Debt Collection in Switzerland

• In most cases, the payment conduct of Swiss companies is very good. The vast majority of payments are made in advance or within 30 days.
• Even though national courts are competent in resolving disputes in an efficient and timely manner, debt collection remains the most efficient alternative.
• Although measures have been put in place to improve loan renegotiation and business restructuring, liquidation is the default method at present, with no opportunity for unsecured creditors to recover debts from insolvent debtors.

1. Summary

1.1. General financial information

1.1.1. Financial information regarding domestic companies can be accessed from the Trade Register, where records of payment errors are stored for five years; however, the access of financial information in Switzerland is very minimal and hardly accessible. Despite the absence of public firms from the stock exchange, businesses are not required to file any financial statements, regardless of their size or legal type.

1.2. Key legal structures

1.2.1. Liability for corporate debt is defined by legal structures identified as follows:

• Sole proprietorship is possible for independently operated small businesses for which no business structure is required. In this scenario, the claimant shall be held responsible for all contractual debts. Two or more people may also decide to share ownership and responsibility by Partnerships, in which case the partners may collectively and separately be responsible for the other couples ' acts. Alternatively, limited liability companies sell the parties limited liability.

• Private Limited Liability Companies (Société à Responsabilité Limitée, SARL/ Gesellschaft mit beschränkter Haftung, GmbH) require minimum capital funds (CHF 20,000), while the shareholders' liability is limited to their contribution. As a consequence these entities present the highest default risk. Joint Securities Companies (Société anonyme, SA/ Aktiengesellschaft, AG) are sometimes used for small businesses which prefer to be used for medium and large entities prepared to split their money into tradable securities (at least CHF 100,000). The owners' responsibility in those companies is limited to the amount of their stock.

• Foreign companies can additionally settle in Switzerland by branch offices which do not give the foreign parent company any responsibility restrictions. Joint Ventures may take the form of any legal structure listed above, but incorporation is not necessary, therefore a contract drawn up for this purpose would be sufficient.

1.3. Regulatory framework

1.3.1. Switzerland is a federal state composed of twenty-six cantons, where the laws are codified and jurisprudence has only a limited role to create law. Cantons hold all the rights and competences not assigned by the Swiss Federal Constitution to the Confederation and are accountable or enforceable (in relation to hospitals, housing, public education and taxation).

1.3.2. Although the courts have been regulated by a unique Code of Civil Procedure since January 2011, in the first and second case the civil or administrative courts of the cantons will deal with cases. Specialized commercial courts would only be established by four cantons (Aargau, Bern, St. Gallen, Zürich) Typically the four Commercial Courts deal with international trade issues based on the location of authority. At the federal level, the State Administrative Court and the Swiss Supreme Court (in Lausanne) would have ultimate authority to appeal cantonal rulings.

2. Receiving Payments

2.1. DSO - Days Sales Outstanding

2.1.1. Swiss corporations' payments activity is outstanding. Many payments tend to be made in advance or within 30 days while periodic delays of up to 10 days can exist. The DSO is slightly higher at 49 days for listed companies.

2.2. Late interests

2.2.1. Articles 73 and 104 of the Federal Law amending the Swiss Civil Code (Part Five: Code of Obligations) provide that interest of at least 5% of the loan is due from the date of the contract or the date of the order for reimbursement (Mahnung / Mise en démeure).

2.3. Costs of debt collection

2.3.1. According to Art. 27 III SchKG, the debtor can not be charged costs for collection by third parties. Collection takes place through the agency of the Municipal Debt Collection Office (Betreibungsamt/Office des Poursuites), which then imposes penalties on the debtor before redistributing the balance to the borrower (calculated on the basis of the available sum of the transaction, the size, the length of the method, etc.).

2.4. Protecting ownership

2.4.1. Though rare, the use of Retention of Title (RoT) contractual arrangements aimed at retaining possession of property before full payment of the relevant invoice is admissible in Switzerland given that the terms have been expressly approved by both parties and recorded with the official debt management registry (Betreibungsbeamter) of the place of registration of the purchaser (or domicile) in Switzerland.

