Restructuring

The Federal Act on Debt Collection and Bankruptcy (DCBA) does not only provide for measures for the enforcement of claims in the context of bankruptcy; in the case of companies in financial distress, it also provides for the possibility of successful restructuring within the framework of composition proceedings in order to preserve company values for the benefit of all parties involved.

Contractual (Private) Restructuring

Contractual restructuring measures, i.e. measures outside of statutory insolvency proceedings, represent the gentlest form of restructuring since these measures neither interrupt nor adversely affect the operating activities of a company. Thus, this type of restructuring ideally preserves the value of the company. As such, contractual (private) restructuring measures can be considered:

  • by the company: operational measures to increase earnings, divestments, and release of hidden reserves;

  • by the shareholders: capital increases, capital reductions and contributions to the company without consideration;

  • by creditors: standstill agreements, bridging loans, subordination of debts, debt/asset swaps, debt/equity swaps and debt waivers (possibly together with the issuance of dividend rights certificates, debtor warrants or options).

Contractual restructuring measures cannot be imposed on creditors but must be agreed with each creditor individually.

Composition Proceedings under the DCBA

Proceedings to reach a creditors' composition aim to accomplish the work-out, restructuring and survival of an undertaking. Unlike bankruptcy proceedings, creditors' composition proceedings allow for a (limited) continuation of the debtor's business activities under the protection of the court and for a more flexible realisation of the debtor's assets. Composition proceedings are generally initiated by the board of directors with the petition for a moratorium of the estate. The petition has to be submitted to the court at the place of the company’s registered office.

The DCBA provides for two types of composition agreements: the ordinary composition agreement in which the company continues to exist and the composition agreement with assignment of assets, which qualifies as a kind of private bankruptcy and results in the liquidation of the company. In the ordinary composition agreement, the company continues to exist while the composition agreement restructures the debts.