.g., withholding social security contributions from salaries but not paying them in).
  • Fraudulent bankruptcy: deliberately organizing the company’s insolvency to evade creditors.
  • Forgery of documents: falsifying official documents, manipulating financial statements, tampering with accounting records.
  • Fraud: deceitful maneuvers to mislead investors, tax authorities, or creditors to obtain financial gain.

If a director actively participates in such activities or covers them up (by turning a blind eye to obviously suspicious transactions), they risk anything from fines to imprisonment, depending on the severity and associated financial damage.

Criminal law specifically punishes certain behaviors during or before a company’s collapse:

  • Bankruptcy (Art. 163 Criminal Code): concealment of assets, inflating liabilities, or manipulating books to mislead creditors.
  • Falsified accounting (Art. 166 Criminal Code): intentionally altering records to obscure the true financial situation.

As a director, you must ensure that the bookkeeping accurately reflects the company’s finances. Keeping records in such disarray that they become intentionally deceptive may constitute an offense. Similarly, failing to act when there is over-indebtedness (for example, not convening a shareholders’ meeting or not notifying the court) can lead to prosecution.

3.3 Offenses Involving Social Security Contributions and Insurance

Directors are especially vulnerable when a company fails to pay social security contributions (AVS, LPP, etc.). Withholding contributions from salaries but not remitting them is considered a criminal act akin to “breach of trust.” The legislature protects employees and treats withheld salary-based contributions as belonging in part to the employees themselves; misappropriating those funds is a serious violation.

Under Swiss law, Article 87 of the Federal Act on Old-Age and Survivors’ Insurance (AVS) penalizes not affiliating with an AVS fund or failing to pay mandatory contributions. In repeated or deliberate cases, the courts can impose sentences of several months in prison (often suspended) or daily fines.

For a fiduciary director, this liability is critical. They are expected to ensure administrative obligations and cash management are handled properly. Neglecting to pay AVS or LPP contributions on time for no valid reason exposes them directly to criminal risks.

3.4 Serious Tax Offenses

Minor tax offenses are usually dealt with through administrative fines. However, if tax fraud is substantial and intentional (e.g., issuing false financial statements or hiding significant sums to evade taxes or VAT), tax authorities may refer the case to the public prosecutor. The implicated director then faces criminal prosecution for tax fraud, which can result in imprisonment and substantial financial penalties.

It’s crucial to note that in Switzerland, the dividing line between administrative fines and criminal sanctions is easily crossed if authorities demonstrate a willful intention to deceive the tax office. Any accounting manipulation or systematic dishonesty about company earnings may incriminate a director, especially if they orchestrated or abetted the scheme.

3.5 Offenses Under Specific Public Laws

Beyond the Criminal Code, Switzerland has numerous special statutes (e.g., banking, insurance, environmental legislation). A director who authorizes or tolerates the unauthorized use of protected titles (like “bank” or “insurance” in the company name), or who violates standards imposed by supervisory bodies (e.g., FINMA), can be criminally prosecuted.

Although such situations may seem uncommon, they do happen: simply featuring a reserved term (“bank,” “university,” etc.) without legal entitlement in promotional material can trigger complaints from oversight agencies. The director will be held liable if they approved or ignored the violation.

4. The Director’s Civil and Tax Liability

4.1 Civil Liability (Art. 754 CO)

Apart from criminal liability, a director can be sued in civil court for damages caused to the company, shareholders, or creditors. Article 754 CO stipulates that board members are liable for losses resulting from a negligent or intentional breach of their duties. Intent is not mandatory—simple negligence can suffice to establish civil liability.

Example: A director deliberately avoids checking the company’s finances, allowing a dishonest manager to embezzle funds. Even if the director did not personally divert money, they may be held liable for negligence and required to compensate the company or creditors (whose funds were lost).

4.2 Social Debts: Subsidiary Liability

Under Swiss law, if an SA fails to pay its AVS contributions, the compensation office can pursue the directors personally for the outstanding amounts. In multiple rulings, the Federal Supreme Court has upheld such “subsidiary” liability: the fund will attempt to collect from the company first, but if that fails (e.g., the company is bankrupt), it will target the directors.

A director can thus be personally ordered to pay tens or even hundreds of thousands of francs in unpaid social security contributions. Malice need not be proven—simple evidence of negligent financial oversight can suffice.

4.3 Liability for Taxes (VAT, Withholding Tax, etc.)

A similar approach applies to unpaid taxes. If a director allows the company to accumulate tax debts or VAT arrears without intervention, they risk personal liability should the tax authorities prove a serious failing (cover-up, blatant inaction, etc.).

