i. Economics

According to the most recent data published by the State Secretariat for Economic Affairs ('SECO'), the real gross domestic product ('GDP') for Switzerland grew in the first quarter of 2012 by 0.7 per cent compared with the fourth quarter of 2011. Private and public consumption delivered a positive boost to growth, while gross fixed capital formation and external trade made a negative contribution to the rise in GDP. On the production side, the services sectors, banking, insurance, real estate, IT, and research and development all made a positive contribution to growth, as did the public administration, social services and health care. However, industry reported a decrease in value-added GDP growth of 2.0 per cent compared with the first quarter of 2011.1

Thanks to robust domestic economic activity and a relatively resistant export industry, the Swiss economy is performing better than had been anticipated in view of the strong Swiss franc and an economic recession in many EU countries. However, for various sectors and many export companies the situation remains tight, with strong downwards pressure on margins. Thanks to the good economic performance over the second half of the year, the Federal Government's Expert Group is raising its growth forecast for 2012 from the previous 0.8 per cent to a new figure of 1.4 per cent. This adjustment cannot detract from the fact that the economic environment in Europe has recently deteriorated further. With growth in GDP of 1.5 per cent for 2013 (1.8 per cent was forecast in March), the economic dynamic is expected to remain relatively weak.2

ii. Liquidity and state of the financial markets

The Swiss National Bank ('the SNB'), in its monetary policy assessment of 14 June 2012, decided to maintain the minimum exchange rate of 1.20 Swiss franc per euro and informed the media that it will enforce it with the utmost determination. The SNB explained that it remains prepared to buy foreign currency in unlimited quantities for this purpose. Even at the current rate, the SNB is of the opinion that the Swiss franc is still high. The target range for the three-month Libor remains at 0.00–0.25 per cent. For 2012, the forecast shows an inflation rate of -0.5 per cent. For 2013, the SNB is expecting inflation of 0.3 per cent, and for 2014, of 0.6 per cent. Consequently, the SNB is of the opinion that there is no risk of inflation in Switzerland in the foreseeable future. According to the SNB experts, Switzerland is likely to experience a significant economic slowdown over the rest of the year. It is only because of the unexpectedly strong winter half-year that the SNB now expects growth of around 1.5 per cent for 2012.3

iii. Market trends and statistics

In 2011, 11,073 bankruptcy proceedings were commenced in Switzerland (-1.3 per cent compared with 2010), while 11,924 companies were closed (11,725 in 2010). The losses (2,125,529 billion francs) resulting from liquidations were 3.1 per cent higher in 2011 compared to 2010. Recently, a new provision was added to the Swiss Code of Obligations ('the SCO') that entitles a court to liquidate a company incorporated in Switzerland that is not properly organised (Article 731b SCO). Such liquidations are no longer included in the official data regarding bankruptcies, since such companies are not necessarily 'distressed' within the provisions of Swiss bankruptcy law but rather are only not properly organised. During the first half-year of 2012, 2,943 companies were declared bankrupt (+0.1 per cent compared with the first half-year of 2011).

No official compilation of data is available regarding moratoria and in-court composition agreements. However, according to our observations, based on the various official publications made in this respect, about 27 (reorganisation) moratoria have been granted by the Swiss courts during 2011, and 11 provisional (reorganisation) moratoria have been granted during the same period. The number of moratoria granted decreased significantly as compared with the number of moratoria granted in 2010. Regarding the number of composition agreements, there have been only 18 such agreements approved by the courts in 2011 (equal to the 2010 figure).


i. Commencement of a debt collection proceeding

In Switzerland, the main law applicable to insolvency matters is the Swiss Debt Enforcement and Bankruptcy Law ('the SDEB'). In addition, there exists a law specific to banks, which sets forth the bankruptcy procedures before actual insolvency and in the event of a bank's insolvency. Unemployment insurance law contains specific provisions dealing with the bankruptcy of employers. Other laws contain provisions on insolvency, for example corporate law, labour law as set forth in the Code of Obligations or secured credits law in the Civil Code.

