In Switzerland, financial restructurings, reorganizations, liquidations, and insolvencies of business entities and partnerships are governed by a comprehensive legal framework embedded primarily in federal statutes and supplemented by case law and regulatory guidance.
Financial restructurings, reorganizations, liquidations, and insolvencies of business entities and partnerships are governed primarily by the Swiss Debt Enforcement and Bankruptcy Act (DEBA) and the Swiss Code of Obligations (CO). The DEBA regulates debt enforcement, bankruptcy, and restructuring proceedings, while the CO outlines corporate governance, directors’ duties, and measures for addressing insolvency, such as balance sheet over-indebtedness.
Key restructuring tools include voluntary agreements with creditors, equity adjustments, and the debt restructuring moratorium (Nachlassverfahren), which allows companies to negotiate court-approved composition agreements with creditors under judicial oversight. Liquidation occurs either voluntarily, through dissolution under the CO, or compulsorily, via bankruptcy proceedings under the DEBA.
Reorganizations may involve composition moratoriums (Nachlassstundung) or operational restructuring measures, while cross-border insolvencies are addressed under the Private International Law Act (PILA), enabling recognition of foreign insolvency proceedings under specific conditions.
Financial restructuring may be achieved by means of internal business measures, private arrangements with creditors or recapitalisation through investors. But Switzerland lacks statutory cram-down mechanisms for purely consensual restructurings. Binding dissenters usually requires formal processes, such as court-supervised composition proceedings.
In Switzerland, consensual restructuring and workout processes are informal, relying on private negotiations between the distressed company and its creditors without formal insolvency proceedings. The process begins with the company assessing its financial position and engaging advisors to develop a restructuring plan. Early communication with key creditors is essential, often leading to a standstill agreement, where creditors pause enforcement actions to allow negotiations. The company then formulates a plan, which may involve debt rescheduling, equity injections, or operational changes. Implementation follows, involving amended agreements, asset sales, or other measures. The duration of the process varies, depending on the complexity of the case. Consensual restructurings are preferred for their efficiency and flexibility but require creditor cooperation and a credible recovery strategy.
There are various types of securities available. To name a few: A pledge is a security interest where the creditor holds possession of the collateral (e.g., movable property, securities). A personal guarantee is a form of security, where a third party commits to fulfilling the debtor’s obligations if they default. A mortgage is a security interest in real property commonly used to secure loans.
In Switzerland, secured creditors enjoy higher priority in repayment, with rights determined by the type of security interest held. The order of priority among secured creditors follows the first-in-time principle, and unsecured creditors are paid only after secured and preferred creditors have been satisfied.
In Switzerland, creditors have rights to enforce their claims, but those rights can be restricted or stayed in restructuring or insolvency proceedings. Secured creditors are generally entitled to enforce their security interests, but this is subject to stays or deferrals in the case of formal bankruptcy or restructuring procedures. During these proceedings, the stay prevents creditors from acting unilaterally and forces them to participate in the collective insolvency process.
The process for reaching and effectuating a financial restructuring / reorganisation plan typically begins when the debtor applies to the competent court for a composition moratorium (Nachlassstundung). This application must include evidence of the debtor’s financial distress and a plausible plan for restructuring or reaching a settlement agreement with creditors. The court may grant a provisional moratorium of four to six months, during which an independent administrator is appointed to oversee the debtor’s activities, safeguard creditors’ interests, and assess the feasibility of the proposed plan. During this period, the debtor retains operational control of its business under the administrator’s supervision.
If the administrator confirms that the restructuring or settlement plan is viable, the court may extend the moratorium up to two years, converting it into a definitive moratorium. During this time, the debtor works with the administrator to finalize the reorganization plan or settlement agreement, which must be approved by creditors. The approval requires a majority of creditors both in number and by value of claims, ensuring that the plan has broad support across creditor classes.
A key feature of composition proceedings is the stay of enforcement actions, which protects the debtor from creditor claims and legal proceedings during the moratorium. This stay ensures that creditors are treated equally and prevents individual enforcement actions from disrupting the collective process.
The final plan, whether a reorganization of the debtor’s obligations or a settlement with creditors, is submitted to the court for approval. Once approved, the plan becomes binding on all creditors.
Note, however, that the composition proceedings in practice do not have the same significance in Switzerland as in-court restructuring proceedings in other jurisdictions, such as Chapter 11 in the United States.
Voluntary liquidation is typically a corporate law matter initiated by a resolution of the shareholders when the company decides to dissolve. In contrast, with involuntary liquidation, such as bankruptcy, the court declares bankruptcy if the debtor is insolvent – unable to meet its obligations – or overindebted, meaning its liabilities exceed its assets. Additionally, composition proceedings allow a debtor to seek a moratorium to negotiate a restructuring or settlement with creditors, provided the debtor presents a viable plan to the court.
Creditors must file their claims with the bankruptcy office. Claims are examined and classified according to their nature and priority. The official schedule of claims, is crucial for determining distribution rights during the proceedings. The timelines for these proceedings vary depending on the complexity of the case. Bankruptcy proceedings typically involve the preparation of an inventory of assets, liquidation of the estate, and distribution to creditors, which can take several months to years.
Once bankruptcy or composition proceedings commence, an automatic stay is generally imposed, halting enforcement actions and legal proceedings against the debtor. This ensures orderly handling of claims and prevents individual creditors from undermining the collective process.
The control and management of the company differ depending on the type of proceeding. In voluntary liquidation, the process is managed by the company’s directors or liquidators, with the board often retaining some oversight unless restricted by law or shareholder resolutions. In bankruptcy, control of the company’s assets passes to the bankruptcy office, and directors lose their management powers.
At the conclusion of the process, creditors are paid according to the statutory hierarchy. Secured creditors are prioritized and satisfied from the proceeds of the secured assets, followed by preferential claims such as employee wages or taxes, and finally unsecured creditors. Any remaining assets are distributed to shareholders if there is a surplus.
Switzerland recognizes and provides relief in connection with foreign restructuring and insolvency proceedings based on the Swiss Private International Law Act (PILA), particularly Articles 166-175. A foreign bankruptcy decree is recognized at the request of the foreign bankruptcy administration, the debtor or a bankruptcy creditor if the decree is enforceable in the country in which it was issued, there is no ground for refusal and it has been issued in the debtor’s country of residence, or in the country of the debtor’s center of main interests, provided that the debtor was not domiciled in Switzerland at the time the foreign proceedings were initiated.
Swiss courts are open to cross-border coordination in insolvency cases, often using informal protocols or arrangements to align proceedings with foreign jurisdictions. Cases like the Swissair Case illustrate how Switzerland engages in practical cooperation to manage complex international insolvencies effectively.
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Hans-Ulrich Kupsch, LLM
Attorney at Law
Email: h.kupsch@blumgrob.ch
Roger Büchi, LLM.
Attorney at Law
Email: r.buechi@blumgrob.ch
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