Again, the law aims to protect public creditors (fiscal authorities, social security) and prevents the SA’s “corporate shell” from acting as a shield. If the company doesn’t pay, the authorities will pursue those with the power to avert the debt and who should have acted.

Directors may also face:

  • Procedural costs if found guilty of mismanagement.
  • A ban on holding office, imposed by FINMA or other authorities for regulated sectors (finance, banking, insurance).
  • Reputational damage and career setbacks: being convicted can devastate the trust placed in a fiduciary or business leader.

In all cases, accepting a mandate as director makes one personally responsible for their actions (or inaction), and they cannot hide behind the company’s legal persona.

5. Real-World Examples of Director Prosecutions in Switzerland

5.1 Unpaid Social Contributions

Notable decisions by the Federal Supreme Court condemned a board chairman to personally repay AVS contributions after his company went bankrupt. Since the compensation office could no longer recover the funds from the insolvent firm, it sued the director. The court found he had failed to ensure social security payments were managed properly. He was forced to pay substantial sums out of his own pocket.

5.2 VAT Fraud

A senior executive who evaded VAT on large amounts was hit with cumulative fines of several million francs. Courts found that the false VAT declarations were deliberately fraudulent. The director could not claim ignorance of billing practices: it was his responsibility to question or verify suspicious numbers.

5.3 Improper Use of Reserved Titles

Some fiduciary firms mandated to administer financial entities have been prosecuted for illicit use of the word “bank” in communications. Despite claiming it was a “good faith” mistake, courts ruled it violated the Banking Act: the entity lacked the required license to hold itself out as a “bank.” The director received a monetary penalty and was ordered to remove the misleading term.

5.4 Failure to Report Suspicious Funds

A fiduciary director failed to inform authorities about suspected money laundering. Managing accounts through which suspicious funds flowed, he ignored anti-money laundering due diligence requirements. The court found him guilty, even though he hadn’t directly laundered money himself—he had failed to report suspicious transactions, in violation of financial intermediary regulations.

All these examples follow the same principle: a director cannot remain passive or rely entirely on others. When major issues arise (fake records, concealed funds, unauthorized use of titles, etc.), they must intervene or at least investigate. Otherwise, their personal liability is triggered.

6. Best Practices and Precautions for the Fiduciary Director

6.1 Smart Delegation, Not Blind Delegation

Delegation is often essential in an SME. A managing director, accountant, or fiduciary may handle the majority of day-to-day bookkeeping, tax filing, and payroll. Nonetheless, the board must:

  • Clearly define delegated powers: who is authorized to do what, spending limits, payment thresholds, etc.
  • Establish a reporting system: require regular financial statements (monthly, quarterly), plus activity reports.
  • Retain final oversight: the BoD should review these reports, pose questions, verify data consistency, and—if necessary—request audits.

If there are signs of fraud or financial trouble (e.g., unpaid salaries, suspicious receivables), the director must not “look away” but rather step in and demand explanations. Failure to do so implies tacit approval under Swiss law.

6.2 Monitoring Cash Flow and Social Security Payments

A critical aspect of managing an SA is paying taxes and social security on time. Every fiduciary director should:

  1. Ensure regular payment of AVS contributions (both employer and employee shares).
  2. Keep track of VAT: confirm that the firm accurately reports its revenue, especially if it’s on a quarterly or semi-annual system.
  3. Maintain an alert system: any letter from the compensation office (reminder, demand) should be escalated immediately to the BoD to prevent unpaid contributions from piling up.

A good practice is to require that every social security invoice or final statement be submitted to the director or a designated board member. This requirement can be set out in a service agreement with the fiduciary.

6.3 Establishing a Clear Organizational Structure and Internal Regulations

To ensure a sound distribution of tasks, the board typically creates an organizational regulation: who handles which duties? Who has which signing authority? Should major financial decisions be approved by the BoD or an executive committee? This regulation:

  • Simplifies daily operations with a well-defined process map.
  • Shields the directors by demonstrating, in the event of a dispute, that they set up and communicated control rules.
  • Avoids confusion: if no one knows who’s in charge of paying AVS, it’s easy for it to remain unpaid.

6.4 Documenting Board Decisions

The board should meet at regular intervals (at least once a year, often more in SMEs). It’s advisable to record meeting minutes, including major decisions. This documentation is evidence in case of dispute, showing that the BoD discussed key issues, reviewed the financials, verified debtors, and so on.

