Debt Enforcement and Bankruptcy Law in the Corona Crisis: Questions and Answers

In view of the extraordinary situation with regard to the corona pandemic, the Federal Council has ordered a temporary stay of debt enforcement. This stay of enforcement is valid from 19 March 2020 until 4 April 2020, and will be immediately followed by the statutory enforcement holidays, which last from 5 April until 19 April 2020. Below, we will answer some practical questions on debt enforcement and bankruptcy law in times of the corona crisis. 

  1. What does „stay of enforcement“ mean?

The stay of enforcement is, to a certain extent, a grace period for the debtor. In general, during this period, no debt enforcement action may be taken and no debtor may be served with enforcement notices. The stay of enforcement has the same effects as the enforcement holidays, which apply for two weeks over Christmas, Easter and the second half of July.

A stay of enforcement may also be granted outside the corona crisis. However, it then only applies to a particularly affected debtor, e.g. if the debtor is doing military service, in the event of bereavement in the debtor’s family or in the event of serious illness of the debtor.

In the event of an epidemic (or pandemic) or other crisis, the Federal Council may order a general stay of enforcement for certain parts of the country or certain parts of the population. The Federal Council has now made use of this authority, with effect for entire Switzerland. The last time such a nationwide stay of enforcement was ordered occurred in 1914 at the outbreak of World War One.

  1. Can debt enforcement proceedings be initiated during the stay of enforcement?

Debt enforcement proceedings can be initiated as usual by submitting an enforcement request (request for the commencement of debt-enforcement proceedings) to the debt enforcement office. However, carrying out the actual debt enforcement procedure is not possible. Although the debt enforcement office accepts the enforcement request, it will not serve the payment summons on the debtor until after the expiration of the stay of enforcement and the enforcement holidays.

  1. What happens to ongoing debt enforcement proceedings?

Ongoing debt enforcement proceedings cannot be pursued. The debt enforcement office may not carry out any enforcement acts. For example, no payment summons and no bankruptcy warnings may be served, and no seizures and realizations of assets may be made. Court proceedings which have an impact on debt enforcement proceedings, such as the procedure regarding the setting aside of the objection against the payment summons, are also suspended. Moreover, bankruptcy proceedings may not be commenced during the stay of enforcement.

However, even if no enforcement acts may be taken, debt enforcement related time limits do not stand still and continue to run during the stay of enforcement and the enforcement holidays. If, however, they end during this phase, the time limit is extended until the third day after the end of the period – in this case until 22 April 2020. Nonetheless, the running of time limits must be carefully examined in each individual case, for not all time limits under debt enforcement law are affected by the standstill.

  1. What does the stay of enforcement mean for ongoing contracts?

The stay of enforcement does not mean that all contractual and legal time limits are now postponed. The stay of enforcement merely results in a temporary suspension of the enforcement of monetary claims. In particular, it has no impact on substantive law.

This means that claims may become due despite the stay of enforcement. The creditor may also issue a reminder without further ado. This puts the debtor in default and the consequences of default applicable in the individual case arise. For example, the debtor has to pay default interest on a monetary claim; the creditor may withdraw from the contract if the debtor is in default; claims for damages may arise, etc. Likewise, statutory and contractual time limits remain unaffected by the stay of enforcement, such as time limits for payments, notification periods for defects, time limitation periods, etc.

Whether the corona crisis constitutes a case of force majeure and affects contractual rights and obligations must be examined on a case-by-case basis. However, this has nothing to do with the ordered stay of enforcement.

  1. Does the stay of enforcement protect against bankruptcy?

The stay of enforcement protects against bankruptcy in that creditors cannot pursue bankruptcy-related debt enforcement during this phase. During the stay of enforcement, no bankruptcy warnings may be served, no court proceedings concerning bankruptcy may be scheduled or conducted, and bankruptcy may not be declared.

However, the board of directors still has the obligation to notify the judge in the event of over-indebtedness. This obligation might become even more relevant in the current corona crisis, because it is necessary to switch from accounting on a going-concern basis to accounting on the basis of liquidation values if the going-concern of the company for the following 12 months no longer appears certain. In the event the board of directors has notified the court due to over-indebtedness, the court must declare bankruptcy regardless of the stay of enforcement.

  1. What happens when the stay of enforcement ends?

As outlined above, the stay of enforcement is immediately followed by the statutory enforcement holidays, which last until 19 April 2020. It is conceivable, at least for the time being, that the Federal Council will again order a stay of enforcement for the period thereafter. However, this is likely to be of limited duration at most. Even in the current situation, a long-term stay of enforcement is not a suitable measure, as it could lead to a situation in which debts are generally no longer paid, which would bring the economy to a complete standstill.

After the end of the stay of enforcement and the enforcement holidays, debt enforcement can be resumed without restriction. Many companies will have financial difficulties due to the loss of income they have suffered.

A possible remedy in these cases may be to apply for a composition moratorium. If there is a prospect of reorganization or the conclusion of a composition agreement, the court will grant a provisional composition moratorium of a maximum of four months. During this period, no debt enforcement proceedings may be carried out. As a rule, an administrator is appointed to examine in detail the possibilities of restructuring with the debtor and the creditors. If the prognosis is positive, the court can then grant a definitive composition moratorium for a period of four to six months.