Types of liquidation and reorganisation processes

Voluntary liquidations

What are the requirements for a debtor commencing a voluntary liquidation case and what are the effects?

Corporate law provides for the possibility for legal entities to be dissolved, leading to a voluntary liquidation of the business with full protection of creditors’ claims.

Companies limited by shares, partnerships limited by shares, partnerships with limited liability and cooperatives may be subject to bankruptcy proceedings without prior enforcement proceedings in the instances set forth in the Federal Code of Obligations of 30 March 1911 (CO) (articles 725a, 764(2), 817 and 903). A comprehensive revision of the rules on company law of the CO will enter into force on 1 January 2023 and will provide for better coordination between the CO and the Debt Collection and Bankruptcy Act of 1889 (DCBA).

The application for bankruptcy in this case is based on a demonstration of manifest (ie, not just temporary) insolvency (over-indebtedness) and is to be supported by a shareholders’ resolution and a recently drawn up balance sheet. As such, voluntary liquidation leads to a liquidation proceeding and its effects concur with those of an involuntary liquidation; if the liquidators conclude that the company to be liquidated is over-indebted, they must file for bankruptcy. Debtors that are not otherwise subject to bankruptcy proceedings may file for bankruptcy upon declaration of insolvency (illiquidity).

Voluntary reorganisations

What are the requirements for a debtor commencing a voluntary reorganisation and what are the effects?

A composition proceeding aims to protect the debtor from the consequences of bankruptcy. It allows the debtor to postpone payment of debts or to satisfy them in total or in part according to a specific plan. The composition agreement must be ratified by the creditors. According to the revised DCBA, the Swiss composition procedure is designed to rehabilitate the company under the auspices of the court or to reorganise unsecured and unprivileged claims. Over-indebtedness is no longer required to initiate a composition proceeding.

The composition proceeding begins with a debt moratorium. Any debtor, whether subject to a bankruptcy proceeding or not, seeking an agreement with its creditors, may initiate a debt moratorium proceeding by submitting to the court a reasoned application enclosing recent financial statements and a liquidity plan together with relevant documentation demonstrating the debtor’s current and future financial status, as well as a provisional rehabilitation plan. Usually, the composition court will request additional documentation.

A temporary debt moratorium not exceeding four months may be granted by the court and can be extended up to an additional four months. The court may order the necessary conservatory measures to protect the debtor’s assets. However, the court will open bankruptcy proceedings if it concludes that it is unlikely that the rehabilitation or the conclusion of a composition agreement with creditors will succeed. At the discretion of the court, one or several provisional commissioners may be appointed for the temporary debt moratorium to assess the viability of the debtor’s proposal. Provided that all third-party interests remain protected, the court may abstain from giving public notice of the temporary debt moratorium (in which case a commissioner must be appointed). In essence, the effects of the temporary debt moratorium are the same as for the definitive debt moratorium: in particular, the creditors may no longer enforce their claims against the debtor, save for claims secured by a mortgage; civil and administrative court proceedings are stayed (with some exceptions); set-off is only admitted under restrictive conditions; interest on all claims (except the claims secured by a pledge) cease to accrue (unless provided otherwise in the composition agreement); and the statute of limitation is suspended for the duration of the composition proceeding.

If the temporary debt moratorium shows that rehabilitation of the debtor or conclusion of a composition agreement with its creditors can be expected, the court, acting ex officio, may grant a definitive debt moratorium for an additional four to six months and will appoint one or more commissioners. The definitive moratorium may be extended to 12 months and, in complex cases, 24 months upon application of the commissioner. The commissioner’s primary duties are to supervise the debtor’s activities and to perform the tasks set forth in articles 298 to 302 and 304 of the DCBA. The actual powers of the commissioner are determined on a case-by-case basis and can involve actual managerial powers. The commissioner must present interim reports at the request of the composition court and must inform the creditors of the progress of the moratorium. Depending on the circumstances, the court can establish a creditors’ committee that will act as a supervisory body for the commissioners. The creditors’ committee should be composed of representatives of the various classes of creditors. Once established, the creditors’ committee will decide on the sale or charges of assets.

A definitive debt moratorium will suspend pending execution proceedings including bankruptcy and asset-freezing orders (but the prosecution of claims secured by a mortgage remains possible without the realisation of the assets). Civil and administrative litigations will be suspended unless the pending matter is urgent. As one of the centrepieces of the amended DCBA, subject to the express consent of the commissioners and provided the rehabilitation would otherwise be jeopardised, the debtor is entitled to terminate long-term contracts. Resulting (damage) claims of the counterparty will be subject to the composition agreement.

Successful reorganisations

How are creditors classified for purposes of a reorganisation plan and how is the plan approved? Can a reorganisation plan release non-debtor parties from liability and, if so, in what circumstances?

