Why gradual wind-down is distinct from liquidation
In many Swiss SMEs, ceasing operations does not mean immediate liquidation under Arts. 742 ff. CO (SA/AG) or 821a ff. CO (GmbH/Sarl). The owner or shareholders may opt for a gradual wind-down: the company remains registered in the Commercial Register, keeps ordinary accounts and honours existing commitments, while progressively reducing volumes, headcount and new contracts. In accounting this is often called a run-off phase—managing the existing portfolio on a «wind-down» basis.
This path is common in services with multi-year mandates, maintenance, software licences, projects in progress or after-sales warranties. It allows monetisation of receivables, delivery of open orders and sale of individual business units without immediately opening a liquidation procedure. From an accounting perspective it remains a going concern: going-concern principles (Art. 960 CO and applicable accounting rules) apply until there are concrete indications of definitive cessation.
This guide covers liquidity, treatment of run-off contracts and typical entries in an SME that is winding down without dissolving immediately—with reference to federal law and good practice for entrepreneurs and trustees.
Gradual wind-down and liquidation: operational comparison
Confusing run-off and liquidation leads to errors in financial statements, VAT and communications to creditors. Here is a summary of the profiles:
| Aspect | Gradual wind-down (run-off) | Liquidation (CO) |
|---|---|---|
| Corporate status | Active company; purpose may remain unchanged or be narrowed by internal decision | Resolution to dissolve; purpose limited to liquidation |
| Commercial Register | Registration maintained; possible amendments (reduced headcount, registered office) | Notation of dissolution and liquidators |
| New contracts | As a rule suspended or limited; focus on backlog and renewals needed for run-off | Only acts useful to realise assets and extinguish liabilities |
| Accounting | Ordinary accounts (Art. 957 ff. CO); annual financial statements on a going-concern basis | Liquidation accounts; interim and final liquidation financial statements |
| Financial statement presentation | Assets/liabilities on a «going concern» basis; possible value adjustments on doubtful receivables | Assets at realisable values; extinguishable liabilities |
| VAT | Obligation to invoice and deduct input tax while a taxable person; plan closure of VAT registration at the end | Final tax periods; regularisation and deregistration |
| Typical duration | Months or years, depending on contracts and receivables | Formal phase until removal from the Commercial Register and distribution of surplus |
Planning: run-off path and internal governance
Before reducing the operating structure, it is advisable to document the strategy—useful for audit and with banks too:
Decision and mandate
The management body (GmbH managing officer or SA board of directors) resolves on gradual wind-down: cessation of customer acquisition, treatment of remaining staff, target dates for closing run-off or moving to liquidation.
For partnerships (general partnership / limited partnership) the decision rests with the partners; for sole proprietorships the owner sets out the run-off plan in writing, which is also useful for tax purposes.
Wind-down budget
Monthly projection of receipts from remaining contracts, reduced fixed costs, outflows for warranties, litigation or return of deposits. The budget separates operating cash flows from any asset sales (machinery, assigned contracts).
Update the plan every quarter: if net assets fall below critical thresholds or receivables are not recoverable, promptly consider liquidation or capital measures.
Liquidity during run-off
During wind-down, liquidity is the main constraint: revenue falls before fixed costs. Treasury should be monitored with a cash account or weekly cash-flow plan, separating certain receipts (invoices issued, contractual instalments) from uncertain receipts (disputed or overdue receivables).
Practical tips for Swiss SMEs:
- Speed up collection: controlled cash discount, selective factoring on solid receivables, request advances on open run-off work.
- Freeze investments and inventory not needed to fulfil backlog orders; write down obsolete stock in period-end adjustments.
- Renegotiate rent, leasing and subscriptions; record liabilities for termination penalties only when the obligation is probable and estimable (Art. 960 CO / prudence principle).
- Maintain a minimum reserve agreed with any bank creditor; proactively communicate the run-off phase to avoid revocation of credit lines.
If the company accumulates liquidity ahead of future distribution, do not confuse operating treasury with funds already earmarked for shareholders: until there is a resolution to dissolve and distribute, the funds remain company assets.
