A. DOMESTIC FAMILY OF COMPANIES
1. If insolvency proceedings must be commenced for the family of companies, does your law permit a joint proceeding, ie, a single court file, a single judge, a single list of creditors, single notice list, or must the case for each member of the family proceed separately with no practical acknowledgement of the related proceedings?
Except for singular issues (eg, consolidated accounting, disclosure of participation in listed companies, acquisition of shares by subsidiaries), Swiss law generally does not contain provisions regarding groups of companies. Consequently, the Federal Statute on Debt Collection and Bankruptcy (FSDCB) does not provide specific rules for group of companies.
Another member of a family of companies – be it the mother company, a subsidiary or a sister company – of the bankrupt company will not be part of the bankruptcy proceedings conducted against the other member of the family. In a case in which a creditor holds claims against several members of the family of companies, the creditor has to proceed against each member separately. These separate proceedings may give rise to different issues.
Therefore, there is neither a single court file nor a single judge for bankruptcy proceedings of different members of a family of companies.
For the same reasons, there is no single list of creditors and no single schedule of creditors. However, there have been cases in which bankruptcy administrations cooperated (to some extent) where the liquidation of the companies belonging to the same corporate family was extremely difficult. This will be dealt with under question 6 below.
However, in the aftermath of the financial collapse of the Swissair Group, the Swiss Government appointed an expert committee to prepare a report addressing the issue of whether Swiss bankruptcy law should be amended to include rules for the consolidation of bankruptcy cases. In April 2005, the experts presented their report and recommendations (‘the Report’). The Report only reflects the views of the members of the expert committee and does not bind the legislator. To date, it is not even clear if the legislators will prepare an amendment to the FSDCB. For the purposes of addressing the present issues, we nevertheless think that it is interesting to refer to the Report’s recommendations.
(a) What if the members of the family are organised under, or operate in, different locations within your country? Can a company from a distant location in your country commence its bankruptcy proceeding where its affiliate is located, if the affiliate has already commenced its bankruptcy proceedings?
As Switzerland is a federal state composed of 26 cantons, each of the Cantonal Courts is competent to pronounce a bankruptcy judgment against a company having its registered seat within its jurisdiction. Once the bankruptcy judgment is issued, the same applies to the bankruptcy administration: the bankruptcy administration of the canton in which the bankruptcy judgment has been issued is competent to conduct the bankruptcy proceedings. In summary, a company can only commence its bankruptcy proceedings at its registered seat, but not at the place where bankruptcy proceedings are pending against one of its affiliates.
(b) To the extent your country has different types of insolvency proceedings (such as Chapter 11 reorganisation and Chapter 7 liquidation in the US) do the members of the corporate family all have to proceed under the same type of proceeding?
Swiss insolvency law provides for different types of insolvency, such as ordinary bankruptcy proceedings or composition proceedings.
Since Swiss law in general, and the FSDCB in particular, do not provide specific rules for groups of companies, the separate members of the corporate family have no obligation to proceed under the same type of proceedings. It is quite possible that one member will be declared bankrupt while another, presenting a better financial situation and/or a solid chance of recovering, will be restructured using one or a combination of the various composition schemes offered under Swiss law.
2. Does your law permit, or prohibit, a single administrator/trustee/ receiver to administer the assets and the liabilities of the entire corporate family?
The administration of the bankruptcy estate can be conducted either by the bankruptcy office, which is the official administrative body of the state in charge of bankruptcy proceedings, or by a private bankruptcy administration. The first creditors’ meeting, or creditors’ assembly, taking place after the inventory of assets and the schedule of creditors have been drawn up (Art 237(2) FSDCB), will make this choice. Specifically, the creditors participating at the first creditors’ meeting decide whether the proceedings will be conducted by the bankruptcy office or by a private bankruptcy administration composed of one or several persons appointed by the creditors’ assembly. As a consequence, if the (separate) creditors’ meetings of two companies belonging to the same family of companies appoint the same person(s) as private bankruptcy administrator(s), both bankruptcy proceedings will be administered by the same private bankruptcy administration. The same principle applies to composition proceedings: the creditors of the different group companies may agree on the same person(s) acting as liquidator(s).
