Better bankruptcy

Friday, 01 February 2013
An outline of the new rules for bankruptcy proceedings in collective investment schemes in Switzerland.

Since September 2011, the Swiss Financial Market Supervisory Authority (FINMA) has been responsible for the initiation and conduct of bankruptcy proceedings against certain institutions subject to the Swiss Collective Investment Schemes Act(CISA). After the introduction of ordinances on bank and insurance insolvency, FINMA has decided to adopt more detailed rules on bankruptcy proceedings for collective investment schemes in a new ordinance known as the FINMA Collective Investment Schemes Bankruptcy Ordinance (CISBO-FINMA).

In its current state, the CISA does not regulate bankruptcy proceedings, but instead refers to articles 33 to 37g of the Swiss Banking Act 1934. The adoption of the new ordinance aims to accelerate the speed of bankruptcy proceedings, improving the efficiency of such proceedings, reinforcing investors’ protection and improving legal certainty.

The ordinance specifies in detail the tasks and duties of the liquidator of a SICAV (a collective investment scheme incorporated under the form of a limited liability company). Among other provisions, the liquidator, once appointed, will have to verify the claims introduced against the various sub-funds, determine the claims that the sub-funds hold against each other and take such claims into account when distributing the income of these sub-funds (article 9 of CISBO-FINMA). CISBO-FINMA also defines the rights of creditors in case of bankruptcy of a SICAV. Accordingly, the ordinance also defines the rights of creditors in such bankruptcy cases and stipulates that creditors have rights against the sub-funds they have invested in. Despite this, FINMA may provide that a meeting of creditors and a supervisory committee will be appointed in relation to certain sub-funds only. For the purposes of the inventory to be made in the context of the bankruptcy, the liquidator will be in charge of recording, in a separate section, all assets belonging to a given sub-fund, each sub-fund being recorded in a separate section of the inventory (article 19 of CISBO-FINMA). CISBO-FINMA allows the liquidator, to a certain extent, to realise the claims that the bankruptcy estate does not intend to bring before a court (article 24, paragraphs 7 and 33 of CISBO-FINMA), contrary to the general principle of assignment of claims governed by article 260 of the Swiss Debt Collection and Bankruptcy Act 1889 (DCBA).

More generally, CISBO-FINMA provides for a right of distraction in case of bankruptcy of a fund management company (article 22). Thus all assets and rights of a collective investment scheme will be safeguarded for the benefit of investors, pursuant to article 35 of CISA, and the management company will be in a position to exercise its claims against the collective investment scheme. Finally, in case of bankruptcy of a fund management company, the liquidator may apply to FINMA to transfer one or more collective investment schemes to another fund management company, provided that the maintenance of such collective investment schemes is in the interest of all investors, to ensure the continuity of the transferred entities. The liquidator has the same rights under article 35 of CISBO-FINMA in case of a bankruptcy of a SICAV, and may apply to FINMA to transfer one or more sub-funds to another collective investment scheme, under the same conditions.

CISBO-FINMA’s entry into force is intended to be aligned with that of the revised CISA, which is currently undergoing significant changes. However, if the revised CISA does not enter force in the first quarter of 2013 as planned, this ordinance will in any case enter force on 1 January 2013 and be amended following the entry into force of the new legislation referred to above. The implementation of this ordinance will fill an obvious gap in current legislation since, to date, practitioners have been compelled to apply the rules of the Swiss Banking Act 1934, the ordinance of FINMA on the bankruptcy of credit institutions, and the Swiss DCBA 1889 to the bankruptcy of collective investment schemes.

This contribution is based on the draft of CISBO-FINMA, as the final version was not in force at the time of publication. The final version should, however, not be substantially amended.

Author block
Julien Dif and Vaïk Müller

Julien Dif TEP is a Partner at Bonnard Lawson in Geneva and Luxembourg, Vice-Chair of STEP Geneva and a Member of the STEP Council, and Vaïk Müller is an Associate at Bonnard Lawson in Geneva.

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