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Trends and regulatory climate


What is the current state of the lending market in your jurisdiction and have any new trends emerged over the last 12 months?

The Swiss lending market has demonstrated robust form in the past 12 months, with demand for credit being driven by strong M&A activity and sustained negative benchmark interest rates for borrowings in Swiss francs.

The number of non-bank lenders (particularly credit funds) active in the Swiss lending market continued to increase in the past year. Against this background, it is important to highlight that the number of non-bank lenders under a credit facility made available to a Swiss borrower must be limited to 10 in order to avoid triggering withholding tax on interest payments, according to the so-called ‘Swiss 10/20’ non-bank rules. Non-bank lenders should be aware of these restrictions when structuring transactions in Switzerland.

Regulatory activity

Is secured lending a regulated activity in your jurisdiction?

Secured lending to professional counterparties is not subject to prudential regulation in Switzerland. However, professional lenders are subject to anti-money laundering regulations which require them to join a recognised self-regulatory organisation or submit to limited supervision by the Swiss Financial Market Supervisory Authority for anti-money laundering purposes and, in addition, comply with certain due diligence, documentation and reporting duties. Further, if a lender also conducts a banking business in the sense of the Swiss Banking Act – in particular by accepting or soliciting the acceptance of deposits from the public – it requires a banking licence and is subject to supervision by the Financial Market Supervisory Authority, under Swiss banking regulations. Foreign lenders should note that the Swiss inbound cross-border regime for financial services is generally liberal, but if persons are employed who are physically present in Switzerland (eg, those who travel to Switzerland frequently) or if local infrastructure is used, then licences and other regulatory requirements may apply.

Are there any specific regulatory issues which a prospective borrower should consider when arranging or entering into a secured loan facility?

Borrowers which are regulated entities may be subject to additional restrictions, which will need to be considered in light of the specific transaction. For example, medical institutions must comply with the relevant privacy requirements when using receivables owed by patients as security.

Liabilities that are not in the form of a bond and that are undertaken towards lenders which are not banks or institutional investors may qualify as deposits from the public, where persons who accept more than 20 deposits from the public on an ongoing basis qualify as banks and are subject to a banking licence requirement. Further, persons that refinance themselves by more than Sfr500 million (averaged over the past four financial quarters) with more than five unaffiliated banks in order to finance an undetermined number of unrelated parties in any manner qualify as banks and are subject to a licence requirement. However, this latter qualification rarely applies in practice.

Are there any specific regulatory issues which a prospective lender should consider when arranging or entering into a secured loan facility?

If the secured lending activity is performed on a purely cross-border basis into Switzerland (ie, not using employees or infrastructure in Switzerland nor representing that the lender is somehow based or present in Switzerland), no Swiss licence requirements will apply. In the case of a local activity in Switzerland, anti-money laundering supervision requirements and potential further licence requirements must be considered, depending on the lender’s overall activity. Regulatory considerations might further become relevant from a lender’s perspective, depending on the transaction at issue (eg, with respect to which assets may be taken as security). Such restrictions must be assessed on a case-by-case basis.

Are there plans or proposals for reform or significant changes to the regulatory landscape in this area?

To our knowledge there are currently no plans or legislative proposals which would have a significant impact on secured lending transactions in Switzerland, though there are plans to ease the regulatory framework with regard to banking in order to enable innovative technology-based financial services.

Structuring a lending transaction


Who are the active providers of secured finance in your jurisdiction (eg, international banks, local banks or non-bank financial institutions)?

Local banks are the most important providers of secured financing in Switzerland, followed by international banks and non-bank financial institutions.

Is well-established market-standard facility documentation used in your jurisdiction for secured lending transactions?

Large secured lending transactions with a volume in excess of Sfr50 million are typically documented using facility agreements following the recommended forms prepared by the Loan Market Association. Such documentation is widely used and accepted in the Swiss lending market. Smaller transactions, especially where the volume is lower than Sfr20 million, are most often documented under the standard bilateral facility documentation used by the respective lender.


Are syndicated secured loan facilities typical in your jurisdiction?

