SWITZERLAND: An Introduction to Restructuring/Insolvency

Market Trends

Over the last year, the number of financially distressed companies in Switzerland has increased. This is due to economic uncertainties and challenges, such as the aftermath of the COVID-19 pandemic and global market fluctuations. Also, companies that received COVID-19 bridging loans are facing additional financial challenges in repaying these loans. The number of bankruptcies has risen steadily over the past three years, reaching a new high last year. However, the total loss resulting from bankruptcies has declined to slightly over 2 billion Swiss francs. An industry-by-industry analysis shows that the automotive and real estate sectors have been particularly affected.

On the other hand, the number of new business formations has also constantly increased over the last three years. On average, almost 85% of newly founded companies still exist after one year. Five years after their founding, this figure is just over 50%.

A number of insolvency proceedings were triggered by the bankruptcy of the Austrian company SIGNA, which has kept the insolvency authorities busy since the last quarter of 2023. With more than 20 subsidiaries, SIGNA also had a strong presence in Switzerland. The bankruptcy of the Austrian parent company affected many of these subsidiaries, leading to their insolvency proceedings in Switzerland.

Measures Against Abusive Bankruptcies

Bankruptcy proceedings in Switzerland are initiated either by a creditor through debt enforcement or by the company when it considers itself over-indebted. After the bankruptcy court has opened bankruptcy proceedings, the proceedings are continued only if the expected proceeds from the bankruptcy estate are sufficient to cover at least the costs of the bankruptcy proceedings. In practice, the available assets are often insufficient to cover these costs. The majority of bankruptcy proceedings are therefore discontinued due to a lack of assets. Even if the entrepreneurs behind the bankrupt companies have acted reprehensibly or even criminally, in practice bankruptcy often has no further consequences for them. Moreover, they can easily start a new business immediately after the bankruptcy of their former company.

These and other factors have led to bankruptcy proceedings being increasingly misused to undercut competitors and harm creditors. In some instances, bankruptcy proceedings have been deliberately entered into to evade obligations, which then led to additional burdens on social security systems. Against this background, it was decided to introduce provisions into the law to prevent abusive bankruptcies, with effect from 1 January 2025. These changes include adjustments to the Debt Enforcement and Bankruptcy Law, the Code of Obligations, and Swiss criminal and tax law. The most important amendments concern the following points.

• Under current law, claims based on public law (eg, taxes, fees, charges, dues, fines, premiums for mandatory accident insurance) cannot be enforced through bankruptcy proceedings. This created perverse incentives for financially distressed companies not to pay the claims based on public law, thereby distorting competition. A central point of the new regulation is to abolish this exception to the detriment of public law claims. Henceforth, public law claims can be enforced through bankruptcy under the general rules, just like any other claim. The new regulation serves to prevent companies that do not pay their public law claims from continuing to participate in business transactions to the detriment of the public, creditors and competitors. The consequences of this provision are difficult to assess. In particular, it will depend on how rigorously the authorities will enforce public law claims through bankruptcy proceedings. However, it is generally assumed that there will be an increase in the number of bankruptcy proceedings.

• The Code of Obligations newly stipulates that the transfer of shares and participation certificates of over-indebted companies that no longer have any business activity and no realisable assets is void.

• Under Swiss law, companies are only required to have their annual financial statements ordinarily audited by an auditor if they exceed a certain size. If they do not reach this size, a limited audit is sufficient. Even the limited audit can be waived if all shareholders agree (opting out). This opting-out will no longer be possible retroactively but can only be adopted for future financial years.

• The cantonal tax administrations must henceforth report to the commercial registry offices if a company has not submitted the legally required annual financial statements. This provision strengthens co-operation between the authorities and prevents companies from operating without accounting for extended periods, thereby acting to the detriment of their creditors.

• If bankruptcy offices have a concrete suspicion that criminal offences have been committed, they are now obliged to report this to the public prosecutor.

• If a person is subject to a court-ordered ban on business activity due to a previous conviction for a criminal offence, this will now be reported to the Federal Supervisory Authority for the Commercial Register to ensure that the ban on business activity is effectively enforced.

• In addition, a search function for individuals in the Commercial Register will be introduced. This will allow the public to search for individuals as a preventive measure. The retrievable information is limited to publicly accessible data. In particular, it will be possible to see which positions the searched person holds or has held in which companies.

Outlook: Discharge Procedure for Private Individuals

Unlike most European countries and the USA, Switzerland does not have a debt discharge procedure for private individuals. This legal situation, which is increasingly perceived as outdated, shall be remedied. At the beginning of 2025, the Federal Council published a draft proposal for the introduction of a debt discharge procedure that would allow natural persons to be released from their remaining debts at the end of the procedure. The aim is to provide debtors with a fresh start and thereby enable positive effects for the economy as a whole. The draft proposal will now go to the Federal Assembly of Switzerland for deliberation. It has not yet been decided in which parliamentary session this deliberation will take place.