Revised Swiss law on cross-border insolvencies

Swiss law on cross-border insolvencies revised as of 1 January 2019

Bankruptcy or composition proceedings are only effective within the country in which the insolvency was declared (so-called principle of territoriality). Before being able to access assets located in other countries, bankruptcy and composition estates must obtain judicial recognition in each of these countries. The chapter on cross-border insolvencies in the Federal Act on Private International Law (PILA) regulates the formal recognition of foreign bankruptcy and composition proceedings in Switzerland.

Current law imposes restrictive conditions on this process, which have so far regularly delayed or completely prevented the recognition of foreign insolvency decisions. A revision of the law, which will enter into force on 1 January 2019, removes some of these obstacles. These modifications significantly simplify the recognition of foreign bankruptcy proceedings and composition agreements in Switzerland, in particular with regard to the following issues:

Until now, Swiss recognition was open only for bankruptcies or composition proceedings that took place in states that also recognised Swiss bankruptcies and composition proceedings. In practice, this reciprocity requirement was a hindrance, as it made expensive legal opinions and lengthy clarifications necessary and thereby delayed the proceedings. Often, it even completely prevented foreign bankruptcy or composition estates from having access to assets located in Switzerland. This has now been abolished; the revised international bankruptcy law does not contain the reciprocity requirement any more.

Furthermore, current law requires for Swiss recognition that the bankruptcy or composition decree had been issued at the debtor's domicile or registered office. In the future, foreign proceedings can be recognised if they were pronounced in the state in whose territory the debtor has the centre of his main interests (COMI). This takes account of the fact that in many countries this is the main criterion for the place where the bankruptcy or estate is opened.

After recognition in Switzerland, up to now, the local bankruptcy office had to conduct an ancillary bankruptcy procedure (mini-bankruptcy). This office alone had access to the Swiss assets, which often led to time-consuming coordination with the foreign estate. Now, the mini-bankruptcy will be conducted only if there are creditors in need of protection in Switzerland. In addition, coordination of related domestic and foreign bankruptcy proceedings is facilitated.