Yes, syndicated secured loan facilities are widely used in Switzerland, particularly to finance leveraged acquisitions or large real estate portfolios.

How are syndicated facilities normally structured? Does the law in your jurisdiction allow a facility agent to be appointed to act on behalf of other banking syndicate members?

Syndicated facilities are typically either arranged by a bank mandated for that purpose by the borrower or granted by a group of lenders pre-selected by the borrower (a so-called ‘club deal’).

Usually, a member of the lending syndicate is appointed as agent for the other syndicate members under the facility agreement. The agent's duties under the facility agreement are mechanical and administrative in nature (eg, managing payments between the borrower and the syndicate members, determining interest rates, receiving notices and distributing information to the syndicate members). The agency role is typically fulfilled by a dedicated department within the relevant bank.

In secured syndicated lending transactions the syndicate members will also appoint a security agent (often the same entity as the agent), which holds and administers the security for the syndicate.

Does the law in your jurisdiction allow security and guarantees to be held on trust by a security trustee for the benefit of the banking syndicate?

Under Swiss law it is not possible to set up a trust. However, foreign trusts will be recognised in Switzerland subject to the respective provisions set out in the Swiss Private International Law Act and the Hague Trust Convention, which was ratified by Switzerland in 2007. Subject to the prerequisites of these, a trust created under foreign law for the benefit of a banking syndicate will therefore be recognised by Swiss courts.

In the case of lending transactions governed by Swiss law, the security agent will act either as a direct representative in the name and for the account of each secured party or as an indirect representative in its own name but for the account of each secured party, the latter concept being more akin to a common law trust. The security agent will be required to act as direct representative in respect of security for which Swiss law requires that the creditor of the secured debt be identical to the person holding the security interest (ie, so-called ‘accessory’ securities, such as pledges). Parallel debt structures, where the debtor of the secured debt stipulates a separate debt in favour of the security agent to allow the creation of accessory security solely in the security agent's name, have to our knowledge not yet been tested in Swiss courts and it is therefore uncertain whether they would be considered valid if brought under judicial scrutiny.

Special purpose vehicle financing

Is it common in secured finance transactions for special purpose vehicles (SPVs) to be used to hold the assets being financed? Would security generally be given over the shares in the SPV or would lenders require direct asset security?

In Switzerland, SPVs are commonly used in leveraged acquisition financing transactions, where sponsors typically do not wish to be liable for the acquisition debt if the cash flow of the acquired business is not sufficient to service the debt. SPVs are also used in other contexts, such as export financing and project financing, albeit less frequently. SPVs are not commonly used in general secured lending transactions (eg, to finance large corporates' working capital needs).

Where an SPV is used for a secured lending transaction, security over the shares in it is typically required. Security over the assets acquired by the SPV will also typically be sought by lenders, though there may be legal limits as to the practicality of taking such security (eg, in respect of inventory) or its commercial value (eg, upstream limitations).


Is interest most commonly calculated by reference to a bank base rate or a market standard variable reference rate (eg, LIBOR, EURIBOR or HIBOR)? If the latter, which is the most commonly used reference rate in your jurisdiction?

Interest is typically calculated by reference to reference bank rates plus a margin. The base rate is typically EURIBOR in respect of euro borrowings or LIBOR in respect of other currencies. In recent years, due to the fact that LIBOR rates for Swiss francs have been negative, lenders have typically required that the interest calculation mechanism provide that the base rate may not be less than zero.

Are there any regulatory restrictions on the rate of interest that can be charged on bank loans?

With the exception of interest on consumer credit loans, the maximum interest rates allowable in Switzerland are primarily subject to legislation on a cantonal, rather than federal, level. Typical limits are between 15% and 18% per year. Interest rates in excess of this may in addition be found to violate federal law, though no fixed limit is set in federal legislation. Against the background of prevailing low interest rates, the maximum interest limits currently have no practical relevance in commercial lending transactions.

Use and creation of guarantees

Are guarantees used in your jurisdiction?

Yes, the use of guarantees is common in Switzerland. In typical commercial lending transactions, affiliates of the borrower often provide guarantees in favour of the lenders.

What is the procedure for their creation?

