Security and legal

Bankruptcy: What happens when a company is about to go under?

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What are the legal consequences of bankruptcy? And what do those affected need to bear in mind when facing bankruptcy proceedings? Is there a way they can save their firm and stop it from going under? We cover all of these questions in our blog.

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    AXA-ARAG

    Our legal experts at AXA-ARAG are here to answer key questions about bankruptcy and debt enforcement.

The three of us run a yoga studio that has been struggling for some time. And now we’re broke. How do we declare our limited company bankrupt?

You need to make a declaration of insolvency to the bankruptcy court at the company's registered office. If there is no prospect of debt restructuring, the bankruptcy judge will start bankruptcy proceedings.

I'm the owner of a fashion boutique. What consequences does bankruptcy have for my three employees?

Bankruptcy doesn't in itself result in the termination of their employment contract; nor are there any grounds for termination without notice. However, the bankruptcy administration will normally terminate employment contracts as of the next possible date. 

How can I avoid my firm going bankrupt using an amicable agreement?

In principle, this is only possible if the company's creditors waive their claims in full or in part or file a declaration of subordination.

Who will find out if I've filed for bankruptcy?

The declaration of insolvency itself is not open to public inspection. However, the declaration of bankruptcy will be published in the Swiss Official Gazette of Commerce (SOGC) and is therefore publicly available information.

My small courier firm has run out of money, and bankruptcy proceedings began a week ago. Do I still have any chance of fending off bankruptcy?

As bankruptcy is frequently the consequence of a company's insolvency, bankruptcies are either instigated at the company's request (declaration of insolvency) or at the request of a creditor. Bankruptcy results in all of a company's assets and liabilities being liquidated by the bankruptcy office. The firm's assets constitute the bankruptcy assets, and the company owner is no longer allowed to access them following the start of bankruptcy proceedings. The company can no longer be saved once bankruptcy proceedings have started. However, the debtor is given a warning of bankruptcy 20 days prior to the start of proceedings – meaning this is the last opportunity the firm has to pay off the outstanding debt.  

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As a company, how do I start the debt enforcement process?

A debt enforcement request can be submitted online (subject to a charge) at betreibungsschalter.ch.

What's the advantage of a debt enforcement request?

The biggest advantages of the debt enforcement procedure are that the state enforces your claim (this is an enforced collection procedure by the state) and that the limitation period for the claim can be suspended. Another advantage is that if debt enforcement ultimately results in a certificate of shortfall (because the debtor does not have any attachable assets), creditors receive what is known as a loss certificate, which entitles them to assert their claim again anytime during the next 20 years. The certificate of shortfall expires after 20 years.

My corporation has debt enforcement proceedings against it. What do I need to do?

If you are in disagreement with the claim that is the subject of the debt enforcement request, you must dispute it within a 10-day deadline.

I'm 63 years old and have been running an inn for nearly 20 years – and now I need to file for bankruptcy. Does this also put my pension at risk?

It depends on the legal form of your inn. In the case of a limited company or a corporation, liability is limited to the company's assets; as a sole proprietor, however, your private assets will also be included in the bankruptcy estate. But even in the case of a sole proprietorship, your retirement savings cannot be touched provided the pension benefits are not already due to be paid out. 

Debt enforcement process in Switzerland

The Swiss Debt Enforcement and Bankruptcy Act (DEBA) distinguishes between three types of debt enforcement:

  1. Seizure of assets. This is the most common form of debt enforcement: Only the goods necessary for repayment of the debt are seized.
  2. Bankruptcy. In this case the debtor's goods will be the subject of an insolvency freeze and auctioned where possible.
  3. Realization of pledged property. If the debt is secured by a pledge, this type of debt enforcement – a specific type of asset seizure – is applied. 

Do the bankruptcy proceedings have any impact on my C-type residence permit?

No, bankruptcy is not deemed a reason for revoking the C-type residence permit.

What impact does bankruptcy have on my credit score?

Loss certificates and personal bankruptcies have a negative effect on credit scores.

Is my owner-occupied home at risk if my start-up goes bankrupt?

No, provided the start-up is not organized in the form of a sole proprietorship.

In the case of bankruptcy, can my company car – which is also my personal car – be taken away?

If your car is mainly used for business purposes, it will be included in the bankruptcy estate. That means you'll no longer have the vehicle at your free disposal after the declaration of bankruptcy. 

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