In recent years, Switzerland has developed into a significant commodity hub, thanks to a high living standard, a strong financial sector, low taxes and light government regulation. Revenues from this sector rose fourteen-fold between 2001 and 2011.
Today, six of Switzerland’s ten highest-grossing companies are commodity companies and more than 20% of the global commodities trade is handled in Switzerland.
Switzerland is also renowned as a financial centre. There are approximately 283 domestic and foreign banks in Switzerland with an estimated CHF 6,136 billion under management. More than half of these assets originate from abroad (equating to 26% of the global asset management business).
This makes Switzerland a global leader in both cross-border asset management and trade finance.
It is perhaps not surprising then that the question regularly arises whether and under what conditions a creditor can arrest a debtor’s Swiss bank account. This article will set out the current legal framework and recent developments.
Arrest of Swiss bank accounts
Under the Swiss Debt Enforcement and Bankruptcy Act, (the “Act”)2, a creditor of an unsecured debt may apply for arrest of a debtor’s assets located in Switzerland in the following circumstances:
- The debtor has no permanent residence.
- The debtor hides his assets with the intent to evade the fulfilment of his liabilities, or is preparing his flight.
- The debtor is in transit or in Switzerland for fairs and markets and the claims are to be fulfilled immediately by their nature.
- The debtor has no domicile in Switzerland and no other grounds for arrest apply, but the debt has a sufficient link to Switzerland or is based on an acknowledgment of debt within the meaning of the Act.
- The creditor is in possession of a temporary or definite certificate of loss against the debtor.
- The creditor is in possession of a final judgment or award against the debtor.
The arrest will be granted if the applicant can establish all of the following on the balance of probabilities:
- One of the six sets of facts set out above exists.
- The debt is payable.
- There are assets in the jurisdiction. (There is no need to show a risk of dissipation of assets. )
In practice, where there is no executory judgment or award, an arrest is usually sought when the debtor has no domicile in Switzerland. For the application to succeed in those circumstances, it must be shown that the debt has a sufficient link to Switzerland. Whilst the term has not been defined in the Act, the courts have found a “sufficient link” in the following circumstances:
- The creditor is based in Switzerland.
- There is a contract in place containing a Swiss law clause.
- The seat of arbitration is in Switzerland.
- The place of performance is in Switzerland.
- There was a tortious act in Switzerland.
- The place of signature of the underlying contract is in Switzerland.
- There is a business activity in Switzerland.
- A Swiss bank is providing guarantees or acting as an escrow agent.
- Funds have been transferred to Switzerland in order to prevent seizure through creditors from abroad.
Recent case law has found a “sufficient link” to include circumstances where funds are transferred to Switzerland which are the product of an unjust enrichment or fraud.
The mere existence of a banking relationship is not sufficient on its own to establish a sufficient link to Switzerland, even when payments under the contract were made from a Swiss bank.
An application can also be made on the basis of an “acknowledgement of debt” as defined in the Act. For the application to succeed, the debtor’s unconditional intent to pay a determined amount must be evidenced in written form. The intention can be shown from several documents read together. The debtor must have physically signed at least one of the documents.
With respect to banks, the courts are very wary of fishing expeditions, so they will generally demand some form of tangible evidence of the location of the assets, such as an invoice or an agreement with the parties’ payment details.
Perfection and aftermath
The arrest application is made ex parte and decided on the papers. Once the arrest has been granted, aninter partes hearing is held, during which the debtor or any other affected party can contest the arrest.
The court may require the applicant to provide counter security against a subsequent claim for wrongful arrest. The court has a very wide discretion but will generally ask for up to 20% of the amount to be arrested.
It is worth noting that due to their duties of confidentiality, banks will generally not disclose how much has been arrested until the arrest has been confirmed by the courts and all appeals have been disposed of.
Finally, as the arrest is designed to provide security for a claim, the applicant must perfect the arrest by starting proceedings within 10 days of receipt of the minutes of arrest.