Swiss bankruptcy and insolvency law provide only for bankruptcy proceedings triggered either by the debtor and/or its board and management or by any of its creditors. Instead of declaring the debtor bankrupt, the competent court may grant a general stay to give it sufficient time for a private financial restructuring. The bankruptcy court can also order that the case be transferred into a court-managed settlement and composition procedure. Switzerland, however, does not offer typical Chapter 11 proceedings as they are known for instance in the United States.
The most important informal workout is the out-of-court or private composition and settlement agreement. As non-consenting creditors do not participate in the composition and settlement agreement, equal treatment of consenting creditors is not assured. The debtor or any non-consenting creditor can always call for a court-managed composition and settlement agreement including proceedings to declare the debtor bankrupt.
The common formal restructuring proceeding in Switzerland is a court-managed and approved composition and settlement agreement, through which a combination of debt reduction and/or debt extension is effected. The composition and settlement agreement provides for equal treatment of all creditors. Another form of such agreement can be effected through a court-approved debt reduction programme, whereby the remaining funds are then transferred to the debtor and managed in a technical bankruptcy proceeding.
Formal court-managed and approved restructuring proceedings are aimed at liquidating the debtor entirely. Creditors can thereby not be forced into a liquidation process that allows the debtor to resume and/or continue its failed business. The many abuses of Chapter 11 proceedings seen e.g. in the US aviation industry are not possible, whereby a failed business can continue business operations by getting rid of some of its creditors through the commencement of repeated Chapter 11 proceedings and without a sound and sustainable operational restructuring of the business.
