Capital increase by debt conversion: a restructuring tool for overindebted Swiss companies

Introduction

When a Swiss stock corporation faces overindebtedness, quick and decisive action is required. The board of directors is legally obliged to take measures to prevent insolvency. One proven way to strengthen the balance sheet is to convert liabilities into equity — through a capital increase by offsetting debt or loans.
This article explains how this process works, what legal requirements apply, and when such a transaction can serve as an effective restructuring measure.

Table of contents

1. Overindebtedness under Art. 725 CO
2. Capital increase by offsetting debt or loans
3. Legal requirements and implementation
4. Advantages and disadvantages of increasing share capital
5. Digital implementation with Konsento

Overindebtedness under Art. 725 CO

According to Art. 725 of the Swiss Code of Obligations, a company is overindebted when its assets no longer cover its liabilities. In this situation, the board of directors must:

• immediately prepare an interim balance sheet,
• have it audited by a licensed auditor, and
• notify the court if no realistic restructuring prospects exist.

We explain the process of a capital increase and its individual steps in our blog article “How does a capital increase work? The complete process step by step.”

Before a court filing, the company may implement restructuring measures such as subordination agreements or a capital increase to strengthen its equity base.

Capital increase by offsetting debt or loans

A capital increase by offsetting debt – often referred to as a debt-equity swap – involves creditors converting their claims into shares. This reduces debt and increases equity, improving the company’s balance sheet and restoring solvency.

Main benefits:

• Strengthens the company’s equity position
• Improves creditworthiness and transparency
• Sends a positive signal to investors and lenders

However, such a transaction does not replace a comprehensive restructuring plan — it must be part of a broader financial recovery strategy.

Legal requirements and implementation

Article 634a CO allows the subscription and payment of shares through the set-off of existing claims. The key requirements are:

• Statutory basis: The company’s articles must explicitly allow set-off contributions.
• Transparency: The claims, shareholders, and set-off amounts must be disclosed in the capital-increase resolution.
• Auditor’s report: The board prepares a report on the justification of the set-off, which must be reviewed by an independent auditor.

Implementation steps include:

1. General meeting resolution;
2. Capital-increase report and auditor confirmation;
3. Notarial deed and registration with the commercial register.

These rules ensure a clear and legally secure process — provided the documentation is accurate and timely.

Under Art. 634a para. 3 CO, the articles must specify the amount of the claim used for set-off, the shareholder’s name and the number of shares allocated. The general meeting may delete these provisions after ten years.
Special rules apply to the conversion of convertible loans under existing conditional capital — this topic is covered in a separate article.

Advantages and disadvantages of increasing share capital

Increasing share capital can ease financial pressure by strengthening equity and reducing reliance on debt. Unlike loans, equity does not require fixed interest or repayment, giving companies greater financial flexibility during difficult times.
However, new equity may also dilute existing shareholders’ voting rights and introduce new external influence.

A possible compromise is the issuance of participation certificates or other non-voting equity instruments. These combine the advantages of equity financing with the independence of debt: investors participate in profits but have no voting rights. Instruments such as preferred or cumulative dividends allow companies to balance investor interests and owner control.

Read more in our blog article: “Corporate restructuring without fixed interest payments and dilution of voting rights”.

Conclusion

A capital increase by offsetting debt or loans is a proven restructuring tool for overindebted Swiss companies. It strengthens the equity base, restores confidence and can help prevent insolvency — provided it is implemented carefully and in line with legal requirements.

Digital implementation with Konsento

With Konsento, capital increases can be planned and executed entirely online — legally compliant, efficient and without administrative burden.
The platform covers:

• Planning and execution of all resolutions
• Automatic generation of all legal documents for the board, notary and commercial register
• Online notarization by an authorized notary
• Electronic filing with the commercial register

Everything happens digitally — without leaving the office or interrupting the workday.

Already have a restructuring plan and looking to execute your capital increase quickly, digitally and securely?
Contact us — we’ll plan the next steps together.