Recognition of foreign bankruptcies and insolvency actions

Swiss bankruptcy law is based on the principle of territoriality. Foreign insolvency and bankruptcy rulings are thus debarred from having a direct effect in Swiss territory as a matter of principle. They only have legal effect if they are formally recognised by Switzerland. If a ruling relates to a foreign financial intermediary, FINMA is responsible for deciding whether to formally recognise it and the resultant legal effects. This applies to banks, insurance companies and collective investment schemes (cf. Art. 37g Banking Act and the special provisions respectively; in addition, Art. 166ff. of Switzerland’s Federal Code on Private International Law (CPIL) applies on a complementary and subsidiary basis).

Prerequisites for recognition

The main prerequisites for recognition are enforceability in the country in which the action was taken or the ruling issued and the absence of grounds to refuse recognition. The latter include incompatibility with the Swiss legal order, the failure to summons a party or follow due process or the breach of other central principles of Swiss procedural law.

Reciprocity is not required if this is in the interests of creditors. The recognition of the foreign insolvency action and the decision on the resultant legal consequences are enacted by decree and published in the Swiss Official Gazette of Commerce and on FINMA’s website.

Insolvency proceedings under Swiss law

In principle, the recognition of foreign bankruptcies entails supplementary bankruptcy proceedings over the Swiss-based assets of the bankrupt foreign entity (Art. 170 para. 1 CPIL). This also applies to foreign resolutions. Secured and privileged (i.e. first- and second-class) creditors can participate in these insolvency proceedings under Swiss law, provided FINMA does not designate an extended group of participants.

If there is a surplus after the completion of supplementary bankruptcy proceedings, this can be made available to the foreign estate. The requirement is that the foreign schedule of claims meets certain criteria, i.e. the claims of creditors based in Switzerland must have been treated appropriately in the foreign schedule of claims. They may not be disadvantaged compared with domestic creditors with the same ranking.

Abridged proceedings the norm

As an alternative to pursuing supplementary bankruptcy proceedings, FINMA can place the Swiss-based assets at the disposal of the foreign administrators and the foreign estate without conducting insolvency proceedings in Switzerland. In this case FINMA authorises the foreign administrators to enforce the claims of the foreign estate, if necessary through the courts, and repatriate the assets based in Switzerland.

Article 37g para. 2 of the Banking Act stipulates two important prerequisites for abridged proceedings. Firstly, all secured and privileged claims of creditors resident in Switzerland must be treated equally in the foreign insolvency proceedings. Secondly, all other claims of creditors resident in Switzerland must receive fair treatment.