1 Legal framework
1.1 What domestic legislation governs restructuring and insolvency matters in your jurisdiction?
Restructuring and insolvency proceedings are governed by the Swiss Federal Debt Collection and Bankruptcy Act of 11 April 1884, as regularly amended. Various rules and regulations promulgated by the Swiss Federal Council – Switzerland's federal government – and the Swiss Federal Supreme Court also play an important role in restructuring and insolvency proceedings. The same holds true for the Swiss Civil Procedural Code of 2011 and a variety of federal laws and regulations governing the banking and insurance sectors.
1.2 What international / cross-border instruments relating to restructuring and insolvency have effect in your jurisdiction?
The Swiss Federal Act on Private International Law of 1987 and the Lugano Convention of 2011 regulate almost all international aspects of Swiss restructuring and insolvency proceedings.
1.3 Do any special regimes apply in specific sectors?
Various federal laws and regulations include specialist restructuring and insolvency rules that apply in the banking, insurance, mutual funds and real estate sectors.
1.4 Is the restructuring and insolvency regime in your jurisdiction perceived to be more creditor friendly or debtor friendly?
Due to its extensive regime of legal defences, the Federal Law on Debt Collection and Bankruptcy is considered rather debtor friendly.
1.5 How well established is the legal regime and infrastructure relevant to restructuring and insolvency in your jurisdiction (e.g. extent of recent legislative changes, availability of specialist judges / courts / advisers)?
As in other legal sectors, the Swiss insolvency and restructuring laws are subject to continual revision – in contrast to the situation in the years before 2000. In the aftermath of the Swissair insolvency of 2001 and subsequent large insolvencies such as Erb, Petroplus and Zeromax, the legal and accounting industries have evolved considerably.
2.1 What principal forms of security interest are taken over assets in your jurisdiction?
Generally speaking, all types of assets with economic value can be used as collateral which can subsequently be enforced in Swiss insolvency proceedings. The most common security arrangements range from written pledge and mortgage contracts to bank and other guarantees, suretyships, liens, legal title retention, cumulative assumption of debts, collateral promises and – most importantly – written claim assignments.
2.2 How can those security interests be enforced (and what factors could complicate or prevent this process)?
Generally speaking, secured claims are initially enforced and funds realised through sale and other execution measures. Subsequently, employment and pension claims, including specific insurance claims, are satisfied as Category 1 claims; while, for example, social security and most family law claims are satisfied as Category 2 claims. All other claims are classed as Category 3 claims. Any secured debts still outstanding following enforcement of the security will first be satisfied before funds are allocated to creditors in Category 3.
3.1 Are informal workouts available in your jurisdiction? If so, what forms do they typically take, and what are the benefits and drawbacks as compared to formal restructuring proceedings?
The most important informal workout is the out-of-court or private composition and settlement agreement. As non-consenting creditors do not participate in the composition and settlement agreement, equal treatment of consenting creditors is not assured. The debtor or any non-consenting creditor can always call for a court-managed composition and settlement agreement, as outlined in question 3.2 et seq – including while proceedings are ongoing to declare the debtor bankrupt (see question 4.1).
3.2 What formal restructuring proceedings are available in your jurisdiction, and what are the benefits and drawbacks of each?
The most common formal restructuring proceeding in Switzerland is a court-managed and approved composition and settlement agreement, through which a combination of debt reduction and/or debt extension is effected. The composition and settlement agreement provides for equal treatment of all creditors. Another form of such agreement can be effected through a court-approved debt reduction programme, whereby the remaining funds are then transferred to the debtor and managed in a technical bankruptcy proceeding.
3.3 How, by whom and on what grounds are formal restructuring proceedings initiated? What are the main preconditions for success?
In most cases it is the debtor that applies for a court-managed and approved composition and settlement agreement, although individual creditors also have the right to do so.
3.4 What are the effects of the commencement of formal restructuring proceedings, both for the debtor and for creditors?
If the commencement of formal restructuring proceedings is approved, the debtor, as a matter of principle, remains in full control of the ongoing business, under the supervision of a court-appointed supervisor and the court itself. The court-appointed supervisor must establish an inventory of all assets and issue a call to creditors to submit their claims. Subsequently, a first creditors' meeting is convened, which can then decide on the approval of the draft composition and settlement agreement.
