What to Know About COVID-19 Credits and Their Use in the Light of the New Federal Act on COVID-19 Credits With Joint and Several Guarantee


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As an immediate response to liquidity shortages caused by the pandemic, the Federal Council had adopted on 25 March 2020 an emergency ordinance allowing SMEs to apply for and obtain so-called COVID-19 credits in a speedy, non-bureaucratic procedure until 31 July 2020. Given its extraordinary nature, the ordinance stayed in force until 25 September 2020. In order to address all aspects of the COVID-19 credits over their entire lifespan, there was a need to legislate and incorporate the main procedural provisions of the former emergency ordinance into a formal federal act.

The Swiss parliament has discussed the corresponding draft act during the ongoing winter session and has reached an agreement on the final version of the act on 16 December 2020. The new Federal Act on COVID-19 Credits with Joint and Several Guarantee entered into force on 19 December 2020 as the Parliament made use of its emergency power in this respect.

On 15 October 2020, the Swiss Federal Audit Office (SFAO) published its fourth COVID-19 interim report revealing amongst others a rise in potentially non-ordinance-compliant applications or use of the COVID-19 credits, including multiple applications by the same company, unallowed dividend distribution, reimbursement of capital contributions. Pursuant to this report, distribution of dividend seems to be the most frequent non-compliant use of COVID-19 credits along with discrepancies between the turnover reports for the joint and several guarantees and those for value added tax.

Reasons for misappropriation and fraudulent use for COVID-19 credits

As a short reminder, COVID-19 credits shall not be allocated to the reimbursement of capital contributions, including the repayment of shareholders loans for the entire duration of the credit. Similarly, the payment of dividends to shareholder is prohibited until the credit is entirely reimbursed, even if a more flexible solution had been discussed by the Parliament. According to the Federal Department of Finance (FDF), COVID-19 credits may only be used to bridge liquidity shortages for about three months, i.e. for example the coverage of ongoing rental or material costs.

These restrictions are all aimed at preventing the misappropriation of the COVID-19 credits. The borrower is expected to take all measures (including, for example, negotiations with contractual partners or suspension of certain projects) to prevent any outflow of liquidity that is not required to cover essential needs for the company’s exploitation.

COVID-19 credits below CHF 500’000.- could be and were generally granted without verification of the information provided by the credit applicant. Even for COVID-19 PLUS credits (between CHF 500’000.- and CHF 20’000’000.-), the usual checks could not necessarily be performed in depth. For this reason, the Federal Council transferred into the new Federal Act the criminal sanction for fraudulently obtaining a credit and for non-compliance with the restrictions on the use of the funds.

While any abusive application for COVID-19 credit shall be refused, banks are now obliged to report to the competent cantonal public prosecutor’s office[1] any abuse or attempted fraud they discover.

Admittedly, initial analyses indicate that few abuses have been committed when applying for credit. However, it is still necessary to detect and prosecute cases of abuse in a targeted manner even after the credits have been granted. It is still possible to exchange tax and banking data on borrowers and to check whether the regulations governing the use of credits, such as the ban on dividend payments, are being complied with[2]. To promote the exchange of information with the banks, the guarantee organisations are preparing the introduction of a web platform.

Criminal sanctions for misappropriation

Charges may be pressed notably in case of fraudulent use of a credit, i.e. a use of the funds in a way that has been prohibited in the applicable ordinance. Such intentional misuse of credits is subject to a fine of up to CHF 100’000.-, unless a more serious offence under the Criminal Code is applicable.

Lifespan of COVID-19 credits and interest rates

The new Federal Act provides that the credit must be repaid within 8 years as the Parliament considered it necessary to extend the repayment from initially 5 years. If the reimbursement within this period has very harsh consequences for the borrower, the credit can be extended up to a maximum of 10 years. Companies are nevertheless expected to repay their credit on a regular basis. In any case, it is important to examine the contract’s provisions regarding the repayment terms and possible sanctions in the event of fraudulent use of the credit (for example, immediate reimbursement).

The interest rates of the COVID-19 credits remain the same as in the ordinance: 0% for credits below CHF 500’000.- and 0.5% for credits from CHF 500’000.- up to CHF 20’000’000.-. Upon a proposal of the FDF, the Federal Council may introduce interest payments as early as of 31 March 2021.

[1] https://www.efd.admin.ch/efd/fr/home/covid19-ueberbrueckungshilfe/faq.html 
[2] https://www.admin.ch/gov/en/start/documentation/media-releases.msg-id-79683.html


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