A particularity of the Swiss insolvency system is that anyone can claim to be someone's creditor and start a debt enforcement proceeding without having to prove his or her assertions or to make the existence of his or her claim plausible. Usually, the proceeding begins with the creditor filing a summons to pay against the debtor with the debt collection office; said office will only serve a payment order to the debtor, without verifying whether the claim is based on valid grounds. If the debtor disputes this order, the creditor has various options to lift the opposition, including filing an ordinary declaratory action.

Once the opposition is lifted, the creditor can request that the proceedings be continued. If the debtor is registered in the Swiss Commercial Register and corresponds to one of the persons or entities listed in Article 39 of the SDEB, he or she is subject to bankruptcy; in all other cases, the debt collection office will proceed with the debt enforcement leading to a seizure. We will only examine the bankruptcy proceedings in the present article, as it is the outcome relevant to businesses.

ii. The bankruptcy proceeding

After a creditor initiates debt enforcement proceedings, the bankruptcy office summons the debtor to pay the debt within 20 days. If the debtor does not pay within the allotted time, the creditor can request that the judge declare the debtor bankrupt (there is also an express way leading to a possible individual bankruptcy). However, the bankruptcy can be adjourned (stay of bankruptcy proceeding). Bankruptcy results in the creation of an estate, which encompasses all of the debtor's goods that can be seized as well as all presents he or she receives before the bankruptcy is closed. An inventory of all of the debtor's assets (including goods that cannot be seized) is prepared, and the windingup process is determined, depending on the value of the estate assets and the debtor's liabilities (there are three possibilities: suspension, summary proceedings or ordinary proceedings).

To determine what the debtor's liabilities are, all creditors are summoned to claim their credit through a publication. The creditors can then prove their claim within the bankruptcy proceedings. A schedule of claims is drawn up according to the ranks provided for by Article 219, Paragraph 4 of the SDEB, which is then checked by a supervisory commission composed of the creditors or their representatives. Once the assets in the bankrupt estate are wound up, the proceeds of those assets are used to pay off the first priority ranked creditors, then the second and finally the third. The first rank includes all the secured claims, some social security claims and family support claims. The second rank comprises claims of persons arising from the administration of their wealth by the bankrupt person because of parental authority, some public law and other social security claims. The third rank encompasses all other claims.

The judge can postpone the bankruptcy decision in three situations.

First, if the debt enforcement proceeding is stayed, or if the judge is not sure he or she has jurisdiction over the given bankruptcy (the question of jurisdiction is then referred to the supervising commission).

Second, the bankruptcy might also be postponed in view of composition (composition moratorium or agreement). The debtor or the creditor can ask for such a moratorium; they then have to show the judge that they have a realistic project for a composition. The judge can only refuse to stay the bankruptcy if it is impossible that the project will meet the legal conditions for a stay.

Third, the judge can also postpone the bankruptcy if it appears that a composition agreement, whereby the debtor and his or her creditors reach an agreement on the modalities of settlement of the claims, will likely be reached.

Certain types of financially over-indebted companies, especially public companies and limited liability companies, may avail themselves of the third type of stay. The directors or the creditors of a company can ask for the bankruptcy to be postponed if the reorganisation of the company seems to be possible. They then have to present to the judge a realisable plan with reorganisation measures. In this case of stay, the judge can take all the measures that are necessary to protect the company's assets. Such a stay must be refused if the company cannot present a viable reorganisation plan, or cannot give a time period within which the reorganisation will be stable.

The stay of bankruptcy ends if a composition agreement is reached, or bankruptcy is declared if no composition was drawn up and accepted during the time set for the moratorium or if there is no possibility of refinancing the company.

When the bankruptcy proceedings have already started and have then been stayed, no debt recovery act can be carried out during the stay of proceedings. During the stay, the judge usually appoints a receiver who supervises the debtor. The debtor can still dispose of his or her assets and keep the business going, but he or she has to ask for the approval of the receiver for management acts, and of the judge for acts of disposal on fixed assets, in order to secure debts or to give assets for nil consideration (the judge can decide that some additional acts of the debtor are to be subject to the receiver's approval).

iii. The Swiss reorganisation proceedings

Under Swiss law, two types of restructuring proceedings are available for distressed companies. The first is a formal judicial reorganisation proceeding opened by the judge, requested by the debtor him or herself, or a creditor, and supervised by a receiver (trustee) appointed by the court. It has influence only on the claims themselves (reduction, modification of terms). The second is an informal out-of-court reorganisation proceeding that is only opened by the judge under certain circumstances and eventually conducted under the supervision of a receiver appointed by the court, where all the available restructuring techniques can be used.

