Cross-Border Insolvency in Switzerland: Amendments to the Law as of 1 January 2019

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Within the European Union, cross-border insolvency is governed by the Regulation on Insolvency Proceedings.[1] Since Switzerland is not a member state of the EU, the EU Regulation does not directly apply to cross-border insolvency matters that are related to Switzerland, which significantly complicated the conducting of such proceedings. On 1 January 2019, however, amendments to the Federal Act on Private International Law (PILA) entered into force, which lead to a simplified administration of cross-border insolvency proceedings.
The most relevant changes are the following.

Simplified Recognition of Foreign Judgments Opening Insolvency Proceedings

Until the end of 2018, in order for foreign insolvency proceedings to produce any effect in Switzerland, the foreign judgment by which insolvency proceedings are opened had to be recognized in Switzerland in dedicated recognition proceedings. Under the old law, it was required (i) that the foreign judgment was rendered at the place of the debtor’s domicile, (ii) that it is enforceable in the state in which it was rendered, (iii) that there is no ground for refusing recognition, and (iv) that the state in which the judgment was rendered grants reciprocity.
According to the newly applicable provisions a foreign judgment by which insolvency proceedings are opened has to be recognized in Switzerland not only if it was rendered in the state in which the debtor is domiciled, but also if it was rendered in the state in which the debtor’s centre of main interests (COMI) is situated (provided however, that the debtor was not domiciled in Switzerland at the point in time when insolvency proceedings were opened). The rationale behind this extension is that in many jurisdictions the territorial competence of the courts to open insolvency proceedings is given at the place of the debtor’s COMI. Under old law, foreign judgments that were rendered at the debtor’s COMI could not be recognized in Switzerland if the debtor’s COMI did not coincide with the debtor’s domicile. This gap has now been filled with the new provision.
The recognition of foreign insolvency proceedings has further been facilitated by the abolishment of the reciprocity requirement. Whether or not the state in which the judgment was handed down grants reciprocity was often very difficult to assess, in particular if the judgment was rendered in a state with regard to which there were no Swiss court precedents on the question of reciprocity. In order to demonstrate that the state in question grants reciprocity it was often necessary to rely on legal opinions, the obtaining of which can be expensive and time-consuming. The abolishment of the reciprocity requirement therefore results in a substantial and welcomed simplification in practice.

No Mandatory Secondary Insolvency Proceedings

Under old law, if the foreign insolvency administrator wished to reach for assets located in Switzerland, the opening of secondary insolvency proceedings in Switzerland was mandatory. In such case, the debtor’s assets that are located in Switzerland were first used to satisfy claims secured by a pledge, as well as claims of privileged Swiss creditors. Only thereafter a surplus would be handed over to the foreign insolvency administrator, provided the Swiss court came to the conclusion that the claims of non-privileged Swiss creditors were adequately considered in the foreign insolvency proceedings.
According to the new provisions, secondary insolvency proceedings are conducted only if there is in fact a need to protect the concerned creditors. If there are no claims secured by a pledge, nor claims of privileged Swiss creditors, nor claims of creditors of a Swiss branch of the foreign debtor submitted, the court may, upon request of the insolvency administrator, decide that secondary insolvency proceedings need not be conducted. If only claims other than the ones mentioned above are submitted, the conducting of secondary proceedings can be waived, provided the non-privileged claims of Swiss creditors are adequately considered in the foreign insolvency proceedings. These creditors are to be heard in advance.
In case no secondary proceedings have to be conducted, the foreign insolvency administration is entitled to exercise all of the powers conferred on it by the law of the state in which insolvency proceedings were opened. It is in particular authorized to move assets of the debtor out of Switzerland, and it has the standing to sue in court proceedings. However, also under the new provisions it is not empowered to perform authoritative acts.

Further Amendments

Further amendments of the law provide that it is no longer mandatory that creditors of a Swiss branch of the foreign debtor have to submit their claims in dedicated branch insolvency proceedings; instead, these creditors may submit their claims in the secondary insolvency proceedings, which avoids duplications and difficult delimitation questions. In addition, under the new law foreign judgments that have been rendered in the context of insolvency proceedings (such as judgments regarding claims for voidable preference) can in principle be recognized in Switzerland, which was not possible under the old law. Last but not the least, the revision set a legal basis for coordination between Swiss and foreign insolvency authorities.

[1] Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast), effective as of from 26 June 2017, repealing its predecessor Council Regulation (EC) 1346/2000 of 29 May 2000 on insolvency proceedings.

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