Business bankruptcy in Switzerland: procedure, risks and options

Bankruptcy and financial difficulties: four different situations

Bankruptcy is opened by a court. A cash shortage alone does not mean proceedings have begun. Financial difficulties can arise at different levels, and each calls for a different response.

A company can be unable to pay its debts without being bankrupt or over-indebted: it may own assets but lack cash to pay an invoice today. Conversely, it can be over-indebted while still paying certain invoices on time. Bankruptcy is a separate judicial decision.

For the accounting background, see assets on a Swiss balance sheet and our explanation of capital loss and over-indebtedness.

What does “dépôt de bilan” mean? This expression is mainly associated with French legal vocabulary. In Switzerland it does not identify one single filing. Depending on the circumstances, the relevant step may be notification of over-indebtedness under Article 725b CO, a debtor’s bankruptcy application under Article 191 of the Debt Enforcement and Bankruptcy Act (DEBA, known as LP in French), or proceedings initiated by a creditor.

What must directors and LLC managers do?

The board of a Swiss corporation (SA/AG) must monitor solvency. Equivalent rules apply to LLC managers. Waiting for the annual accounts is not enough when a liquidity problem is foreseeable.

1. Monitor solvency. A rolling cash forecast compares expected receipts with upcoming salaries, social insurance contributions, taxes, rent, supplier payments and loan repayments.
2. Act when insolvency threatens. Article 725 CO requires measures to protect solvency. Depending on the situation, these may include accelerating collections, negotiating payment dates, reducing cash outflows, obtaining finance or proposing restructuring measures. Apply for a debt-restructuring moratorium where appropriate.
3. Address a capital loss. Under Article 725a CO, the trigger concerns net assets falling below half the sum of share capital and the statutory capital and retained earnings reserves that cannot be repaid to shareholders. Measures must be taken to eliminate the loss. A company with no appointed auditor must generally have its latest annual accounts subjected to a limited audit by a licensed auditor before approval. This audit requirement ceases when the board applies for a debt-restructuring moratorium.
4. Prepare interim accounts if over-indebtedness is suspected. Article 725b CO requires immediate interim accounts at going-concern and liquidation values. Liquidation-value accounts may be omitted if continued operation is envisaged and going-concern accounts show no over-indebtedness. If continuation is no longer envisaged, liquidation-value accounts suffice. The appointed auditor, or a licensed auditor if none is appointed, must verify the accounts.
5. Notify the court when required. If the relevant audited accounts show over-indebtedness, court notification is normally mandatory. The statutory exceptions include qualifying creditor subordination or a well-founded prospect of eliminating over-indebtedness within the permitted period without further jeopardising creditors’ claims.

The 90-day period is not a general right to wait. It runs from the preparation of the interim accounts and is only available while there are sound reasons to expect over-indebtedness to be eliminated in time, without further jeopardising creditors. The board and auditor must act promptly in all cases. A qualifying subordination must cover the shortfall and interest accruing throughout the period of over-indebtedness.

Late accounting information can therefore create liability risks. Directors and persons entrusted with management or liquidation may be liable for damage caused by intentional or negligent breaches of duty under Articles 754 and 827 CO. Our article on Swiss LLC managers’ responsibilities explains the practical implications.

Why do businesses run into financial difficulty?

Bankruptcy rarely results from one mistake alone. An internal weakness may combine with an external shock, followed by a delayed management response.

Internal causes

• A business model or prices that do not generate sufficient profit.
• Dependence on one customer or product.
• Excessive investment or long-term assets financed with short-term debt.
• Too much stock tying up cash.
• Disagreements between shareholders without a decision-making mechanism.
• Accounting records or cash monitoring that are too far behind.

External causes

• Loss of a major customer or a customer’s bankruptcy.
• Rapid increases in costs, interest rates or rent.
• A recession, regulatory change or supply disruption.
• A major dispute, cyberattack or insured event.
• The death or incapacity of a key person without succession planning.

A carefully prepared shareholders’ agreement, a clear strategy and realistic market research can reduce some risks from the outset. They do not replace monthly financial monitoring.

Warning signs that call for immediate analysis

• Late payment of salaries, social contributions, VAT or suppliers.
• Persistent use of the full bank credit limit.
• Slower customer payments and growing overdue receivables.
• Falling gross margins despite stable revenue.
• Equity approaching the capital-loss threshold.
• A forecast cash shortage in the coming months.
• Repeated debt-enforcement proceedings, bankruptcy warnings or refusals of credit.

How can you prevent difficulties from becoming bankruptcy?

The priority is to understand the position, not merely to buy time. Delaying a payment without correcting an unprofitable business model may postpone the problem and increase the eventual loss.

1. Build a credible cash forecast

A business plan must evolve after launch. Under financial pressure, prepare at least a central and a downside scenario, then update receipts, payments and deadlines every week. A cash flow statement and an analysis of working capital requirements help explain where the funding need comes from.

2. Release cash without undermining operations

Prompt invoicing, systematic reminders, deposits and shorter customer payment periods can be more effective than across-the-board cuts. Review ways to reduce late customer payments, monitor business expenses and control cash tied up in stock. Bring the measures together in a regularly updated cash flow forecast.

