I INSOLVENCY LAW, POLICY AND PROCEDURE
i Statutory framework and substantive law
Swiss restructuring and insolvency proceedings are mainly governed by the Swiss Debt Enforcement and Bankruptcy Law (DEBA), which entered into force in 1892.2 A number of other laws and ordinances further regulate special aspects of restructuring and insolvency proceedings, such as specific provisions according to the nature of the debtor (e.g., financial institutions).
The recognition of foreign restructuring and insolvency proceedings is governed by the Swiss Private International Law (PILA), which entered into force in 1989.
The DEBA provides for two main types of insolvency proceedings against corporate debtors:
bankruptcy proceedings pursuant to Article 197 et seq. DEBA, aimed at the full liquidation of the debtor's assets and the debtor's dissolution by realising the entire estate and distributing the proceeds proportionately to all creditors; and composition proceedings pursuant to Article 293 et seq. DEBA, aimed at enabling the debtor to reach a restructuring agreement with its creditors. The Swiss Code of Obligations (SCO) entered into force in 1912 and provides for in-court and out-of-court measures supporting the restructuring of a financially distressed debtor, for example, by way of the corporate law moratorium for over-indebted companies pursuant to Article 725a SCO. Further, the SCO requires immediate implementation of restructuring measures, when a company's financial statement shows that half of the share capital and statutory reserves are no longer covered by the company's assets pursuant to Article 725, paragraph 1 SCO.3
The collapse of Switzerland's national airline Swissair in 2001 sparked a public debate over the need to amend Swiss insolvency laws. It was widely criticised that the DEBA failed to deal effectively with the restructuring of financially distressed companies and with insolvencies of large group companies, resulting in the vast majority of restructuring processes ending in liquidation rather than in survival of the companies. Subsequently, the DEBA provisions were discussed in Parliament, and the revised DEBA entered into force on 1 January 2014. The primary objective of the revision was to promote the restructuring of companies over liquidation.
Inspired by the US Bankruptcy Code's Chapter 11 procedure, the revised DEBA facilitates companies' access to protection under a moratorium for mere restructuring purposes. The rules governing the moratorium thus create incentives to apply for a provisional moratorium in a timely manner. Companies shall have enough time to take restructuring measures without the public being aware of their financial difficulties. Changes in employment law in relation to business takeovers should further facilitate the process. In addition, the provisions on terminating long-term agreements were revised. Since 2014, the debtor can extraordinarily terminate long-term agreements other than employment agreements in composition proceedings.4 Thus, debtors can now free themselves from long-term commitments, which may jeopardise the financial stability of the entire company. However, a turnaround from restructurings increasingly leading to company survivals under the revised DEBA remains to be seen.
iii Insolvency procedures
Once a debtor is declared bankrupt by the competent court,5 all of the debtor's creditors take part in the bankruptcy proceedings.
The aim of the proceedings is to satisfy all of the creditors in...