Composition agreement with creditors

There are two different types of judicial composition agreements: ordinary agreements and composition agreements with assignment of assets. The debtor can also reach a composition with his or her creditors outside the legal framework of bankruptcy law through an extra-judiciary amicable composition agreement whereby the creditors agree to postpone their claims until a certain time, or to partially release the debtor from his or her debt. The latter provides a way for the company to avoid bankruptcy. However, this way of settling insolvency situations can be problematic if there are many secured creditors, if not all the creditors agree on the settlement or if the settlement does not guarantee equal treatment of the creditors. Because of the very few advantages it offers the debtor and the creditors, it is seldom used.

Composition agreements typology

An ordinary composition agreement can be a composition in which the contractual terms of the credits are modified (moratorium composition agreement), or a composition that provides for the partial release of the debtor from his or her debts, in which case the debtors only receive a dividend (dividend composition agreement). The debtor's agreement to these two types of composition is necessary in the event that the creditors asked for a stay of the bankruptcy.

A composition agreement with assignment of assets is an agreement pursuant to which the debtor gives most or all of his or her assets to the creditors so that they sell them, or pursuant to which the liquidator sells such assets to a third party and the proceeds of the sale are distributed to the creditors (composition with assignment of assets). The debtor's agreement is not necessary. Moreover, such composition allows a third party to buy the company on relatively favourable terms.

The proceeding's commencement: granting of a 'moratorium'

As already mentioned, either the debtor him or herself or a creditor can file before the judge a request for a composition moratorium. If the request is not sufficiently or is incompletely supported, the judge can decide to grant the debtor only a two-month provisional moratorium. He or she can also decide to directly grant the debtor a moratorium with a maximum duration of 12 months, or 24 for complex matters. The court will simultaneously appoint one or two receivers, whose most important role will be to supervise the debtor and then to assess the acceptance of the creditors' composition agreement. The judgment by which the court grants the debtor or creditor a moratorium must be published in the Swiss Official Gazette of Commerce.

The receiver is generally also in contact with the creditors, and can help the debtor prepare a draft composition agreement. The receiver has to convene the creditors to a creditors' meeting, which takes place at the end of the moratorium and allows the creditors to obtain clarifications regarding the debtor's situation and to vote the composition agreement's refusal or acceptance.

Composition agreement's acceptance

In the context of a judicial composition, creditors generally attend the creditors' meeting during which the receiver (or receivers) presents a report on the debtor's situation and a proposition for a composition agreement. The composition agreement is accepted if a qualified majority votes in favour – a specific majority of the creditors and a specific majority of the claims in terms of value. Privileged creditors, secured creditors and the debtor's spouse cannot vote (secured creditors can only vote for the value of the part of their claim that will probably not be covered by the security). Finally, the judge must ratify the composition agreement. A judge will only ratify the agreement if certain legal conditions are met: the proceedings conform to the law, the deal is fair, the debtor provides securities, the composition is of a favourable nature and, in cases where the business is transferred to a third party, the third party has warranted the payment due for such a transfer.

A composition agreement must provide for the full payment of the privileged creditors' claims. The privileged creditors can, however, waive part of their debt in order to facilitate the composition creditors' approval. Creditors whose claim predates the composition, and those whose claim arose during the stay but without the receiver's approval, are subject to the terms of the composition. Secured creditors are to be paid the value of the security; if part of their claim remains unpaid, they are subject to the terms of the composition for that part. The other creditors are ranked by order of priority, as in bankruptcy proceedings. The order of priority does not have to take into account claims against the debtor that are disputed in a proceeding abroad. It is worth noting that a judicial composition amends the original claims of the creditors, and becomes the basis for the claims in the composition proceedings.

