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Name 5 examples for business combinations!
- Strategic alliances
- Working groups / pools
- Merger
- Group building
- Asset deal
Explain an annexation!
- A swallows B
- B disappears
- B shareholder claims are settled by shares of A
- Universial succession
Explain a combination!
- A and B are combined into C
- A and B are disappearing
- C is newly founded
- All A-shareholders es well as B shareholders receive C shares
- Universial succession
Explain a simulated merger!
- Merger contract
- A brings all assets and liabilities into B - by way of transfer of property
- Settlement with B shares whereas those are transferred to A-shareholders
- A is liquidated
- single succession
Explain a quasi-merger!
- A increases capital
- With this capital increase A buys shares from B
- B still exists
What has to be considered in mergers in case of capital loss of the assumed company?
Receiving company must have enough freely available reserves to cover the loss.
Explain the process of bankruptcy proceedings and the changes according to the new bankruptcy law!
1. Application (Konkursantrag)
- provisional restructuring plan
- no draft of composition agreement
- B/S and liquidity planning
2. Provisional moratorium
- Duration: 4 months
- entry hurdle is very low / no publication needed
- effect: stand still of claim execution
3. Definite moratorium
- Publication
- Duration: 12 - 24 months
- Draft of composition agreement
- appointment of solicitor
4. End
- restructuring
- approval of composition agreement
Which two taxes in general are there in the swiss system?
- Direct taxes (based on income)
- Indirect taxes (more transaction based - cap. income)
Name the four levels of tax levying authorities!
1. Federal
2. State (Cantons)
3. Commune
4. Church
What is a genuine restructuring gain?
- represents taxable income
- transaction between company and third party
- offsetting of tax losses next 7 years
What is a not-genuine restructuring gain?
- Tax neutral
- still offset against losses (booked on B/S)
- transaction between company and affiliated party
- But issue tax are payable
What taxes have to be paid on capital increase?
Issue tax 1 %
What is a fonds perdu payment and what taxes have to be paid on it?
- Pay funds into a company without expecting anything back
- If from shareholders or affiliated parties - not taxable - not-genuine restructuring gain
- If from third parties - taxable - genuine restructuring gain
Are revaluations taxable?
- Genuine restructruing gain - yes
What taxes have to be paid on capital reductions?
Issue tax is payable
What taxes have to be paid if subordinating a claim (subordination agreement)?
Not a problem for tax purpose in Switzerland (maybe for German Shareholders)
What taxes have to be paid for debt-equity swaps?
Issue tax is payable!
Please indicate in a few bullet points the main risks the BOD may be exposed to when selling assets to a third party corporation before bankruptcy!
- The valuation of the transfer of the assets is a key issue
- If the price is too low, the BOD is exposed to the allegation of dissipation of assets (actio pauliano)
- It can also lead to threats of criminal law, not only liability risks
- As a mitigation risk, the BOD should try to obtain several quotes of various interested parties to establish a "market price" of the operations to be transfered
- The transfer of un-collateralized or un-privileged claims is not allowed
Please describe briefly what the debt capacity is and what role it plays in the financial markets!
The debt capacity shows how much debt a company is able to to take respectively to pay back over several years. Banks are calculating this figure to see how much loan they can give and to define the interest rate.
Please indicate measures to be taken by a bank immediately after the detection of a defaultive client engagement; give at least 5 examples.
- Freeze all other accounts
- Check credit documentation
- make a list with other creditors
- estimate short term liquidity
- define covenants
Name the three crisis from the crisis model and explain how they can be noticed:
- Strategic crisis
What says your product / past of accounting
- Profitablity crisis
You make losses / Equity goes slowly down
- Liquidity crisis
Haven't got any cash / not able to pay the salaries
What's the difference between a genuine and not genuine adverse balance sheet?
Genuine: No reserves to treat the loss
Not genuine: enough reserves to treat the loss
When is an adverse balance sheet concealed?
When the loss is already offset against equity and not disclosed separetely.
How to calculate the:
- Cash ratio / Liqu. 1
- Quick ratio / Liqu. 2
- Current ratio / Liqu. 3
Liqu. 1: Cash / kfr. FK
Liqu. 2: (Cash + Receivables) / kfr. FK
Liqu. 3: UV / kfr. FK
What are the consequences of Art. 725, 1? (Debts are covered but less than 50 % equity!)
The BOD needs to call an AGM and propose restructuring measures!
What are the consequences of Art. 725, 2? (Debt isn't fully covered anymore)
An interim F/S based on going concern and liquidation assumptions needs to be drawn-up: If both show an over-indebtness the judge must be notified unless creditors enter into a subordination agreement.
Explain the basic process of a claim enforcement!
- Seizure (Pfändung) - Bankruptcy
Invoice - Enforcement Claim (Zahlungsbefehl) - Objection by debtor (Rechtsvorschlag)
- Request for continuation of debt enforcement (Fortsetzungsbegehren) - Request for realization of security (Pfandverwertung)
What are the three possibilities after an objection by debtor?
