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22 June 2020 / article

Clarification on the recognition of foreign bankruptcy decrees

Foreign bankruptcy and insolvency decrees generally remain without legal effect in Switzerland. A foreign bankruptcy or insolvency decree must first be recognized by the competent Swiss court. In a newly published decision, the Swiss Federal Supreme Court further clarified the recently revised provisions governing the recognition and the following procedure.

Introduction and background

In Swiss bankruptcy law, the principle of territoriality applies. Accordingly, foreign bankruptcy decrees generally remain without legal effect in Switzerland. Foreign bankruptcy administrators are therefore not entitled to act on behalf of the foreign bankruptcy estate on Swiss soil. The foreign bankruptcy decree must first be recognized by the competent Swiss court before it develops legal effects in Switzerland. A framework for the recognition is set by the recently amended provisions of the Swiss Private International Law Act (“PILA”) which have now been further clarified by the Swiss Federal Supreme Court.

Recognition requirements

According to art. 166 para. 1 PILA, a foreign bankruptcy decree will be recognized upon request of the foreign bankruptcy administrator, the debtor or a creditor provided that:

  1. the foreign bankruptcy decree is enforceable in the country in which it has been rendered;
  2. there are no grounds for refusal of recognition under art. 27 PILA, i.e. (i) the decision is not incompatible with Swiss public policy, (ii) process has been served upon the counterparty, (iii) fundamental procedural rights have been safeguarded and the counterparty has in particular been granted a right to be heard, and (iv) the foreign court did not violate the principles of lis pendens and res iudicata; and
  3. the foreign bankruptcy decree has been rendered in the country of the debtor’s domicile, seat or registered office or in the country where the debtor has its center of main interest (COMI).

Liquidation proceedings

If the requirements for the recognition are fulfilled, the competent Swiss court will recognize the foreign bankruptcy decree and publish its decision in the Swiss Official Gazette. As a consequence of the recognition, the Swiss court will typically open ancillary bankruptcy proceedings. Under certain circumstances the foreign bankruptcy administrator may request that no ancillary bankruptcy proceedings are opened but that he is given permission to act in Switzerland and to repatriate assets located within Switzerland.

If ancillary bankruptcy proceedings are opened, the “Swiss” assets will be liquidated by the state bankruptcy office and certain privileged claims will be paid off. Any remaining surplus will thereafter be handed over to the foreign bankruptcy administrator under the condition that he submits the foreign schedule of claims to the Swiss court and such schedule is approved.

Approval of foreign schedule of claims

The foreign schedule of claims will be approved by the Swiss court if the claims of creditors residing in Switzerland are adequately taken into account. Such creditors must be granted a right to be heard prior to the recognition. Since the summons to appear in front of the court concerns an unspecified group of people unknown to the judge, it would be impracticable to summon all possible creditors personally.

In a recently published1 decision the Swiss Federal Supreme Court held that it is sufficient if the court announces the hearing on the approval of the schedule of claims in the Swiss Official Gazette. The decision approving or rejecting the foreign schedule of claims however does not have to be published. Only if creditors have exercised their right to be heard in the course of the ancillary bankruptcy proceedings the decision will (and needs to) be served on them.

As soon as the decision on the approval of the schedule of claims is final and binding, the liquidation proceeds will be distributed and/or handed over to the foreign bankruptcy administrator and the ancillary proceedings will be closed.

Should you have any questions to the above, do not hesitate to contact the Loyens & Loeff insolvency and restructuring team.

 

1. Decision dated 30 March 2020 in the case no. 5A_699/2019.



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