Though Switzerland's GDP grew substantially in the first few months of 2023 and energy prices continue to fall, the Swiss federal government's expert group expects significantly below average growth for the Swiss economy in 2023 in its latest forecast, with a GDP growth rate of 1.1%. According to the expert group, comparatively high inflation rates are to be expected in the short-term in Switzerland, with a stabilisation at 2.3%, as the dampening effects of declining energy prices are offset by continuing price pressure in other areas. Nevertheless, a modest growth in consumption is expected in 2023 bolstered by a solid labor market.
According to the expert group, domestic demand will be the main pillar of growth in 2023 and not foreign trade, given the internationally high inflationary pressures and restrictive international monetary policy. The expert group, however, highlights the persisting economic risks and does not exclude that, in case of a severe energy shortage in Europe this winter, with large-scale production losses and a significant downturn, a recession twinned with high price pressure could hit Switzerland.
Given the rising costs of interest and the general weakness of the global economy, a further rise in corporate distress is to be expected in Switzerland, and thus a further rise in restructuring activity. However, unless a recession hits Switzerland, such a rise in corporate distress will still be at a moderate level.
Recovery
In terms of restructuring transactions in Switzerland over the past 12 months, the rescue of Credit Suisse Group AG by way of the state-facilitated merger into UBS Group AG is certainly the most prominent one. However, this restructuring transaction was unique in many ways, not only in terms of challenges, which had to be addressed, but also in terms of the toolbox used for the rescue. The transaction was facilitated, and potential obstacles cleared, by way of issuance of an emergency ordinance by the Swiss government.
Apart from this exceptional restructuring transaction, the general restructuring activity over the past 12 months indicated the continuation of two trends: the use of composition proceedings (i.e., the Swiss in[1]court restructuring proceedings) for Swiss-style pre-pack transactions, and the use of the composition proceedings for a wind-down of the distressed debtor's business and thus a softer landing in bankruptcy. The use of composition proceedings for a restructuring of the distressed debtor itself, however, still is not too popular. This is especially in comparison with similar instruments in other jurisdictions – and distressed debtors still prefer to try to agree on an out-of-court restructuring with its stakeholders before they use the composition proceedings, which are often only used as "plan B".
Even though a rise in corporate distress and restructuring activity is expected, this will not fundamentally change over the next 12 months, and distressed debtors will continue to prefer out-of-court restructurings to in[1]court restructurings. However, the Swiss corporate law reform, which entered into force on January 1 2023, has limited the period within which an over-indebted debtor can attempt to achieve an out-of-court restructuring and after which the over[1]indebted debtor must file for composition proceedings or for bankruptcy. This new limitation will likely have a negative influence on the success rate of out-of-court restructuring attempts and the switch from out-of-court restructuring efforts to composition proceedings (and thus in-court restructuring proceedings) will now occur quicker and more often than previously
IFLR, Restructuring & Insolvency Guide 2023
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