Foreign Bank Insolvency

Author:Dr. Andrew Garbarski
Profession:Bar & Karrer

The worst economic disaster since the great depression of 1929 took American and European banks by storm in 2008. The US, European countries and Russia, among others, had to step in to save some of their banks from bankruptcy. Even certain German banks, symbols of the country's strength and prosperity, were on the verge of collapsing. Against this backdrop, the purpose of this briefing is to provide a highlevel summary of the mechanisms in place to cope with the bankruptcy of a foreign bank in Switzerland.

The Swiss Financial Market Supervisory Authority (FINMA) is the competent authority to deal with the bankruptcy of foreign banks. At the request of the foreign bankruptcy administrator or a bankruptcy estate's creditor, FINMA must first recognise the foreign insolvency decree, as the foreign bankruptcy proceedings do not automatically extend to, nor deploy any immediate effects in Switzerland.

According to the provisions of the Swiss Private International Law Act (PILA), a foreign insolvency decree will be recognised if (a) the insolvency order is enforceable in the state where it was entered, (b) there are no grounds for refusal, such as that the recognition would be against Swiss public policy, the decision was taken in violation of the proceeding rights of one party and the matter is already in front of a Swiss court or is already a res judicata, and, (c) reciprocity is granted in the state where the decree was entered.

If these requirements are met, FINMA orders the opening of so-called ancillary insolvency proceedings. Such proceedings allow the realisation of the bank's assets located in Switzerland, and primarily aim at prioritising creditors presenting a close link to Switzerland such as those who are domiciled in that jurisdiction. FINMA would usually appoint a liquidator, unless it decided to carry out the liquidation itself. FINMA also has the power to recognise injunctions or insolvency measures pronounced abroad in connection with the bank's bankruptcy.

However, according to the provisions of the Swiss Banking Act (BA), FINMA may waive the requirement of ancillary bankruptcy proceedings in Switzerland, provided that foreign bankruptcy proceedings (i) treat collateralised and privileged claims of creditors domiciled in Switzerland equivalently to how they would be treated under the relevant Swiss law provisions, and, (ii) adequately take into account other claims of creditors domiciled in Switzerland.

As regards the...

To continue reading