Capital reduction audit

There are various reasons why the bodies of a corporation (e.g. a joint stock company) could opt for a capital reduction: This could be due to excessively high (dormant) capital, the desire to remove treasury shares, the tax-free distribution of a dividend or a balance sheet restructuring measure.

The Swiss Code of Obligations (CO) distinguishes between two forms of capital reduction: the ordinary capital reduction and the capital reduction within the capital band. In the case of a capital reduction within the capital band, the provisions on the securing of claims and the audit confirmation in the case of the ordinary capital reduction are applicable mutatis mutandis (Art. 653u para. 3 CO in conjunction with Art. 653m para. 1/2 CO). The capital reduction can be carried out in two different ways: by constitutive or by declarative reduction.

In the case of a constitutive reduction, funds are released for the company. In contrast, no funds are released by a declaratory reduction. This type of capital reduction takes in the context of (balance sheet) restructuring, as part of which a portion of the capital is offset against the cumulative losses – up to a maximum of the minimum required capital depending on the type of company. If the capital is subsequently increased back to the original level by new funds, this is known as a “harmonica”. In this case, the situation of the creditors is improved, which is not possible in the case of simple offsetting against cumulative losses or even a constitutive capital reduction.