The stay of bankruptcy proceedings

Description of the proceedings

Pursuant to Article 725, Paragraph 1 (loss of capital) of the SCO,4 if the last annual balance sheet shows that half of the share capital and the reserves required by law are no longer covered by the assets, the board of directors shall call without delay a general meeting and propose restructuring measures. Pursuant to Article 725, Paragraph 2 (over-indebtedness) SCO, if a substantiated concern of over-indebtedness exists, an interim balance sheet must be prepared and submitted to the auditors for examination. If the interim balance sheet shows that the claims of the company's creditors are not covered if the assets are appraised at ongoing business values, or if such assets are appraised at liquidation values, then the board of directors shall notify the judge unless the creditors of the company agree to subordinate their claims to those of all other company creditors to the extent of such insufficient coverage.

Upon being notified of the company's over-indebtedness, the judge has to initiate bankruptcy proceedings (Article 725a SCO). At the request of the board of directors or an obligee, the judge may also delay such commencement (a kind of 'moratorium', but without the effects of a composition moratorium) if the board or a creditor shows that a prospect of a successful financial reorganisation exists. In this case, the judge shall take all appropriate measures to preserve the value of the assets, and may appoint a curator whose role will be defined in the stay of bankruptcy judgment (debtor's supervision). At the request of the debtor, the stay of bankruptcy judgment will not necessarily be published in the Swiss Official Gazette of Commerce, protecting therefore the distressed company from very bad – and sometimes even disastrous – advertising.

The duration of the moratorium is not defined by law. At the request of the company or a creditor, it may be lengthened several times. At the moratorium expiry date, the company must no longer be over-indebted. Otherwise, the judge will have no other choice than to commence bankruptcy proceedings.

Restructuring techniques

The reorganisation measures proposed at the general meeting and adopted by the judge in cases of over-indebtedness can be operational: selling, rethinking the size of the company or ceasing to engage in certain activities, especially if they are unprofitable. Other measures are provided for by company law. Losses can be set off by reserves (whether free or legal). As the loss of capital is calculated in relation to the capital and the legal reserve, however, it is a set off with the legal reserve that will reduce the loss of capital. The immoveable property of the company can be re-evaluated. In principle, it is evaluated at the purchase value in the balance sheet. However, it can be re-evaluated at its real value. Another measure provided for by company law is the increase of capital through the emission of new shares for consideration. Finally, the company can lower its capital by cancelling the shares, or decreasing their value, and immediately thereafter increasing its share capital.5 Thus, the total balance sheet of the company is reduced and the proportion between the deficit and the capital also decreases, until the loss in capital disappears. The company can also try to get creditors to agree to write off part or all of their claims, or to subordinate their claims.

iv. Miscellaneous

The taking and enforcement of securities

If the credit is secured, the enforcement has to take place in accordance with the special proceedings for the realisation of securities, regardless of the debtor's status. These proceedings start like ordinary proceedings; however, if the debtor opposes the summons, the creditor has to file for the lifting of the opposition within 10 days. Once the debtor's opposition is lifted, there is a direct realisation of the security. If the security is not sufficient to pay off the claim, the creditor has an ordinary claim for the remaining part of his or her claim. A lessor of business premises has a right of retention, secured by the right to an inventory of the moveable assets on the premises – if he or she does not use his or her right to inventory, he or she cannot proceed with the special security enforcement proceedings.

If the security is a rented building, the creditor can start debt enforcement proceedings and also request the seizure of the rental payments. The rental payments are then to be paid to the creditor if the debtor or if a court decision acknowledges the claim, or to the bankruptcy office or a receiver it appoints.

As already seen above, secured creditors' claims remain fully protected by the security if the debtor goes bankrupt or if a composition agreement is reached.

The creditor can choose between special proceedings for the enforcement of securities and ordinary proceedings if the secured claim consists of interests. If the claim is incorporated in a deed (i.e., a bill of exchange, a cheque), the creditor can choose between the proceedings for the enforcement of securities and the proceedings for the enforcement of bills of exchange. The latter is similar to the ordinary proceedings for debt enforcement, but it is faster and the debtor has fewer defences. Such proceedings can lead to the debtor's bankruptcy, unlike the proceedings for security enforcement.

