The enactment of the Insolvency Act, which shall enter into force on 20 April 2020 at 0h00, follows a quick consultation process on such draft legislation, whose content has been announced and analyzed in our Newsflash dated 7 April 2020.

The new legal framework is based on three major measures : the suspension of duty to notify the judge in case of over-indebtedness, a brand new COVID-19 moratorium for SMEs; and the softening of certain conditions to be fulfilled in order to apply for a debt restructuring moratorium.

According to the current law, the board of directors must notify the judge if the interim balance sheet shows that the claims of the company's creditors are neither covered if the assets are appraised at on-going business values nor at liquidation values ("over-indebtedness"), which leads the judge to adjudicate the bankruptcy, except in case of successful reorganization prospects. If the board of directors fails to notify the judge, the auditors are required to do it. Following the enactment of the COVID-19 Insolvency Act, the notification of the judge by the directors and the statutory auditors can be omitted if (a) the company was not over-indebted on 31 December 2019 and (b) there is a prospect that the over-indebtedness will be eliminated before 31 December 2020 and (c) such decision is made in writing, explaining the reasons for which the board took it.

As of today, distressed businesses (i.e. overindebted or insolvent) may apply for a debt-restructuring moratorium, aiming at entering into an agreement with all creditors concerning their repayment modalities. The new COVID-19 moratorium, to be adjudicated by a judge, is intended to provide a 3-6 months stay of payment obligations to all distressed businesses, including self-employed business owners, (a) which were not already over-indebted on 31 December 2019 (if applicable) and (b) qualify as SME. The moratorium shall especially prohibit the repayment of all claims against the debtor which have arisen before the moratorium is granted, except claims from employees arising from employment agreements (first ranked claim, capped) that may still be recovered by way of seizure. The COVID-19 moratorium must be published, and disclosed by the debtor to all known creditors.

Under the current legislation, a debt-restructuring moratorium is normally granted to debtors that prove to be in trouble, but show prospects of successful reorganization. As certain companies do not qualify for the new COVID-19 moratorium that is reserved to SMEs, it has been decided to enact few amendments to the existing debt-restructuring procedure, in particular by releasing the debtor from its obligation to provide the judge with a reorganization plan when applying for a debt-restructuring moratorium, and by extending the maximum duration of the provisional moratorium from four to six months. Whereas the draft law aimed at entitling the debtor to terminate long-term agreements (such as lease agreements, but not employment contracts) at any point in time with the administrator's consent, without the need to show, as under current law, that the purpose of the restructuring would otherwise be frustrated, such allowance has been withdrawn from the law finally enacted.

With this new framework, businesses in financial trouble because of the COVID-19 pandemic will be able to breathe a little, pending a full resumption of economic activities. In six months' time as from its entry into force, the new legislation will be repealed except if the Swiss Parliament resolves to extend the measures. Distressed businesses shall then use the (still) existing mechanisms.