Vol 10 (2013) - Issue 1

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Enforcement of Security in Swiss Involuntary Insolvency Proceedings

I. Introduction

Despite a comprehensive revision of the Swiss Debt Collection and Bankruptcy Act ('DCBA') in 1997 there has been little change to the fundamental idea of bankruptcy law that both available options, namely bankruptcy and debt moratorium and composition agreement (together 'involuntary liquidation proceedings'), lead mostly to the same result and that is: liquidation.
It is not that involuntary liquidation proceedings are limited to a few unknown companies. Not the least since the famous Swissair grounding, the legal community has been involved in some major cross border proceedings and assisted foreign creditors in connection with queries regarding potential restructuring, claims against the estate or representations in creditors’ committees. The insolvency of Petroplus has led to further legal issues with regard to Swiss involuntary liquidation proceedings where foreign law is involved.
In general, involuntary liquidation proceedings according to the rules of the DCBA are open to foreign creditors and they are treated equally to Swiss creditors. However, formal requirements applicable in Swiss involuntary liquidation proceedings may present some hurdles for foreign creditors, which they did not always expect. Creditors with foreign security must be aware that any security in Swiss involuntary liquidation proceedings will be assessed according to Swiss law as the applicable lex fori concursus.
As a Civil Law jurisdiction, Swiss property law recognises only certain types of property and security rights (Numerus Clausus, Typenzwang) and the content of these property rights is defined by mandatory law (Typenfixierung). A Swiss bankruptcy officer or a liquidator in a moratorium and composition agreement (together the 'administrator') who has to decide whether or not to accept a creditor as a secured creditor, will assess whether Swiss property law institutions and Swiss law concept have been applied – in other words, whether the relevant security right qualifies or may be deemed as a Swiss type of security right.
In the following sections an overview of the main types of Swiss security rights and the requirements for a valid creation and enforceability will be given and differences to the system of English law security rights will be identified.

II. System of Swiss security

The Swiss system of security rights may be summarised in Table 1. It is drawn according to the type of collaterals.
As the foreclosure of security in persona is not part of the involuntary liquidation proceedings (the collateral does not belong to the estate and there is no surplus to be handed out to the estate), we do not further address this type of security.

1. Pledges

Pledges can be granted on movable physical assets, rights and real estate. For a pledge to be valid, the collateral must be exactly determined and individualised or at least, sufficiently determinable (principle of specificity, Spezialitätsprinzip). Consequently, as a matter of Swiss law, it is not possible to grant a pledge over all assets, or even a group of assets.
A pledge requires a (visible) transfer of physical possession of the pledged chattel to the pledgee. It is a strict condition that a pledge is not validly established as long as the pledgor has unrestricted access to the collateral.
As a consequence, according to Swiss law, it is practically not possible to pledge an asset that the debtor needs for his daily business activities, e.g. machines inventory or goods. Further, a pledge over future assets comes only into existence once the security holder has possession over the chattel.