How to Avoid Bankruptcy?

How to Avoid Bankruptcy? Alternative Solutions in Switzerland

Faced with financial difficulties, many Swiss companies find themselves confronted with the risk of bankruptcy. This situation, although concerning, is not without a way out. Swiss law offers several alternatives making it possible to avoid a formal declaration of bankruptcy and to find viable solutions to redress the economic situation of a company in difficulty. These legal mechanisms aim to preserve commercial activity while protecting the interests of creditors. Our law firm assists companies in identifying and implementing the strategies best suited to their specific situation, taking into account the specificities of the Swiss legal framework and the economic issues specific to each business sector.

The Debt Restructuring Moratorium: Temporary Legal Protection

The debt restructuring moratorium constitutes one of the main alternatives to bankruptcy provided by Swiss law. This procedure, governed by articles 293 et seq. of the Federal Act on Debt Enforcement and Bankruptcy (DEBA/LP), offers a company in difficulty time to reorganise and negotiate with its creditors.

Principles and Functioning of the Debt Restructuring Moratorium

The debt restructuring moratorium allows a company to obtain a period during which no enforcement proceedings may be initiated or continued against it, with the exception of privileged claims. This period, generally set at 4 months but extendable up to 24 months in certain cases, gives the company the opportunity to implement restructuring measures and negotiate a composition agreement with its creditors.

To benefit from a debt restructuring moratorium, the company must file a reasoned request with the competent court, accompanied by a recent balance sheet, an income statement, a statement of assets and a cash flow plan. The court only grants the moratorium if there are prospects for restructuring or approval of a composition agreement.

The Different Types of Composition Agreements

Swiss law primarily distinguishes three types of composition agreements:

• The ordinary composition agreement (or dividend composition): creditors agree to receive a percentage of their claims, the remainder being waived
• The composition agreement by asset assignment: the company assigns all or part of its assets to the creditors, who liquidate them themselves
• The reorganisation composition agreement: the company proposes a restructuring plan without necessarily reducing its debts

To be approved by the court, the composition agreement must be accepted by a qualified majority of creditors (representing at least two thirds of the total amount of claims) and offer sufficient guarantees as to its execution.

Out-of-Court Restructuring: A Discreet and Flexible Solution

Out-of-court restructuring represents an interesting alternative for companies wishing to avoid the publicity and rigidity of judicial procedures. This approach is based on direct negotiations with creditors, without formal court intervention.

Advantages and Limits of Out-of-Court Restructuring

The main advantages of this solution are:

• Confidentiality: the absence of public proceedings allows the company's reputation to be preserved
• Flexibility: the parties may develop tailor-made solutions, adapted to their specific situation
• Speed: without the delays inherent in judicial procedures, restructuring measures can be implemented more promptly
• Reduced cost: procedural costs are avoided

However, out-of-court restructuring has certain limits, notably the absence of protection against individual enforcement proceedings by uncooperative creditors. It therefore requires a high degree of consensus among creditors and transparent communication from the debtor company.

Financial and Operational Restructuring

Restructuring often constitutes a central element of bankruptcy avoidance strategies. It aims to durably restore the financial balance and profitability of the company, by acting simultaneously on several levers.

Capital and Debt Restructuring

Financial restructuring may take various forms:

• Capital increase: the injection of new equity, by existing shareholders or external investors, strengthens the company's financial structure
• Debt-to-equity conversion: certain creditors agree to transform their claims into shares or equity interests, thus reducing indebtedness
• Debt rescheduling: extending repayment maturities improves short-term cash flow
• Renegotiation of interest rates: reducing the cost of debt lightens financial charges

Operational and Strategic Reorganisation

In parallel with financial measures, effective restructuring often involves a reorganisation of the company's activities:

• Revision of the business model to adapt to market developments
• Cost optimisation: rationalisation of staff, renegotiation of contracts with suppliers, improvement of operational processes
• Legal reorganisation of the group through mergers, demergers or asset transfers governed by the Merger Act (FusA/LFus)

The Obligation to Notify the Court of Over-Indebtedness

Swiss law imposes on the governing bodies of companies a duty of vigilance regarding the financial situation. Article 725 CO provides notably that the board of directors must convene a general meeting and propose restructuring measures in the event of capital loss or over-indebtedness.

Several indicators may alert to emerging financial risks:

• Deterioration of financial ratios (liquidity, solvency, profitability)
• Recurring delays in payments to suppliers or social insurance authorities
• Accumulation of unpaid client receivables
• Chronic cash flow tensions
• Loss of significant clients or important markets

Preventive Legal Accompaniment: Anticipating to Better Avoid Bankruptcy

The best strategy to avoid bankruptcy remains anticipation. Preventive legal accompaniment makes it possible to identify early warning signs of difficulties and to act before the situation becomes critical.

Several measures may be implemented to strengthen the company's resilience against economic uncertainties:

• Establishment of dashboards incorporating early warning indicators for regular monitoring of the financial situation
• Diversification of financing sources to reduce dependence on a single lender
• Securing contractual relationships with strategic partners (clients, suppliers)
• Implementation of appropriate governance with clear procedures for reporting information and decision-making

PBM Avocats positions itself as a preferred partner in this preventive approach, bringing not only sharp legal expertise but also a strategic and pragmatic vision. We consider that our role is not limited to managing crises when they occur, but to help our clients avoid them through proactive and personalised accompaniment.

Frequently Asked Questions About Alternatives to Bankruptcy in Switzerland