Restructuring options in Switzerland: Pre-packs
Pre-packs, known as an effective restructuring measure from other jurisdictions, are also permissible in Switzerland.
What is a pre-pack?
A “pre-pack” is commonly understood as a negotiated sale of all or a substantial part of the debtor's business to an investor or a rescue company which has been prepared by the debtor independently and prior to the filing for insolvency proceedings, yet is executed only with the approval of the court immediately upon or shortly after the opening of insolvency proceedings. The sale is aimed at saving the debtor’s ongoing business. Unlike in bankruptcy proceedings, a pre-pack allows the debtor's business operations to continue, so that business partners and key employees are retained and the company's reputation is preserved. Therefore, pre-packs are an effective way to successfully restructure a company which combines the advantages of both the private and judicial reorganization.
Does Swiss law allow for a pre-pack?
Swiss law does not explicitly foresee pre-packs. However, it provides for a composition procedure which is suited to be used for a pre-pack transaction: The composition procedure in Switzerland is an insolvency proceeding aimed at the restructuring or at least the best possible preservation of the substance of a company. The core element of composition proceedings is the protection of the debtor against enforcement measures by creditors by way of a moratorium. A provisional moratorium for a short period can be granted “silently”, i.e. without any publications, and court-approved transactions carried out during such moratorium are protected against claw-back claims.
What do the courts say?
Pre-packs are a relatively new instrument in Switzerland and to date only two decisions dealing with such transactions have been published. It has been confirmed by the Swiss Federal Supreme Court (SFSC) that pre-negotiated Swiss pre-packs are in principle permissible. During the provisional moratorium, a current business or certain assets may be sold without consulting the creditors, provided the court authorizes the transaction. Such authorization can be granted if the sale is, in the court’s reasonable discretion, to the creditors’ advantage in comparison with bankruptcy proceedings and an urgent sale is of the essence for the restructuring.
Creditors’ options to stop a pre-pack are very limited. Neither is there an ordinary appeal against the granting of the provisional moratorium or against an extension of such moratorium nor do they have a right of appeal against the approval of the pre-pack itself. A creditor may only claim the invalidity of the granting of the provisional moratorium or the approval decision. However, invalidity of a court decision requires obvious flaws; it rarely follows from the content of a decision but rather from formalities, if at all.
Further, cantonal case law suggests that in case of a pre-pack it may be possible to open composition proceedings even without the appointment of an administrator.
Particularly in light of the newest SFSC decision which provides more certainty on some important legal questions, pre-packs became an interesting option to consider for the restructuring of a company in distress.
Should you have any questions on the above, please do not hesitate to contact the Loyens & Loeff Restructuring & Insolvency team.
Robin MoserLocal partner Attorney at law
Robin Moser, attorney at law, is a local partner in our Zurich office. He focuses on domestic and international dispute resolution and has broad experience in representing clients in court, before federal and cantonal authorities and arbitral tribunals.T: +41434346700 E: [email protected]
Andreas HinsenLocal partner Attorney at law
Andreas Hinsen, attorney at law, is a local partner in our Zurich office. He focuses mainly on private equity, domestic and international M&A transactions, corporate governance, restructurings as well as general corporate and stock exchange laws.T: +41434346700 E: [email protected]