3.5 Does a moratorium or stay apply and, if so, what is its scope? Are there exceptions?
The commencement of formal restructuring proceedings results in an immediate moratorium on all existing debts; this is one of the key features of such proceedings. Exemptions exist for employment-related claims, where full execution remains possible. In the case of claims secured by real estate, enforcement can be initiated while final debt executions remain on hold.
3.6 What process do restructuring proceedings typically follow (including likely length of process and key milestones)?
Court-managed/court-approved composition and settlement proceedings must be applied for by either the debtor or a creditor, which must submit a draft composition and settlement agreement – including current financials – for initial court review. The court may then approve the commencement of composition and settlement proceedings as such. This is followed by party negotiations on the composition and settlement agreement, which must be approved by a qualified majority of all creditors. Once approved, the composition and settlement agreement is submitted to court for its review and final approval. The entire process generally takes from a few weeks or months to one year.
3.7 What are the roles, rights and responsibilities of the following stakeholders in restructuring proceedings? (a) Debtor, (b) Directors of the debtor, (c) Shareholders of the debtor, (d) Secured creditors, (e) Unsecured creditors, (f) Employees, (g) Pension creditors, (h) Insolvency officeholder (if any), (i) Court.
If an informal financial restructuring as outlined in question 3.1 is negotiated, the debtor and its professional advisers will usually play a leading role in the negotiations.
In formal restructuring proceedings as outlined in question 3.2, the debtor may continue its business activities under the supervision of the court-appointed administrators. The court may, however, order that certain acts can be validly performed only with the administrator's approval or authorise the administrator to take over the management of the business from the debtor.
Without the authorisation of the court or the creditors' committee, some of the debtor's fixed assets may no longer be sold or encumbered in a legally valid manner during the moratorium. Distraints may be appointed, guarantees may be entered into or gratuitous dispositions may be made.
The rights of third parties acting in good faith remain reserved.
If the debtor acts contrary to this provision or to the administrator's instructions, the court may, on notification by the administrator, withdraw the debtor's right to dispose of its assets or issue a declaration of bankruptcy.
(b) Directors of the debtor
See previous paragraph regarding the debtors position in restructuring proceedings.
(c) Shareholders of the debtor
While the interests of major shareholders are usually represented by the debtor and its directors, shareholders do not play a formal role in court-managed restructuring proceedings.
(d) Secured creditors
Secured creditors play a role as further described in question 2.
(e) Unsecured creditors
The position of unsecured creditors is outlined in question 2.
Employees enjoy a privileged position as Category 1 creditors, as discussed in question 2.
(g) Pension creditors
Pension creditors are generally unsecured creditors, unless specific pension creditors are registered and admitted as Category 2 creditors as outlined in question 2.
(h) Insolvency officeholder
Immediately after his or her appointment, the administrator will draw up an inventory of all the debtor's assets and estimate the value thereof.
The administrator will decide on the pledge estimates and make these available to creditors for inspection. The administrator must notify pledge creditors and the debtor in writing before the creditors' meeting.
Any party may request a new pledge estimate from the court within 10 days against advance payment of costs. If a creditor requests a new estimate, it may seek reimbursement of the costs from the debtor only if the previous estimate is substantially altered.
By public notice, the administrator will invite the creditors to register their claims within one month; a creditor that fails to do so will be unable to vote on the composition and settlement agreement. The administrator will also send a copy of the notice to each creditor whose name and place of residence are known by means of an unregistered letter. Subsequently, the administrator must obtain the debtor's acceptance or rejection of all claims so registered.
Once the draft composition and settlement agreement has been drafted, the administrator shall convene a creditors' meeting by public notice, stating that all files may be inspected for 20 days before the meeting. The public announcement must be made at least one month before the meeting. The administrator will also send a copy of this notice by registered letter to each creditor whose name and place of residence are known.
At the creditors' meeting, the administrator will chair the proceedings and report on the debtor's assets and income situation.
The debtor must attend the meeting in order to provide information on request.
The draft composition and settlement agreement is then submitted to the assembled creditors for approval by signature.
The court will review the debtor's initial application for the commencement of formal financial restructuring proceedings, and will approve this to the extent that there is a reasonable prospect of success. The court will also appoint the administrator and confirm his or her powers with regard to the debtor. The court must also specify the duration of the formal restructuring proceedings; this is usually six months, but can be extended several times depending on progress.
