1. When are you declared bankrupt?
In Switzerland, bankruptcy is declared when a legal entity or a private person inscribed in the Commercial Register has not paid a debt or it has ceased to pay a debt. A single unpaid debt could possibly lead to a bankruptcy, as a creditor can petition the court for the bankruptcy of the legal entity or the private person inscribed in the Commercial Register even for single debt of a modest amount. The debtor himself may also submit a petition for bankruptcy when its position is compromised.
2. How long does it take to process a petition for bankruptcy?
If a legal entity faces debt enforcement proceedings and fails to pay the amount demanded in the summons, its creditors can petition the court 20 days after the summons for payment is served and have the debtor declared bankrupt.
3. What can you do if you disagree with the bankruptcy order by the court?
After the petition of the creditor, an hearing is held by the Judge to ascertain whether the grounds for a bankruptcy are given. The debtor could avoid the bankruptcy if he proves by documentation that he has already paid its debts or that he obtain a deferred payment from the creditor. The debtor could also pay its debts – along with all the judicial expenses – within 10 days after the declaration of bankruptcy, asking the appeal court to revoke the bankruptcy.
4. What happens if you are declared bankrupt?
If the court declares the bankruptcy, it gives order to start the bankruptcy proceedings and calls on the creditors to file their claims.The Commercial Registers Office is immediately notified of the bankruptcy. Notice of the bankruptcy is published in the official gazette of the canton concerned, and in the Swiss Official Journal of Commerce. Then the bankruptcy office draws up a list of the assets that may be seized. These are sold off and the proceeds are used to satisfy the creditors.
If there are no assets that can be sold, the court concludes the bankruptcy proceedings, unless a creditor demands within 10 days that the proceedings be continued. In this case the creditors are issued with a certificate of loss, which confirms the amount due to them and can be used in case of future procedures.
5. What duties and powers does the trustee have?
The bankruptcy court appoints a government official as trustee. However, for complicated cases a private individual (specialized insolvency lawyer or accounting firm) is usually appointed as administrator or liquidator. In case there is real prospect of recovery subject to partial waiver of debt or if the realization of the debtor’s assets requires flexible rules to yield good return debt restructuring proceedings can be taken into account rather than bankruptcy proceedings (debt restructuring moratorium). In this case a special trustee is nominated in order to prepare a restructuring plan to present to the creditors. If it is accepted, the bankruptcy procedure is suspended.
If a moratorium is not conceded, one of the first actions of the trustee is to publish the bankruptcy ruling and invite all creditors to join for a meeting to take place within 20 days after the publication. At the same time all creditors are invited to submit their claims. The trustee proceeds in selling all the realizable assets.The respective proceeds are distributed proportionally to the creditors once their claims have been assessed by the bankruptcy trustee following a hierarchy provided by Swiss insolvency law.
6. What kind of obligations do I have as a bankrupt?
After the bankruptcy ruling the bankrupt has the statutory duty to inform the trustee about all his credits and assets. He loses all control over his assets and cannot consume or misappropriate them.
7. How can I monitor the progress of the bankruptcy?
Th bankruptcy order is published by the bankruptcy office on the canton in the official gazette of the canton concerned and in the Swiss Official Journal of Commerce. The Swiss Official Journal of Commerce can be consulted on the web: https://www.shab.ch.
8. How long does a bankruptcy last?
There is no fixed term before which the procedure has to be terminated. The duration of the procedure depends on the complexity of the case.
If a moratorium is conceded, however, it can last for four to six months and may be prolonged to up to 24 months in exceptionally complex cases.
9. Can I make arrangements with my creditors?
When it is possible to join an agreement with the creditors, the first phase of debt restructuring proceedings is a so called debt restructuring moratorium. A debt restructuring moratorium may be granted by the competent judge provided that the debtor’s remaining assets cover all privileged claims and any debts of the estate. During this period it is to be determined whether an ordinary debt restructuring agreement with partial waiver of debt can be granted, whereby the debtor regains full authority to dispose and to continue his business. This allow for a limited continuation of the debtor’s business activities under the supervision of a court appointed administrator.
Another option is a debt restructuring agreement with assignment of assets whereby the debtor’s assets are liquidated by a creditor elected and court appointed liquidator under far more flexible rules than in ordinary bankruptcy proceedings. However, this – as in bankruptcy proceedings – leads to the dissolution and liquidation of the debtor company.
For both types of debt restructuring agreements Swiss law requires the approval by a certain majority of the creditors (double majority per capita and capital) as well as the competent judge.
A third option is an agreement leading to the revocation of debt restructuring proceedings in case of a successful restructuring before elapse of the moratorium period.
10. How can an employee collect outstanding salary from his bankrupt employer?
In Switzerland employees are insured against the risk of loss of salary due to insolvency of the employer. This insurance guarantees a coverage of the worker’s salary credits, for a period of four months at most, in order to avoid critical situations for the employee’s livelihood. The insolvency benefit also covers cross-border workers who work in Switzerland. Workers must meet the obligation to reduce the damage, that is they must take the necessary steps to obtain the wages that are due to them (written reminder, execution, etc.), otherwise they lose their right to compensation for insolvency. To assert the insolvency allowance, workers must observe very tight deadlines. Once these terms have expired, their right to the insolvency allowance lapses.
11. What important advice can be given to a company director in the event of imminent bankruptcy?
In the event of an imminent bankruptcy, the company director has the duty to obtain reliable and up to date financial information. If after having obtained reliable financial information the director has reason to believe that the company has liabilities exceeding its assets, he must have an interim balance sheet drawn up and submit it to the auditors for review. If the audited accounts reveal that the company’s liabilities are not covered by sufficient assets, the director is under an obligation to notify the competent court, unless the company’s creditors have agreed to subordinate their claims in favour of the other creditors to the extent required to cover the amount by which the liabilities exceed the assets or the company can raise new capital to rectify the over indebtedness. It must be noted that under Swiss law directors are liable towards the company, its shareholders and creditors for all damages caused negligently or intentionally.
12. Is there a special arrangement for a private person who is in danger of going bankrupt?
In Switzerland, a personal bankruptcy is a procedure that aims to declare a private person insolvent. By choosing to declare himself insolvent and if a judge recognizes his bankruptcy, a private person can benefit from a special treatment that leads to hold all his debts and proceeding. Creditors will not then be allowed to claim payments back as well as extra interests. In order to declare a personal bankruptcy, the private person have to fill in a request to the judge. It is important to take great care of this application because conditions are very strict and are accepted very rarely. In particular, this special procedure cannot be used as a way to avoid the ordinary private seizure procedure.
For questions you can contact one of our insolvency specialists,
Mattia A. Ferrari or Riccardo Viganò @ Legal Ferrari Rei