Guarantees are created by contract, through either a provision included in the facility agreement or a separate guarantee agreement. Generally, the creation of an enforceable guarantee does not require registration under Swiss law.

The guarantee undertaking in Swiss law – governed syndicated credit documentation usually follows the wording set out in the Loan Market Association recommended form, with a few alterations.

Do any laws affect or restrict the granting or enforceability of guarantees in your jurisdiction (eg, upstream guarantees)?

Upstream and cross-stream guarantees granted by a Swiss guarantor (ie, guarantees granted for the benefit of such a guarantor's parent or sister companies) must be examined in the light of the restrictions and conditions imposed by Swiss corporate and tax laws.

From a corporate law perspective, the granting of upstream or cross-stream guarantees should generally be made only on arm's-length terms, as directors of a Swiss company must act in the best interests of that company at all times. Since there are no safe haven rules or other guidance as to what conditions will be considered as arm's-length terms, it is highly recommended that cautionary measures be taken, in case the arm's-length nature of the up or cross-stream security or guarantees is later denied. For one thing, the guarantor’s articles of association should explicitly permit the granting of up and cross-stream guarantees with or without consideration, as the commitment in question could otherwise be deemed ultra vires and thus null and void from the outset. If required, the necessary changes to the articles of association can usually be made within two to three weeks. In addition, any up or cross-stream guarantee should be unanimously approved by the shareholder(s) and the members of the board of directors of the Swiss guarantor in written resolutions.

Where an up or cross-stream guarantee is not granted on arm's-length terms between the Swiss guarantor and its relevant parent or sister companies, payments under the guarantee will constitute a constructive dividend or, if no sufficient freely distributable reserves are available, amount to a prohibited repayment of share capital. To avoid such a repayment (and related liability for members of the board of directors of the relevant guarantor), up and cross-stream guarantees should be granted only subject to market-standard limitation language which provides that the guarantee may be enforced only to the extent that the Swiss guarantor has freely distributable reserves. To the extent that the enforcement in an amount up to the freely distributable reserves constitutes a constructive dividend, certain corporate formalities must be fulfilled – such as the preparation of an (audited) interim balance sheet and approval by the shareholders' meeting of the Swiss guarantor.

From a tax perspective, if up or cross-stream guarantees are not granted on arm's-length terms, the difference between the consideration granted by the affiliate to the Swiss security provider (if any) and an arm's-length consideration may constitute a hidden dividend distribution on which Swiss withholding tax (currently 35%) is payable. Further, in case an up or cross-stream guarantee which is not granted on arm's-length terms is enforced, any amount recovered may be considered a distribution and as such will also be subject to Swiss withholding tax. While this is generally recoverable if the recipient or beneficiary is a Swiss resident entity, a non-resident may be entitled to a refund only if there is an applicable double taxation treaty.

Subordination and priority

Describe the most common methods of structuring the priority of debts and security.

Subordination of debt under Swiss law can be achieved contractually through an agreement between the debtor, the subordinated creditor and the senior creditor in which the subordinated creditor's claims are subordinated to the claims of the senior creditor. It is also possible for more than two parties to agree on more complex ranking systems. Generally, subordination undertakings not only refer to the ranking of the creditors in an insolvency of the debtor, but also set out an obligation for the debtor not to repay the subordinated debt until the senior debt has been repaid in full.

In addition or as an alternative to a contractual subordination, structural subordination can be achieved if the subordinated loan is extended to a holding company while the senior loan is extended to a subsidiary of such holding company.

Documentary taxes and stamp duty

Are any taxes, stamp duty or other fees payable on the granting of a loan, guarantee or security interest, or on its enforcement?

As a general rule, the granting or enforcement of a loan, guarantee or security interest does not in itself trigger any Swiss taxes. However, cantonal stamp duties (eg, in the canton of Ticino) must be checked with a view to the specific transaction.

If security is granted over real property, notaries' fees, registration fees (for the land register) as well as cantonal and communal stamp duties may be payable depending on the transaction.

