Governance and the duties of the board

The non-transferable duties under Article 716a CO

The board of directors of a Swiss company limited by shares may delegate the management of the business to managers or to individual members. It cannot delegate a core of duties that Article 716a CO declares non-transferable and inalienable. The board must exercise the ultimate direction of the company and issue the necessary instructions, determine the organization and structure the accounting, financial control and financial planning. It appoints and dismisses the persons entrusted with management and representation and exercises ultimate supervision over them. It also prepares the annual report and the general meeting and implements its resolutions. Since 1 January 2023 the list has included the filing of an application for a debt restructuring moratorium and the notification of the court in the event of overindebtedness.¹ For a trading company these duties have a concrete content. The ultimate direction includes the decision on which commodities, counterparties and countries the company trades with. The organization includes the separation of the front office from risk control and operations. Financial control means the monitoring of open positions, margin calls and credit lines, which in commodity trading can absorb liquidity within days.

The board may delegate management only on the basis of organizational regulations that comply with Article 716b CO. Without such regulations, management belongs to the board as a whole.² Consider a Lugano trader whose chief executive concludes the deals, whose chief financial officer arranges the financing and whose board meets twice a year to approve the accounts. Such a company needs regulations that describe the delegated powers, the reporting lines and the limits. In practice the most important limits are trading limits: the maximum open position per commodity, the maximum exposure per counterparty and country, the maximum tenor of unhedged positions and the value-at-risk or stop-loss thresholds. The board that adopts such limits, receives regular reports and acts when they are breached satisfies Article 716a CO. A board that leaves the limits to the traders, or that receives no reports, has failed to organize the company and to supervise its management.

Risk management in a trading company

The risk management of a commodity trader differs from that of an industrial company in its speed and in its concentration. A single cargo of crude oil or of steel billets may be worth more than the trader's equity. Price movements during the voyage can turn a profitable sale into a loss that exceeds the margin of a year. The classic risk is price risk, which the trader hedges through futures, swaps and options. Next to it stand basis risk between the hedge and the physical product, counterparty and performance risk, logistics risk, documentary and fraud risk and the sanctions and compliance risks treated in Part G. Commodity houses also carry liquidity risk, because margin calls on exchange-traded hedges must be paid in cash while the physical cargo is still at sea and has not been paid for. Several insolvencies of traders since 2020 have shown how quickly concealed hedging losses or the sale of cargo already pledged to banks can destroy a company that appeared profitable. The best known is that of Hin Leong in Singapore, which had reported a profit for 2019 and owed some USD 3.85 billion to 23 banks when it sought court protection in April 2020.³

Swiss company law does not prescribe a particular model of risk management for nonfinancial companies. Commodity trading companies are not supervised by the Swiss Financial Market Supervisory Authority (FINMA) unless they also carry on a regulated activity, for instance as a securities firm.⁴ Their risk management is therefore governed by the general duty of care and loyalty in Article 717 CO. The requirements of the banks that finance them and the derivatives rules of the Financial Market Infrastructure Act (FinMIA) add to it. The banks are often the most demanding regulators in practice: transactional commodity finance lines contain covenants on hedging, on open positions and on reporting that go well beyond what company law requires, as Chapter G.I explains.

Notes

1. CO, Art. 716a para. 1 nos. 1–8 in the version in force since 1 January 2023 (no. 7: "die Einreichung eines Gesuchs um Nachlassstundung und die Benachrichtigung des Gerichts im Falle der Überschuldung"; no. 8: remuneration report of listed companies), text at droit-bilingue.ch, https://www.droit-bilingue.ch/de-fr/2/22/220-716a-1023.html. The board's power to file for a debt restructuring moratorium is confirmed by CMS von Erlach Partners, Revision of Corporate Law (above). ↩
2. CO, Art. 716b para. 1 (delegation "nach Massgabe eines Organisationsreglements"), para. 3 (content of the regulations, including reporting) and para. 5 (management not delegated belongs to all members of the board jointly), text at droit-bilingue.ch, https://www.droit-bilingue.ch/de-fr/2/22/220-716b-1024.html. ↩
3. Wikipedia, "Hin Leong", https://en.wikipedia.org/wiki/Hin_Leong (used as a last resort): application for protection on 17 April 2020 and judicial management from 27 April 2020; USD 800 million of futures losses written off although a net income of close to USD 80 million had been declared for 2019; oil pledged as collateral sold; USD 3.85 billion owed to 23 lenders. On the other cases, including those affecting trade finance banks in Geneva, see Chapter G.I. ↩
4. Federal Act of 15 June 2018 on Financial Institutions (FinIA), SR 954.1, Art. 2 para. 1 (list of financial institutions) and Art. 41 (securities firms: trading in securities for clients or, under specific conditions, for own account), text at droit-bilingue.ch, https://www.droit-bilingue.ch/en-de/9/95/954.1-2-5.html and https://www.droit-bilingue.ch/en-de/9/95/954.1-41-44.html. Trading in physical commodities is not among the activities listed. ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of August 2025.