Should both of two different first creditors’ meetings of two affiliated companies resolve to appoint the official bankruptcy office of the government to conduct the bankruptcy proceedings, it might very well be that – for reasons of different venues – two different bankruptcy offices are in charge. While for the parent company with its seat in Canton A the bankruptcy office of Canton A would conduct the proceedings, the bankruptcy office of Canton B would be in charge of the proceedings for the bankrupt company having its seat in the Canton B. Generally speaking, the Report does not recommend consolidating two or more bankruptcy proceedings administered by the official bankruptcy office. However, the reasons given in the Report do not seem to be very convincing as they are only based on practical difficulties/hindrances: In the experts’ view, a consolidation of the proceedings could easily cause a capacity overload for the official bankruptcy office(s) concerned.
The Report recommends a consolidation of two or more proceedings in cases of a substantive consolidation, ie, in cases where all assets and liabilities of several members of the corporate family are pooled and form one single bankruptcy estate (see the answer to question 6).
If the same persons (either in the capacity of private bankruptcy administrators or in the capacity of liquidators in composition agreements) are in charge of two or more insolvency proceedings, potential conflict-of-interest issues regularly arise. For instance, the various financial obligations between the different members of a group of companies constitute such a conflict. Thus, in cases of joint management of the proceedings, the creditors should always appoint a substitute who could step in whenever the joint liquidator (or the joint bankruptcy administrator) faces a potential conflict of interest.
(a) If so, is there a hearing for the court to determine whether the administration by a single party is appropriate? Are secured and unsecured creditors or other parties in interest allowed to object or be heard at such hearing?
As noted above, either the official bankruptcy office or a private bankruptcy administrator conducts bankruptcy proceedings. This choice is made by the first creditors’ meeting. Subject to the right to file an appeal to the Cantonal supervisory body, it is not for the courts to determine whether the administration by a single party is appropriate, as this choice is made by the creditors. Each creditor, regardless of whether (i) his claim is secured or unsecured,
(ii) he has one or several claims against the bankrupt, (iii) his claim is privileged or unprivileged, and (iv) the amount of his claim(s) shall participate in this decision with one vote. The creditors’ meeting passes resolutions with the absolute majority of the voting creditors (Art 235(4) FSDCB). However, the creditors’ meeting is legally constituted and may only make decisions if at least a quarter of the known creditors are present or represented at the meeting. A creditor has the right to file an appeal against resolutions passed by the creditors’ meeting with the Cantonal supervisory authority. Grounds for an appeal against a resolution appointing a private bankruptcy administration and/or the administration by a single party could be that the appointment of a private bankruptcy administration is inappropriate in the specific case, that the persons appointed do not have the necessary professional skills, and/or that the administration by a single party would cause irresolvable conflicts of interests.
(b) What about joint representation by other professionals, such as law firms or accounting or auditing firms?
In 1975, the Swiss Federal Supreme Court ruled that not only individuals but also legal entities may be appointed to act as private bankruptcy administrators (Decision of the Swiss Federal Supreme Court 101 III 43). Based on this precedent, creditors’ meetings nowadays often appoint law, accounting or auditing firms as administrators or receivers of the bankruptcy estate. In any case, the (cantonal) judiciary supervises the administrator(s) so appointed, and the relevant canton and/or the administrator could be responsible for any damage caused by the administrator.
3. Does your law encourage or discourage overlapping boards or management teams for separate members of a corporate family?
Swiss law does not prevent/prohibit interlocking corporate bodies and neither encourages nor discourages overlapping board or management teams for members of a corporate family. The issue is rather one of liability. It is of paramount importance that a common director of a parent and a subsidiary knows that he owes the same duty of care and loyalty to both companies. As a consequence, a common director must ensure that dealings and financial transactions between affiliated companies are done at arm’s length. The fact that a director serves on different boards may affect the ability of the director to correctly fulfill his duties as a director of both of the separate entities. In case of bankruptcy, the director may be responsible towards the company and/or the creditors for violating his duty of care and loyalty.