With regard to withholding taxes, interest paid on loans extended to a Swiss borrower are generally not subject to Swiss withholding tax. However, interest payments on bonds are subject to this (at a rate of 35%). The Swiss tax authorities have issued guidelines according to which a loan is considered a bond if either the aggregate number of non-bank lenders (including sub-participations) exceeds 10 under a facility agreement with identical terms or if the aggregate number of non-bank lenders of a Swiss borrower exceeds 20. Against this background, transfer restrictions and other Swiss 10/20 non-bank rules-related language must be incorporated into the respective loan documentation. The restrictions may also apply if no Swiss company acts as borrower but solely provides security.

Guarantees or securities for the benefit of a foreign borrowing subsidiary – in particular if of a downstream nature – may be relevant for the assessment of whether Swiss interest withholding tax on bonds or debentures will be triggered in respect of interest payments by the foreign borrowing subsidiary. Swiss interest withholding tax may also apply if a Swiss or a foreign borrower benefits from (downstream) guarantees of a Swiss affiliate and uses the proceeds directly or indirectly in Switzerland and has more than 10 non-bank lenders in a facility with identical terms or more than 20 non-bank lenders under all its credit facilities in total.

Further, the Swiss Confederation and the cantons or communes levy a withholding (source) tax on interest paid to foreign lenders which benefit from mortgage security on Swiss real estate. The combined rate of the tax is between 13% and 33%, depending on the canton and commune in which the real estate is located. This interest withholding tax is reduced (to zero) under a number of double taxation treaties, including those with the United States, the United Kingdom, Luxembourg, Germany and France.

Cross-border lending

Governing law

Is it more common for local law to govern the terms of the facility documentation or is the law of another jurisdiction often elected by the parties (eg, English law or New York law)?

Facility documentation in Swiss lending transactions is typically governed by Swiss law, even if based on English language Loan Market Association recommended forms. However, it is not uncommon for large Swiss borrowers to access international lending markets under facility documentation governed by English or New York law in cases where the arrangers are not Swiss domiciled banks. Such facility documentation is generally enforceable in Switzerland.


Are there any restrictions on the making of loans by foreign lenders or the granting of security or guarantees to foreign lenders?

Except in the area of consumer credit, there are no restrictions on the making of loans by foreign lenders (and no registration requirements), provided that the lenders have no infrastructure or employees in Switzerland.

With regard to the granting of security (over all forms of property) or guarantees to foreign lenders, there are very limited restrictions. For example, security over shares in a regulated company which must have a majority of Swiss shareholders would result in limited enforcement alternatives (eg, the shares could be purchased only by Swiss persons).

In the area of secured real estate financing, if a borrower intends to secure a loan facility made available to it by a foreign lender by charging residential real estate or mortgage certificates over land plots located in Switzerland, compliance with the Federal Act on the Acquisition of Real Estate by Persons Abroad must be ensured based on a case-by-case analysis, as in certain circumstances the lender might obtain a dominant position in respect of the real property subject to the security. In such case, an authorisation by the competent authority may be required for the transaction to go ahead – although this may be refused.

Are there any exchange controls that restrict payments to a foreign lender under a security document, guarantee or loan agreement?

There are no Swiss exchange controls in force which would restrict payments to a foreign lender under security documents, guarantees or loan agreements. However, there might be sanctions in place from time to time restricting, among other things, the entering into finance documents or the making of payments under finance documents.

Security – general

Security agreements

Is it possible to create a security interest over all assets of an entity? If so, would a single security agreement suffice or is a separate agreement required for each type of asset?

It is not possible under Swiss law to cover all types of asset which an entity may hold under one single security interest. In respect of each class of asset only certain types of security interest are available, hence using all or virtually all assets of an entity as security is possible only where that entity exclusively holds assets over which a security interest can validly be created under Swiss law and by separately creating a security interest over each relevant class of asset (which could theoretically be done in the same agreement, though in practice it is common to use separate agreements). However, as an important caveat, the creation of security over chattels is usually not practical under Swiss law, hence any inventory or other movable property would typically remain free of security.

Release of security

What are the formalities for releasing security over the most common forms of assets?

