Cross-Border Insolvency: New Developments in Switzerland


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Within the European Union, cross-border insolvency is governed by the Regulation on Insolvency Proceedings. 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 complicates the conducting of such proceedings. Although there are currently no plans for Switzerland to accede to the EU Regulation by way of a treaty, Switzerland’s international insolvency law is currently being subtly revised, which yields hope that the administration of cross-border insolvency proceedings will be simplified to some extent.

The most relevant planned changes are the following.

Simplified Recognition of Foreign Judgments Opening Insolvency Proceedings

In order for foreign insolvency proceedings to produce any effect in Switzerland, the foreign judgment by which insolvency proceedings are opened has to be recognized in Switzerland in dedicated recognition proceedings. Under the current law, it is 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.

Under the revised law a foreign judgment by which insolvency proceedings are opened would 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 current law, foreign judgments that were rendered at the debtor’s COMI cannot be recognized in Switzerland if the debtor’s COMI does not coincide with the debtor’s domicile. This gap would be filled with the new provision.

The recognition of foreign insolvency proceedings would further be facilitated by the abolishment of the reciprocity requirement. Whether or not the state in which the judgment was handed down grants reciprocity can be very difficult to assess, in particular if the judgment was rendered in a state with regard to which there are no Swiss court precedents on the question of reciprocity. In order to demonstrate that the state in question grants reciprocity it is often necessary to rely on legal opinions, the obtaining of which can be expensive and time-consuming. The planned abolishment of the reciprocity requirement would therefore result in a substantial and welcomed simplification in practice.

No Mandatory Secondary Insolvency Proceedings

At present, if the foreign insolvency administrator wishes to reach for assets located in Switzerland, the opening of secondary insolvency proceedings in Switzerland is mandatory. In such case, the debtor’s assets that are located in Switzerland are first used to satisfy claims secured by a pledge, as well as claims of privileged Swiss creditors. Only thereafter will a surplus be handed over to the foreign insolvency administrator, provided the Swiss court comes to the conclusion that the claims of non-privileged Swiss creditors are adequately considered in the foreign insolvency proceedings.

According to the revision of the law, 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.

In case no secondary proceedings have to be conducted, the foreign insolvency administration shall be entitled to exercise all of the powers conferred on it by the law of the state in which insolvency proceedings were opened. It would in particular be authorized to move assets of the debtor out of Switzerland, and it would have the standing to sue in court proceedings. However, it would not be empowered to perform authoritative acts.

Further Planned Amendments

Further planned amendments of the law would 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 would be able to submit their claims in the secondary insolvency proceedings, which avoids duplications and difficult delimitation questions. It is further planned that foreign judgments that have been rendered in the context of insolvency proceedings (such as judgments regarding claims for voidable preference) could in principle be recognized in Switzerland, which currently is not possible. Last but not the least, the planned revision sets a legal basis for coordination between Swiss and foreign insolvency authorities.

Outlook

After the Swiss government had presented the draft bill in May 2017, the Swiss Council of States in December 2017 approved the proposed revision almost without any change. If the Swiss National Council in the course of this year approves the revision as well, the revised law could be effective as from 1 January 2019 at the earliest.


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