The same applies to managers if they are supposed to run the business of several members of a corporate family; it is, however, the responsibility of the board of directors to implement an adequate management organisation and oversee the proper management. Therefore, if a manager is bound to run separate members of a corporate family but fails to do it properly, the directors may be liable for condoning such a situation.
(a) If the directors of a parent company are not directors of the subsidiary, but they either directly or indirectly manage the affairs of the subsidiary anyway, does Swiss law render such people de facto or ‘shadow’ directors of the subsidiary?
Where directors of a parent company are not directors of the subsidiary, but nevertheless either directly or indirectly manage the affairs of the subsidiary, such directors may be considered as de facto directors of the subsidiary. Therefore, the corporation, or any shareholder, or any creditor, may hold them responsible for damage caused by wilful or negligent violation of their duties. Their responsibility will be examined under the same rules applying to properly registered directors of that subsidiary.
(b) Do the duties or responsibilities of officers or directors of a family of companies change when the companies become insolvent? For example does their duty shift from a responsibility to the shareholders to a responsibility to the creditors. What if only one of the companies is insolvent?
The responsibility of the members of the board of directors and of the persons entrusted with the management exists during the whole life of the company. However, if damage caused only affects the company, the individual right of shareholders and creditors to claim for damages is restricted: unless the injured company has been declared bankrupt, shareholders can bring an action against the director or the person entrusted with the management but may only demand that compensation be paid to the company. Creditors may bring an action for damages caused to the company only if the company has been declared bankrupt. However, if the company has been declared bankrupt, the receiver has the primary right to assert claims of the shareholders and the creditors.
Each director or person entrusted with the management of the company is liable to the company of which he or she is a director or a manager.
Swiss company law provides for a special duty of the board of directors if substantiated facts suggest that the company is over-indebted. In such a situation, the board of directors must prepare an interim balance sheet and submit it to the auditors for examination. If the interim balance sheet shows that the claims of the company’s creditors are neither covered by the assets appraised at going-concern values nor at liquidation values, then the board of directors must notify the judge. Upon being notified, the judge adjudicates bankruptcy or – at the request of the board of directors or a creditor – the judge may postpone the opening of bankruptcy proceedings if there is a prospect of financial reorganisation. In case the board of directors fails to prepare the interim balance sheet and/or to notify the judge in a timely fashion, the board of directors becomes liable for the future deterioration of the company’s financial situation.
4. Are there rules and do they change regarding members of the corporate family transferring assets among one another (such as by way of loans, capitalisation, other transactions) when the members are insolvent?
Outside of bankruptcy, Swiss law allows financial transactions between different members of a corporate group. However, provisions of corporate law and tax law require that these transactions be made at arm’s length.
In bankruptcy or composition proceedings, financial transactions between different members of a corporate group might be the subject of avoidance claims. In addition, such financial transactions might be recharacterised. That is, given certain circumstances, claims among members of a group of companies that were originally labelled as debts might be regarded as equity.
Transferring assets among members of a corporate family by way of loans, capitalisation or other transactions can be challenged, should one of the members involved in the transaction be insolvent, and should the transaction damage one of the companies or their creditors. The rules governing voidability of certain transactions are to be found in Article 285 et seq. FSDCB. For instance, any gift or any transaction for compensation clearly below market value is voidable if concluded and executed within one year preceding the opening of bankruptcy proceedings. Similarly, transactions such as the creation of pledges, payment in kind or premature payment of a debt which occurs within one year before the opening of bankruptcy is voidable unless the recipient proves that he was unaware, and need not have been aware, of the debtor’s desolate financial situation. Eventually, any transaction of the debtor within five years preceding the opening of bankruptcy is also voidable if the debtor executed the transaction with the intent to damage his creditors or to favour certain creditors to the detriment of the others, provided such intent was recognisable to the contractual partner of the debtor. The deadline to challenge voidable transactions lapses after two years from the opening of the bankruptcy proceedings. Apart from the action to avoid a gift, the other types of avoidance actions require proof of a subjective element, such as the recipient’s awareness of the imminent insolvency or the bankrupt’s intent to favour certain of its creditors to the disadvantage of others. Experience shows that these subjective elements are not easy to prove in avoidance claims proceedings. Therefore, the experts’ committee examined in its Report whether the relevant FSDCB provisions should be changed in a way that these subjective elements are no longer a requirement in avoidance claims proceedings between members of the same corporate family. The Report, however, recommends maintaining these subjective requirements and proposes the introduction of an evidentiary presumption in cases where potentially voidable transactions were carried out between the bankrupt and closely-related individuals and/or affiliated companies. In such cases, the recipient’s knowledge of the bankrupt’s intent to favour certain creditors over others shall be presumed by the law according to the Report’s recommendations.
