Vol 13 (2016) - Issue 4

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Announced Revision of Swiss Rules on the Recognition of Foreign Bankruptcy Proceedings in Switzerland: What Is It About?

On 14 October 2015 the Swiss Federal Council published a project of revision of the Private International Law Act (PILA) regarding the recognition and coordination of foreign insolvency proceedings in Switzerland. In the same project, the Swiss Federal Council also proposed to amend the Swiss Debt Enforcement and Bankruptcy Act (DEBA) in order to take into account foreign proceedings about a claim in the insolvency proceedings of a Swiss debtor.
The proposed revision reflects the need for more modern rules in Switzerland in this area, similar those already in force regarding insolvency proceedings of a banking institute.

1. The limited powers of a foreign trustee in Switzerland
Under current Swiss law, a foreign trustee of a foreign insolvent company has no power to act in Switzerland as such but to seek the recognition of the foreign insolvency decree and seek for immediate protective measures. Once the competent Swiss court has recognised the foreign insolvency decree, the foreign trustee may only request from the court appointed Swiss trustee the assignment of inventoried claims in Switzerland if no admitted privileged creditor requests the same.
Because of the very limited powers of a foreign trustee in Switzerland, it is essential to seek recognition of the foreign insolvency decree if assets of the foreign insolvent company are located in Switzerland. Once the foreign insolvency decree is recognised by the competent court, the same court will appoint a Swiss trustee to lead the proceedings in Switzerland. In particular, the Swiss trustee (if no claim is assigned to the foreign trustee) will take over the enforcement and collection of the assets in Switzerland.

2. The recognition of foreign insolvency decrees in Switzerland
2.1 Situation under the current rules
Currently, a foreign insolvency decree can only be recognised in Switzerland upon request of the foreign liquidator or a creditor upon three conditions:
a) The decision was rendered in the state of the debtor’s registered domicile and is enforceable in the state where it was rendered;
b) Such recognition is not manifestly incompatible with Swiss public policy;
c) Reciprocity is granted in the state where the decision was rendered (i.e. a Swiss insolvency decree would also be recognised in this state).

These conditions are restrictive for many reasons:
– In particular, if the insolvency decree was rendered in the state of debtor’s center of main interests but this state is not the debtor’s registered domicile, 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 where the insolvency decree has been rendered with a comprehensive analysis of the question of whether this foreign state would recognise a Swiss insolvency decree. The example below shows the complexity of this requirement (see below, 2.2). If the court deems that recognition is not granted in the state in which the insolvency decree was rendered, there is no possibility for the foreign trustee to access assets of the foreign insolvent company located in Switzerland (for example, the Swiss doctrine deems that there is no reciprocity or the reciprocity is problematic among others for Denmark and Japan).

Once the foreign insolvency decree is recognised by the competent court in Switzerland, it will have the effect of bankruptcy under Swiss law. The Swiss Bankruptcy Office will then initiate an auxiliary proceeding (known as mini-konkurs) on the assets located in Switzerland.