Duties of directors of companies in financial difficulties

As long as a company's assets are sufficient to cover the company's debts, company law does not require the board of directors to take specific measures, even if there is a deficit on the balance sheet. However, when the assets do not cover half of the company's capital and legal reserves, a situation of 'loss of capital' exists. If this situation arises, the board of directors has to convene a shareholders' meeting and suggest reorganisation measures.

When the assets do not cover the capital, the reserves and the liabilities, the board has to face the over-indebtedness of the company. The board of directors has to prepare an intermediary balance sheet, which the auditors will then have to verify. If it is found that the company is overly indebted, the directors have to inform the judge, unless the creditors agree that their credit be downgraded (subordinated). If the company is very likely to go bankrupt, some creditors often agree to have their credit downgraded (subordinated) and renounce claiming it as long as the company is overly indebted.

If the board of directors or other managers of the company fail to fulfil their duties and thereby cause damage to the company, the company, the creditors and the shareholders may claim damages against them. This action is commenced for the profit of the company; if it succeeds, the amount thus obtained will belong to the company.

If the company goes bankrupt, the shareholders and creditors maintain the right to claim damages and to have responsible individuals pay damages to the estate. The administration of the bankrupt estate files these actions for the shareholders and creditors; if the administration of the bankrupt estate does not file this action, the shareholders and creditors can do so. The payment resulting from the action will first be used to pay the claimant's creditors off; the claimant's shareholders will then benefit from the leftover amount, and any remainder belongs to the bankrupt estate.

'Clawback' action

The 'clawback' or revocatory action provided for by Swiss law aims to repair the damage that the debtor might have caused his or her creditors through certain acts; for example, through fictitious sales aiming to shield certain assets from debt enforcement. This action allows the creditors to have their claim paid off on assets that are no longer part of the debtor's assets.

This action is subject to two conditions on the merits: the creditors or the bankrupt estate must suffer damage as a result of the debtor's action, namely diminished assets and the increased inability to pay off all creditors; and the act must be revocable. Gifts or semi-gifts (i.e., when goods are supplied for disproportionately low consideration) are revocable, with no regard to the beneficiary's good faith. Transactions by which the debtor favours one or some of its creditors to the detriment of the others are revocable, if the debtor was overly indebted at the time of the transaction and if the creditor cannot prove that he or she did not know and should not have known about the situation. It is up to the creditor to prove his or her good faith. The Swiss Federal Court, however, is strict in its determination of good faith. The debtor's acts include securing debts that he or she did not have to secure or paying debts that were not yet due. Transactions by which the debtor wanted to harm his or her creditors are also revocable, if the beneficiary could have recognised the debtor's intention (according the Federal Tribunal's case law, negligence is sufficient).

Moreover, the action has to meet two temporal conditions: the revocable act must have taken place in a determined time period (i.e., one year before the declaration of bankruptcy for gifts, semi-gifts or other such acts of the debtor, or five years before bankruptcy in cases of wilful deception); and the action must be filed within the statutory time (i.e., two years after the bankruptcy, the approval of the composition agreement by the judge or the publication of the stay of the bankruptcy).

If the action succeeds, the creditor has to return to the bankrupt estate the goods he or she received or purchased from the debtor. He or she can claim back the consideration he or she paid the debtor if the debtor still has it, or can claim such amount from the bankrupt estate if the debtor does not have it anymore or if the asset was given in payment of a claim that the creditor had against the debtor.

The Federal Supreme Court recently confirmed that the repayment of a loan granted to a distressed company in order to achieve its successful reorganisation was not subject to a clawback action. Payments made by a distressed company to lawyers or auditors for services rendered that are useful or necessary to reach a successful reorganisation are allowed and not subject to a clawback action.


The most important practical innovation in relation to debt enforcement proceedings has been the creation of a new ground for attachment, in particular for the exequatur of foreign judgments based on the Lugano Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters ('the Lugano Convention').

The modifications of the SDEB adopted by the Federal Council in February 2009 and voted on by the Federal Assembly in December 2009 entered into force in January 2011.

The most significant modifications of the revised SDEB are the following:

  1. The new SDEB introduces a new ground for attachment based on an enforceable decision (new Article 271(1).6 and (3) of the revised SDEB). Basically, this modification allows a creditor to obtain the attachment of the assets of a Swiss debtor based either on a Swiss or foreign enforceable decision (or a title that allows the creditor to set aside an opposition to a payment order). In addition, if the attachment is requested based on a judgment rendered in a state bound by the Lugano Convention, the tribunal would also have jurisdiction to declare simultaneously enforceable said decision in Switzerland (new Article 271(3) of the revised SDEB).

