Restructuring options in Switzerland: pre-packs
Prepacks that are known to be effective restructuring measures from other jurisdictions are also permitted in Switzerland.
What is a prepack?
A “pre-pack” is commonly understood to mean a negotiated sale of all or a substantial part of the debtor’s business to an investor or a rescue company, which is prepared independently of the debtor and before filing for bankruptcy, but only carried out with the consent of the court immediately at or shortly after the opening of insolvency proceedings. The sale serves to save the debtor’s ongoing business. Unlike in bankruptcy proceedings, a pre-pack enables the debtor to continue business operations, so that business partners and key employees are retained and the company’s reputation is preserved. Pre-packs are therefore an effective means of successfully restructuring a company that combines the advantages of private and judicial restructuring.
Does Swiss law allow prepackaging?
Swiss law does not explicitly provide for prepackages. However, it provides for a settlement procedure that is suitable for a pre-pack business: The settlement procedure in Switzerland is an insolvency procedure with the aim of restructuring or at least the best possible preservation of the company’s assets. The core element of the settlement procedure is the protection of the debtor against enforcement measures by creditors by way of a deferral. A provisional moratorium for a short period of time can be granted “tacitly”, ie without publication, and court-approved transactions carried out during such a moratorium are protected against claims for repayment.
What do the courts say?
Prepacks are a relatively new instrument in Switzerland and so far only two decisions on such transactions have been published. The Swiss Federal Supreme Court (BFS) has confirmed that pre-negotiated Swiss prepackages are generally permissible. During the provisional moratorium, an ongoing operation or certain assets can be sold without hearing creditors, provided the court approves the transaction. Such an authorization can be granted if, at the reasonable discretion of the court, the sale is in favor of the creditors compared to bankruptcy proceedings and an urgent sale is indispensable for the restructuring.
The ability of creditors to stop a pre-pack is very limited. There is no ordinary legal remedy against the granting of the provisional moratorium or its extension, nor do you have any legal remedy against the approval of the prepackaging itself. A creditor can only assert the invalidity of the issuance of the provisional moratorium or the approval notice. However, the invalidity of a court decision presupposes obvious defects; it seldom results from the content of a decision but, if at all, from formalities.
In addition, cantonal jurisprudence suggests that, in the case of a pre-pack, settlement proceedings can be initiated without appointing an administrator.
Against the background of the latest SFSC decision, which offers more security in some important legal issues, pre-packs have become an interesting option for restructuring a company in need.