1.1 What are the main trends/significant developments in the project finance market in your jurisdiction?
Infrastructure projects in the areas of leisure and property, transport, energy and the water sector continue to be significant. The projects are usually financed by public funds, but due to projected increases of investments, private funds will likely become more important in the future.
1.2 What are the most significant project financings that have taken place in your jurisdiction in recent years?
The market has been dominated by transport and leisure/property projects; for example, the Lugano Congress Center.
2.1 Is it possible to give asset security by means of a general security agreement or is an agreement required in relation to each type of asset? Briefly, what is the procedure?
Asset security can be given by pledge or by assignment or transfer for security purposes.
A pledge gives the secured party possession of the security while the security provider retains ownership of the security. A pledge can be obtained over movable assets, real estate property and claims and rights. Because of the principle of accession (Akzessorietätsprinzip), which is applicable to pledges, each of the secured parties would need to be a party to the relevant pledge agreement. In a security trustee or security agent structure, Swiss pledge agreements therefore provide that the secured parties – represented by the security agent or trustee – are parties to the agreement.
The parties may favour creating security by assignment (for claims and rights) or transferring for security purposes (for movable assets), which gives the secured party full ownership of the asset. The secured party is contractually obliged to re-assign or re-transfer the asset to the security provider. An assignment is a non-accessory security which means that a security agent or trustee may hold the security as fiduciary in its own name and for the benefit of all secured parties.
The valid creation of a security requires a security agreement and the perfection of the security interest. In the security agreement, the security provider undertakes to pledge or transfer/ assign for security purposes certain assets to the secured party.
Depending on the kind of asset, perfection is achieved through a declaration of pledge/assignment or delivery of the movable asset. Security interests over certain assets (real estate property, railroads, airplanes and ships) require registration.
In order to obtain security over all assets of a Swiss company, a combination of a share pledge agreement and of security agreements over the company's assets is required.
2.2 Can security be taken over real property (land), plant, machinery and equipment (e.g. pipeline, whether underground or overground)? Briefly, what is the procedure?
For real property (which includes land, buildings and other constructions that are connected to the ground, whether overground or underground, e.g. pipelines), security is taken by way of mortgage or mortgage note. Both types of security require the conclusion of a mortgage agreement in the form of a notarised deed. The mortgage or mortgage note has to be registered in the land registry for perfection. For certified mortgage notes, the secured party also needs to have possession of the mortgage note. Mortgage notes (whether certified or not) may be pledged or transferred for security purposes.
Movable assets like machinery and equipment may be pledged or transferred for security purposes. A security agreement specifies the assets to be pledged or transferred. Since the security holder needs to be in possession of the pledged assets during the security period (Faustpfandprinzip), security over plants, machinery, equipment or inventory is possible, but is usually not taken.
2.3 Can security be taken over receivables where the chargor is free to collect the receivables in the absence of a default and the debtors are not notified of the security? Briefly, what is the procedure?
Security over receivables can be taken either through pledge or assignment for security purposes (receivables are considered to be rights and claims).
Assignments for security purposes, which are more common, require a written agreement in which the assignor and the assignee specify the receivables to be assigned. Under certain circumstances, it is also possible to assign future receivables.
The debtor does not have to be notified of the assignment. However, before such a notification, bona fide payments by the debtor to the assignor will release the debtor from their payment obligations.
2.4 Can security be taken over cash deposited in bank accounts? Briefly, what is the procedure?
Security over cash deposited in bank accounts can be taken through a pledge or assignment for security purposes (over the claims the account holder has against the bank). Lenders usually prefer assignments. A written security agreement must describe the bank account claims to be pledged/assigned. It is not a legal requirement to notify the bank of the pledge or assignment, even if usually done in practice.
2.5 Can security be taken over shares in companies incorporated in your jurisdiction? Are the shares in certificated form? Briefly, what is the procedure?
Security over shares in companies incorporated in Switzerland can be taken through assignment for security purposes or, more commonly, through a pledge of the shares. The pledge or assignment of shares requires a security agreement. The perfection of uncertified shares requires a written declaration of the pledge or assignment.
In practice, it is recommended to issue physical share certificates to strengthen the secured party's position in case of enforcement. To perfect the security over certified shares, the pledgee or assignee needs to have physical possession of the shares. For registered certified shares (in contrast to bearer shares), the shares also require an endorsement or assignment.
2.6 What are the notarisation, registration, stamp duty and other fees (whether related to property value or otherwise) in relation to security over different types of assets (in particular, shares, real estate, receivables and chattels)?