2.4.2. If a RoT deal has been validly formed elsewhere but the items have been transferred to Switzerland, the title holder is granted three months to take steps to make the title in Switzerland valid and permanently accurate. RoT protections may be imposed in the case of a denial of the offer by a dismissal appeal to the qualified bankruptcy administration or by a potential segregated motion.

2.5. Payments

2.5.1. The most common methods of payment are as follows: Direct bank transfers are among the most prominent means of payment for international transactions, as they are quick, protected and sponsored internationally and domestically by an increasingly integrated banking network. Export sales are usually guaranteed through a scheme on export credit protection, which tends to minimize the risk of immediate or accidental insolvency of consumers.

2.5.2. Furthermore, Standby Letters of Credit (a bank guarantees the creditworthiness and repayment ability of the debtor) are often used for export shipping transactions because they provide secure assurances that can be enabled as a' payment of last resort' if the buyer fails to fulfill a contractual obligation.

2.5.3. On the other hand, bank guarantees are relatively usable. Checks and swap bills are not widely used, as the possibility of default on payment is deemed too high. Advance payments are also very common.

3. Collecting Payments

3.1. Amicable action

3.1.1. While domestic courts are effective and reliable, friendly settlement opportunities should always be seen as a serious alternative to formal legal proceedings.

3.1.2. Until starting legal proceedings against a claimant, it is necessary to determine their properties as it requires assurance as to whether the business is still operating and whether the chances of recovery are at best. However, it is important to be mindful of the solvency position of the debtor: once insolvency proceedings have been started, prosecution of a loan will indeed become difficult.

3.1.3. Therefore, conciliation or settlement hearings before a Justice of the Peace before taking formal legal action are necessary unless I the case comes within the jurisdiction of the Swiss Commercial Court, (ii) the parties have agreed to disregard this remedy when the allegation is above CHF 100,000, (iii) the proceedings include other acts taken under the Federal Debt Enforcement Act. If the parties are unable to agree on a settlement, a writ (Klagebewiligung) will be issued by the conciliation authority allowing 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 re-submit the conciliation claim).

3.2. Legal proceedings

3.2.1. In case the amicable phase fails or if the debtor questions the claim, there remains the option to initiate legal proceedings.

3.2.2. Swiss law provides for two forms of compliance proceedings (Spezialexecution, i.e. the recovery of assets) and general enforcement proceedings (Generalexecution, i.e. bankruptcy), respectively. A borrower (or a private individual/company pretending to be a creditor) may begin all forms of compliance proceedings by filing a complaint for prosecution with the qualified debt enforcement authority (Office des Poursuites/Betreibungsamt) and demanding the issuance of a summons to pay the debtor. The court, without determining the content of the supposed allegation, summons the debtor to pay within 20 days or present a response within 10 days. The borrower can seek a default judgment requiring an attachment on the debtor's estate, in the absence of any reaction.

3.2.3. If an argument is certain and unchallenged, or if the claimant has already secured an enforceable judgement against the debtor, the case may be settled by summary judgments in which documentary evidence prevails against trials (which are non-existent) and in which the debtor's ability to appeal to the allegation is revoked.

3.2.4. Where the debtor challenges the allegation, the court may agree either to set aside the challenge and permit the continuity of the compliance proceedings (under Article 88 SchKG) with the appropriate debt recovery authority, or to resolve the dispute in full court proceedings within one year of the payment summons operation. It should be mentioned that since 2011, a major pre-trial discovery process has been implemented into the courts by the Swiss Procedural Code which requires the parties to seek information from the other side until litigation starts. In the context of compensatory damages, exceptional results, recovery and selling proceedings, declaratory judgments, etc., the courts will usually grant relief. There are however no punitive damages available.

3.2.5. In fact, the use of a lawyer is highly recommended at all levels, since debts are often challenged without requiring any excuse. Having said that, any prosecution against a debtor will be held for five years on public records, which can be a point of leverage as debt is received.