There are precedents where the bankruptcy administration successfully recharacterised a loan (ie, a debt) granted by the parent or sister company as equity (see unpublished Decision of the Zurich Supreme Court of 19 January 1993, referred to in SZW 6/93, p 299; SemJud, 1971, No 1993, p 209). In the cited cases, the loans were granted by one member of the corporate family (the lender) when the affiliated company (the borrower) was already overindebted. In such a financial situation of the borrower, the court ruled that no reasonable third party would be willing to grant a loan. As a consequence, the loan was recharacterised as equity and the bankruptcy administration rightly rejected the claim filed by the affiliated company (the lender) in the borrower’s bankruptcy proceedings. Some legal scholars argue that, in circumstances as outlined, a loan should not be recharacterised as equity. Rather, such loans should be subject to an implied subordination agreement. Thus, these legal scholars argue that such intra-group loans should be subordinated (see SZW, 6/93, p 300).
(a) Are cash sweep procedures allowed, that is, all cash from all subsidiaries is swept out to one account controlled by one of the family entities and then redistributed among the family members to pay bills?
The same rules as described above apply to cash sweep procedures, provided that the creditors of one member of the corporate family do not receive preferential treatment to the detriment of creditors of another member of the corporate family.
(b) What if the redistribution results in a healthy subsidiary funding the shortfalls in another subsidiary that is losing money?
If the redistribution results in a healthy subsidiary funding the financial shortfall of another subsidiary, the transaction is not subject to challenge as long as the creditors of the healthy subsidiary are not harmed.
5. How does your law treat claims of one member of a corporate family against other members of the corporate family?
(a) Are such claims invalid or unenforceable?
According to Swiss law, the claims of one member of a corporate family against other members of the corporate family are valid and enforceable unless they will be challenged or recharacterised for the reasons mentioned under question 4 above.
(b) If not, are such claims on equal footing with those of third party creditors, or are they subordinated, or is there other treatment required or permitted under Swiss law?
Such claims are accepted by the bankruptcy receiver provided that their existence can be substantiated, in particular, by written evidence. These claims, unless secured and/or privileged, are on an equal footing with those of third party creditors. In particular, they may not be subordinated, but for an explicit or implied (see question 4) subordination agreement concluded between the corporate family members concerned.
6. Does your law allow for the pooling of assets and liabilities of all members of the corporate family, so that a creditor of one member becomes, in essence, a creditor of all members (sometimes referred to as ‘substantive consolidation’)?
As each bankruptcy administration is independent, and the assets and liabilities are not legally combined to satisfy the creditors of the corporate family, there is no pooling of assets and liabilities of all members of the corporate family. Hence, a creditor of one member does not become a creditor of the other members. However, recent cases show that cooperation between bankruptcy administrations is possible to facilitate the liquidation of the assets of the different members of the corporate family to the benefit of all creditors.
In the Kettlercase (cited by Dr iur Henry Peter in SZW 3/95, p 124), the receivers of the eight Swiss companies – all insolvent – cooperated. In particular, they appointed a joint representative and established the principles for the distribution of the assets recovered. Based on this agreement, not only the assets but also the liabilities were consolidated. The bankruptcy administrations have therefore contractually agreed upon the procedure for recovering and realising the assets and on the distribution process. This cooperation streamlined the liquidation process and permitted the avoidance of disputes between the different bankruptcy estates. For instance, given the inextricable transactions undertaken between the companies, disputes concerning the share of each company in the remaining assets of the corporate family were avoided.
