How high will my dividend be in insolvency proceedings?

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The opening of insolvency or debt-restructuring proceedings can lead to considerable uncertainties for the parties involved. Employees want to know whether they receive their wages, social security funds are interested in getting paid all outstanding contributions; all creditors of the company would like to receive clarity about the dividend they are entitled to and other interested persons may want to know who the creditors of the company are. In any case, the parties involved have one thing in common: they are all interested in information about the company and the status of the insolvency or debt-restructuring proceedings. The question is how to get the relevant information.

Insolvency proceedings in Switzerland are initiated by a court decision. After the commencement of insolvency proceedings the trustee must determine the assets of the company and the claims of the creditors. As soon as the trustee has gained an overview of the assets and liabilities, he can estimate to what extent the creditors’ claims can be satisfied. This is the central question for creditors, namely how high the dividend will be.

Trustees regularly inform creditors by notifications and circulars. In large insolvency or debt-restructuring proceedings, the notifications and circulars are generally publicly available and online, although this is not a legal obligation for trustees. These information letters provide first indications of the status of the proceedings, of the existing assets, the claims filed and thus of the expected dividend. Trustees make estimates of the expected dividend at an early stage, usually indicating a minimum and maximum expected dividend. However, the estimates of the trustees must be taken with caution, especially at an early stage of the proceedings. At this point in time, it is often unclear how high the dividend will ultimately be, since the dividend depends on various aspects. On the one hand, it depends on the trustee’s decision regarding the admission of the claims filed. The decision of admission or non-admission may be challenged by the creditors in court. Such proceedings often last for years and the amount of liabilities thus remains uncertain until a final decision of the Swiss Federal Supreme Court. On the assets side liability and claw-back claims can have a considerable influence on the amount of the insolvency assets. Here to, until the outcome of such proceedings, there is uncertainty regarding the actual state of the insolvency estate.

In the past, large insolvency and debt-restructuring proceedings in Switzerland depended on the outcome of various proceedings such as appeals regarding the admission of claims, claw-back claims or liability proceedings (e.g. SAirGroup or Petroplus). In cases where legal proceedings are still pending, creditors or other interested persons will therefore have to analyse – in addition to the consultation of publicly available notifications and circulars – the pending legal proceedings in order to assess the impact of such processes on dividends. It is advisable to draw up different scenarios and calculate the respective dividends for each scenario. This is the only way to determine whether the trustee’s forecast of the expected dividend is realistic or not.

In order to obtain detailed information on ongoing insolvency and debt-restructuring proceedings, creditors or other interested persons can inspect the files of the trustees. The question is who gets access to the files and how to deal with a decision of the trustee not to grant access.

The right to inspect insolvency or debt-restructuring files is regulated in Art. 8a of the Swiss Debt Enforcement and Bankruptcy Act. In accordance with this provision, persons who prove an interest can inspect the files. However, this must be a special and current interest. In general, creditors have a right to inspect files. Their requests may only be refused in exceptional cases, e. g. if a creditor demands the right of inspection for reasons which have nothing to do with the creditor status. For example if a creditor requires inspection of files only to find out which other creditors are involved in insolvency proceedings trustees often deny the right to inspect files. For non-creditors it is even more difficult to get access to files because such persons have to provide a special proof of interest. It is therefore advisable to carefully substantiate a request for inspection of files in order to reduce the risk that the application will be rejected. If the trustee still rejects the application, the decision can be appealed to the supervisory authority within 10 days.

Generally speaking, it can be said that only a small amount of information is publicly available in Swiss insolvency and debt-restructuring proceedings. A good way for obtaining information is to request inspection of files. However, even if access to the files is granted, the obtained information still needs to be analysed in order to draw the right conclusions on the expected dividend.

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