On 1st January 2019, the revised Swiss Law on Cross-Border Insolvencies entered into force. The first experiences with the revised law are throughout positive and show that the newly introduced simplifications of the Swiss cross-border insolvency regime are increasingly used by foreign liquidators and their counsels.
Under the previous Swiss cross-border insolvency regime applicable until the end of 2018, foreign bankruptcy decrees and composition agreements had to be recognised by a Swiss court in order to produce any effect in Switzerland. If foreign liquidators asked Swiss banks for information or the handing over of the bankrupt's assets the banks refused such requests of foreign liquidators and informed them that they have no authority to act in Switzerland without recognition.
Even if foreign bankruptcy decrees were recognised by a Swiss court, this did not give foreign liquidators authority to act in Switzerland, but resulted in the opening of separate bankruptcy proceedings (ancillary bankruptcy proceedings). These ancillary bankruptcy proceedings were administered by a Swiss bankruptcy office which had to collect the bankrupt's assets located in Switzerland and satisfy secured claims as well as privileged claims of creditors domiciled in Switzerland. The surplus was then handed over to the foreign liquidators, but only after recognition of the schedule of claims of the main bankruptcy proceedings by the Swiss court.
Under the revised regime, set out in articles 166 to 175 of the Federal Act on Private International Law (PILA), foreign bankruptcy decrees and composition agreements still have to be recognised in order to produce effect in Switzerland. Recognition has, however, been simplified by abolishing the requirement for reciprocity and by recognising bankruptcy decrees rendered not only at the bankrupt's domicile, but also at the bankrupt's centre of main interests (COMI).
Even more important is the new possibility to avoid the sometimes inefficient and expensive ancillary bankruptcy proceedings provided that (i.) there are no secured claims or privileged claims of creditors domiciled in Switzerland and (ii.) other creditors domiciled in Switzerland are not discriminated in the main bankruptcy proceedings. When Swiss courts grant leave to proceed without ancillary bankruptcy proceedings, foreign liquidators have authority to collect the bankrupt's assets located in Switzerland but may not perform any sovereign acts in Switzerland. By avoiding ancillary bankruptcy proceedings, there is no need for foreign liquidators to have the schedule of claims of the main bankruptcy proceedings recognised by Swiss courts. As a consequence, foreign liquidators safe a significant amount of time and costs.
Additionally to these amendments, there were various modifications introduced which clarify and facilitate the application of the Swiss cross-border insolvency regime.
First experiences with the revised regime
Since 1st January 2019, there have already been over 30 recognitions of foreign bankruptcy decrees under the revised regime. Under the previous regime, only about 60 recognitions occurred between 2010 and 2016. Hence, there is a visible increase of recognitions of foreign bankruptcy decrees under the revised regime. It is also noteworthy that no cases could be found where recognition was refused since the new law came into effect.
In many of the over 30 recognition cases, the Swiss courts granted leave to proceed without ancillary bankruptcy proceedings because there were no secured claims or creditors domiciled in Switzerland. The numbers indicate that ancillary proceedings could be avoided in more than 75% of all cases.
These statistics are consistent with our own professional experience. The revision of the Swiss Law on Cross-Border Insolvencies has made recognition of foreign bankruptcy decrees much more attractive for foreign liquidators by facilitating the recognition proceedings and by offering a cost efficient possibility to collect assets located in Switzerland without having to go through time consuming and costly ancillary bankruptcy proceedings.