In another case, Banque Commerciale SA (Decision of the Swiss Federal Supreme Court 111 III 86), the Swiss Federal Supreme Court applied the principle of simplifying the procedure and cost efficiency. In this case, a Swiss bank owned a third of the share capital of foreign bank. The Swiss bank proposed to its creditors a composition agreement under which the Swiss bank was to abandon all its assets to its creditors. Simultaneously, the foreign bank was put into liquidation. One creditor of the foreign bank objected to the composition agreement on the grounds that the consolidation of the proceeding was not in line with Swiss bankruptcy law. The Swiss Federal Supreme Court ruled against the consolidation because Swiss banking law does not require that the liquidation of the two banks be made on a consolidated basis and because the consolidation was not in the interests of the creditors of the Swiss bank. As far as the Swiss Federal Supreme Court was concerned, the only option available was a cooperation between the receivers.
In the absence of specific insolvency provisions, and based on the aforementioned precedents, it appears that the consolidation of bankruptcy estates, whether the consolidation pertains to the assets and/or the liabilities, can only be undertaken on a case-by-case basis, taking into account the following general Swiss legal concepts: (i) the concept of group behaviour or the economic trust a group of companies has created, (ii) the concept of abuse of law, (iii) the principles of simplifying the procedure and cost efficiency, and (iv) the principle of equity and good faith. Based on these concepts, cooperation between bankruptcy administrations or receivers in the case of composition agreements can be developed.
According to the Report, the experts had controversial opinions on the issue of substantive consolidation of different bankruptcy proceedings. However, the experts agreed that, as a rule, no substantive consolidation should be ordered. The reason for this policy is that, under Swiss law, each company within a corporate family is a separate legal entity. The substantive consolidation of the proceedings would violate this fundamental principle. In addition, if substantive consolidation were to become the rule, transaction costs might increase substantially: For instance, a party entering into a business relationship with one group company would not only have to scrutinise the financial situation of its contractual partner, but the financial situation of all affiliated companies. A substantive consolidation could also create a situation where a financially healthy member of a corporate family is implicated or included in insolvency proceedings of other group companies. This would be, in the experts’ opinion, undesirable from an economic point of view. For these reasons, the Report concludes that a substantive consolidation should only occur based on the general Swiss legal concepts described above. Since a substantive consolidation might have a significant impact on the rights of the individual creditors (a substantive consolidation may be to the benefit of some creditors and to the disadvantage of other creditors), the Report recommends that the competent court (and not the creditors’ meeting) make the final decision on substantive consolidation.
7. How are secured creditors treated with respect to a family of companies? For instance, if a creditor has a security interest in the assets of one member of the family, and a guarantee from another member of the family, are both such claims valid in insolvency proceedings of the entire family?
Secured creditors receive priority payment of their claims out of the proceeds of the sale of the pledged assets. A pledge granted to another member of the corporate family is treated like any other pledge granted to a third party, unless the transaction is voidable pursuant to Article 285 et seq FSDCB.
If a creditor has a security interest in the assets of one member of the family and a guarantee from another member of the family, both security instruments are valid in the insolvency proceedings of one or both of the members of the corporate family. Again, the validity of the secured claim or the guarantee claim may be challenged if it has been created to favour the family member to the detriment of the creditors.
8. Do your laws or courts provide for post-insolvency commencement of new financing that allows continued operation of the business and provides adequate protection to the lender who made the loan? Explain.
Both in the cases of bankruptcy or post insolvency commencement new financing may be envisaged.
The bankruptcy administration or composition receiver may obtain new financing for continuing the operations of the business, and provides adequate protection to the lender granting the loan. The lender is treated as a creditor of the estate itself and must be paid from the assets composing the estate before any distributions to the privileged or ordinary creditors are made (Decision of the Swiss Federal Supreme Court 126 III 294; BJM 2003, 233 et seq). New financing to allow for the continuation of the operation of the business requires a decision by the assembly of creditors.
