When a company goes bankrupt: When must funds received be repaid?

A shareholder has paid personal bills through their company limited by shares (AG) and recorded the amounts as a loan. A limited liability company (GmbH) has purchased a vehicle from one of its members. Months later, the company is declared bankrupt. The recipients now face an uncomfortable question: May they keep the money received? Bankruptcy alone does not create an obligation to repay. However, benefits received without justification and transactions involving an obvious discrepancy between performance and consideration may result in the recovery of funds already paid out. This can affect not only shareholders and GmbH members, but also members of the board of directors, managing directors and their close associates.

Bankruptcy alone does not create an obligation to repay

The focus is on the repayment of benefits under company law pursuant to Article 678 of the Swiss Code of Obligations (CO). These provisions also apply to a GmbH by virtue of Article 800 CO. The decisive question is whether the person concerned has received a benefit that must be repaid under these rules. Merely being a company member or managing director is not sufficient.

The claim may already exist before bankruptcy. Conversely, a benefit lawfully received does not become unjustified merely because the company subsequently fails. The requirements of the particular claim must be met. Two categories of cases are especially relevant in practice.

Personal withdrawals and loans to shareholders and company members

A practical example is the payment of personal expenses through the company’s bank account: A sole shareholder uses the company card to pay for holidays and personal living expenses. The amounts are debited to the shareholder’s current account, meaning that they are recorded as a receivable owed to the company. The withdrawals are not based on any entitlement to remuneration. In bankruptcy, the question arises whether a loan was genuinely agreed or whether the accounting entry merely conceals unjustified personal withdrawals.

If a valid loan exists, the shareholder is already contractually obliged to repay it; the agreed repayment date and any notice of termination are particularly relevant (Articles 312 and 318 CO). The company’s bankruptcy does not extinguish this debt. If, however, repayment was never intended, merely recording the withdrawals as a “loan” does not make them lawful. Where there is no legal basis for the financial benefit, repayment under Article 678 CO may be required. The parties’ actual agreement and the circumstances of the withdrawals are decisive. A subsequent failure to make repayments does not, in itself, establish that the loan was simulated.

For repayment claims under company law, good faith alone does not provide a defence. However, recipients may invoke the defence that they are no longer enriched, subject to the requirements of Article 64 CO (Article 678 paragraph 3 CO). They must prove that the enrichment no longer exists; the defence is unavailable if they disposed of the benefit in bad faith or had to expect to repay it.

Transactions involving an obvious discrepancy

Repayment may also be required where payments were contractually agreed. If the company acquires assets from a person covered by the provision or enters into other legal transactions with them, that person must make repayment to the extent that there is an obvious discrepancy between performance and consideration (Article 678 paragraph 2 CO).

For example, if a GmbH purchases a vehicle from one of its members for CHF 80,000 although its substantiated value is CHF 30,000, the unjustified difference of CHF 50,000 may be recoverable. This assumes that no special circumstances or additional consideration justify the higher price. Similar questions arise in relation to excessive rent payments or remuneration paid to shareholders, company members and persons involved in management.

Not every unfavourable transaction therefore creates an obligation to repay. An obvious discrepancy is required. The consideration and the circumstances of the transaction must be assessed in each case. For transactions with shareholders or company members, independent valuations or competing quotations help document why the agreed terms are appropriate.

Who pursues repayment claims in bankruptcy

In bankruptcy, past transfers of assets are examined to determine whether they give rise to claims in favour of the company. The insolvency administrators have the initial right to pursue repayment claims. If they waive that right, creditors, shareholders and GmbH members may, in particular, bring claims subject to the statutory requirements (Article 678 paragraph 6 in conjunction with Article 757 CO).

For recipients, this means that a payment may still be reviewed even if it was approved by those previously in charge. Loan agreements, current account statements and evidence of consideration provided should therefore be retained carefully.

Other claims remain possible

Repayment under company law does not cover every risk. Payments made before bankruptcy may be challenged under the separate requirements of bankruptcy avoidance law (Articles 285 et seq. of the Federal Act on Debt Enforcement and Bankruptcy, DEBA). Breaches of duty by members of the board of directors or managing directors may also give rise to claims for damages (Articles 754 and 827 CO), even if they received no money themselves. Certain acts may additionally have criminal consequences, such as undue preference to creditors under Article 167 of the Swiss Criminal Code. These grounds for claims and criminal offences must be examined separately.

Conclusion

The bankruptcy of an AG or GmbH does not automatically require shareholders, company members or persons involved in management to repay earlier withdrawals. The lawfulness of the payment and an appropriate relationship between performance and consideration are particularly important. Personal withdrawals, loans and transactions with shareholders or company members should therefore be carefully reviewed and documented when they take place. Anyone who disregards the statutory limits risks having to repay funds received at a later date.