The formalities required for the release of a security interest depend on the type of the respective security interest. In case of security of an accessory nature such as a pledge, the security will automatically cease to exist once all secured obligations have been discharged in full (ie, the existence of the security interest depends on the existence of a claim).

The release of a security interest is usually effected by a release agreement (or a clause in the original security agreement governing the release) and the necessary release action, depending on the type of the security interest:

  • in case of a pledge or security transfer of legal title of mortgage certificates, the re-transfer of the mortgage certificates;
  • in case of a pledge of movable tangible assets or shares, the re-transfer of possession of the pledged assets or share certificates to the pledgor;
  • in case of an assignment of claims or other rights, the re-assignment in writing of the relevant claims to the assignor;
  • for an outright transfer of movable properties or book-entry securities, the re-transfer of the relevant assets to the pledgor;
  • for a pledge of book-entry securities, the termination of the account control agreement; and
  • in case of security over IP rights, the registration of the release in the relevant registers.

If third parties such as debtors of assigned claims or account banks have been notified about the security interest, it is also advisable to notify them about the release of the respective security.

Asset classes used as collateral for security

Real estate

Can security be granted over real estate? If so, what are the most common forms of security granted over real estate and what is the procedure?

Yes, security can be granted over real estate under Swiss law. Customary forms of security over real estate include the following.

Mortgage certificate security transfer or pledge

Mortgage certificates are a financial instrument representing a personal claim against the debtor, which is secured by a lien on real property. Mortgage certificates may be issued in bearer, registered or paperless form. In either form the mortgage certificate constitutes a negotiable instrument, legal title to which can be transferred for security purposes and which can be pledged. Since there are certain practical advantages for a secured party to have full legal title to the mortgage certificate (eg, the mortgage certificate does not form part of the debtor’s bankruptcy estate), practitioners generally prefer a security transfer of legal title over the creation of a pledge. In order for security in the form of a mortgage certificate to be created, the mortgage certificate – if not already issued – must first be created by way of a notarised deed. The parties then enter into an agreement regarding the security transfer or pledge of the mortgage certificates (no notarisation or filing with the land register is required) and transfer legal title to the mortgage certificates in the appropriate form (including, in the case of registered and bearer mortgage certificates, the transfer of possession of the mortgage certificate and, in case of the paperless mortgage certificate, a registration of the transfer of legal title or pledge, as applicable, in the land register).

Land charge

A land charge is a mortgage which is entered into the land register and secures any kind of claim, whether actual, future or contingent. Other than in the case of a mortgage certificate, the secured claim is not entered in the land register and neither the land charge nor the secured claim is evidenced in the form of a negotiable instrument. For certain reasons, the land charge is less commonly used than mortgage certificates. To grant security in the form of a land charge, the parties must enter into an agreement regarding the creation of the land charge in the form of a notarised deed and file this with the land register. Once the land register has registered the land charge, the security is created.

With both forms of mortgage security, the secured party's claims can be secured by property belonging to the borrower or a third party (third-party security).

Machinery and equipment

Can security be granted over machinery and equipment? If so, what are the most common forms of security granted over this kind of property and what is the procedure?

Yes, security can be granted over machinery and equipment. However, Swiss law does not generally recognise the concept of a floating charge or floating lien; therefore, taking security over inventory, machinery or equipment is often impractical.

Customary forms of security over tangible property include the following:

  • A pledge (being a limited right in rem) entitles the secured party to liquidate such assets in case of a default (however defined) by the debtor.
  • Security transfer of legal title, where the secured party acquires full legal title in the transferred assets and is entitled to liquidate these in case of a default (however defined) by the debtor and retain the proceeds up to the amount of its secured claim(s).

Unless specific rules apply in relation to a certain type of asset, perfection of a pledge or a security transfer of legal title requires a valid security agreement (in any form) and the transfer of physical possession of the relevant collateral to the secured party. No security is created as long as the security provider has possession over the relevant tangible movable assets, making it impossible to grant security over equipment and inventory while leaving the pledgor in a position to make use of such assets.

An exception applies to certain types of movable asset which are subject to specific laws. Most importantly, security over aircraft, ships and railroads is perfected by the entry of the security in the respective public register (such registration replaces the requirement to transfer possession).


