Bankruptcy while litigating in Switzerland: what happens and what should you do?

WHAT SHOULD YOU DO?

Request recognition and waiver of ancillary bankruptcy proceedings

To litigate in Switzerland, foreign insolvency practitioners must seek recognition of the foreign bankruptcy decree. Swiss courts recognise such decrees if the following cumulative conditions are met:

• The decree is enforceable in the jurisdiction where it was issued;
• There are no grounds for refusal (e.g., conflict with Swiss public policy, lack of proper notice, breach of fundamental principles of Swiss procedural law or prior res judicata); and
• The decree originates from the debtor’s domicile or Centre of Main Interests (COMI), provided the debtor was not domiciled in Switzerland when proceedings began.

The recognition request must be filed with the Swiss court where the debtor’s assets are located, or at the seat of the debtor’s branch. It must include:

• An apostilled or legalised original of the bankruptcy decree, or at least a certified copy thereof;
• Written evidence of enforceability; and
• Proof of proper notice in the case of a default judgment.

Upon recognition, Swiss law generally requires the opening of so-called ancillary bankruptcy proceedings (“Hilfskonkursverfahren”; “procédure de faillite ancillaire”). These are conducted by the Swiss bankruptcy office, which assumes control of the debtor’s Swiss assets. During this stage, the legal standing to initiate or continue legal proceedings in Switzerland is vested with the Swiss bankruptcy office. The foreign insolvency practitioner may only observe the process – it cannot continue litigating the Swiss cases that the debtor started before bankruptcy, or initiate new ones.

However, foreign practitioners can request the court to waive ancillary proceedings if the following cumulative criteria are satisfied:

• The request is made by the foreign insolvency practitioner;
• There are no Swiss-based secured or privileged creditors (or, if there are, their claims are settled abroad); and
• Non-privileged Swiss creditors are adequately considered in the foreign proceedings and granted the right to be heard.

If the court grants the waiver, the foreign insolvency practitioner may exercise all actions that conform with the applicable foreign law (lex concursus). This includes the transfer of assets of the foreign debtor located in Switzerland to the foreign insolvency estate, the initiation or continuation of litigation in Switzerland, the collection of information and the taking of actions that interrupt the statute of limitations (for example, initiating debt collection proceedings).

The foreign insolvency practitioner must simultaneously comply with Swiss law. This includes refraining from official (sovereign) acts, coercion, or adjudicating dispute (for example, requests to provide information under the threat of penalties).

In our experience, this process typically takes two to three months from the filing of the recognition request.

To prevent asset dissipation during this time, Swiss courts can, upon request, impose conservatory measures, such as freezing bank accounts or restricting property transfers.

Consider assigning Swiss claims or filing criminal complaints

If the recognition and waiver process is impractical due to cost, time, or anticipated creditor resistance, foreign insolvency practitioners may consider assigning Swiss claims. If permitted under applicable law, these claims can be sold to third parties, such as Swiss debt collection agencies or a debtor of the Swiss third-party debtor (i.e., someone who owes money to the party that owes money to the bankruptcy estate and who could thus offset their debt against the assigned Swiss claims).

Such an assignee is not subject to the Swiss blocking statute and does not require prior recognition to pursue legal claims.

In addition, if the debtor’s Swiss assets stem from fraudulent or criminal activities, foreign insolvency practitioners can inform the Swiss prosecution authorities of the crime, which may lead to the opening of a Swiss criminal investigation and the freezing of assets. Later, once the foreign bankruptcy decree is recognised, the foreign insolvency practitioners can, as a private claimant, participate in the proceedings and, notably, access case files. If criminal proceedings lead to asset confiscation, the practitioner may apply for the return of assets to satisfy foreign civil judgments.

CONCLUSION

Foreign insolvency practitioners face certain procedural hurdles when contemplating litigation in Switzerland. Before proceeding, they must obtain the recognition of the foreign bankruptcy decree and may request a waiver of ancillary proceedings. Where recognition is impractical, assigning Swiss claims or initiating criminal proceedings are viable alternatives.

References

¹ ATF 134 III 366, para. 9.2.5 and, more recently, ATF 145 II 168, para. 3.2.3, and decision of the Swiss Federal Supreme Court 4A_34/2021 dated 18 Marc 2022, para. 2.2.

² Decision of the Swiss Federal Supreme Court 2C_303/2010 dated 24 October 2011, para. 2.4.1