- The payment behaviour of Swiss companies is very good. Most payments tend to be made in advance or within 30 days.
- Domestic courts are fairly efficient in dealing with disputes in a timely manner; however, collecting debt pre-legally remains the most effective option.
- Although mechanisms designed to increase debt renegotiation and company rescue have been put into place, liquidation remains the default procedure at present, thus leaving little chance for unsecured creditors to collect debts from insolvent debtors.
Collecting in Switzerland
Availability of financial information
Main corporate structures
Liability for business debts is determined by legal structures, which are described as follows:
- Sole Proprietorship is available for small businesses managed by an individual and for which no commercial structure is necessary.
In this case, the owner is held liable for all business debts. Two or more individuals may also decide to share ownership and responsibilities through Partnerships, in which case the partners may be jointly and individually liable for the actions of the other partners. Limited Liability Partnerships alternatively offer limited liability to the partners.
- Private Limited Liability Companies (Société à Responsabilité Limitée, SARL / Gesellschaft mit beschränkter Haftung,
GmbH) require minimal capital funds (CHF 20,000, approx. EUR 18,500) while the shareholders’ liability is limited to their contribution. As a result, these entities present the highest risk of default. Joint Stock Companies (Société anonyme, SA / Aktiengesellschaft, AG) are sometimes used by small enterprises but rather tend to be used for medium and large structures willing to divide their capital (at least CHF 100,000, i.e. approx. EUR 92,500) into tradable shares. In these entities, the shareholders’ liability is limited to the value of their shares.
- Foreign companies may alternatively settle in Switzerland through Branch Offices, which provide no liability limitations to the foreign parent company. Joint Ventures may take the form of any legal structure listed above, but incorporation is not necessary, so a contract drafted for this purpose would suffice.
Although the courts have been bound by a unique Civil Procedures Code since January 2011, the cantons’ civil or administrative
courts may deal with claims in the first and second instance. Only four cantons (Aargau, Bern, St. Gallen, Zürich) would provide specialized commercial courts. All four Commercial Courts usually deal with international commercial disputes depending on the place of jurisdiction. At the federal level, the Federal Administrative Court and the Supreme Court of Switzerland (in Lausanne) would have final jurisdiction to reconsider decisions rendered at the cantonal level.
Days Sales Outstanding (DSO)
Late payment interest
Debt collection costs
Although uncommon, use of Retention of Title (RoT) agreements, aiming at preserving ownership over goods until the related invoice is paid in full, is admissible in Switzerland provided that the provisions have been specifically signed by both parties and registered with the debt enforcement official registry (Betreibungsbeamter) of the buyer’s place of registration (or domicile) in Switzerland.
In the event that a RoT agreement was validly established abroad but the goods were moved to Switzerland, the title holder is given three months to take steps so as to render the title valid and permanently effective in Switzerland. RoT rights may be enforced by a segregation request to the competent administration of the bankruptcy or a possible segregation action in case of refusal of the request.
The most common payment methods are as follows:
Direct bank transfers are among the most popular payment means for international transactions as they are fast, secured and supported by an increasingly developed banking network internationally and domestically. Export transactions are usually guaranteed through an Export Credit Insurance policy, which helps minimize the risk of sudden or unexpected customer insolvency.
Allianz Trade’ worldwide network of risk offices monitors the financial well-being of customers and grants them a specific credit limit up to which clients may trade and claim should something go wrong. Alternatively, Standby Letters of Credit (a bank guarantees the debtor’s credit quality and repayment abilities) are often used in relation to export shipment transactions as they constitute reliable guarantees which can be triggered as a ‘payment of last resort’ if the client fails to fulfil a contractual commitment.
Bank guarantees are fairly available. Checks and bills of exchange are not commonly used since the risk of a payment default is considered too high. Payment in advance is also very common.
Although domestic courts are efficient and reliable, amicable settlement opportunities should always be considered as a serious alternative to formal legal proceedings.
Before starting legal proceedings against a debtor, assessing their assets is important as it allows verification as to whether the company is still active and whether recovery chances are at best. In addition, it is essential to be aware of the debtor’s solvency status: if insolvency proceedings have been initiated, it indeed becomes impossible to enforce a debt.
In addition, conciliation or mediation proceedings before a Justice of the Peace prior to commencing formal legal action are mandatory unless i) the dispute falls within the jurisdiction of the Commercial Court of Zurich, ii) the parties have agreed to ignore this opportunity when the claim is above CHF 100,000 (approx. EUR 92,500), iii) the proceedings concern certain actions filed under the Federal Debt Enforcement and Bankruptcy Act, or iv) the proceedings concern the enforcement of a judgment rendered by a competent court as provided under the Lugano Convention of 1988. If the parties cannot agree on a settlement, the conciliation authority will issue a writ (Klagebewiligung) permitting the claimant to bring the dispute before the competent District Court within three months (failure to submit a statement of claim to the competent court within three months does not preclude a case but the claimant would have to resubmit the claim for conciliation).
If the amicable phase fails or if the debtor questions the claim, the option of starting legal proceedings remains.