3.8 Can restructuring proceedings be used to "cram down" and bind dissentient creditors to a transaction supported by other creditors? Are creditors separated into classes for the purposes of voting in the proceedings? What are the relevant voting thresholds? Is "cross-class cramdown" available?
The composition and settlement agreement must be accepted by a majority of creditors representing at least two-thirds of the total amount of claims or one-quarter of the creditors representing at least three-quarters of the total amount of claims.
Privileged creditors – in particular, employees – are not counted either as individuals or for their claims. Claims secured by pledge or another form of security are included only with regard to that amount which the administrator estimates will remain outstanding following enforcement.
The court will decide whether and to what extent conditional claims and those with an uncertain expiry date, as well as disputed claims, will be counted. This does not affect any subsequent court decision on the legal status of the claims.
Further tests to be met are as follows:
- The economic value of the composition and settlement agreement must adequately reflect the debtor's prospects; in its assessment, the court may also consider the debtor's future entitlements.
- The full satisfaction of registered privileged creditors and the fulfilment of obligations entered into during the moratorium with the administrator's consent must be sufficiently secured, unless individual creditors expressly waive the securing of their claims.
- Most importantly, in the case of an ordinary composition and settlement agreement, equity holders must make an appropriate restructuring contribution.
The court may supplement an inadequate settlement agreement, either on application – in particular, by one or more creditors – or ex officio.
At the request of the debtor, the court may, for a maximum of one year after confirmation of the composition and settlement agreement, suspend the realisation of real estate that is subject to a lien for a claim arising prior to the commencement of restructuring proceedings, provided that no more than one annual interest payment on the lien debt is outstanding. However, the debtor must provide credible evidence that it needs the real estate for the operation of its business and that its economic existence would be endangered by the realisation.
The non-realisation of the pledge shall cease by operation of law if the debtor sells the pledge voluntarily or becomes insolvent again.
3.9 Can restructuring proceedings be used to compromise secured debt?
Due to the voting regime previously outlined, restructuring proceedings can be used to compromise secured debt. The pledgors must be at least given the opportunity for written consultation before the hearing on confirmation of the composition and settlement agreement. They must be summoned personally to the creditors' meeting and to the hearing before the court.
3.10 Can contracts / leases be disclaimed or otherwise addressed through restructuring proceedings?
Generally speaking, contracts/leases can be disclaimed in restructuring proceedings.
3.11 Can liabilities of third parties (e.g. guarantors) be released through restructuring proceedings?
This is essentially possible. Conversely, a creditor that has not agreed to the composition and settlement agreement preserves all of its rights against co-debtors or guarantors, for instance.
A creditor that agrees to the composition and settlement agreement also preserves its rights against co-debtors or guarantors, provided that it notifies them of the place and time of the creditors' meeting at least 10 days before the meeting and offers to assign its claim against payment.
A creditor may also, without prejudice to its rights, authorise co-debtors or guarantors to vote in its place on whether to agree to the composition and settlement agreement.
3.12 Is any protection and/or priority afforded to the providers of new money in the context of restructuring proceedings (i.e. is "DIP financing" available)?
As a composition and settlement agreement usually leads to liquidation of the debtor's business, there is little discussion of debtor-in-possession financing in Switzerland at present.
3.13 How do restructuring proceedings conclude?
The composition and settlement agreement voted for by the creditors' meeting is subject to final approval by the court.
4.1 What types of insolvency proceeding are available in your jurisdiction, and what are the benefits and drawbacks of each?
Generally speaking, Swiss bankruptcy and insolvency law provide only for bankruptcy proceedings triggered either by the debtor and/or its board and management or by any of its creditors. Instead of declaring the debtor bankrupt, the competent court may grant a general stay to give it sufficient time for a private financial restructuring as described in question 3.1. The bankruptcy court can also order that the case be transferred into a court-managed settlement and composition procedure, as described in question 3.2.
However, Switzerland does not offer typical Chapter 11 proceedings as they are known, for instance, in the United States.
