On 16 April 2020, the Swiss Federal Council enacted the COVID-19 Insolvency Ordinance. One of its main goals was to relieve pressure on executive bodies of Swiss entities to request the opening of insolvency proceedings. Relief was targeted at over indebtedness situations caused by negative impacts of the COVID-19 pandemic on liquidity, earnings and going-concern prospects. Further, the Swiss Federal Council put in place a special COVID-19 moratorium which was designed for SMEs. On 14 October 2020, the Swiss Federal Council decided not to extend such measures beyond 19 October 2020. This brings executive bodies of Swiss companies in a difficult situation if they have previously relied on the temporary exemption from filing obligations.
On 16 April 2020, the Swiss Federal Council has supplemented the measures aimed at mitigating the impact of the COVID-19 pandemic on the Swiss economy by implementing the COVID-19 Insolvency Ordinance1 . It temporarily allows executive bodies of Swiss companies not to notify the courts of an existing balance sheet over-indebtedness and to continue trading on the basis of an overall positive assessment of the future ability of the company to restructure its balance sheet by 31 December 2020. In addition, access of small and medium sized entities (SMEs) to a protective moratorium has been facilitated by introducing a special COVID-19 moratorium or 'moratorium-lite' with less stringent formal requirements.
No extension of main relief
The Swiss Federal Council decided on 14 October 2020 not to extend the temporary suspension of notification obligations and the access to the 'moratorium-lite'.
The 'moratorium-lite' was not widely used in practice and the common expectation is that distressed entities will now opt for the general moratorium if there is a prospect that the entity may be restructured. While this comes with a plus of additional experience with the relevant restructuring tool, the costs involved with the general moratorium are higher than for the 'moratorium lite', not the least because of the frequent involvement of a court appointed administrator.
The termination of the temporary suspension of filing obligations is more critical from the perspective of the executives of distressed entities which previously relied on such exemption (or which are facing looming over indebtedness in view of a potential second wave of the COVID-19 pandemic). Amongst others, executives who previously relied on the exemption will have to ask themselves whether it is defendable to continue not to notify the courts of an existing over-indebtedness beyond 19 October 2020 whilst sound prospects of a balance sheet recovery by the end of 2020 continue to exist. Doctrine argues in favour of this approach but in the absence of court precedents, the situation for the executives remains delicate.
2. Extension of duration of general moratorium
In partial compensation for the abolishment of the 'moratorium lite' the Federal Council extends the duration of the provisional moratorium from previously four to a maximum of eight months. During such period, the general moratorium may remain silent provided that certain conditions are met. The extension enters into force on 20 October 2020.
Footnotes
1 See our newsflash of 16 April 2020.
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