Swiss law provides two types of proceedings for the enforcement of money claims, respectively referred to as special execution proceedings (Spezialexekution, i.e. the seizure of assets) and general execution proceedings (Generalexekution, i.e. bankruptcy). Both types of enforcement proceedings may be initiated by a creditor (or a private individual/company claiming to be a creditor) by filing an enforcement request with the competent debt enforcement authority (Office des Poursuites/Betreibungsamt) and asking for issuance of a payment summons to the debtor. Without assessing the substance of the alleged claim, the authority summons the debtor to pay within 20 days or to bring a defence within ten days. In the absence of any reaction, the creditor may request a default judgment ordering attachment on the debtor’s assets.
When a claim is certain and undisputed, or when the creditor has already obtained an enforceable judgment against the debtor, the dispute may be solved through summary proceedings in which documentary evidence prevails over hearings (which are non-existent) and in which the debtor’s right to oppose the claim is waived.
When the claim is disputed by the debtor, the court may decide to either set the objection aside and authorize continuation of the enforcement proceedings (under Article 88 SchKG) with the competent debt enforcement authority, or to have the dispute solved through full court proceedings within one year of service of the payment summons. It should be noted that, since 2011, the Swiss
Procedural Code has introduced a significant pre-trial discovery method into proceedings which allows the parties to request evidence from the other party prior to commencing litigation. The courts would typically award remedies in the form of compensatory damages, specific performance, seize and sell orders, declaratory judgments, etc. Punitive damages are not available, however.
In practice, using a lawyer is highly recommended at all stages because debts are frequently questioned without any justification being required. Having said this, any action against a debtor will be kept on public records for five years, which may constitute a source of pressure while collecting debt.
Standard statutory periods of limitation are determined in accordance with the Swiss Code of Obligations (CO). Commercial claims must normally be brought within ten years, but more constraining limitations apply: a five-year period of limitation applies to claims relating to rent, interest on capital and other periodic services; to claims relating to the supply of foodstuffs, catering and innkeepers’ debts; to claims relating to handcrafts, retail of goods, provision of medical services, professional work by lawyers, legal agents, procurators and notaries as well as claims relating to employees’ working conditions. Unjust enrichment disputes must be brought within one year.
The period of limitation is interrupted by debt enforcement or legal action within a current period of limitation, but the matter is considered as a substantive legal requirement and failure to abide by the rules would bar access to court.
Interim measures may help preserve the creditor’s interests pending a final court decision. Upon request, the courts would typically order provisional measures aiming at preserving evidence, the status quo and avoiding irreparable damage (injunctions, orders to remedy an unlawful situation, orders to a Register Authority or to a third party, performance in kind, payment of a sum of money). The courts would however require credible evidence that a right to which the creditor is entitled has been (or will soon be) violated, that such violation threatens to cause irreparable harm to the applicant.
In cases of special urgency, and in particular where there is a risk that the enforcement of the measure will be unsatisfied, the court may order interim measures immediately without hearing the opposing party (ex parte). The court must nonetheless summon the parties to a hearing so as to allow the debtor to present a defence.
The court would however ex officio order the creditor to provide security on costs in order to protect the debtor from abuse.
Lodging an appeal
How long could legal action take?
How much could this cost?
Alternatives to legal action
Alternative Dispute Resolution methods (ADR)
Enforcing foreign awards
As previously mentioned, using foreign forums in order to obtain enforceable decisions against local debtors is rather unusual.
Nonetheless, foreign decisions issued against foreign debtors may be enforced in Switzerland under certain conditions. As a general rule, most countries permit enforcement of foreign awards provided that an exequatur procedure has been conducted to recognize the foreign decision as a domestic one, and this principle applies in Switzerland. Two situations must however
On one hand, domestic courts would rapidly enforce decisions falling under the scope of an application of bilateral reciprocal recognition and enforcement treaties and decisions issued in EU countries as well as in Norway, Denmark and Iceland under the Lugano Convention (which extended the Brussels I regulations to third state parties). On the other hand, foreign judgments issued in other countries would have to go through exequatur proceedings (as provided under the Swiss Private International Law Act) so that the courts would, among other points, verify whether the issuing tribunal had jurisdiction to decide on the claim, whether the decision is final in the issuing country (i.e. whether all appeal venues have been exhausted) and whether the parties both benefited from a due process of law. The courts would also ensure that the foreign decision does not contradict Swiss public policy.
Switzerland is also a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958; therefore, domestic courts also ought to enforce decisions rendered through international arbitration proceedings.
Restructuring the debt
Even though most insolvency procedures lead to liquidation, some insolvency proceedings aim to support business continuation through a debt restructuring agreement between debtors and creditors. The process is similar to the Chapter 11 proceedings under U.S. law, and allows a debtor to stay in business provided that its remaining assets cover all privileged claims and debts. The company is furthermore left under the supervision of a court-appointed administrator and a moratorium (Nachlassstundung) is put in place to preserve it from parallel enforcement claims while a plan is negotiated. The plan must be approved by a majority of creditors in order to be valid.
As opposed to bankruptcy proceedings, debt restructuring proceedings allow for a more flexible realization of the debtor’s assets and are therefore often likely to yield higher proceeds to be proportionally distributed to the creditors.
Despite efforts to increase debt restructuration negotiations, Swiss law focuses less on the continuation of the debtor’s business activities than on the protection of the rights of the creditors, so that the default insolvency procedure in practice essentially aims at seizing the debtor’s assets.
In this case, business operations come to an immediate standstill while the debtor loses authority to dispose of its assets. Once the court declares the debtor bankrupt, the creditors are given one month to file their claims with the liquidator, which then establishes the list of liabilities and sells the assets prior to distributing the proceeds to the creditors.