In other words, formal court-managed and approved restructuring proceedings (see again question 3.2) are basically aimed at liquidating the debtor entirely; creditors cannot be forced into a liquidation process that allows the debtor to resume and/or continue its failed business. Conversely, the many abuses of Chapter 11 proceedings seen, for example, in the US aviation industry are not possible, whereby a failed business can continue business operations by getting rid of some of its creditors through the commencement of repeated Chapter 11 proceedings and without a sound and sustainable operational restructuring of the business.
4.2 How, by whom and on what grounds are insolvency proceedings initiated? Can the instigating party (or any other parties) select the identity of the relevant insolvency officeholder?
Once a bankruptcy court has declared the debtor bankrupt, the liquidation process mainly becomes the responsibility of the bankruptcy administrator. In Switzerland, in just over half of all cases, the bankruptcy administrator concludes that the attachable assets are insufficient to cover the liquidation costs (between CHF 5,000 and CHF 10,000). In such cases, it will discontinue the bankruptcy proceedings and publish this decision in the federal Official Gazette. If a creditor does not request liquidation proceedings within 10 days and guarantee their financing, the bankruptcy proceedings will be closed and the debtor will be deleted from the commercial register (this is the case in the vast majority of bankruptcies that are closed).
All other bankruptcies in Switzerland are subject to bankruptcy proceedings. There are essentially two types: summary and ordinary bankruptcy proceedings. Both must be concluded within one year of commencement.
Summary bankruptcy proceedings, which are quick and efficient, are commenced where the circumstances are simple or the debtor has no substantial assets. This is the most common type of bankruptcy, unless the proceedings have been discontinued. The State Bankruptcy Office usually applies for such proceedings at the bankruptcy court.
Ordinary bankruptcy proceedings are much rarer and are commenced mainly in relation to large bankruptcies. In contrast to summary proceedings, two creditors' meetings are convened in ordinary bankruptcy proceedings, through which creditors can closely monitor the course of the proceedings.
Bankruptcy proceedings are triggered either by the debtor or by any of its creditors. The board of the debtor is legally required to apply to the bankruptcy court for the commencement of bankruptcy proceedings once the company has become over-indebted, which in most cases must be evidenced through audited interim financial statements at both going-concern and liquidation values. The bankruptcy court will then declare the debtor bankrupt.
Creditors can also apply to the bankruptcy court for the commencement of bankruptcy proceedings, arguing in most cases that the debtor is insolvent – that is, unable to meet its current financial commitments. Other grounds for the commencement of ordinary bankruptcy proceedings include where the debtor has acted in bad faith – for example, through fraud, by hiding its assets or by fleeing the jurisdiction. Private individuals can also apply, without extended explanations, for so-called private bankruptcy proceedings at the local court of their residence.
In all these situations, the first creditors' meeting can appoint a bankruptcy administrator in private practice – usually an accounting firm and/or larger law firm. Otherwise, the court-appointed state bankruptcy administrator – that is, the local debt collection and bankruptcy office – will continue to act as bankruptcy administrator, which usually happens in smaller bankruptcy cases. The first creditors' meeting can also appoint a creditors' committee.
On the request of the debtor or of one or more creditors, the court may also grant a bankruptcy postponement if the prospect of a potentially successful restructuring is demonstrated. Bankruptcy postponements are usually granted with the aim of reaching an out-of-court or private composition and settlement agreement, as further described in question 3.2.
4.3 What are the effects of the commencement of insolvency proceedings, both for the debtor and for creditors?
When bankruptcy is declared, all claims immediately become due and are stayed at the same time – that is, an immediate debt moratorium takes place. The debtor is no longer in charge of its business and is replaced by either the state or the private bankruptcy administrator, which will liquidate all its assets (so-called ‘universal execution').
All existing contractual and other claims on specific non-monetary performance by the debtor are automatically converted into monetary claims. Conversely, the bankruptcy administrator has the option to insist on real performance.
4.4 Does a moratorium or stay apply and, if so, what is its scope? Are there exceptions?
See question 4.5 – the moratorium is final unless a bankruptcy postponement is granted (see question 4.3).
4.5 What process do insolvency proceedings typically follow (including likely length of process and key milestones)?
The bankruptcy administrator must set up an inventory of debts through the issuance of a so-called ‘collocation plan'. The collocation plans first identifies the secured creditors; while all unsecured creditors are classed in either Category 1, Category 2 or Category 3 (see question 2.2).