In general, the DCBA allows a financially distressed company to seek rehabilitation under the protection of the court. Special rules apply to public entities and regulated businesses such as banks. Such a rehabilitation procedure is generally referred to as a composition proceeding. Its most significant feature is that it allows the debtor, with the approval of the court, to force its creditors to conclude a settlement agreement and make it equally binding on dissenting creditors. The proceeding is designed to protect the debtor from enforcement proceedings (except for the realisation of collateral for claims secured by a mortgage of real property) and to work out a suitable offer for a composition. During the proceeding, the debtor’s business is generally operated under the supervision of a court-appointed commissioner. The DCBA provides for the possibility of a debt moratorium to give the debtor time under protection of the court to rehabilitate without a composition agreement involving a haircut of the claims being intended. Upon order of the court, this debt moratorium, which may not exceed four months, does not require public notification. In such an event, a commissioner needs to be appointed to protect third-party interests.

Any composition agreement must be approved by either the majority of the admitted (ie, non-secured and non-priority claims) creditors representing two-thirds of the qualifying claims, or one-quarter of creditors with at least three-quarters of the qualifying claims, and must be approved by the composition court.

It is essential to understand that – as opposed to a corporate moratorium pursuant to article 725a of the CO (which will be abolished as of 1 January 2023) – the composition agreement under the DCBA is designed to reorganise the non-secured (including the portion of secured claims that remains uncovered) and non-priority creditors’ claims only and thus does not encompass a full reorganisation plan involving all creditors’ claims.

The prerequisite for the confirmation of the composition agreement by the court is that, pursuant to the findings of the court, the proceeds to be received by the affected creditors must be in sound proportion to the debtor’s means. The terms of the composition agreement are not prescribed by law, which offers a wide variety of options and features. The court has a discretional power to improve composition agreements that are deemed to be insufficient. In case of a composition agreement with a dividend payment and continuation of business, the equity holders must provide adequate contributions. In the case of a composition agreement with a liquidation of the assets, the result of the liquidation must be more favourable than in a bankruptcy.

Non-debtor parties may be released from liability as part of the agreement. In this context, article 303 of the DCBA specifically rules on the duties of a creditor to maintain its rights against third-party debtors and provides that a creditor agreeing to a composition agreement shall inform co-debtors and guarantors about the place and date of the creditors’ meeting and shall offer to assign his or her claim to them against cash payment; non-compliance with this rule will release the third parties from their liabilities.

Furthermore, a contractual condition may be included in the composition agreement according to which the agreement is only concluded if certain third parties are also released from their liabilities. An out-of-court settlement requires the approval of all creditors affected.

Involuntary liquidations

What are the requirements for creditors placing a debtor into involuntary liquidation and what are the effects? Once the proceeding is opened, are there material differences to proceedings opened voluntarily?

To place a debtor into an involuntary liquidation proceeding, the creditor must have undergone the preliminary debt collection procedure that involves the issuance and notification of a payment order by the debt collection and bankruptcy office at the request of the creditor, a successful setting aside of a possible objection raised by the debtor in a court procedure and the petition to continue execution. Upon filing the petition to continue execution, an ultimate order to pay is issued by the debt collection and bankruptcy office, which includes a formal bankruptcy warning notice. At this point in time, the bankruptcy court, at the creditor’s request, may order as a protective measure the drawing up of an inventory of all the debtor’s assets. If the claim is not satisfied within 20 days after the service of the bankruptcy warning notice, the creditor can apply to the bankruptcy court to declare the opening of the bankruptcy over the debtor.

A creditor may request the court to declare a debtor bankrupt without prior enforcement proceedings if the whereabouts of the debtor is unknown, or if the debtor evades its liabilities, engages in fraudulent conduct, has concealed assets in a preceding debt collection, or has ceased to make payments.

The declaration of bankruptcy can be suspended by the court if a petition for a debt moratorium, emergency moratorium or, alternatively (but only for stock corporations, limited liability companies and cooperatives), for a corporate moratorium pursuant to article 725a of the CO (which will be abolished as of 1 January 2023) is submitted.

The bankruptcy proceeding begins upon issuance of the bankruptcy judgment and is to be conducted by the bankruptcy office; it results in a general execution upon the debtor’s assets, with all civil and procedural legal effects.

