Bankruptcy Declaration: Who Can Request It in Switzerland?
Bankruptcy is a complex legal procedure under Swiss law, governed by the Federal Act on Debt Enforcement and Bankruptcy (DEBA). This procedure aims to liquidate an insolvent debtor's assets in order to satisfy creditors according to precise rules. In Switzerland, several parties may initiate bankruptcy proceedings, but the conditions and procedures differ according to the status of the applicant and the debtor's situation. The consequences of such a step are considerable for both debtor and creditors, which justifies the strict conditions governing applications to open bankruptcy.
Legal Foundations of Bankruptcy in Switzerland
Swiss bankruptcy law rests primarily on the Federal Act on Debt Enforcement and Bankruptcy (DEBA), supplemented by the Ordinance on Bankruptcy (OBankr). This legislative framework specifies the conditions under which bankruptcy may be declared and determines who is entitled to apply. Bankruptcy under Swiss law has several fundamental characteristics:
- It constitutes a collective enforcement procedure
- It aims to distribute the debtor's assets equitably among creditors
- It applies primarily to persons registered in the commercial register
- It results in the debtor being divested of their assets
In Switzerland, three main routes lead to a bankruptcy declaration:
- Ordinary bankruptcy, following unsuccessful debt enforcement
- Bankruptcy at the debtor's own request
- Special cases of bankruptcy without prior enforcement
The Swiss system is characterised by a balance between protection of creditors' rights and those of the debtor. The procedure is strictly regulated to prevent abuse and guarantee respect for fundamental rights. The bankruptcy offices, organised at cantonal level, play a central role in administering proceedings.
The Distinction Between Enforcement by Bankruptcy and Enforcement by Seizure
Swiss law distinguishes two main modes of enforcement: enforcement by seizure and enforcement by bankruptcy. This distinction is fundamental to understanding who can apply for bankruptcy. Enforcement by bankruptcy applies to debtors registered in the commercial register, notably:
- Registered companies (SA, Sàrl, general partnerships, etc.)
- Registered individual traders
- Registered associations and foundations
For natural persons not registered in the commercial register, the normal route is seizure. However, in certain exceptional cases provided by law, bankruptcy may be declared even for these persons.
Bankruptcy at the Request of a Creditor
Creditors are the most frequent applicants for bankruptcy. For a creditor to initiate proceedings leading to bankruptcy, several conditions must be met. First, the creditor must hold a claim that is due and payable against the debtor. This means the payment period has expired and the creditor is entitled to demand immediate performance of the obligation.
The standard procedure comprises several steps:
- Enforcement request: The creditor submits an enforcement request to the competent enforcement office.
- Payment order: The office notifies a payment order to the debtor.
- Possible objection: The debtor may file an objection within 10 days.
- Lifting of objection: If an objection is filed, the creditor must have it lifted by court order.
- Continuation request: Once the objection is lifted or absent, the creditor may request continuation of enforcement.
- Bankruptcy notice: For debtors subject to enforcement by bankruptcy, the office issues a bankruptcy notice.
- Bankruptcy application: If payment is not made within 20 days of notification of the notice, the creditor may apply for bankruptcy before the court.
The bankruptcy court then examines whether the legal conditions are met. If so, it declares bankruptcy. The bankruptcy judgment may be appealed.
Special Cases of Bankruptcy Without Prior Enforcement
In certain situations, a creditor may apply for bankruptcy without going through the ordinary enforcement procedure. Article 190 DEBA provides for these exceptional cases:
- The debtor's cessation of payments
- The debtor's flight with intent to evade obligations
- Fraudulent acts committed to the detriment of creditors
- Concealment of assets during seizure
Bankruptcy at the Debtor's Own Request
Swiss law recognises the debtor's right to apply for their own bankruptcy. This procedure, provided by article 191 DEBA, is referred to as declared insolvency. For such a request to be admissible, the debtor must be insolvent, i.e. permanently unable to meet their financial obligations.
The declaration of insolvency is a formal acknowledgement by the debtor of their inability to honour their debts. It must be addressed to the competent bankruptcy court, generally that of the debtor's domicile or registered office. The court examines the debtor's application to verify that the legal conditions are met, controlling in particular:
- The reality of the state of insolvency
- The absence of any reasonable prospect of short-term recovery
- The debtor's good faith
For legal entities, notably commercial companies, the decision to apply for voluntary bankruptcy must be taken by the competent body according to the legal form. For example, for a public limited company (SA), this decision generally falls to the board of directors.
The Role of Authorities and Ex Officio Bankruptcy
Under Swiss law, public authorities may intervene in triggering bankruptcy proceedings. This intervention occurs mainly in two situations: bankruptcy declared ex officio and bankruptcy applied for by an administrative authority.
Bankruptcy may be declared ex officio by the court in several cases provided by law:
- When a public limited company or limited liability company no longer has its minimum legal capital
- In cases of serious deficiencies in the organisation of a legal entity (absence of a mandatory body)
- Upon the judicial dissolution of a company
Certain administrative authorities may also apply for a debtor's bankruptcy in specific situations:
- The tax administration, for significant tax claims
- AVS compensation funds, for unpaid social security contributions
- The supervisory authority for foundations, in cases of foundation insolvency
Practical Implications and Current Issues of Bankruptcy Declaration
The bankruptcy declaration in Switzerland raises considerable practical questions for all parties involved. For creditors, initiating bankruptcy proceedings often represents a strategic dilemma. While this step may allow partial recovery of claims, it presents several risks:
- The length and cost of proceedings
- Uncertainty regarding the final dividend
- Possible deterioration of commercial relationships
- Risk of total loss for unsecured creditors
Faced with these uncertainties, many creditors prefer alternative approaches such as negotiating a payment plan, obtaining additional guarantees or resorting to targeted enforcement procedures.
For debtors, the threat of bankruptcy constitutes considerable pressure. Managers of companies in difficulty must navigate between sometimes contradictory obligations: maintaining economic activity, preserving employment, complying with legal obligations (including notification of the judge in the event of over-indebtedness) and protecting creditors' interests.
In this context, the early involvement of a specialist law firm can be decisive in identifying available options and implementing the most appropriate strategy.