3.2.6. Required documents. All necessary documents comprising specific argument material, such as: the contract and its general terms and conditions, instructions and order confirmations, invoices, distribution notes, international rulings, quotes from the chamber of commerce of each party involved, appropriate correspondence (such as the letter of complaint and the corresponding replies), and potential promissory notes.

3.2.7. Time limits. According to the Swiss Code of Obligations (CO), regular contractual exclusion requirements are set. Business applications must usually be made within 10 years, but more stringent restrictions apply: a five-year limitation period relates to claims related to rent, interest on capital and other recurring facilities; claims relating to the purchase of foodstuffs, catering and the debts of innkeepers; claims relating to art, sale of products, medical services, professional work Disputes regarding unjust enrichment must be brought within one year.

3.2.8. The restriction duration is disrupted within an existing limitation period by loan prosecution or legal action, but the case is deemed a legitimate legal requirement and inability to comply with the rules will prevent access to the trial.

3.2.9. Interim interventions that help preserve the rights of creditors awaiting a final court ruling. Upon appeal, the courts will usually require temporary steps aimed at protecting the facts, the status quo and preventing irreparable damage (injunctions, instructions to resolve an illegal condition, orders to a registry authority or a third party, service in kind, payment of a sum of money). Nevertheless, the courts will need credible evidence that a privilege to which the borrower has been (or will soon be) infringed seeks to cause the claimant irreparable harm.

3.2.10. In cases of exceptional urgency, and in particular where there is a possibility of unsatisfied implementation of the law, the court can automatically require temporary steps without hearing the opponent (ex parte). Nonetheless, the court must call the parties to a trial and enable the defendant to file a response. Nonetheless, the court may ex officio direct the borrower to provide cost-security to protect the debtor against violence.

3.2.11. Appeal lodging. A first instance ruling may be taken before the Court of Appeal (at cantonal level) within 30 days of notice if the disagreement reaches CHF 10,000. At this point, both empirical and legal issues would be the subject of the investigation. The judgment made in the second instance may be put before the Federal Supreme Court, given that the argument crosses CHF 30,000 although only legal issues (incorrect reading of the statute, non-compliance with procedural rules, etc.) would be reconsidered.

3.2.12. The duration of a judicial action. Debt collection proceedings in Switzerland should not last longer than two years (excluding insolvency proceedings); It would not take more time for domestic courts to comply with cases concerning international claimants, but there may be gaps when the papers have to be processed or when foreign witnesses have to be questioned.

3.2.13. The costs of the procedure. As a general rule, the successful party can get reimbursement from the defeated party for all court fees and legal fees. Costs of the court that differ from canton to canton and rely on the sum of the contested charge. Prosecutor's costs would be paid hourly.

3.3. Alternatives to legal action

3.3.1. Alternative dispute resolution approaches (ADR). Use of alternative dispute resolution strategies (arbitration, consultation, conciliation, ombudsmen) is not mandatory as domestic courts usually have prompt rulings, but it is nevertheless quite popular in Switzerland, especially when conflicts have a foreign aspect. Domestic courts have consistently enhanced the consensus of the parties to focus on the procedures of ADR.

3.3.2. Foreign forums. In Switzerland, the use of foreign tribunals is not mandatory but the country is nevertheless a signatory of the Hague Convention of 15 June 1955 on the rules relating to the international sale of goods, which stipulates that transactions be regulated by the law preferred by the participants, the general nature of the arrangement and the circumstances of the case. However, domestic courts would typically retain exclusive jurisdiction over specific areas of law and potential public policy issues. It is also necessary that the arrangement be distinguished by an external relation (for example, one party is chosen domicile in another country, or the place of execution is situated abroad), and that a provision of jurisdiction be drawn up specifically for that purpose.