Can security be granted over receivables? If so, what are the most common forms of security granted over this kind of property and what is the procedure?

Yes, security can be granted over receivables under Swiss law. Such security can be created in the form of a pledge or an assignment for security purposes:

  • The perfection of a pledge over rights or receivables requires a valid security agreement in written form.
  • Perfection of a security transfer of legal title to rights or receivables requires a valid security agreement in writing and a written assignment declaration. In practice, the assignment declaration is usually set out in the security agreement.

Where a pledged or assigned claim is represented by an acknowledgement of debt, such a document must be transferred to the secured party as a perfection requirement.

It is not a perfection requirement to notify third-party debtors of the pledge or the assignment for security purposes (except if a second-ranking pledge is created). However, as long as the debtors are not notified, they can still validly discharge their debt by making a payment to the assignor.

It is customary to request notification for the debtors of intra-group receivables, insurance receivables and bank account receivables at the time the security is created. Debtors of trade receivables are generally notified only upon the occurrence of an event of default in order not to prejudice the legitimate business interests of the security provider.

If receivables in respect of a Swiss bank account are pledged or assigned for security purposes, the Swiss bank's general business terms usually provide for a first-ranking security interest over the bank account. A third party therefore obtains a second-ranking security interest over a Swiss bank account only, unless the bank waives its priority rights. To create and perfect such second-ranking security interest, the bank must be given notice.

In order to make sure that a pledge or assignment for security purposes is not qualified as a conditional security interest (arising only once the secured party has notified the debtors), it is important to ensure that the secured party has the right to notify debtors at any time.

Financial instruments and cash

Can security be granted over financial instruments? If so, what are the most common forms of security granted over this kind of property and what is the procedure?

Yes, security can be granted over financial instruments.

Common types of financial instruments (both in certificated and dematerialised form) over which security is granted include shares, debt securities and units in collective investment schemes. Security over financial instruments may be created in the form of a pledge, security transfer of legal title or an assignment for security purposes.

Creation of security over a financial instrument requires a valid security agreement in written form. However, perfection varies depending on the type of financial instrument:

  • Certificated financial instruments require the certificates to be transferred into the possession of the security holder. Additionally, registered certificates must be duly endorsed (in blank).
  • Uncertificated financial instruments must be pledged, transferred or assigned in writing.

The Federal Intermediated Securities Act sets out rules in relation to the granting of security over intermediated securities. Intermediated securities comprise both debt and equity securities which are booked into a securities account with an intermediary. A security interest over intermediated securities can be granted in one of the following ways:

  • Transfer of the intermediated securities to the securities account of the secured party. This takes place when the security provider gives instructions to the bank to effect the transfer and the bank then credits the intermediated securities to the secured party’s securities account.
  • The securities remain booked in the account of the security provider. However, under an irrevocable account control agreement with the security provider (and typically the security agent), the relevant intermediary irrevocably undertakes to comply with any instructions from the secured party.

Can security be granted over cash deposits? If so, what are the most common forms of security granted over this kind of property and what is the procedure?

Yes, security can be granted over cash deposits. Cash deposits held in bank accounts are treated as claims of the beneficiary against the bank. Therefore, the creation of security over cash deposits is based on the same principles that apply to security over bank accounts, claims and receivables.

Intellectual property

Can security be granted over intellectual property? If so, what are the most common forms of security granted over this kind of property and what is the procedure?

Yes, security can be granted over intellectual property. Intellectual property over which security is commonly granted includes:

  • patents;
  • trademarks;
  • copyrights;
  • designs;
  • domain names; and
  • pending applications for the aforementioned IP rights.

The two available forms of security over intellectual property are pledges and security transfers of legal title. These are both created by a written security agreement.

Registration is not required to perfect the security with respect to intellectual property registered in Switzerland (a local law-based assessment is required with respect to intellectual property registered in other jurisdictions), although it is recommended, so that the security holder can enforce its security interest against a third party which could otherwise rely, in good faith, on the information registered in the relevant public register. It is customary to at least register the pledge or the security transfer of legal title with respect to the core IP rights or the security provider.


