Security and legal

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

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Taxi firms, restaurants, gyms: With the COVID-19 emergency funding provided by the federal government and the cantons having come to an end last autumn, most experts think we are likely to see a string of firms go bust. But what are the legal consequences of bankruptcy? And what do those affected need to bear in mind when it comes to bankruptcy proceedings. Is there a way they can save their firm and stop it from going under?

Legal experts here at AXA-ARAG answer key questions about bankruptcy and debt enforcement.

I'm not sure my café will survive the second lockdown financially. When will I know for sure that I need to file for bankruptcy?

At the latest, you should check whether you need to declare your café insolvent to the courts as soon as your firm’s debts exceed its assets.

Do any special rules apply if my firm goes bankrupt due to COVID-19?

No, there are no special rules regarding bankruptcy proceedings.

I'd like legal protection for my business.

The three of us run a yoga studio. Things were going badly before the first lockdown, but now we've run out of money. 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 a 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 make 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 have any chance remaining of heading 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 debt concerned at the last minute.  

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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?

In some circumstances, a debt enforcement request can make it easier to enforce a claim.

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

If you dispute the claim that is the subject of the debt enforcement request, you must declare your objection 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 due to COVID-19. Is my pension at risk too?

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 at risk. But even in the case of a sole proprietorship, your pension pot cannot be touched provided the pension benefits are not already due for payment. 

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 rating?

Loss certificates or personal bankruptcies have a negative effect on credit ratings.

Is my owner-occupied home at risk due to the bankruptcy of my start-up?

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 access to the vehicle after the declaration of bankruptcy. 

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