6.5 Staying Informed and Trained

Corporate law evolves, as do accounting and tax requirements. A conscientious director:

  • Pursues continuing education or reads specialized publications to stay aware of legal obligations.
  • Consults with other professionals (attorneys, certified accountants) to validate the company’s procedures.
  • Tracks regulatory changes (e.g., new AVS or VAT rules, labor law updates).

Such proactive efforts help avoid inadvertent mistakes that, even made in good faith, can lead to serious penalties.

7. Director Liability for Company Vehicle Traffic Offenses

7.1 General Principle: The Driver Is at Fault

When an employee or executive commits a traffic violation while driving a company vehicle, the individual at the wheel is typically responsible for the fine. However, authorities often contact the registered owner of the vehicle (i.e., the company) to identify the driver. If the company cannot or will not name the driver, it risks further administrative penalties.

7.2 Implications for the Director

How might the director be implicated?

  • By systematically refusing to cooperate with the police or Vehicle Services, declining to identify the driver.
  • By tolerating the company’s payment of traffic tickets for managers or employees who should pay out of their own pocket, potentially an “abusive use” of corporate funds.
  • By failing to track who uses each vehicle, leading to an absence of records and creating confusion about who was driving.

Under such conditions, the director could be accused of negligence or mismanagement. For instance, if speeding tickets accumulate, the company pays them without question, and no one knows which employee drove, oversight agencies or auditors may fault the board for lack of control.

7.3 Practical Recommendations

  • Maintain a vehicle log: document which employee uses which car, on which date, and for what purpose.
  • Charge the actual fines to the responsible driver: to prevent the company from bearing those personal costs.
  • Cooperate with authorities: promptly provide the driver’s identity upon request.
  • Train drivers: remind staff that any traffic infraction puts their license at risk and that the company will not cover personal fines.

Though this may seem like a minor administrative detail, it aligns with the director’s duty of care—especially if the company has multiple vehicles.

8. Conclusion: Inalienable Duties and the Need for Vigilance

8.1 The Spirit of Swiss Law

Swiss legislation on public limited companies and director status is designed to protect third parties (creditors, employees, the state, minority shareholders) and preserve trust in the economy. Directors wield significant decision-making power; consequently, the law imposes substantial liability upon them.

“So-called” non-transferable and inalienable tasks lie at the heart of this approach: they ensure the BoD exercises “supreme management” rather than playing a purely ceremonial role. A director who accepts a mandate merely to please a friend or to collect fees, without active involvement, faces legal trouble if the company falters.

8.2 Tangible Risks and Potentially Severe Penalties

Throughout the article, we’ve highlighted how criminal liability may surface if there’s disloyal management, fraudulent bankruptcy, tax fraud, or failure to pay social contributions. The most common penalty is financial (fines, daily penalties), but prison sentences can apply in extreme cases.

Civil liability may require a director to reimburse damages to the company or creditors, possibly involving very large sums. Unpaid social or tax debts can be enforced directly against a director if the company is insolvent.

These risks become even more significant if the director also holds a fiduciary role, presenting themselves as a financial and administrative professional: higher expertise means higher expectations of diligence.

8.3 Delegation, but Under Proper Oversight

Delegation is feasible and often essential (routine bookkeeping, tax filings, HR administration, etc.). Even so, the BoD must remain in control by:

  • Requiring periodic reporting,
  • Checking that payments are made on time,
  • Maintaining at least a basic internal control system,
  • Responding swiftly to any sign of mismanagement,
  • Making the decisions necessary (especially in crises) to prevent the company from collapsing due to overlooked warning signs.

8.4 An Engaging but Manageable Mandate

In short, being a director of an SA in Switzerland—and even more so a fiduciary director—is not just an “honorary title.” It’s a position of trust, with significant rights and equally significant legal obligations. The penalties for misconduct show that Swiss law does not tolerate carelessness or passivity in these roles.

Nevertheless, with conscientious and structured management—featuring robust financial monitoring and good communication between relevant parties (managers, external fiduciaries, accountants, attorneys)—this role can be handled confidently. The key lies in vigilance and transparency: delegating carefully while remaining “at the helm” and ensuring that the company regularly meets legal requirements (tax, social security, etc.).

In an era of increasingly complex regulations (particularly in finance or for internationally active companies), a director who embraces a culture of compliance and caution not only protects the company and its employees but also safeguards their own liability.

Sources:

  1. Comptabilité tronquée
  2. (Comptabilité tronquée).

All of these references emphasize how crucial it is for directors to understand the scope of their legal obligations and the consequences of any breach.

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