    In other words, under the revised SDEB, there is no discrimination between foreign and Swiss monetary orders. Pursuant to the present SDEB, no attachment can be obtained based either on a foreign judgment or on a Swiss judgment against a Swiss debtor without regard to his or her residence or main office. The introduction of this new ground for attachment was necessary in order to comply with the Lugano Convention, and will indeed ensure judicial safety for creditors relying on a judgment rendered by a foreign jurisdiction with a monetary order and seeking interim relief based on Article 47(2) of the revised Lugano Convention.
  2. In accordance with the revised Lugano Convention, under revised Article 272 SDEB, either the court at the place of the domicile of the debtor or at the place where the assets to be attached are located can order an attachment. If the creditor is seeking the attachment of assets in different cantons, only the court at the place of the domicile of the debtor has the power to order Swiss-wide attachments based on new Article 272ff SDEB.

    There is however a risk of forum shopping since it appears that, depending on different court practices, the creditor will be more successful acting before some courts that are known to be more liberal when applying Article 271ff SDEB.

    There is also a risk of an increase of attachment requests in particular because of the new ground for attachment that applies to Swiss and foreign enforceable judgments, and also for the extension of the territorial scope of application of the revised Lugano Convention to 11 new EU Member States (Czech Republic, Cyprus, Slovakia, Slovenia, Hungary, Malta, Estonia, Latvia, Lithuania, Bulgaria and Romania).
  3. The revised SDEB provides that a unique cantonal court can order a Swiss-wide attachment. As a consequence, an attachment order will have to be performed by one or more debt collection offices. In other words, since the practice and language between the cantons are different, it seems that the challenge will reside in the quick and efficient execution of the attachment by all Swiss debt collection offices.


Since a stay of a bankruptcy (moratorium) judgment is not necessarily published in the Swiss Official Gazette of Commerce, it is not possible to reliably report significant restructuring transactions or establish a ranking of the most distressed industries.

On 21 May 2012, Masai Marketing & Trading AG and Masai Group International GmbH, well-known companies manufacturing and distributing shoes, were declared bankrupt. The reorganisation moratorium granted to Swissmetal Industries AG, a company manufacturing and selling high-quality specialty products made from copper and copper alloys, was extended on 16 March 2012 until September 2012.

On 27 January 2012, Petroplus Marketing AG, Petroplus Refining Cressier SA and Petroplus Holdings AG (a company listed at the SWX) – three Swiss companies belonging to the international Petroplus group active in the oil industry – were granted a provisional reorganisation moratorium, which was then converted into an ordinary reorganisation moratorium. Certain assets belonging to Petroplus Marketing AG and Petroplus Refining Cressier were sold during the reorganisation moratorium with the preapproval of the official administrators appointed by the court and with the approval of the court for a joint venture.

Two football clubs playing in the Challenge League, Neuchâtel Xamax SA and Servette Football Club 1890 SA, faced severe financial difficulties in 2011 and 2012. On 2 March 2012, the bankruptcy of Neuchâtel Xamax SA was published. Servette was granted a moratorium (stay of bankruptcy proceedings), and was found to be successfully reorganised at the date of the expiration of the moratorium. i Key developments: specific Swiss issues

Composition proceeding

Transfer of the debtor's enterprise during the composition moratoriums

The transfer of the debtor's enterprise should, by law, take place only within the framework of a composition with assignment of assets to a third party, and after its acceptance by the creditors and its approbation by the court. The legality of a transfer during the moratorium is currently debated and not yet definitively established. In our view, this transfer should be allowed by the court in cases of emergency or in order to maximise the enterprise's valuation.