The declaration of bankruptcy and the beginning of the bankruptcy proceeding have the following effects:

  • one single bankrupt estate is formed consisting of all assets to which the debtor is entitled (irrespective of where they are located or whether they serve as security). The right to dispose of the assets is automatically transferred to the bankruptcy administration. The bankruptcy administration draws up an inventory of all assets and takes protective measures;
  • other enforcement proceedings directed against the debtor are automatically suspended and pending litigations are generally suspended as well;
  • all obligations of the debtor against the bankrupt estate become due with the exception of those secured by mortgages on real estate;
  • except for claims secured by pledge, interest ceases to accrue against the debtor;
  • claims subject to a suspensive condition are admitted in their full amount in the bankruptcy;
  • claims that are not for a sum of money have to be converted into a monetary claim of corresponding value;
  • a creditor may set off its claim against a claim that the debtor has against him or her, provided that the obligation was contracted bona fide prior to the opening of the bankruptcy; and
  • the creditors’ claims are ascertained and listed in the schedule of claims by order of ranking and secured rights.
Involuntary reorganisations

What are the requirements for creditors commencing an involuntary reorganisation and what are the effects? Once the proceeding is opened, are there any material differences to proceedings opened voluntarily?

The possibility for creditors to commence an involuntary reorganisation in the form of a composition proceeding was introduced by the DCBA revision in 1994. In practice, creditors do not frequently initiate such proceedings.

The main prerequisite for creditors to commence an involuntary reorganisation over the debtor is their right to request the opening of bankruptcy proceedings pursuant to article 166 or 190 of the DCBA. In addition, the court may also stay the judgment on the opening of bankruptcy proceedings of its own motion if it appears that an agreement will be reached with the creditors. In this case, the file will be transferred to the composition court.

Apart from that, the requirements for involuntary reorganisation do not differ from those for voluntary reorganisation, and it is conducted through the same procedure as voluntary reorganisation.

Expedited reorganisations

Do procedures exist for expedited reorganisations (eg, ‘prepackaged’ reorganisations)?

Under Swiss law, no specific procedures exist for expedited reorganisations. The length of the debt moratorium period and of the composition proceeding can be considerably reduced based on a prior consensus with the creditors. In cases where the company has a substantial balance sheet, a business or other substantial assets linked to the company’s business, the pre-packaged deal envisaged during the composition proceeding is frequently discussed with the commissioner, or with the court that has the authority to approve the transaction, before the petition to facilitate pre-packaged reorganisations is filed. The amended DCBA favours a pure debt moratorium for a period of up to eight months to rehabilitate financially distressed companies. 

Unsuccessful reorganisations

How is a proposed reorganisation defeated and what is the effect of a reorganisation plan not being approved? What if the debtor fails to perform a plan?

A reorganisation plan may fail for the following reasons:

  • a strong minority of creditors disapproves of the reorganisation and is in a position to preclude the twofold majority requirement from being met;
  • the assets are insufficient to fully cover the privileged creditors and the costs incurred by the commissioner or administrator on behalf of the estate;
  • the debtor is unable to do business during the moratorium period because of a loss of reputation and lack of business;
  • it becomes obvious to the court that the intended rehabilitation will not be achieved; or
  • the debtor acts against the instructions of the commissioner.


If the reorganisation plan is rejected, the court will declare the debtor bankrupt. The same applies in the event an insolvent corporation is no longer capable of reorganisation.

If a binding composition agreement is not fulfilled with regard to a specific creditor, the latter may apply to the composition court to have the agreement revoked as far as his or her claim is concerned, without prejudice to his or her rights.

In a dividend (or percentage) composition agreement, a creditor who has not received the dividend may request the revocation of the composition for his or her claim only and may demand full payment.

Finally, each creditor may apply to the composition court to revoke an agreement obtained by dishonest means.

Corporate procedures

Are there corporate procedures for the dissolution of a corporation? How do such processes contrast with bankruptcy proceedings?

According to articles 736 to 751 of the CO, a corporation may be subject to an ordinary dissolution or liquidation procedure that involves no intervention by the judge or creditors. In that event, one or several liquidator(s) is (are) in charge of the liquidation.

Liquidators are appointed by the shareholders or by the court where the dissolution of the corporation is judicially ordered. The duties of liquidators include establishing a balance sheet and information regarding the creditors of the dissolution. The liquidators terminate all current business before distributing the corporate assets, or the proceeds thereof, among the shareholders. They also give notice to the commercial register that the corporation has been dissolved.

All creditors’ claims must be satisfied in full before such dissolution. A blocking period of at least one year must be observed prior to the payment of the liquidation dividend. An early distribution after three months is possible upon certification by a qualified auditor that no creditor or possible third-party interests are jeopardised.

As opposed to bankruptcy proceedings, corporate dissolution is not subject to verification by the court. However, if the corporation is found to be over-indebted during the liquidation, the bankruptcy court will declare the corporation bankrupt.

Conclusion of case

How are liquidation and reorganisation cases formally concluded?

In the event of bankruptcy, the bankruptcy court closes the proceeding by issuing an order as soon as the liquidation is finished.

In the event of reorganisation, either a report is submitted to the judge after the composition agreement has been implemented or the composition court closes the proceeding by releasing the successfully restructured debtor from the proceeding.