Legal | Tax | Compliance
Legal | Tax | Compliance
Liability of foundation boards in Switzerland: key insights on duties, responsibilities, creditor protection and effective foundation governance.
The liability of Foundation Council members is governed by the general liability provisions of the Swiss Code of Obligations, essentially the rules on tort and contractual liability. The analogous application of the rules on directors’ and officers’ liability under corporate law is generally rejected.
Foundation law contains certain specific duties of the Foundation Council. However, it does not provide for a general liability provision, a comprehensive catalogue of duties, or a distinction between delegable and non-delegable duties.
With regard to tort liability, a distinction is made between internal liability and liability towards third parties. Contractual liability, by contrast, applies only internally. Accordingly, losses suffered by creditors can only be addressed through tort liability.
Tort and contractual liability are two separate categories of liability that exist alongside each other. The statutory provisions governing contractual liability place the injured party in a more favourable position, particularly with regard to the reversal of the burden of proof, liability for auxiliary persons and statutes of limitations. Tort liability, by contrast, is based on a narrow objective concept of unlawfulness, which restricts its scope of application. At the same time, the Swiss Code of Obligations largely harmonises the application of the two categories of liability. Where the requirements of both are met, the claims may coexist.
In the context of liability under foundation law, financial loss is of primary practical relevance. Creditor protection can only be addressed through tort liability. Its scope is limited because foundation law provides creditor-protection rules only in specific circumstances (Art. 83b para. 1 Swiss Civil Code, Art. 84a Swiss Civil Code in conjunction with Art. 725 Swiss Code of Obligations, and Art. 83a Swiss Civil Code in conjunction with Art. 961c para. 2 no. 2 Swiss Code of Obligations). Foundation law does not provide for capital-protection rules comparable to those applicable under corporate law as a basis for establishing unlawfulness through wrongful conduct.
Contractual liability arises from a breach of duties imposed on the governing body by virtue of its position under foundation law. It therefore concerns duties entrusted to the governing body within the internal relationship, i.e. duties arising from a special legal relationship. The relevant duties of conduct derive from statutory law, the foundation’s articles, case law and regulations. Consequently, the liability framework differs from one foundation to another, and it is possible to establish capital or asset-protection requirements within the internal relationship rather than as creditor-protection rules.
The founder or the Foundation Council may define and establish a binding framework for the Foundation Council’s duties and liability. The foundation’s purpose determines the appropriate control framework and the foundation’s capacity to assume risk. An excessively restrictive control framework may lead the Foundation Council to adopt risk-averse behaviour, which may be undesirable in certain circumstances. Determining the appropriate governance framework is therefore one of the most challenging tasks and should be carefully assessed and continuously monitored.
If you have any questions, our Foundation team will be happy to assist you.
