6 May 2020

COVID-19 Deferral of Bankruptcy Filing in Switzerland

Due to the COVID-19 crisis, many companies in Switzerland could face bankruptcy. Every board of directors must take action in the corona crisis (see our blog posts "What do I need to know as the member of a Swiss board of directors in times of the coronavirus?" and "COVID-19 and Duties of a Swiss Subsidiary's Directors"); if there is a threat of over-indebtedness, the board of directors must act immediately.

Here we will answer the five most important questions on the duties of the board of directors in the event of imminent over-indebtedness due to the corona crisis:

What must a Swiss board of directors do if there is a threat of over-indebtedness?

In Switzerland, one of the non-transferable and irrevocable duties of the board of directors is to file for bankruptcy should the company become over-indebted (that is, if the company's liabilities exceed its assets).

If there are reasonable grounds for concern that the company is over-indebted, the board of directors must have an audited interim balance sheet drawn up. There is an over-indebtedness if the claims of the company's creditors are not covered at either the going-concern or disposal value. If the interim balance sheet shows over-indebtedness, the board of directors must restructure the company or file for bankruptcy. If the board of directors violates these obligations, it can be held liable.

If there is a threat of over-indebtedness, the board of directors must act decisively and efficiently. The various available options must be assessed promptly, negotiations conducted with numerous parties and the chosen solution swiftly implemented. This is a great challenge and a heavy burden for the board of directors and in order to mitigate this as much as possible expert advice should be sought at an early stage.

Can notification of over-indebtedness be deferred during the corona crisis?

In principle, the Swiss rules regarding over-indebtedness also apply during the Corona pandemic; if over-indebtedness is imminent, the board of directors must prepare an interim balance sheet.

However, Switzerland has issued special insolvency rules to deal with the corona crisis, which also have an impact on the notification of over-indebtedness (see our blog post "Help is on the way" - The Swiss COVID-19 Insolvency Law Ordinance). According to the COVID-19 Ordinance, the interim balance sheet does not have to be audited and, under certain circumstances, the over-indebtedness notification can be deferred. If the company was not over-indebted at the end of 2019 and there is a prospect of it being able to rectify the over-indebtedness by the end of 2020, the board of directors is not required, in contrast to the usual rules, to notify the court.

These COVID-19 exceptions apply until the end of October 2020, but even after that date, the board of directors will be able to defer the over-indebtedness notification if there is a good prospect of restructuring by the end of 2020 because, even under the usual legal framework, it is permissible to wait a few weeks before notifying where there is a concrete prospect of restructuring.

What constitutes 'prospect of rectifying over-indebtedness' and what documentary evidence is required?

In order to decide whether a notice of over-indebtedness can be deferred during the corona crisis, the board of directors must make a business projection covering the period to the end of 2020. Statements about the future are obviously speculative by nature and, accordingly, the board of directors has a great deal of discretion in its decision.

Key is to have a transparent decision-making process based on an appropriate information to reach a justifiable decision free of conflicts of interest. The board of directors must justify and document its deferment process and decision in writing. The aim is to be able to understand the decision-making process, and the information on which it was based, at a later date. In addition to the interim balance sheet, the documentation must include the company's liquidity planning, a business plan and any other relevant documents. The board of directors must also regularly review its decision as long as the over-indebtedness persists. To this end, it must also periodically prepare new interim balance sheets and update the other documentation. If their earlier assumptions turn out to be incorrect, a new analysis must be made.

The COVID-19 deferral was created primarily to avoid bankruptcies of essentially healthy companies that are able to recover under their own steam from sudden corona-induced over-indebtedness by the end of the year. Nevertheless, the Board of Directors may also take into account any restructuring measures (such as capital injections) that will be implemented by the end of the year.

What is the effect of deferring the notification of over-indebtedness and what is the next step?

If, under the prevailing circumstances, notification of over-indebtedness is waived, it should still be 'business as usual' in all other aspects. In particular, the deferment does not result in a payment stop. Therefore, invoices must still be settled normally and creditors must be paid. If this is no longer possible, further measures under Swiss insolvency law, such as the debt-restructuring moratorium with COVID-19 reliefs, must be considered (see our blog post "Help is on the way" - The Swiss COVID-19 Insolvency Law Ordinance).

The deferment of notice does not eliminate the over-indebtedness. As long as the over-indebtedness persists, the board of directors is therefore obliged to regularly check whether the conditions for a COVID-19 deferment continue to be met. If the business does not develop as expected or if remedial measures fail and it becomes questionable whether the over-indebtedness can be remedied by the end of 2020, remedial measures must be taken or the court must be notified.

Are the Swiss government COVID-19 loans to be taken into account when determining over-indebtedness?

To support the economy during the corona crisis, Swiss banks have issued COVID-19 loans guaranteed by the Swiss government on a large scale. These loans are normal loans that have to be accounted for like any other debt. In principle, there is no subordination.

Special rules apply only to the small COVID-19 loans of up to CHF 500,000. Until March 31, 2022, these loans do not need be taken into account when determining over-indebtedness; they will therefore be treated as if they were subordinated. After that date, the exception no longer applies and so any over-indebtedness must be eliminated in advance.


Imminent over-indebtedness is a situation that threatens the existence of a company. It is therefore advisable for the board of directors to seek comprehensive expert advice in such a situation.

If you have any further questions or would like more in-depth advice, your regular contacts at VISCHER and the VISCHER Corporate and Commercial Law team as well as the Insolvency Law team will be happy to assist you.

Categories: Restructuring & Insolvency, Corporate and Commercial

You are currently offline. Some pages or content may fail to load.