9. Are directors and officers subject to civil or criminal sanctions if:
(a) Fraud or misrepresentation of a company’s finances are discovered?
As outlined above, directors and the management of a company may be held responsible for a breach of their duties. The company itself, its shareholder or its creditors may commence an action. Fraud, misrepresentation of the company’s financial situation or continuing to operate while knowing that the company will be unable to satisfy its obligations are typical scenarios of responsibility cases. Criminal sanctions are also possible in case of fraud or of misrepresentation of a company’s finances or in case of mismanagement.
(b) They allow the company to continue to operate while knowing it does not have the ability to pay the debt being incurred?
Please see the answer to question 3(b).
(c) Same as (b) above but the directors believe that if some event occurs (eg, chance to obtain new contract in prospect, new equity infusion, or new financing) it will be able to save the company and pay its bills?
If directors or managers continue the business of a company, ultimately unable to satisfy its obligations when due, based on the (substantiated) prospect of saving the company in view of some uncertain future event (eg, new contracts, new equity, new financing), the responsibility of the directors may be reduced or even denied if they have had valid reasons for believing in a turnaround. The judge examines whether a reasonable director, acting in good faith and with all due care, would have made the same decision in the same circumstances. However, the principle is that once it appears (or there is a fear) that the company is over-indebted, the director has to inform the judge, unless the major creditors agree to subordinate their claims to claims of all other creditors to the extent that liabilities exceed assets. Upon notification, the judge declares the company bankrupt; he may adjourn the bankruptcy’s declaration if restructuring appears feasible.
B. INTERNATIONAL FAMILY OF COMPANIES
1. If one or more members of the corporate family is incorporated under or governed by the laws of another country, does that change your answers to any of the questions set forth above?
All seizable assets that are owned by the company at the time of the opening of the bankruptcy proceedings, irrespective of where they are situated, form one single estate (the bankrupt estate) and are destined for the satisfaction of the creditors (Art 197 FSDCB). In practice, however, it might be difficult to realise assets located in a foreign jurisdiction if foreign authorities do not support a Swiss bankruptcy proceeding.
On the other hand, if a foreign member of the corporate family becomes insolvent, the rules in Article 166 et seq. Federal Statute on International Law (‘PILS’ hereafter) apply. According to Article 166 PILS, a foreign bankruptcy order, which was rendered at the debtor’s domicile, must be recognised upon request of the foreign bankruptcy administrator or of one of the creditors in the foreign bankruptcy pursuant to the provisions of Article 166 et seq PILS (see answer to question 2(b) below).
Finally, one has to keep in mind that different rules apply if the debtor has a branch in Switzerland.
Basically, the answers and rules described in section I above apply in the same way if one or more members of the corporate family are governed by foreign (non-Swiss) law. The duty of the Swiss bankruptcy administration or composition receiver is to protect the creditors of the Swiss member of the corporate family. For that purpose, he may also take action abroad, eg, in order to collect inter-company debts from the affiliated foreign company.
2. If insolvency/restructuring proceedings are instituted for corporate family members in different countries:
(a) What controls as to where the case must be filed (eg, centre of main interests, principal place of business, location of parent, etc)?
If one member of the corporate family is incorporated in Switzerland, the insolvency or restructuring proceeding for that member is governed by Swiss law and is independent of those instituted abroad. The centre of main interest, the principal place of business and/or the location of the parent company are irrelevant.
(b) Do the courts attempt to exercise jurisdiction over the assets of the company filing domestically no matter where located (for example, overseas), or do they limit their jurisdiction to only those assets located in your country?
The bankruptcy administrator – not the court – will control and manage the assets. As stated above, all seizable assets owned by the company at the time of the opening of the bankruptcy proceedings, irrespective of where they are situated, form one single estate (the bankrupt estate) and are destined for the satisfaction of the creditors (Art 197 FSDCB). Assets located abroad are included in the schedule of assets of the bankrupt estate, regardless of the prospects of realisation of those assets (Art 2 7(1) Bankruptcy Decree). If the assets cannot be recovered without resistance, the bankruptcy administrator has to start an action in the foreign court to enforce its claim against the foreign asset holder.