3. Negotiate early and document the measures

A bank, landlord, supplier or shareholder is better placed to assess a proposal backed by reliable figures and a plan. Subordinating a claim, increasing capital, waiving a debt, selling an asset and obtaining bridge finance have different legal, tax and accounting effects. Analyse the proposed combination before signing.

4. Consider a debt-restructuring moratorium

Where recovery remains possible, a debt-restructuring procedure may be initiated by the debtor, an eligible creditor or a court referral. Under Article 293 DEBA, a debtor’s application must include up-to-date financial information and a provisional restructuring plan. The documents include a balance sheet, income statement and cash plan, or other documents showing the current and future financial position.

The court may grant a provisional moratorium and subsequently a definitive moratorium if there are prospects of recovery or approval of a composition agreement. A moratorium is a court-supervised process, not an informal extension of all debts.

The former company-law “postponement of bankruptcy” should not be presented as the standard remedy today. Since the 2023 reform, the relevant framework includes Article 725b CO, the restructuring procedure under Articles 293 onwards DEBA and, where a bankruptcy application is already pending, Article 173a DEBA.

How does bankruptcy work in Switzerland?

There is no single filing that applies to every case. In the ordinary creditor-led route, a creditor pursues a debtor subject to bankruptcy enforcement. Following a request to continue enforcement, the debt enforcement office serves a bankruptcy warning. Once 20 days have elapsed after service of that warning, the creditor may ask the court to open bankruptcy proceedings. The court orders bankruptcy unless a statutory reason for postponement or dismissal applies.

Bankruptcy can also be opened without prior debt enforcement. A debtor may apply by declaring insolvency to the court under Article 191 DEBA. For an over-indebted SA or LLC, notification follows Article 725b CO; the court then orders bankruptcy or takes the steps provided by Article 173a DEBA.

Since 1 January 2025, public-law debts such as taxes and social insurance contributions are also subject to the general bankruptcy-enforcement rules for debtors to whom those rules apply. Unpaid public debts should therefore be included in the risk assessment.

1. Opening order. The court opens bankruptcy at a precise date and time. The company loses the right to dispose freely of assets forming part of the bankruptcy estate.
2. Inventory and preservation. The bankruptcy office inventories assets and takes measures to preserve them under Article 221 DEBA.
3. Call to creditors. Opening is published, including in the Swiss Official Gazette of Commerce (SOGC, FOSC in French). Creditors submit their claims within the stated deadline.
4. Type of administration. Proceedings may be ordinary, summary or suspended because assets are insufficient to cover costs. “Summary” does not mean debts will be paid automatically or that the case carries no risk.
5. Realisation and distribution. Assets are sold and proceeds distributed according to the admitted claims and statutory priorities.
6. Closure and deregistration. The company is generally removed from the commercial register after proceedings close. VAT deregistration and other administrative matters must also be followed up.

A solvent company that simply wishes to stop trading follows a different route: dissolution and voluntary liquidation. See closing a Swiss LLC or SA.

Consequences for the company and its owners

SA and LLC: the company generally answers for its debts

An SA and an LLC are separate legal entities. Shareholders do not automatically become liable for company debts beyond their own commitments. They may lose their investment, but company bankruptcy alone does not allow a creditor to seize their private assets.

This separation does not protect a director or manager who breaches their duties. Personal liability may arise, for example, from ignoring warning signs, delaying interim accounts or court notification, making unlawful preferential payments or increasing losses through an unjustified continuation of trading. Personal guarantees and other commitments must be assessed separately.

For the structural differences, compare Swiss business structures and the responsibilities attached to each role.

Sole proprietorship: business debts remain personal

A sole proprietorship is not a separate legal person. The owner answers for business debts with personal assets, subject to statutory exemptions and protections. Closing personal bankruptcy proceedings does not automatically erase every debt: certificates of unpaid debt can remain.

General partnership: partners have joint and several liability

In a general partnership (SNC/Kollektivgesellschaft), partners have personal, unlimited and joint and several liability, subsidiary to the partnership under the applicable rules. If one partner cannot pay, the others may have to bear a greater share. The choice of structure therefore has a significant effect on private financial exposure.

What happens to employees and unpaid wages?

The opening of bankruptcy does not, by itself, automatically terminate every employment contract. Continuing contracts and related claims are handled under the DEBA rules; the estate may continue certain services where useful for liquidation.

Under Article 337a CO, an employee may terminate immediately if an insolvent employer does not provide security for contractual claims within a reasonable period. The condition concerning security matters: the word “insolvency” alone does not create an unconditional right to leave immediately.

Insolvency compensation can cover eligible unpaid wage claims for up to four months of the same employment relationship, subject to the statutory insured-earnings limit. It generally covers work actually performed. Employees in an employer-like position and qualifying spouses or registered partners working in the business are excluded.

Following bankruptcy, each employee must apply to the competent public unemployment insurance fund within 60 days of publication of the bankruptcy in the SOGC/FOSC. Missing the statutory deadline extinguishes entitlement. Other qualifying events have their own deadline trigger; contact the fund promptly.

Employees should also lodge their claim in the bankruptcy and take the steps needed to protect their rights. Our articles on Swiss employment contracts and unemployment benefits provide related context. Insolvency compensation and unemployment benefits address different situations.

Frequently asked questions