According to a 2006 publication by N.B. Hartmann and M. Koch, Swiss insolvency legislation is based on the 1889 Federal Act on Debt Enforcement and Bankruptcy, as amended. This act is supplemented by other legislation relating to enforcement at the level of canton and commune and by laws specifically dealing with financial institutions, insurance companies, and other special cases. However, there appears to be insufficient publicly available information that directly addresses the Swiss insolvency regime and its performance with regard to the Principles and Guidelines for Effective Insolvency and Creditor Rights Systems developed by the World Bank.

General Overview

There is insufficient publicly available information that directly addresses the Swiss insolvency regime and its performance with regard to the Principles and Guidelines for Effective Insolvency and Creditor Rights Systems developed by the World Bank. According to N.B. Hartmann and M. Koch, writing in 2006, Swiss insolvency legislation is based on the 1889 Federal Act on Debt Enforcement and Bankruptcy, as amended. This act is supplemented by other legislation relating to enforcement at the level of canton and commune and by laws specifically dealing with financial institutions, insurance companies, and other special cases. The law provides for either bankruptcy (liquidation) or composition (restructuring/rescue) proceedings in the case of insolvency. The responsibility for creating debt enforcement and bankruptcy offices, as well as for providing the first level or two of court supervision is relegated by law to the canton, with higher supervisory authority placed in the hands of the Federal Tribunal. According to Hartmann and Koch, while these arrangements may be adequate to handle small-business insolvency proceedings, a lack of canton-level staffing and expertise makes them less appropriate to deal with large-business or more complex cases. Whereas court-initiated restructuring procedures rarely result in business rescues, viable elements of troubled firms may survive through being taken over by another entity for an agreed-upon price, as adjudicated with the supervision of a commissioner and judge. Hartmann and Koch identify one problematic area in the Swiss insolvency regime as arising in the case where the insolvent firm is a part of a larger corporate group. According to the authors, "groups of companies are often managed as though they were a single legal entity, but in restructuring proceedings, each legal entity must be treated separately. Unless guarantees or legally binding letters of comfort are issued by parent or sister companies, creditors cannot usually hold the parent or sister company liable for debts incurred" (p. 2).

According to a 2003 IMF report, a proposal was submitted to parliament to amend the Swiss Banking Act that would considerably expand the supervisory authority over insolvency proceedings. It would remove all administrative powers over bank reorganization and liquidations from the courts and place them with the Swiss Federal Banking Commission (SFBC), which serves as the bank supervisor. Swiss law includes the moratorium as an insolvency option, which the 2003 IMF report has called "critical," because it allows the debtor firm to consider its options without pressure from creditors. This being the case, the IMF argues that the supervisory authority, as the participant best placed to recognize the need for such an option, should be empowered to either unilaterally impose a moratorium or at least to directly apply to the courts for it to be imposed. Under the proposed amendment to the Swiss Banking Act, the bank supervisory authority itself would have the power to impose such a moratorium. The 2003 IMF report adds that the amendment would also affect the current situation that obtains at the start of bankruptcy proceedings, when the holder of collateral security is no longer able to realize its value at will, since the bankruptcy law precludes such action. Instead, assets belonging to the debtor, even if pledged as collateral, are considered a part of the debtor's estate, and are used to satisfy secured claims. Under the terms of the proposed amendment, financial collateral arrangements would be unaffected by insolvency measures.

The 2005 SFBC report states that the new Bank Bankruptcy Ordinance operationalizes the rules governing the compulsory liquidation of banks. According to the 2005 EBK report, the Bank Bankruptcy Ordinance lays out the steps to be taken in compulsory liquidation procedures for banks and securities dealers. This is the implementation of the bank insolvency legislation of 2004 that conferred on the SFBC the authority over bankruptcy for banks and securities dealers. The ordinance creates a simple, efficient, and transparent procedure for liquidations that is flexible enough to be adapted to various contexts. The ordinance emphasized the need to preserve bank-client privacy during the proceedings. Foreign and Swiss creditors are treated equally, and SFBC-appointed liquidators have broad discretion regarding the sale of assets. The report adds that the ordinance constitutes an important step toward the modernization of the Swiss bank insolvency law.

The World Bank's 2008 "Doing Business in Switzerland" snapshot of the closing a business assesses such actions along three dimensions: time (the average number of years to complete winding up proceedings), financial cost (calculated as a percentage of the estate of the closing business), and return to creditors (given in terms of cents on the dollar). In Switzerland, the average time required to complete business-closing proceedings is 3.0 years, as compared to the average of all member states of the Organization for Economic Cooperation and Development (OECD), which is 1.3 years. For Switzerland, the cost of such proceedings averages 4% of the company's assets, compared to 7.5% for OECD member states, and the return to creditors is 47.1 cents on the dollar, as compared to the OECD average of 74.1 cents.