Application of Article 333 SCO

When a company is transferred – regardless of the legal grounds behind such transfer – a labour law provision (Article 333 SCO) protects the employees and provides for the automatic transfer of their employment contract to the new employer. The debtor and the new owner have a joint and several obligation to pay the employees the claims due before the transfer and until the time when the original contract is terminated. These include social security claims, some of which are, as seen above, privileged claims in debt enforcement. The Swiss Supreme Court recently decided that this provision also applies in bankruptcy proceedings. The above notwithstanding, it is not clear whether this provision applies in the case of an enterprise's transfer resulting from the ratification by the judge of a composition with assignment of assets, or in the case of transfer during the moratorium.

Clawback action

The Swiss Supreme Court recently had to decide whether the repayment of a loan by a debtor to a creditor just before the commencement of insolvency proceedings was a dismissible act. In a very interesting decision, the Court decided that the repayment by a distressed debtor to a creditor of a loan whose sole aim was to facilitate the debtor's refinancing and reconstruction ('reconstruction loan') should not be considered as a dismissible act.


While Switzerland has ratified Bilateral Agreements I and II with the EU, our country has not adopted the UNCITRAL Model Law on Cross-Border Insolvency.

A foreign insolvency decision will thus be recognised in Switzerland in accordance with the Private International Law Act ('PILA'), in particular provision 166 et seq. Said provision provides that foreign decisions may be recognised in Switzerland if certain conditions are met, namely such decision leads to liquidation proceedings or reorganisation measures in Switzerland. Recognition (exequatur), however, is limited to assets detained by the debtor in Switzerland. The territoriality principle in Switzerland – as opposed to the bankruptcy unity – is therefore limited. It must be noted that only foreign decisions may be recognised, not foreign proceedings.

Therefore, the trustee of a foreign bankruptcy estate or a creditor may apply to a Swiss court to obtain the recognition in Switzerland of a foreign bankruptcy decision. The bankruptcy court having jurisdiction in the country in which the assets are located, or the first court seized when assets are located in various states, will have jurisdiction for the exequatur of the said bankruptcy decision.

The trustee of a foreign composition agreement or the debtor, but not a creditor, may also apply to a Swiss court to obtain the recognition of the said composition agreement.

Since 1997, a foreign decision with similar effects to the Swiss composition moratorium can also be recognised in Switzerland.

The conditions for recognition of a foreign bankruptcy or a decision related to a composition agreement or to any other similar proceedings are identical, according to Article 175 PILA.

In practical terms, a foreign decision will be recognised if the following four conditions are cumulatively met:

  1. the decision must have been rendered at the debtor's domicile;
  2. the decision must be enforceable in the state in which it was rendered;
  3. there is no ground to deny recognition under Article 27 PILA; and
  4. reciprocity must be granted to Switzerland by the state in which the decision was rendered.

In addition, the decision must have comparable effects to bankruptcy or composition proceedings in Switzerland in order to be recognised.

Whereas the second and third conditions are easy to understand and ensure due respect for public policy and the principle of legal certainty, the first condition as to domicile is problematic insofar as EU regulation considers the COMI (i.e., the effective location from which the company organises its activities, and not the registered office or debtor's domicile) in determining location. Consequently, Switzerland and an EU Member State could simultaneously commence insolvency proceedings in two different locations.

The exequatur of a foreign bankruptcy judgment in Switzerland will result in local bankruptcy proceedings in Switzerland, in which case a 'summary' procedure will apply. First, the assets located in Switzerland will be liquidated, and privileged creditors and secured creditors domiciled in Switzerland will be refunded. Any positive balance will then be allocated to the foreign creditors (the foreign bankruptcy estate) only if the foreign schedule of claims is recognised in Switzerland. In other words, the privileged and secured creditors have to be treated like the other foreign creditors. Otherwise, the positive balance will be allocated to Swiss ordinary creditors (Article 174 PILA).

In connection with a decision related to judicial composition proceedings, the effects of said decision might be different; such a decision may grant a stay or ratify a composition agreement in which the contractual terms of the credits are modified or in which the debtor obtains a partial release from his or her debts. In any case, the recognition of similar decisions will result in local composition proceedings, and any debt enforcement proceedings will be stayed. This, in turn, will prevent any creditors from commencing special debt enforcement proceedings against the debtor.

The Swiss court in charge of the exequatur of the foreign decision may assist with the implementation of the composition agreement in Switzerland, appointing a commissioner or a co-trustee in Switzerland if necessary.