Run-off contracts: performance, termination and client handover
The contract portfolio determines how long wind-down lasts. On the accounting side, each contract affects deferred revenue, provisions and contingent liabilities.
| Contract type | Run-off management | Accounting impact |
|---|---|---|
| Maintenance / multi-year SLAs | Perform until expiry or transfer to successor with client consent | Revenue on completion or over time; direct costs charged to the mandate |
| Incomplete projects | Complete contractual milestones or agree termination with penalty | Accrued revenue/costs; provision for penalties if probable |
| Premises rent / leasing | Observe notice periods; subletting if permitted | Liabilities for rent not yet paid; possible asset from subletting |
| Warranties and client deposits | Return when obligation ends or transfer to successor | Segregated liability until release |
| Remaining staff | Fixed-term contracts or termination in compliance with CO and CLA | Provision for holiday, bonus pay, severance; OASI/occupational pension contributions until end of employment |
Assignment of the contract or business unit (automatic transfer of employment relationships under Art. 333 CO; for companies registered in the Commercial Register, transfer with assets and liabilities under the Merger Act and Art. 181 para. 4 CO) must be recorded separately: transfer consideration, gains/losses on assets transferred and possible VAT if the transfer is a taxable supply.
Bookkeeping without immediate liquidation
As long as the company is not in formal liquidation, ordinary accounting applies (Arts. 957–963 CO). SMEs subject to full bookkeeping present annual balance sheet and income statement; those with simplified accounts meet the minimum requirements of Art. 957 para. 2 CO.
Typical adjustments during wind-down
- Trade receivables: greater use of allowance for bad debts (Art. 960 CO); document ageing list and recovery actions.
- Fixed assets: depreciation in use until disposal; losses/gains on sale booked to «gain/loss on disposal of assets».
- Inventories: write-down to net realisable value if wind-down reduces probable selling prices.
- Wind-down costs: legal fees, consulting, redundancy pay and dismantling charged to the period income statement, not capitalised (except unusual IFRS cases in SMEs).
- Deferred revenue: maintain liabilities for services not yet rendered on prepaid subscriptions.
Notes to the financial statements and going concern
If wind-down is planned but the company can meet obligations for at least twelve months, the financial statements are as a rule prepared on a going-concern basis. If capital loss or over-indebtedness emerges (Arts. 725a and 725b CO; for GmbH/Sarl, application by analogy under Art. 820 CO), restructuring duties apply and, if over-indebtedness is established, notification to the court: run-off does not exempt capital companies from balance-sheet supervision.
Software such as Accountex helps separate accounts for «run-off activity», track backlog orders and link active invoices to expiring contracts, keeping an audit-ready history for audit and tax.
From run-off to definitive closure
When contracts, payables to suppliers and staff are extinguished and assets are realised, the company may move to ordinary liquidation (dissolution meeting, appointment of liquidator, registration «in liquidation» in the Commercial Register under Art. 737 CO and call to creditors under Art. 742 CO for SA; for GmbH/Sarl, Arts. 821a ff. CO with analogous application of Arts. 742 ff. CO). Alternatively, merger or sale of the entire business to a buyer may avoid months of run-off if the price reflects backlog and obligations.
Pre-liquidation accounting checklist:
- Close VAT registration and final annual accounts on a going-concern basis.
- Extinguish or transfer bank guarantees and company credit cards.
- Archive documents for ten years (Art. 958f CO).
- Resolution on distribution of liquidation surplus and tax treatment of dividends / liquidation proceeds for shareholders.
A well-documented gradual wind-down reduces surprises in liquidation: financial statements already cleared of unusable assets and liabilities for future charges speed up the formal dissolution phase.
Summary for entrepreneurs and trustees
Gradual wind-down in Swiss SMEs is controlled management of residual business: liquidity under control, contracts honoured or assigned, ordinary accounts until a possible move to CO liquidation. Clearly separating run-off and CO liquidation, prudently adjusting receivables and closure costs, and aligning tax, VAT and social security with the real cessation timeline protects shareholders, creditors and clients—and keeps reporting consistent with Swiss accounting rules.