Once published, the draft collocation plan can be challenged in court by a creditor either that dissents to its categorisation in the collocation plan or that wishes to challenge the tentative categorisation of one or more co-creditors.
The bankruptcy administrator must also draw up an inventory of all assets. Liquid business assets must be cashed in and non-liquid assets must be either sold or offered to creditors or third parties for purchase and sale. An exemption concerns so-called ‘fire sales', where there is an obvious emergency and where a public or private auction process involving creditors and other third parties does not seem appropriate. If the ownership of assets is disputed by a third party, the bankruptcy administrator must seek appropriate judicial assistance and litigate accordingly.
This type of litigation is not an ordinary civil court proceeding leading to a final and enforceable court judgment with res judicata effect; the judgment is binding only in the context of the specific bankruptcy proceedings.
Large and complex bankruptcy proceedings can take decades to resolve, while summary bankruptcy proceedings are usually quicker (generally up to one year or more). All bankruptcy proceedings are formally closed by court decree and can be reopened by the competent bankruptcy court only in very specific circumstances – for example, where new and substantial assets of the debtor are identified following the formal closing of the bankruptcy proceedings by court decree.
4.6 What are the respective roles, rights and responsibilities of the following stakeholders during the insolvency proceedings? (a) Debtor, (b) Directors of the debtor, (c) Shareholders of the debtor, (d) Secured creditors, (e) Unsecured creditors, (f) Administrator, (g) Employees, (h) Pension creditors, (i) Insolvency officeholder, (j) Court.
Unlike in formal court-managed financial restructuring proceedings, the role of the debtor in Swiss bankruptcy proceedings is limited to certain attendance and information duties, mainly vis-à-vis the bankruptcy administrator. The debtor may also contest certain decisions and actions taken by the bankruptcy administrator before the competent local courts.
(b) Directors of the debtor
See previous paragraph regarding the debtors position in a bankruptcy proceeding.
(c) Shareholders of the debtor
Major shareholders no longer have a formal role in Swiss bankruptcy proceedings.
(d) Secured creditors
Secured creditors must register and have their claims approved as set out in question 4.6; any part of their secured claim that remains outstanding following enforcement is categorised as a Category 3 claim.
(e) Unsecured creditors
Unsecured creditors must register and have their claims approved as set out in question 4.6. They may attend and vote at the first and any subsequent creditors' meetings. Unsecured creditors may also contest certain decisions and acts taken by the bankruptcy administrator before the competent local courts.
Employees enjoy the status of privileged Category 1 creditors.
(g) Pension creditors
Pension creditors are generally classed as unsecured creditors, unless specific claims of pension creditors may be registered and admitted as Category 2 claims.
(h) Insolvency officeholder
Following its appointment, either the state bankruptcy administrator – that is, the local debt collection and bankruptcy office – or a private bankruptcy administrator as appointed by the first creditors' meeting will begin to draw up an inventory of the debtor's assets and estimate their value. The bankruptcy administration will take all measures necessary to secure the assets. At this stage, the debtor is obliged to provide the bankruptcy office with all necessary information in this regard. For their part, the creditors must indicate the nature of their claims and hand over to the bankruptcy administrator all assets in their possession.
The bankruptcy administrator will publish a notice of bankruptcy in the federal Official Gazette and invite creditors to file their claims within one month of publication.
The bankruptcy administrator will review the accounts and management of the debtor's estate. It will compare the claims determined during the call for claims against the debtor's books and decide on the claims accordingly. It will draw up a final statement of assets and liabilities, take up any points of dispute and record the decisions that still need to be made.
Once the claims have been verified and confirmed, the bankruptcy administrator will draw up a complete list of liabilities – the collocation plan. This not only contains the claims that have been definitively recognised, but also lists the claims that have been rejected and the reasons for such refusal. At this point, creditors have the opportunity to challenge the collocation plan in court.
The bankruptcy administrator will also ensure that the debtor's assets are publicly auctioned or sold by private contract.
In the final stages of the bankruptcy proceedings, the bankruptcy administrator will prepare a distribution list for the proceeds of liquidation and a final statement of account. The bankruptcy costs must be covered in advance. Subsequently, each creditor will receive the funds to be distributed to it. The distribution is carried out in order by category (ie, first Category 1, then Category 2 and then Category 3). Creditors whose claims are not fully covered receive a loss certificate for the outstanding amount.