In relation to security over shares, receivables and chattels, there are generally no notarisation, registration, stamp duty or other fees that apply. Stamp tax of up to 0.3% may be levied on the transaction value in a transfer of ownership of securities if a Swiss bank or securities dealer is involved. The Swiss legislator is currently discussing the repeal of this tax.
Security over real estate requires a notarised deed for which notaries' fees may incur. The registration of the mortgage or mortgage note with the land registry may incur registration fees as well as cantonal and communal taxes.
The voluntary registration of a security over intellectual property with the intellectual property register incurs registration fees, but protects the holder of the security from a bona fide third party acquiring the intellectual property right.
2.7 Do the filing, notification or registration requirements in relation to security over different types of assets involve a significant amount of time or expense?
Filings, notifications or registrations in relation to security over assets (only required for certain assets, see question 2.1) can usually be completed within a few days. During certain times of the year, in particular before the summer and Christmas break, it may take longer because registries may be overloaded with work.
2.8 Are any regulatory or similar consents required with respect to the creation of security over real property (land), plant, machinery and equipment (e.g. pipeline, whether underground or overground), etc.?
Generally, no. However, a pledge over real property may require a Lex Koller permit if the pledge is in favour of a foreign party. Further, pledges over railway and navigation companies operating under a federal concession require the consent of the federal council.
3 Security Trustee
3.1 Regardless of whether your jurisdiction recognises the concept of a "trust", will it recognise the role of a security trustee or agent and allow the security trustee or agent (rather than each lender acting separately) to enforce the security and to apply the proceeds from the security to the claims of all the lenders?
Switzerland does not have its own legislation on trusts. However, Switzerland is party to The Hague Convention on the Law Applicable to Trusts and their Recognition and therefore recognises foreign trusts.
Switzerland also recognises the role of security agents or trustees to enforce the security and apply the proceeds from a security to the claims of the lenders. However, the principle of accession may cause challenges (see question 2.1).
3.2 If a security trust is not recognised in your jurisdiction, is an alternative mechanism available (such as a parallel debt or joint and several creditor status) to achieve the effect referred to above which would allow one party (either the security trustee or the facility agent) to enforce claims on behalf of all the lenders so that individual lenders do not need to enforce their security separately?
Sometimes parallel debt structures are used in order to facilitate changes to the secured parties. Under a parallel debt structure, the borrower owes to the security agent in its individual capacity an amount equal to the aggregate of the amounts owed by the borrower to all lenders under the financing documents. However, this concept remains untested in Switzerland.
4 Enforcement of Security
4.1 Are there any significant restrictions which may impact the timing and value of enforcement, such as (a) a requirement for a public auction or the availability of court blocking procedures to other creditors/the company (or its trustee in bankruptcy/liquidator), or (b) (in respect of regulated assets) regulatory consents?
A transfer or assignment for security provides the secured party with full ownership of the asset which he may privately enforce. This can be done even after the opening of bankruptcy proceedings. Receivables and claims may be collected from the thirdparty debtors or may be sold to a third party.
In the case of a pledge, the secured party may only privately enforce the asset if this has been agreed beforehand in the security agreement. Otherwise, the pledge has to be enforced through enforcement proceedings with an insolvency official. A public auction, which is the standard procedure of realisation, can be time-consuming and create substantial costs. Under certain circumstances, i.a., if all parties agree or securities or other items with a market or stock exchange price are to be realised, the debt collection office may allow the public auction to be replaced with a private sale.
4.2 Do restrictions apply to foreign investors or creditors in the event of foreclosure on the project and related companies?
In general, the same rules will be applied to foreign investors and creditors as to domestic on
5 Bankruptcy and Restructuring Proceedings
5.1 How does a bankruptcy proceeding in respect of the project company affect the ability of a project lender to enforce its rights as a secured party over the security?
Firstly, it is to be noted that bankruptcy proceedings over a project company do not affect collateral which has been transferred or assigned to the secured party for security purposes, as such collateral is no longer part of the assets of the security provider. The secured creditors are not required to hand the collateral over to the bankruptcy administrator and can, if permitted by the security agreement, liquidate the collateral privately.
However, where security is granted in the form of a pledge, ownership remains with the security provider. If bankruptcy proceedings are opened over the security provider, he is no longer entitled to dispose of such assets and must hand the pledged assets over to the bankruptcy administration for liquidation with other assets. Swiss law guarantees the secured creditors' right to preferential satisfaction.
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Originally Published by The International Comparative Legal Guide
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.