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Switzerland

On January 1 1997 a number of amendments to the Federal Act on Debt Collection and Insolvency of 1889 entered into force. The amendments are aimed at updating and clarifying the Act, without changing its structure. In the field of injunctions to freeze assets as a provisional remedy, three major modifications have been enacted with a view to improve the protection for the debtor and the third party holder of assets:

  • To obtain a freezing order, the applicant must show that it has a good prima facie claim against the respondent, and that one of four criteria is met which implies that there is a risk of dissipating assets by the respondent. The predominant criterion is that the respondent is resident abroad. Parliament apparently felt that, based on this ground, freezing orders have tended to be granted too easily. Consequently, it enacted further conditions to limit their availability. Under the amended Act the applicant must still show that the respondent is resident abroad, but in addition that either a) its claim is based on a written acknowledgement of debt or on an enforceable domestic or foreign judgement, or b) that its claim has a sufficient connection with Switzerland. The 'connection' prerequisite is very vague and thus will have to be shaped by the courts; however it has been argued that it should be interpreted generously to prevent a debtor from frustrating a claim. Thus it has been suggested that the freezing order should be granted, among other reasons: if the creditor is resident in Switzerland, if Swiss law applies or a Swiss court has jurisdiction, if one of the parties does business in Switzerland, or, most importantly, if the debtor has brought the assets to Switzerland to hide them from potential creditors. Unfortunately this amendment contains the potential for abuse by debtors which can only be prevented if the courts adopt this last suggestion in their practice.
  • A freezing order is granted in ex parte proceedings. Under the old Act the debtor's subsequent right to be heard was extremely limited. It could make an application for the lifting of the order but based only on very narrow grounds. Its chances of success were usually slim. Under the amended Act full judicial review is available: the debtor may now file an objection against the order. It is then given a full hearing covering the entire subject matter of the ex parte proceedings deciding whether to maintain or lift the order. The decision is subject to appeal. This is a simple procedure effectively to satisfy the debtor's right to be heard.
  • Lawmakers in 1889 did not anticipate that assets to be frozen are often deposited with a third party, usually a bank, but rather believed them to be in the hands of the debtor. Consequently there was no provision concerning the position of such third parties. The amended Act confers on the third party the status of a party in opposition proceedings provided it can show that the freezing order adversely affects its interests. To be able to make use of the party rights, the freezing order must be notified to the third party in the same way as to the debtor. However, it is uncertain whether the third party right will turn out to be important in practice.

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