Ordinary bankruptcy proceedings are comparable to summary proceedings. However, during the administration of the bankruptcy estate, two additional creditors' meetings are convened, to allow creditors to monitor the liquidation. Their main powers include the power to:
- authorise the continuation of business operations;
- approve the execution of private sales;
- appoint a private bankruptcy administrator and potentially a creditors' committee;
- approve the continuation of pending civil proceedings; and
- approve set-offs by creditors.
The role of the bankruptcy court is rather limited, apart from supervising the bankruptcy administrator upon of receipt of its regular reports or in the context of complaints lodged against actions and decisions of the bankruptcy administrator. Finally, bankruptcy proceedings are formally closed by final decree of the bankruptcy court. This decree is published in the federal Official Gazette and the debtor is deleted from the commercial register.
4.7 What is the process for filing claims in the insolvency proceedings?
All claims of both secured and unsecured creditors must be filed with and initially registered with the bankruptcy administrator, which will conduct only a prima facie review of their validity. All creditors which are registered based on this prima facie review are admitted to vote at the first creditors' meeting. As the vote at the first creditors' meeting is generally a per capita vote, rather than a vote based on the claims amount registered, this regime can be abused to build up undue voting power.
The validation process in terms of registered claims is explained in question 4.6.
4.8 How are claims ranked in the insolvency proceedings? Do any claims have "super priority" and is there scope for subordination by operation of law (e.g. equitable subordination)?
As explained in question 4.6, the bankruptcy administrator draws up a list of claims in the form of a collocation plan, which identifies all secured and unsecured creditors. The claims of unsecured creditors are further classed in either Category 1, Category 2 or Category 3 (see question 2.2).
4.9 What is the effect of insolvency proceedings on existing contracts? Is the counterparty free to terminate? Can they be disclaimed?
Since 2014, it has been possible to effect a buy-out of a business unit from a bankruptcy estate such that only designated employees are transferred to the acquirer, which is an exemption from the rules on the transfer of undertakings that usually apply. Such business transfers can also be structured so that any existing unpaid salary of the transferred employees need not be paid by the acquirer.
All other commercial contracts do not automatically terminate upon the issue of a bankruptcy order; rather, most existing contracts must be specifically terminated by the bankruptcy administrator, with any outstanding contractual claims becoming part of the bankruptcy estate. A variety of exemptions exist: for example, in the case of bankrupt insurance companies, all insurance contracts end four weeks after issue of the bankruptcy order. Similarly, joint venture and partnership agreements – including, for example, mandate agreements – end when one of the partners is declared bankrupt, unless the joint venture and partnership agreement or a mandate agreement provides otherwise.
The bankruptcy administrator can insist on real performance of a contract. Otherwise, all existing contractual and other claims for specific non-monetary performance will be converted into monetary claims. In specific situations, contract partners can withhold performance until the bankruptcy administrator decides to perform.
Clauses that govern the fate of a contract in the event of bankruptcy can be challenged in certain cases under Swiss insolvency and restructuring laws.
4.10 Can transactions entered into by the debtor prior to be insolvency be challenged and set aside? What are the relevant grounds / look-back periods / defences?
Swiss insolvency law offers creditors – including the bankruptcy administrator – a variety of clawback opportunities through the application of the well-known Pauliana principles.
For instance, all gratuitous performances and all contractual performances with a (gross) imbalance in performance may be challenged. Moreover, certain transactions that took place in the year preceding the commencement of bankruptcy proceedings may be challenged, such as:
- the granting of last-minute securities;
- the payment of monetary claims through the transfer assets of commercial value; and
- the payment of monetary claims which were not due when paid.
To succeed in a Pauliana challenge, it must be proved that the debtor was over-indebted at the time the transaction was executed and that the involved third party knew or should have known about such over-indebtedness.
The avoidance is excluded, in particular, if securities, book-entry securities or other financial instruments traded on a representative market have been provided as collateral and the debtor has already made a prior commitment or has undertaken to increase the collateral in the event of changes to the value of the collateral or the amount of the secured liability, or allowed the right to substitute a security for a security of equal value.
