Insolvency and international cooperation in insolvency matters have undergone major and constant redevelopment, both in the European Union and internationally, as required by the UN Commission on International Trade Law. However, aside from its banking sector, Switzerland has not fully participated in this modernisation process.
On 16 March 2018 the Swiss Parliament adopted revisions to the international insolvency provisions of the Private International Law Act which aimed to:
- facilitate the recognition of bankruptcy and related decisions;
- simplify the recognition proceedings; and
- improve coordination with foreign proceedings.
The deadline for a referendum on the revised act was 5 July 2018; however, no referendum was filed.
European law (Regulation 1346/2000 and subsequently 2015/848) has long provided for the principle of automatic recognition of decisions initiating insolvency proceedings against a debtor and other related decisions, without additional formalities.
However, this has not been the case in Switzerland, where private international law has always strictly enshrined the principle of 'flexible' territoriality.
Before the revisions, any foreign bankruptcy decision or any other related decision was subject to formal judicial recognition proceedings before the decision in question could be applied in Switzerland. Moreover, access to the debtor's assets located in Switzerland could be authorised. Further, recognition was not automatic, as certain conditions had to be met.
The previous authorisation criteria may be summarised as follows:
- territorial competence – the decision must be rendered in the state of the registered office or domicile of the debtor;
- authority to proceed –recognition is required either by the foreign bankruptcy administration or its equivalent in a restructuring procedure, or by a creditor;
- place of jurisdiction – the recognition request must be filed in the court where the assets are located;
- enforceability – the decision rendered must be enforceable;
- reciprocity – only foreign insolvency decisions rendered in states which recognise decisions issued by Swiss authorities were recognised in Switzerland; and
- no grounds for refusal (eg, a violation of the public order, irregular summons, violation of fundamental procedural rights or res judicata).
While the enforceability and grounds for refusal criteria remain unchanged, other conditions were extensively modified.
Territorial competence Decisions rendered by the authority of the state in which the debtor holds its registered office or domicile and decisions rendered in the state in which the debtor has its centre of main interests are both recognised in Switzerland. Swiss law therefore aligns with European law with respect to centre of main interests. Recognition will be rejected if the debtor had its domicile or registered office in Switzerland at the time that the proceedings were initiated abroad, even if the debtor's centre of main interests is situated abroad.
Authority to proceed A debtor whose capacities are not limited by the insolvency-related decision to be recognised will also be granted the authority to proceed in Switzerland in view of said recognition. Until now, this had been problematic within the context of recognising decisions relating to the restructuring of the debtor (debt-restructuring agreement or similar restructuring proceedings). In such circumstances, it is generally the debtor that is the first – or even the only – party to be aware of the situation. Moreover, debtor capacities are seldom restricted in restructuring proceedings.
Place of jurisdiction The relationship between a branch bankruptcy and the recognition of a foreign bankruptcy decision, resulting in the initiation of ancillary bankruptcy proceedings regarding the debtor's sole assets located in Switzerland, is settled differently in order to prevent the initiating of parallel proceedings.
First, any petition must be submitted to the judge of the branch's place of jurisdiction. Moreover, the initiation and the course of bankruptcy proceedings against a branch will be limited: once the recognition of the main institution's bankruptcy's foreign decision is published in Switzerland, the initiating of bankruptcy proceedings against the foreign debtor's branch in Switzerland and its continuation, respectively, will no longer be possible.
Removal of reciprocity requirement The reciprocity requirement was introduced in 1983 to strengthen the mutual desire for cooperation. In practice, the reciprocity requirement leads to:
- higher costs by forcing applicants to have one or more expert reports prepared almost systematically, at their own expense, in order to demonstrate that the reciprocity requirement had been met;
- longer recognition periods because of the need for evidence of reciprocity; and
- unequal treatment between creditors when reciprocity is not recognised because, in such a case, recognition is refused and each creditor can individually attack the debtor's assets.
Parliament has therefore decided to strike the reciprocity requirement from law. In future, it will be sufficient and mandatory to have a foreign decision enforceable in the state where it was rendered, with no reason for refusal, and to evidence that it was rendered by the competent authority pertaining to said state.
Asset transfers without ancillary bankruptcy Until now, the recognition of a foreign bankruptcy decision initiated ancillary bankruptcy proceedings in Switzerland, which were limited to the debtor's assets located in Switzerland. In such proceedings, only secured creditors and privileged creditors domiciled in Switzerland (eg, workers and social insurances) are paid off. Any positive balance is then transferred to the foreign bankrupt estate after recognition in Switzerland of the foreign colocation status. If the foreign repayment plan cannot be recognised, the balance is distributed among the Swiss ancillary bankruptcy non-preferred creditors.
Following the amendments, courts may authorise transfers of assets located in Switzerland without initiating ancillary bankruptcy proceedings and condition such transfer to the fulfilment of loads. While opening ancillary bankruptcy proceedings is solely justified when Swiss creditors' interests need protecting, in the absence of Swiss creditors, the initiation and execution of ancillary proceedings at the expense of the Swiss entity's enforcement proceedings become irrelevant.
Internal and international cooperation The territoriality principle which prevailed before the voted amendments is significantly mitigated. The new rules authorise the cooperation of Swiss courts and authorities with foreign courts and foreign authorities if the Swiss and foreign insolvency procedures are connected.
Switzerland has enacted modern and competitive regulations which apply to the recognition of foreign bankruptcy orders and similar insolvency-related decisions, thereby unifying the entire applicable legislative system.
Among the adopted amendments, the decisions to abandon the reciprocity criteria and to make asset transfers available without any ancillary bankruptcy proceedings are noteworthy.
Without the reciprocity, Switzerland has joined the long list of European member states for which a recognition decision is almost a mere formality; the unequal treatment resulting from failure to meet said criteria has also been remediated. In the absence of recognition, each creditor could in the past individually sue the debtor in Switzerland, favouring the fastest creditors and those with funds necessary to finance recovery proceedings.
Transferring assets without ancillary bankruptcy proceedings is a major innovation resulting from banking regulations. Before the amendments, in the absence of a Swiss creditor, the Swiss authorities had to liquidate the Swiss ancillary bankruptcy proceedings.
The other amendments further simplify insolvency proceeding in Swizterland and are equally welcomed. The newly enacted provisions are likely to enter into force on 1 January 2019.
For further information on this topic please contact Olivier Hari at Schellenberg Wittmer by telephone (+41 22 707 8000) or email (o[email protected]). The Schellenberg Wittmer website can be accessed at www.swlegal.ch.
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