Vol 11 (2014) - Issue 3

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Revision of Swiss Insolvency Law Entered into Force 1 January 2014

Based on the experiences gained from the Swissair grounding in 2001, many critical voices have been raised that Swiss insolvency law should be revised and should focus more on the restructuring of companies rather than their liquidation. Now, 12 years after the commencement of the Swissair insolvency proceedings and after various discussions and negotiations in the Swiss parliament, the revised Swiss insolvency law finally entered into force as of 1 January 2014. The revisions focus on facilitated corporate restructuring, and the new legislation thus contains a number of novelties in this regard.
An important change of the new insolvency law is the principle that insolvency proceedings should no longer lead to liquidation of the company but facilitate a restructuring with the same legal entity. Modelled after US Chapter 11 – although in a less extensive form – with the amended law the new instrument of a provisional stay without a special insolvency ground (provisorische Nachlassstundung) was created. If a proposed restructuring plan has a reasonable chance of success, a company can file a request with the court and apply for a provisional stay for a maximum fourmonth period (extendable up to four other months). The hurdles for being granted a provisional stay are rather low. The applicant has to submit to the court a restructuring plan in summary form together with a liquidity plan and current balance sheet and income statement. The provisional stay should be granted in the majority of the cases and already if the chances for a restructuring do not appear impossible. The court decides without delay and can order the measures necessary for preserving the debtor’s assets.
A provisional stay should create the space and time to take restructuring measures. Therefore, it need not necessarily be published. The debtor is in possession of the business assets but the court can assign a provisional administrator. However, the latter’s tasks are mainly limited to assess the possibilities of a restructuring. During this moratorium phase, enforcement proceedings can neither be initiated nor continued (except proceedings for the realisation of mortgages) and litigations regarding claims against the debtor will be stayed. Periods of limitation and peremptory deadlines do not run and interest cease to accrue for all unsecured claims. In this phase it will be assessed whether the debtor’s financial situation would allow for an out of court-restructuring or a composition agreement with dividend payments (Nachlassvertrag mit Dividendenvergleich), or whether liquidation by means of composition agreement with assignment of assets (Nachlassvertrag mit Vermögensabtretung) or bankruptcy proceedings (Konkursverfahren) is the more suitable course of action.
If it was possible to implement a restructuring of the distressed company in this phase of a provisional stay, the debtor may require that the moratorium is lifted and continue business. Otherwise, once the provisional stay has expired, the court either declares the company bankrupt or grants a definitive stay (definitive Nachlassstundung) in order to continue the restructuring measures or to draft an in court-composition agreement. The effects of a definitive stay are the same as those of a provisional stay. But here, the court decides on the appointment of an administrator to supervise the debtor. However, as under the previous law, the debtor can continue to manage its business, monitored by the administrator. With regard to fixed assets only, the law provides that court authorisation is needed if the debtor wants to divest or pledge respective assets. The same requirement applies, if the debtor gives guarantees or makes gift. In this respect, the new law provides a crucial implementation for a restructuring. As restructurings often include sales of single parts of the business in order to generate cash, the law now provides that such sales should not be challenged by way of claw back actions if the administrator’s consents is given.
A further crucial amendment of the new insolvency law deals with the extraordinary termination of longterm agreements during the moratorium phase. For the purpose of restructuring, a debtor shall be given the option whether or not to continue a long-term agreement and in particular is given the right to extraordinary termination, subject to the administrator’s consent and provided that the opposing party is compensated. There are some exceptions to this rule; in particular, employment contracts have been explicitly exempted from the right to extraordinary termination.