Criteria for enforcement

What are the common enforcement triggers for loans, guarantees and security documents?

The circumstances under which security or a guarantee can be enforced are determined by general principles of law, as well as by the specific provisions of the respective security agreement.

Generally, a secured party is permitted to enforce security if the secured obligations are not paid when due. In practice, customary Swiss security agreements usually make the occurrence of an ‘enforcement event’ (however defined) a condition for enforcing the respective security; such an enforcement event will typically be defined by reference to the events of default and respective acceleration provisions set out in the underlying finance document which iwill, in addition to non-payment, include further triggers.

Swiss law guarantees are independent of the existence and validity of the secured obligations. Hence, it is sufficient that the conditions for enforcement set out in the guarantee (if any) are fulfilled, which often consist merely in the secured party demanding payment and stating that a default has occurred. However, depending on the circumstances, the enforcement of a guarantee may constitute an abuse of rights, if the secured obligations do not exist or are not valid.

Process for enforcement

What are the most common procedures for enforcement? Are there any specific requirements with which lenders must comply?

Private enforcement

Private enforcement is generally favourable to secured parties as it can be effected more expediently and in a less cumbersome manner than enforcement by way of official debt enforcement or bankruptcy proceedings. If legal title to assets has been transferred for security purposes, enforcement can be effected only by way of a private enforcement. In the case of other types of security (eg, pledges), private enforcement is generally permitted only with the (advance) consent of the security provider and provided that no official enforcement proceedings have been initiated pursuant to the Act on Debt Enforcement and Bankruptcy.

Subject to the provision set out in the relevant security agreement, a private enforcement – including under certain circumstances a self-sale – may typically be effected in a manner and at a time that the secured parties deem fit (eg, via an auction process). However, assets may not be sold below fair market value and any surplus remaining after the application of the proceeds to the secured debt must be returned to the security provider.

Official enforcement proceedings

The enforcement of security follows the rules set out in the Act on Debt Enforcement and Bankruptcy in case:

  • bankruptcy proceedings have been initiated with regard to the security provider (except where private enforcement only is possible);
  • a pledged asset has been attached or seized in the context of debt enforcement proceedings; or
  • the security agreement does not provide for and the parties did not otherwise agree on a private enforcement or the secured parties prefer official enforcement proceedings over a private enforcement.

In general, official enforcement under the Act on Debt Enforcement and Bankruptcy is effected via a public auction. However, assets can also be sold via a private sale by the debt enforcement officials, among others, in the following scenarios:

  • the assets in question would lose value during the time required to prepare a public auction;
  • the costs for safekeeping the assets are unreasonably high;
  • the assets have a market price (eg, are traded on a stock exchange); or
  • all parties agree to the private sale.

Ranking in insolvency

In what order do creditors rank in case of the insolvency of a borrower?

In case of insolvency on the part of the borrower, pledged assets will form part of the bankruptcy estate (and will have to be handed over to the debt enforcement officials). However, any enforcement proceeds will first be used to satisfy the secured claims (upon deduction of the costs of the bankruptcy administrator) and only the remainder of any enforcement proceeds may be used to satisfy creditors.

To the extent that legal title to any assets has been transferred to a creditor for security purposes, the opening of bankruptcy proceedings will not affect the right of the secured creditors to a private enforcement (ie, the secured creditors will also rank ahead of all other creditors). Any overvalue resulting from the private enforcement by the secured party must be turned over to the bankruptcy estate.

Where more than one creditor is secured by the same security interest, the ranking of the creditors in principle depends on when the security was granted (earlier securities rank ahead of more recent ones). For security over real estate and other assets which must be registered (eg, aircraft and ships), the ranking of the security is determined by its rank in the relevant register. Generally, secured parties are free to enter into contractual arrangements governing the ranking of their claims.

Unsecured claims (which includes any claims in respect of which security has not been validly perfected) are ranked in the following order:

  • claims of the bankruptcy administrator;
  • claims prioritised by operation of Swiss bankruptcy laws (including, without limitation, claims of employees and pension funds, and certain claims derived from family law);
  • all other unsecured claims; and
  • subordinated claims.