Finally, any legal act which the debtor performed in the five years preceding the commencement of bankruptcy proceedings with the intention of disadvantaging its creditors or favouring individual creditors to the detriment of others may be challenged.
If an act is contested in favour of a related party of the debtor, this party bears the burden of proving that it was unable to recognise the intention to discriminate. Members of a group of companies are also considered related parties.
4.11 How do the insolvency proceedings conclude? Can any liabilities survive the insolvency proceedings?
Insolvency proceedings usually conclude with the bankruptcy administrator submitting an application to this end to the competent bankruptcy court. After due review, the bankruptcy court will issue its closing decree. While all debts are finally settled through the issue of the decree, it is possible to apply for the reopening of the bankruptcy proceedings if certain assets of more substantial value subsequently become known.
5 Cross-border / Groups
5.1 Can foreign debtors avail of the restructuring and insolvency regime in your jurisdiction?
As of 1 January 2019, Switzerland has modernised its international bankruptcy law in order to recognise and simplify foreign bankruptcy and restructuring proceedings. In most cases, a foreign debtor and its bankruptcy administrator need no longer undergo rather complex, usually lengthy and always costly separate mini-bankruptcy proceedings, as further explained in question 4.6.
5.2 Under what conditions will the courts in your jurisdiction recognise and/or give effect to foreign insolvency or restructuring proceedings or otherwise grant assistance in the context of such proceedings?
Under the revised Swiss international bankruptcy law, as from 1 January 2019 a foreign insolvency decree can be recognised in Switzerland not only if it was issued in the debtor's country of residence, but also if it was issued in the country in which the debtor has its centre of interests. This is now based on the well-known concept of the centre of main interest (COMI).
The recognition of foreign insolvency decrees has been further facilitated by the abolition of the reciprocity test, which was difficult to prove unless the practice of the foreign court had previously been established.
Under the old law, secondary bankruptcy proceedings had to be carried out in Switzerland if the foreign bankruptcy administrator wished to gain control of assets of the debtor located in Switzerland. In such cases the assets located in Switzerland first had to be liquidated through secondary bankruptcy proceedings exclusively for the benefit of creditors whose claims were secured by pledged assets or otherwise privileged. Only then was any surplus transferred to the foreign insolvency administration, provided that a judicial review showed that the non-privileged claims of Swiss creditors were being adequately taken into account in the foreign insolvency proceedings.
Under the new regime, secondary bankruptcy proceedings must be conducted only if there is an effective need to protect local creditors. If a public call for claims does not result in the filing of pledged claims or otherwise privileged claims of creditors domiciled in Switzerland – including claims relating to a Swiss branch of the debtor – secondary bankruptcy proceedings may be waived. If only claims other than those mentioned above are filed, secondary proceedings may be waived if the non-privileged claims of creditors domiciled in Switzerland are duly taken into account.
If secondary proceedings are waived, the foreign bankruptcy administrator should be able to exercise in Switzerland all powers which it is entitled to exercise under the law of its own jurisdiction. Among other things, the foreign bankruptcy administrator should be able to transfer assets of the debtor from Switzerland to the foreign bankruptcy estate and conduct proceedings in Switzerland. However, it cannot carry out sovereign acts in Switzerland.
Further changes provide that branches of a foreign debtor located in Switzerland need no longer conduct their own branch bankruptcy proceedings. Local creditors of the branch in question can file their claims in auxiliary bankruptcy proceedings, which avoids duplication and delimitation difficulties. Furthermore, foreign insolvency-related decisions, such as those concerning Pauliana clawback claims, can now also be recognised in Switzerland.
5.3 To what extent will the courts cooperate with their counterparts in other jurisdictions in the case of cross-border insolvency or restructuring proceedings?
The new international insolvency laws, in force since 1 January 2019, have established a specific basis for coordination and cooperation between domestic and foreign bankruptcy authorities.
5.4 How are corporate groups treated in the context of restructuring and insolvency proceedings? If there is no concept of a group proceeding (or consolidation), is there any regime through which insolvency officeholders must / may cooperate?
If there is no concept of a group proceeding (or consolidation), is there any regime through which insolvency officeholders must / may cooperate ?
Unlike under Swiss accounting and corporate laws, there is no concept of consolidation of Swiss bankruptcy proceedings. However, since 1 January 2019, domestic and foreign bankruptcy authorities will coordinate and cooperate as outlined in question 5.
