No further deferral of over-indebtedness-related insolvencies in Switzerland

Simon Roth
Simon Roth

On 14 October 2020, the Federal Council decided not to continue the emergency measures in Swiss insolvency law. Companies that postponed the over-indebtedness notice during the Corona crisis and are still facing over-indebtedness today need to act urgently.

The board of directors of a Swiss company must notify the court if it faces over-indebtedness that cannot be eliminated by subordinating debt. The court then declares the company insolvent and opens bankruptcy proceedings. However, as an alternative to insolvency, the company can initiate an in-court restructuring (called a debt moratorium under Swiss law) by making the appropriate application to the local Restructuring Court.

On 20 April 2020, in line with other countries, the Federal Council suspended the obligation to notify the court of over-indebtedness as a matter of emergency legislation. Over-indebted companies were permitted to postpone the notice if the company had not been over-indebted on 31 December 2019 and there was a reasonable prospect that the over-indebtedness would be remedied by 31 December 2020. However, this emergency provision will be repealed as of next Tuesday, 20 October 2020.

Consequently, the obligation to notify will apply as before if the company is over-indebted next Tuesday, 20 October 2020. Directors of companies that have become over-indebted during the Corona crisis and are still over-indebted today must take immediate action: they should either notify the court of the over-indebtedness (and face insolvency) or – if there is a prospect of restructuring the company – apply to the local Restructuring Court for a provisional debt moratorium.

From 20 October 2020 onwards, the maximum duration of the provisional debt moratorium will be up to eight months (instead of four months under current law). Any application for a provisional debt moratorium must be accompanied by sufficient reasons, which must include a provisional restructuring plan. Therefore, the application must be prepared diligently. The simpler COVID-19 debt moratorium that could basically be requested on a one-page document to the court will be repealed as of 20 October 2020 and will no longer be available to companies in distress.

Failure to give notice of over-indebtedness (or, in the alternative, to apply for a debt moratorium) can result in directors' liability both towards creditors (for damages arising out of delayed insolvency) and towards the Swiss social insurance system (for outstanding social insurance contributions).

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