- if court decision exists - definite continuation
- if a public document exists - provisional continuation
- No document - sue for acceptance
What are the three possibilities for a continuation of an enforcement claim if the debtor doesn't pay!
1. Seizure (Pfändung) (no collaterals granted)
2. Realization of security (Pfandverwertung) (for all collateralized claims)
3. Bankruptcy (for companies or private persons in commercial register)
What are the ordinary proceedings for an enforcement by bankruptcy?
1. creditor call
2. 1st creditor reunion: election of receivership and creditor committee
3. collocation plan by receivership
4. 2nd creditor reunion: decides on realization of assets
5. distribution of funds according to distribution list (distribution order according to law)
5. if claims > funds - bankruptcy deficiency note
Which are the three classes in an enforcement by bankruptcy?
1st class
- Salaries
- Redundancy payments (Abfindung)
- Surety claims
- Certain insurance claims
- Pension fund claims
- Alimonies
2nd class
- Claims of children
- Claims of social security
3rd class
- all other claims
Name the thre possibilities for capital increase!
- Ordinary (qualified or ordinary - qualified is without funds inflow but contribution in kind)
- Approved (AGM gives order to BOD - 2 years time to perform - not more than 1/2 of existing share capital)
- Contingent (Options)
How to calculate the subscription right?
(Amount of old shares * Price of an old share before capital increase) + (Amount of new shares * Issue price)
_______________________________________________________________________________________
Total amount of shares
= Price of the share after capital increase
Price of the old share before capital increase - Price of the share after capital increase = Subcscription right per old share
The share capital of Halfmoonbay is increased to 400'000 (from 200'000) through issue of 200 shares with a nominal value of 1'000 CHF as follows:
- 100 bonus shares
- offset of loans 60'000 CHF
- Cash settlement of balancing account
The cost of issue 5'000 is paid through the bank and is capitalized.
Withholding tax is paid through the bank and debited to free reserves
Record the account for the following:
1. Subscription of shares
2. Bonus shares
3. Consideration
a) Netting of loan
b) Bank settlement
4. Cash disbursement
a) Cost of capital increase
b) Witholding tax (net value method)
1. Shareholders / Share Capital 200'000
2. Free reserves / Shareholders 100'000
3. a) Loan / Shareholders 60'000
b) Cash / Shareholders 40'000
4. a) Financial expenses / cash 5'000
b) Free reserves / Cred. withholding tax 53'800
What two types of capital reductions are there?
What's the difference?
- Constitutive (payout funds to the shareholder)
- Declarative (offset losses brought forward)
Explain the process of a declarative capital reduction!
1. audit report - assets still cover liabilities?
2. AGM resolution
3. Notarization of the reduction resolution
4. Entry in the commercial register
What is important in a constitutive capital reduction?
Creditor call (3 times)
What says the debt capacity?
The idea is to assess, how much debt is bearable for a borrower.
When is a loan considered a non-performing loan?
- 90 days unpaid interest
- 90 days overdue amortization
- 90 days credit overdraft
- breaking of financial covenants
- granting special conditions
What are the liability risks (Haftungsrisiken) for a bank?
- Taking of equity stake
- role as restructuring consultant
- definition of turnaround concept
- retardation (Verzögerung) of bankruptcy
- engravement of solvency situation
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Flashcards
What is important in a constitutive capital reduction?
Creditor call (3 times)
What says the debt capacity?
The idea is to assess, how much debt is bearable for a borrower.
When is a loan considered a non-performing loan?
- 90 days unpaid interest
- 90 days overdue amortization
- 90 days credit overdraft
- breaking of financial covenants
- granting special conditions
What are the liability risks (Haftungsrisiken) for a bank?
- Taking of equity stake
- role as restructuring consultant
- definition of turnaround concept
- retardation (Verzögerung) of bankruptcy
- engravement of solvency situation
What are the main features of a restructuring loan?
- Special purpose
- Closeness to the borrower
- only against collaterals
- covenant
- no 3rd party is willing to grant a loan under these circumstances
What is a debt equity swap?
- Liabilities are transfered into equity
- Economically, the debt position is reduced new equity is created
- From a legal perspective: Debt equity swap capital increase with contribution in kind (Sacheinlage)
Why is the debt equity swap a very controversial topic?
For a contribution in kind, there has to be a valid service in return; if not this constitutes a fraudulent share issue (betrügerische Aktienausgabe)
Which three valuation principles are available?
- cost
- lower of cost and market
- FMV
In a revaluation case when you have three buildings with the following values how do you revaluate them (show the bookings) and why?
Building 1 Building 2 Building 3
Book value: 3'300 Book value: 5'438 Book value: 3187
Cost: 5'000 Cost: 8'500 Cost: 3'500
FMV: 4'500 FMV: 4'375 FMV: 7'000
1. Land % Buildings / Appreciation 1200
Revaluate on lower of cost and value if the value is under cost the bookings are booked in the P&L and not in revaluation reserves
2. Depreciation / Land & Buildings 1'063
Revaluate on the lower value from cost and FMV also if it is under book value
3. Land & Buildings / Appreciation 313
Land & Buildings / Revaluation Reserve 3'500
Revaluate on lower of cost and FMV. In this case the FMV is even higher than cost so you can in addition revaluate with a second booking on the FMV, the difference between cost and FMV has to be booked on the Balance sheet and in the revaluation reserve
How can the revaluation reserve be used?