5.5 How is the debtor's centre of main interests determined in your jurisdiction?
Since the new international insolvency laws entered into force on 1 January 2019, Switzerland has acknowledged the well-known international concept of COMI.
5.6 How are foreign creditors treated in restructuring and insolvency proceedings in your jurisdiction?
Generally speaking, foreign creditors are treated equally in all material aspects in international bankruptcy proceedings in Switzerland.
6 Liability risk
6.1 What duties do the directors of the debtor have when the company is in the "zone of insolvency" (or actually insolvent)? Do they have an obligation to commence insolvency proceedings at any particular time?
If the last annual balance sheet shows that one-half of the share capital and legal reserves is no longer covered, the board of directors must convene a general meeting without delay and propose financial restructuring measures.
Where there is a valid reason for over-indebtedness, an interim balance sheet must be drawn up and submitted to a licensed auditor for examination. If the interim balance sheet shows that the claims of creditors are not covered, whether the assets are appraised at going-concern or liquidation value, the board of directors must notify the court, unless certain creditors subordinate their claims to those of all other creditors, to the extent of the capital deficit.
6.2 Are there any circumstances in which the directors could incur personal liability in the context of a debtor's insolvency?
Personal liability may arise if one or more directors do not comply with, among other things, their duty of care as set out in question 6.1. In most cases, personal liability will arise only in the case of bankruptcy proceedings. The other three tests are:
- the occurrence of damage;
- adequate causality; and
- a quite complex test concerning the unlawfulness of the directors' acts or omissions.
The factual quantification of the damage is in most cases a crucial point, as it is calculated and/or estimated from the point at which one or more board members began to violate their duties of care. As in most cases in which omissions are discussed, the calculation and quantification of the damage is generally a crucial point in any corporate liability litigation.
Directors can be also be charged with criminal behaviour under the Swiss Penal Code.
6.3 Is there any scope for any other party to incur liability in the context of a debtor's insolvency (e.g. lender or shareholder liability)?
Personal liability exists not only for board members, but also for members of senior management. The debtor's auditors may also be charged with corporate liability claims to the extent they have been negligent in the exercise of their duties. Auditors have similar bankruptcy notification duties as described in question 6.1 if they realise that the board has not taken action to this end.
7.1 Is it possible to effect a "pre-pack" sale of assets, and is it possible to sell the assets free and clear of security, in restructuring and insolvency proceedings in your jurisdiction?
Generally speaking, pre-pack asset sales including credit bidding schemes are permitted in Swiss bankruptcy proceedings.
7.2 Is "credit bidding" permitted?
See question 7.1.
8 Trends and predictions
8.1 How would you describe the current restructuring and insolvency landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?
As further described in questions 5.1 et seq, Switzerland has modernised its international bankruptcy law as of 1 January 2019, in order to bring it further into line with the latest EU Insolvency and Restructuring Directive. It is expected that the country will be willing to further adapt and amend its bankruptcy and insolvency legislation in order to maintain its leading position as a stronghold of global business at the heart of Europe.
9 Tips and traps
9.1 What are your top tips for a smooth restructuring and what potential sticking points would you highlight?
The viability of the company's business, or specific lines thereof, is undoubtedly the most important prerequisite for a successful operational and financial restructuring. Without this, neither old nor new investors will be prepared to invest further; and the banks will not be willing to grant new loans and obtain options to purchase shares in exchange for a comprehensive debt waiver. A detailed due diligence investigation will also help to engender trust.
Where a business is to be restructured, a long-term investor view will make it possible from the outset to focus on achieving an operationally and financially clean restructuring and put short-term financial motives to one side.
A financial restructuring should ensure that all financial stakeholders enjoy an appropriate share in its potential success. In our experience, the new management plays a central role in securing the participation of both old and new creditors and investors. It is also crucial to install an experienced transaction team, comprising board members, management and external professional advisers.
As a result of the various share capital adjustments that are required, shareholders must be willing to bear significant capital cuts, including recapitalisation, to make financial restructuring possible. Something which is rather difficult to explain to existing shareholders is that the amount of nominal capital cuts to be borne has no influence on their current business position and should be compensated through share and other participation rights, allowing them to benefit from future business success.
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