SWITZERLAND Trends and Developments Contributed by: Roger Ammann, David Borer, Johannes A Bürgi and Lukas Wyss, Walder Wyss Ltd.
session of the pledgee or if the security provider gives up exclusive control over the assets – ie, can no longer access them without the assis- tance of the pledgee. However, since the mov- able assets that could be pledged are usually inventory, machines or fleets of vehicles that are indispensable for the pledgor to continue its dai- ly business, the provision of security over mov- able assets is, in practice, most likely ruled out for practical reasons. An exception to this strict de-possession requirement applies to ships and aircraft, over which a lien can be established by means of an entry in a public ownership register. There are structural solutions around this issue (like pledge-holder structures or OpCo/PropCo structures) but these solutions are rarely used in practice: on the one hand, because they only make sense if very valuable assets are involved, and on the other hand because there is a risk that these structures could be regarded as cir- cumvention by a court of law and therefore not Although Swiss law does not contain any spe- cific provisions on financial assistance, Swiss company law contains capital maintenance provisions that are mandatory to safeguard the nominal capital and reserves of a company. Under these provisions, upstream and cross- stream security and guarantees for the benefit of a parent or sister company are only permitted if certain requirements are fulfilled, such as the following: • the agreement provides for arm’s length terms; • the security does not exceed the value of the freely distributable equity capital and reserves of the security provider or guarantor; and recognised in case of enforcement. Limitations on financial assistance
• the articles of association of the security provider or guarantor explicitly permit such undertakings. Furthermore, the planned transaction docu- ments need to be validly approved by the rel- evant corporate bodies and must contain provi- sions addressing certain Swiss withholding tax law matters ( “Swiss limitation language” ). In contrast, security for downstream loans is not restricted (as long as the fully owned subsidiary is not in financial distress) as in this case the target company secures its own debt. Insolvency and enforcement Swiss law governed security can be enforced by way of private enforcement ( Privatverwer- tung ) or official enforcement proceedings under Swiss debt collection and bankruptcy law. A pri- vate enforcement is only permitted if the secu- rity provider has given its consent to this type of enforcement (which is standard practice in Swiss security agreements) and where the rel- evant asset serving as security (for example, the shares certificates in the case of a share pledge agreement) has been transferred to the secured party or a security agent acting on behalf of mul- tiple secured parties. In the case of assignment agreements where the full legal title has been transferred to the secured party, private enforcement is the only available enforcement method. Official enforcement proceedings are often lengthy and usually require court involvement, which makes private enforcement more favour- able in most cases. For certain creditors, offi- cial enforcement proceedings can be beneficial because Swiss bankruptcy law provides for a clear order of priority of claims, prioritising
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