- Sale of asset
- Re-depreciation of assets
- Transfer into share capital (similiar to bonus share)
What are the measures to do on equity side?
- Capital increase / reduction
- Debt-Equity Swap
- Revaluation of assets
What is the general goal of loan restructuring? And what is the main goal?
Obtain relief in liabilities through negotiations with all creditors.
- Amortization
- Interst
- Final due date
Main goal: Win time to apply other restructuring measures.
Explain the issue actio pauliana!ga
If the enterprise has shortly before opening of bankruptcy done businesses and actions which was against the equal treatment of all creditors.
Explain the subordination agreement!
- Prevent bankruptcy
- Creditors subordinate their claims in minimum amount of the over-indebtness
What are the main goals of a composition agreement?
- Prevent bankruptcy for corporations
- no interruptions of corporates business activity
- no certificates for unpaid debts
Name the different composition agreements!
- Composition agreement out of court - civil law (company needs to find an agreement with every single creditor)
- Composition agreement in court - SCHKG (judge is involved, costly procedure)
> assignment of assets
> liquidation proceedings
> ordinary proceedings
> dividend (partial payment for the creditor)
> deferral (full repayment but paid in 2-3 years)
Name 5 examples for business combinations!
- Strategic alliances
- Working groups / pools
- Merger
- Group building
- Asset deal
Explain an annexation!
- A swallows B
- B disappears
- B shareholder claims are settled by shares of A
- Universial succession
Explain a combination!
- A and B are combined into C
- A and B are disappearing
- C is newly founded
- All A-shareholders es well as B shareholders receive C shares
- Universial succession
Explain a simulated merger!
- Merger contract
- A brings all assets and liabilities into B - by way of transfer of property
- Settlement with B shares whereas those are transferred to A-shareholders
- A is liquidated
- single succession
Explain a quasi-merger!
- A increases capital
- With this capital increase A buys shares from B
- B still exists
What has to be considered in mergers in case of capital loss of the assumed company?
Receiving company must have enough freely available reserves to cover the loss.
Explain the process of bankruptcy proceedings and the changes according to the new bankruptcy law!
1. Application (Konkursantrag)
- provisional restructuring plan
- no draft of composition agreement
- B/S and liquidity planning
2. Provisional moratorium
- Duration: 4 months
- entry hurdle is very low / no publication needed
- effect: stand still of claim execution
3. Definite moratorium
- Publication
- Duration: 12 - 24 months
- Draft of composition agreement
- appointment of solicitor
4. End
- restructuring
- approval of composition agreement
Which two taxes in general are there in the swiss system?
- Direct taxes (based on income)
- Indirect taxes (more transaction based - cap. income)
Name the four levels of tax levying authorities!
1. Federal
2. State (Cantons)
3. Commune
4. Church
What is a genuine restructuring gain?
- represents taxable income
- transaction between company and third party
- offsetting of tax losses next 7 years
What is a not-genuine restructuring gain?
- Tax neutral
- still offset against losses (booked on B/S)
- transaction between company and affiliated party
- But issue tax are payable
What taxes have to be paid on capital increase?
Issue tax 1 %
What is a fonds perdu payment and what taxes have to be paid on it?
- Pay funds into a company without expecting anything back
- If from shareholders or affiliated parties - not taxable - not-genuine restructuring gain
- If from third parties - taxable - genuine restructuring gain
Are revaluations taxable?
- Genuine restructruing gain - yes
What taxes have to be paid on capital reductions?
Issue tax is payable
What taxes have to be paid if subordinating a claim (subordination agreement)?
Not a problem for tax purpose in Switzerland (maybe for German Shareholders)
What taxes have to be paid for debt-equity swaps?
Issue tax is payable!
Please indicate in a few bullet points the main risks the BOD may be exposed to when selling assets to a third party corporation before bankruptcy!
- The valuation of the transfer of the assets is a key issue
- If the price is too low, the BOD is exposed to the allegation of dissipation of assets (actio pauliano)
- It can also lead to threats of criminal law, not only liability risks
- As a mitigation risk, the BOD should try to obtain several quotes of various interested parties to establish a "market price" of the operations to be transfered
- The transfer of un-collateralized or un-privileged claims is not allowed
Please describe briefly what the debt capacity is and what role it plays in the financial markets!
The debt capacity shows how much debt a company is able to to take respectively to pay back over several years. Banks are calculating this figure to see how much loan they can give and to define the interest rate.
Please indicate measures to be taken by a bank immediately after the detection of a defaultive client engagement; give at least 5 examples.
- Freeze all other accounts
- Check credit documentation
- make a list with other creditors
- estimate short term liquidity
- define covenants
