Debt restructuring under new reorganization law

While around 60 percent of applications were approved prior to the SchKG revision, this figure has risen to around 70 percent since 2014, underlines the current KPMG study "Development of debt restructuring under the new restructuring law".

The new provisions on reorganization law (SchKG), which came into force on January 1, 2014, brought some innovations to the probate proceedings. With these new provisions, the legislator aimed to provide additional structuring options and improved framework conditions for corporate restructuring. Improvements were achieved in various areas:

Simplification of the formal rules for the initiation of proceedings

• So-called continuing obligations such as rental or leasing agreements can now be terminated immediately.
• Possibility to waive publication in case of simultaneous appointment of a custodian for a maximum of four months (for exceptional cases)
• More attractive conditions for the separation and sale of profitable parts of the business

Now that the new restructuring law has been in force for over two years, we have taken this as an opportunity to conduct the first survey-based analysis of the development of debt restructuring in Switzerland. The results are based on around 70 responses from competent courts in Switzerland.

Practical experience and assessments

Based on a survey-based analysis by KPMG, the annual number of debt-restructuring moratoria throughout Switzerland since 2010 is estimated to be in the range of 70 to 80 per year. This means that the absolute number of debt restructuring proceedings has remained very low compared to the approximately 14,500 bankruptcy proceedings in 2015 alone.

Since the SchKG revision came into force, there has been a slight increase. This may be due on the one hand to the fact that the initiation of proceedings has been simplified, or on the other hand to the fact that restructuring practitioners have once again become increasingly involved with the instrument of debt-restructuring moratorium.

Number of applications increases

Experience shows that most corporate restructurings to date have been carried out under the Swiss Code of Obligations. Due to the new legislation and with increasing experience by restructuring practitioners, KPMG AG expects that the number of debt restructurings is likely to increase further, but will remain at a relatively low level overall.

Facilitated formal requirements

While around 60 percent of applications were approved prior to the SchKG revision, this figure has risen to around 70 percent since 2014. The simplified formal requirements are therefore likely to have been effective.

Based on initial practical experience, the simplified formal requirements are judged to be very helpful and purposeful. Most of the documents required for the initiation of proceedings are already available in a professionally managed turnaround program anyway - only a few documents need to be created specifically for the initiation of proceedings.

Waiver of Notice - only in exceptional cases?

The use of the new option to waive publication of the procedure was surprisingly high. This was created by the legislator in principle for exceptional cases. Thus, around a quarter of the applications in 2014 and 2015 included a request for waiver of publication, which was approved in around 85 percent of cases.

The waiver of notice was judged in advance by many practitioners to be a promising instrument. After all, according to our survey, it was applied in more than 20 percent of the proceedings. However, the waiver of publication is not always a panacea. In our view, its application must be analyzed carefully and comprehensively, for example with regard to:

• the consequences for the operating business and the upcoming restructuring negotiations, or
• on the likelihood of whether remediation is realistic within the relatively short duration of 4 months to date.

Debt-restructuring moratorium: Quo vadis?

Two years after the amendment to the law came into force, it is not yet possible to assess conclusively whether it has achieved its objectives. Based on the results of this analysis, the instrument of debt-restructuring moratorium seems to have gained little in attractiveness. At least, access to debt-restructuring moratorium has obviously been made easier.

No significant increase in the number of proceedings is expected in the short term. In the long term, however, as users gain experience - and possibly after the legislature makes further fine-tuning adjustments - the procedure has the potential to develop into a tried-and-tested and more popular instrument for corporate restructuring.

Text: Alessandro Farsaci (KPMG Advisory)

You can find the complete study "Development of the debt restructuring under the new reorganization law" under this Link

http://www.kpmg.ch