3.3.3. Award enforcement. As previously mentioned, it is rather rare to use international fora to secure enforceable rulings against local debtors. Nonetheless, under certain conditions foreign decisions taken against foreign debtors may be enforced in Switzerland. As a general rule, most countries allow foreign awards to be enforced on condition that an exequatur procedure has been conducted to recognize the foreign decision as domestic, and this principle applies in Switzerland. Nevertheless two situations must be considered. On the one side, domestic courts will easily implement judgments falling within the framework of extending mutual reciprocal acknowledgement and implementation treaties and decisions reached under the Lugano Convention in EU countries as well as in Sweden, Denmark and Iceland (which applied the Brussels I Regulations to third states). On the other side, international decisions rendered in other countries would have to go through exequatur hearings (as provided for under the Swiss Private International Law Act) to check, among other issues, whether the issuing tribunal has authority to rule on the argument, whether the decision is final in the issuing country (i.e. whether all the courts of appeal have been exhausted)a The courts would also ensure that Swiss public policy doesn't contradict the foreign decision. Switzerland is also a signatory to the 1958 New York Convention on the Recognition and Compliance of International Arbitral Awards; domestic courts should therefore therefore follow rulings made by international arbitration proceedings.

4. Managing insolvent debtors

Swiss bankruptcy law is based on the Federal Law of 1889 (as revised in 1994) on debt search and bankruptcies. Nevertheless, each canton has its own Debt Collection Office, which is responsible for collecting reports, improving communication between the various parties at stake, handling seizures or writing asset inventories. The debt collection process begins when the collector or creditor(s) files an application with the local office.

4.1. Insolvency proceedings

4.1.1. Out-of-Court proceedings. Out-of-court debt restructuring is normal and recommended, as it offers a discreet and informal forum for addressing financial issues before insolvency proceedings are launched.

4.1.2. Debt restructuring. Although most insolvency processes contribute to liquidation, the latest insolvency proceedings tend to facilitate the continuity of activity through a debt restructuring arrangement between debtors and creditors. The process is similar to the U.S. statute Chapter 11 case, which requires a claimant to remain in business so that all protected rights and loans are secured by his remaining assets. The business is also placed under a court-appointed administrator's oversight, and a freeze (Nachlassstundung) is put in place to protect it from concurrent litigation proceedings while a proposal is being formulated. For the agreement to be legitimate, a plurality of investors will accept it.

4.1.3. By comparison to bankruptcy proceedings, debt restructuring procedures allow for a more efficient recovery of the debtor's assets, and thus are more likely to yield higher profits to be allocated proportionally to the creditors.

4.1.4. Winding up proceedings. Despite efforts to increase the negotiations on debt restructuring, Swiss law focuses less on the continuation of the debtor's business activities than on the protection of creditors ' rights, so that in practice the default insolvency procedure essentially aims at seizing debtor's assets.

4.1.5. Business operations in this case come to an immediate standstill while the debtor loses authority to dispose of his assets. Once the court finds the debtor delinquent, the investors are granted one month to lodge their cases with the liquidator, who then determines the liability list and transfers the properties before the creditors divide the profits.

4.1.6. Priority Rules. Allocation policy normally apply when the profits are transferred to investors. Secured debts take precedence over preferential debts (such as wages for employees, pension and social security claims) and unsecured claims, which are considered last in the chain, if any of the properties remain. In January 2014, the priority accorded to tax claims was abolished.

4.1.7. Canceling suspicious transactions. Liquidators are gradually demanding the courts to void those transactions that were completed prior to the insolvency proceedings. In fact, any action taken by the debtor will usually be invalid, considered dishonest or adverse to the creditors. Suspects can qualify for a term of up to five years.

4.1.8. Duration of  insolvency process will take. Insolvency prosecutions should not run more than two years, but may exceed that period with the most complex cases.

4.1.9. Required documents. Other records containing relevant information such as: agreements and its general terms and conditions, contracts and order confirmations, invoices, distribution notices, international rulings, quotes from the Chamber of Commerce of each entity involved, specific correspondence (such as a letter of complaint and the corresponding replies), and any promissory notes.