SWITZERLAND Law and Practice Contributed by: Shelby R du Pasquier, Patrick Hünerwadel, Valérie Menoud and Marcel Tranchet, Lenz & Staehelin
restrictions pertaining to the principle of good faith and public policy. 5.6 Release of Typical Forms of Security A security is generally released through a release agreement and a release action. The release action depends upon the type of security interest that is to be released. Essentially, the release action will consist of “reversing” the actions that were necessary for the perfection of the security interest, such as a return of movable assets or share certificates, or the reassign- ment of rights and receivables. Also, it is good prac- tice to notify all relevant parties (eg, account banks) of the release. 5.7 Rules Governing the Priority of Competing Security Interests As far as real estate assets are concerned, the priority of competing security interests results from the time of entry of the mortgage or mortgage note into the land register. The same applies to the public register for aircraft and ships. Land registers contain all pre- existing security interests with their rank and amount. Security interests on real estate may be established in a second or any lower rank, provided that the amount taking precedence is specified in the entry. When security interests of different ranks are created on real property, any release of higher-ranking security inter- est will not entitle the beneficiaries of lower-ranking security interest to advance in rank – unless an agree- ment providing for advancement in rank is recorded in the land register. As far as movable assets and certificated shares are concerned, the perfection of a security inter- est requires a transfer of the particular asset to the secured party. As a result, third parties are not able to take and perfect subsequent security interest over these assets without the consent of the secured party, with the exception of good faith acquisitions. A third party acting in good faith will acquire a valid security interest over the assets, irrespective of the fact that the pledgor had no authority over the assets. As far as rights and receivables are concerned, the order of priority is chronological, with the first secu- rity interest granted being senior to any subsequent security interest. Parties can, however, agree on a dif-
ferent ranking among themselves. Because there is no public register, legal due diligence is sometimes conducted to verify that the particular assets are free from third-party rights. Also, it is customary to obtain a respective representation and to provide for the nec- essary negative undertakings (no disposals, negative pledge, etc) in the relevant finance document(s). As a general rule, priority ranking can be contractu- ally varied and Swiss law recognises agreements set- ting priorities. Any party having a first-ranking security interest can decide to waive its priority right. Generally speaking, contractual subordination provisions will usually survive in insolvency proceedings of a Swiss security provider. However, questions can arise – particularly regarding whether an insolvency official is bound to them – and, where things are unclear, it is not uncommon in practice to bolster the contractual arrangements of claims among different groups of creditors by means of security assignments. 5.8 Priming Liens The concept of priming liens (ie, liens specifically approved by insolvency officials or courts for post- petition loans and taking security over existing liens) is not a concept known under Swiss law. 6. Enforcement 6.1 Enforcement of Collateral by Secured Lenders Security interests can be enforced if a secured party has a secured claim that is overdue. The relevant finance documents will generally define the enforce- ment trigger. Under Swiss law, there are two main avenues for enforcing a security interest. • First, the enforcement of a right of pledge can follow the rules set out in the Debt Enforcement and Bankruptcy Act (DEBA). Under the DEBA, the usual form of enforcement is a public auction sale. Assets may, however, be sold without a public auc- tion if: (a) they would lose value during the time required to prepare the auction;
611 CHAMBERS.COM
Powered by FlippingBook