Practically speaking, the bankruptcy administrator’s ability to take possession of the assets located abroad depends on several factors, such as the chances of success in the foreign action, the financial means of the estate, the consent of the creditors and the cooperation of the foreign authorities (if requested). In particular, it might be difficult to realise assets located in a foreign jurisdiction if foreign authorities do not support the Swiss bankruptcy proceeding.
(c) Would your courts enforce a court order from a foreign country that attempted to exercise jurisdiction over assets located in your country but owned by the company that is subject to foreign insolvency proceedings?
Under Article 166 PILS, a foreign bankruptcy order rendered at the debtor’s domicile is recognised upon request of the foreign bankruptcy administrator or of one of the creditors provided that (a) the order is enforceable in the state in which it was rendered; (b) there is no ground for refusing recognition under Article 27 PILS (generally, violation of fundamental rules), and reciprocity is granted by the foreign jurisdiction in which the order was rendered. In essence, a bankruptcy proceeding under Article 166 et seq PILS leads to the opening of a secondary bankruptcy proceeding for the foreign bankrupt company’s assets located in Switzerland.
It is worth mentioning that upon filing an application for the recognition of a foreign bankruptcy judgment, the applicant may seek an order for protective measures. Protective measures can especially mean the inventory of assets, the prohibition to sell any asset or the sealing of assets (Art 168 PILS).
A Swiss judgment that recognises a foreign bankruptcy judgment has basically the same effect on the bankrupt’s Swiss assets as a domestic bankruptcy judgment (Art 170 PILS). In the secondary Swiss bankruptcy proceedings, the only claims admitted to the schedule of claims are secured claims and unsecured privileged claims of creditors domiciled in Switzerland (Art 172 PILS). All other claims are not taken into account, and these creditors must file their claims in the foreign bankruptcy proceedings.
When all assets located in Switzerland have been identified, the bankruptcy receiver must realise them in accordance with the FSDCB. The proceeds thereof are distributed to the aforementioned creditors listed in the schedule of claims in the Swiss secondary proceedings. Any surplus remaining after these creditors have received satisfaction pursuant to Article 172(1) PILS are placed at the disposal of the foreign bankruptcy receiver (Art 173(1) PILS).
Please note that the remaining surplus may not be handed over until the foreign schedule of claim has been recognised in Switzerland (Art 173(2) PILS). Pursuant to Article 173(3) PILS, the Swiss Court which recognised the foreign bankruptcy order has jurisdiction to recognise the foreign schedule of admitted claims. In particular, the court examines whether the claims of creditors domiciled in Switzerland were adequately considered in the foreign schedule of admitted claims. Such creditors have a right to be heard. Accordingly, the purpose of this provision is the fair and equal treatment of the creditors domiciled in Switzerland in the foreign bankruptcy proceedings.
Where the foreign schedule of claim cannot be recognised by the competent Swiss Court, the remaining surplus of the proceeds is distributed to unsecured and non-privileged creditors domiciled in Switzerland (Art 174(1) PILS).
Finally, Article 175 PILS provides that a composition or a similar proceeding confirmed by a court in a foreign jurisdiction must be recognised in Switzerland, in accordance with Article 166 to 170 PILS being applicable by analogy.
(d) Has your country adopted any procedures (such as the Model Law on Cross-Border Insolvency) to address the various issues that arise in dealing with cases of cross-border insolvency?
Switzerland has not adopted any procedures such as the Model Law on Cross-Border Insolvency to address the various issues that arise in dealing with cases of Cross-Border Insolvency. The only legal instrument under Swiss law is the one described in Article 166 et seq PILS. While not specifically provided by law, close cooperation between different bankruptcy administrations in various jurisdictions appears to be possible to some extent and could develop in future cross-border insolvency cases.