The recognition of a foreign insolvency decision is also deemed necessary to allow the trustee, the liquidator or the commissioner (or all three) to act in Switzerland. However, this is a disputed issue, since Article 29, Section 3 PILA provides that a foreign decision might be preliminarily recognised. Furthermore, special conservatory measures may been granted pursuant to Article 168 PILA.

Finally, it is worth mentioning that the Swiss Federal Law on Banks and Savings Banks ('the LB') contains two provisions applicable to foreign decisions and measures regarding banks and savings banks.

These provisions were adopted during the revision of the LB on 3 October 2003 in order to ensure first the realisation of the assets and second equal treatment for foreign and Swiss creditors. These provisions are important, since the notion of domicile or registered office pursuant to Article 166 PILA does not correspond to existing requirements in practice, as the foreign authorities and the Swiss Federal Bank Commission often commence bankruptcy proceedings at the effective location from which the bank or the savings bank organises its activities.

Therefore, when a bank or a savings bank has its registered office in Switzerland and a foreign branch office, the Swiss liquidator will have to coordinate the Swiss proceedings with one or more foreign proceedings pursuant to Article 37f LB. Said provision also provides equal treatment for creditors that were partially refunded abroad and creditors participating in the Swiss proceedings; thus the amount allocated to a creditor within the foreign proceedings will be deducted from the dividend to be distributed in the Swiss proceedings.

Furthermore, pursuant to Article 37g LB, the decision rendered in the state of the effective location from which the bank organises its activities is also recognised in Switzerland, and the privileged creditors domiciled abroad are also allowed to participate in the Swiss proceedings.

In conclusion, cross-border liquidations and reorganisations have not yet been simplified in Switzerland, since our country does not apply the UNCITRAL Model Law.


The Swissair composition proceedings highlighted certain gaps in Swiss law and initiated a discussion on the need to amend Swiss insolvency provisions. In 2003, the Federal Office of Justice mandated a group of experts whose task was to examine the need for a modification of the Debt Collection and Bankruptcy Law, and certain aspects of contract law (labour, lease and leasing contracts, i.e., long-term contracts) and securities law; and for the establishment of a group to monitor insolvency law. In 2005, the experts communicated their first conclusions.

In 2009, the Federal Office of Justice published on its website a preliminary bill and its explanatory report. The bill, which will be modified and amended, can be summarised as follows:

Upon request of an insolvent company, a provisional moratorium is automatically granted to the debtor. The decision regarding the provisional moratorium is not imperatively published. The moratorium has a full-stop effect, even for the privileged creditors, who cannot sue the debtor. The law provides an early termination right for long-term agreements. The bill strengthens the creditors' power (election of a creditors' committee already during the moratorium, convocation of a meeting of creditors in the case of the moratorium's lengthening, right to be informed by the receiver). Pursuant to this new bill, the court has to apply the 'best interests test' in approving a composition agreement. Owners of the companies submitting an ordinary composition agreement will therefore have to make a further sacrifice.

The draft bill has been analysed by the Legislative Committee of the National Council (one chamber of the Swiss Federal Parliament, which is bicameral). Based upon the recommendation of the Committee, in 2011 the National Council refused to discuss the draft bill. However, recently, the Council of States (another chamber of the Swiss Federal Parliament) decided to undertake discussions about the draft bill. Therefore, it is likely that the draft bill will finally be discussed by both Councils in the very near future.

Originally published in: The Restructuring Review Chapter 22: Switzerland


1. SECO press release, 31 May 2012, available at www.seco.admin.ch/themen/00374/00456/index.html?lang=en (last accessed on 11 July 2012).

2. SECO press release, 12 June 2012, available at www.seco.admin.ch/themen/00374/00375/00376/index.html?lang=en (last accessed on 11 July 2012).

3. SNB press release, 14 June 2012, available at www.snb.ch/en/mmr/reference/pre_20120614_1/source (last accessed on 11 July 2012).

4. Articles 725 and 725a SCO not only apply to public companies but also to limited liability companies (Article 820 SCO), corporations with unlimited partners (joint stock companies, Article 770 SCO), and cooperatives (Article 903 SCO).

5. A coup de l'accordéon.

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.