On October 14 2015 the Federal Council published a revision project for the Private International Law Act regarding the recognition and coordination of foreign bankruptcy proceedings in Switzerland.
A foreign insolvency decree can be recognised in Switzerland, at request of the foreign liquidator or a creditor, only if:
- the decision was rendered in the state of the debtor's domicile and is enforceable in the state in which it was rendered;
- recognition is not manifestly incompatible with Swiss public policy; and
- reciprocity is accorded in the state in which the decision was rendered.
These conditions are restrictive for many reasons. In particular, if the insolvency decree has been rendered in the state where the debtor's centre of main interests is located, but the debtor's registered domicile is not in that state, the insolvency decree cannot be recognised in Switzerland. Moreover, the reciprocity requirement often forces the applicant to file a legal opinion on the legal system of the state in which the insolvency decree has been rendered, along with a comprehensive analysis regarding whether this foreign state would recognise a Swiss insolvency decree. Needless to say, this is both time consuming and cost intensive.
Once the foreign insolvency decree has been recognised by the competent court in Switzerland, it has the effect of a bankruptcy decree under Swiss law. The Bankruptcy Office can then initiate an auxiliary proceeding (known as a 'mini-konkurs') on the assets located in Switzerland.
The main goal of this system is to protect privileged creditors domiciled in Switzerland and creditors whose claims are secured by a pledge. However, the auxiliary proceeding must be conducted even if there are no such creditors and thus no need for protection. The obligation to go through an auxiliary proceeding even if there is no need for protection, is problematic, as this is time consuming and inefficient.
The Federal Council has proposed, among other things, amendments and modifications to the conditions on recognition of foreign insolvency decrees. In particular, it has proposed that the reciprocity requirement be removed. This means that in recognition proceedings, the applicant would no longer have to prove that the state in which the foreign decree was issued would recognise Swiss bankruptcy decrees.
In addition, the Federal Council proposes to restrict the opening of auxiliary proceedings to situations in which there are privileged creditors in Switzerland or creditors whose claims are secured by a pledge. In the absence of such creditors, the foreign liquidator could request that the opening of such proceedings be renounced, so that the assets located in Switzerland could be remitted directly to the foreign liquidator. In such cases the Swiss court would assess whether the claims of creditors domiciled in Switzerland had been appropriately considered in the foreign bankruptcy proceedings (eg, that the Swiss creditors were not discriminated against in comparison with local creditors). The Swiss creditors would have the right to be heard before the Swiss court, which would decide whether the auxiliary proceedings should be renounced.
A further change is the recognition of foreign insolvency decrees that have been rendered in the state where the debtor's centre of main interests is located. This is a significant move towards harmonisation with the EU Insolvency Regulation.
Comment
The proposals of the Federal Council have been eagerly anticipated, as the recognition proceedings are tedious and expensive. Moreover, efforts to modernise the system are in line with existing Swiss legislation on international insolvencies of banks.
It makes sense to save effort and costs when trying to retrieve money in insolvency proceedings, particularly as in most cases the debtor's assets do not cover creditors' claims entirely and creditors lose more money when the costs of the proceedings are high.
The deadline for filing observations regarding the proposals is February 5 2016. Major criticisms of the proposals are not expected, so the new and amended provisions should be adopted soon.
For further information on this topic please contact Sabina Schellenberg or Stéphanie Oneyser at FRORIEP by telephone (+41 44 386 6000) or email ([email protected] or [email protected]). The FRORIEP website can be accessed at www.froriep.com.
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