Due to the nature of debt recovery, there is a need for in-depth fact-finding. Additional concerns may be required depending on whether or not Switzerland is attached to the parties. Marcel Frey, counsel at Prager dreifuss, discusses the challenges that may arise during this process, and gives his insight on how to overcome them.
What is the process of recovering international debts?
International debt recovery is a key venue in Switzerland. Assets are often located in Switzerland, most commonly in the form of bank accounts or securities at any of the many Swiss banks or international banks with branches in Switzerland. The local courts and the Swiss debt enforcement office are well-versed in cases involving foreign creditors who seek to enforce claims in this area. The procedure up to the court stage is simple and cost-effective, as it involves primarily the debt enforcement officer.
However, in order to recover international debts in Switzerland, you need to have a link with Switzerland. This link could be in the form of assets held in Switzerland (e.g. This could be bank accounts, securities or other fixed assets. A connection could also be made if the debtor has its registered office in Switzerland, or – in case of a natural person- is a Swiss resident.
If the debtor is a resident or corporation in Switzerland, the first step to recovering the debt is the issuance a payment summons. The creditor requests the debt enforcement officer at the place where the debtor is incorporated or resides to issue a payment summons. In summary, the payment summons includes information about the debtor, the amount due, and the reason for the debt.
Within 20 days, the summons must be paid. The debtor can contest the summons upon service but must do so within ten days. The collecting party is responsible for having the objection thrown out. The court will assess the debt and then a judge will intervene. The creditor will be able to continue the debt recovery proceedings if the proceedings are successful. This will take the form either of a seizure or threat of bankruptcy for natural persons, or a seizing of assets for legal entities. If the debtor doesn’t object to the payment summons, and the grace period of 20 days has expired, the same applies.
International debt recovery is a key venue in Switzerland, where assets are often located.
If the owing party isn’t a resident of the country but has assets in Switzerland, the creditor can attach those assets. In international contexts, the most common reason for attaching assets is when a creditor has a judgment against the debtor. For example, a creditor might attach an account based on a foreign judgment. The debt enforcement officer will then give the creditor a short time frame to pursue its claim through debt enforcement.
Which key laws, statutes, and regulations are applicable to this process in your jurisdiction
The Federal Act on Debt Enforcement and Bankruptcy governs debt enforcement. If a foreign judgment or award is used as the basis for the debt, international treaties like the Lugano Convention and the New York Convention could be applicable. For claims that have not been brought to court, the Swiss resident debtor can be sued directly based on the DEBA process. This may again require the service of initial documents through international treaties (such the Hague Conventions).
Local courts must determine the validity of the debt before they can be enforced. The Swiss Civil Code and the cantonal court organization statutes are applicable for procedural technicalities.
Are there significant complications when the debtor organization is especially large?
A large debtor organization does not necessarily mean that it is complex. A quick online search in the electronic commercial registry should be sufficient to determine the location of incorporation and the district where the competent debt enforcement officer is located, in case the debtor organisation is in Switzerland.
Uncertainty about which conglomerate’s debtor is involved in a bankruptcy case can lead to some complications. It is important to determine whether the debt was taken out by the holding company or a subsidiary. These issues must be resolved at a material level, but they do not have an impact on actual enforcement.
What are the main obstacles to cross-border debt collection
Cross-border debt collection might be limited by the difficulty of finding assets in Switzerland. This is because Switzerland doesn’t have any publicly accessible registers that would allow creditors to find assets that are available for liquidation. Each commune maintains its own land registers, but these only provide information about the ownership of real property upon an inquiry regarding a specific parcel.
Switzerland doesn’t have any publicly accessible registers that could allow creditors to find assets available for liquidation.
A national search tool for real estate has been created as of January 20, 2023. However, it is not accessible to the public. The tool allows authorities to submit queries, which are then sent to the communal real property offices. This tool should allow authorities, but not private individuals, to determine whether a debtor has real estate in Switzerland. However, a central land registry is not yet in place. There are no central security records and banks are not allowed to disclose client relationships.
Companies still have a very discrete shareholding system. Although important stakes in publicly traded companies may be visible, certain threshold shareholdings and some other shares may not be. However, this can often prove insufficient for creditors. Current efforts are underway to draft legislation that would establish a central registry of beneficial owners of companies, contrary to the Financial Action Task Force’s recommendations. The legislative intent here is that the register only would be available to the relevant authorities, and not the general public.
If the asset’s owner is identified, they may attempt to stop enforcement. They can also invoke valid reasons to contest the debt. Local courts may decide to examine the underlying claim documents and court decisions. These may then be up for appeal. The creditor may try to stop the debtor dissipating its assets during this period. However, these are still subject to court review.
Although translation may be required for foreign documents supporting a claim, English evidence is often accepted by courts in the country that are familiar enough with English. A claimant might be expected to assist the court during these proceedings, especially if foreign law is involved.
How can these obstacles be best planned and overcome with minimum difficulty?
Swiss law is recommended when parties enter into a commercial relationship that has a Swiss connection. It makes it much easier to enforce in Switzerland, since courts don’t have to apply a law they are not familiar with. Translation issues are often overlooked.
A second level is to obtain advance security for performance, agreeing on a forum and for disputes that will allow you to remove the uncertainty from contractual deliberations.
What advice would you give to less-experienced lawyers looking to follow your example?
Avoiding legal problems is better than dealing with them once they arise. It is therefore prudent and relatively easy to conduct background research on potential contractual counterparts in Switzerland. The inquiring party will be able to determine in advance if there have been any enforcement actions against the potential counterpart by checking the company or person’s entries in the local debt registry. Although there is no guarantee of the future, it may be possible to gauge how much flexibility should be allowed to each side in terms of performance safeguards.
Marcel Frey. Counsel
Muhlebachstrasse 6, CH-8008 Zurich, Switzerland
Tel: +41 44 254 55 55
Marcel Freyis a member Prager Dreifuss’s Dispute Resolution and Private Clients Teams. In addition to representing foreign and Swiss clients in court and arbitration proceedings, he also provides advice to private individuals regarding the enforcement of civil claims in complex white collar crime cases. Marcel regularly assists clients in international judicial aid proceedings and the recovery illegally acquired assets. He is also an expert in enforcement of Swiss and international Swiss decisions.
Prager Dreifuss, a prominent Swiss law office with an internationally renowned practice, is highly recommended. The firm’s 45-strong team offers a wide range of services for both private and business clients. It often draws on its relationships with international firms to offer bespoke solutions.