The composition moratorium in Switzerland (Nachlassstundung)

What the composition moratorium is

The moratorium is a protective stay with a purpose: to hold the creditors off long enough for a viable company to be restructured rather than carved up. Swiss enforcement, left to itself, rewards the fastest creditor, the one whose Betreibung reaches realisation first. For a company in temporary distress that race is destructive, because it can tip a business that is fundamentally sound into a bankruptcy that pays everyone less. The Nachlassstundung interrupts the race.

It is granted by the composition court, not negotiated privately, and that judicial character is what gives it teeth. Once ordered, it binds all the creditors, not only those who agree to it. In exchange for that broad protection, the debtor accepts supervision: a commissioner appointed by the court oversees the business, and the debtor loses the free hand to move assets or prefer one creditor over another. The 2014 revision of the restructuring law, in force since 1 January 2014, reshaped the procedure into a real rescue mechanism, including a confidential provisional phase so that a company can begin restructuring without the public alarm that used to guarantee its collapse.

The threshold idea is viability. A moratorium is for a business worth saving, where the problem is liquidity or a balance sheet that can be repaired, not one whose model has simply ended. Where the company is already beyond rescue, the honest route is liquidation or bankruptcy, and seeking a moratorium only delays it at the creditors' expense.

The provisional and definitive moratorium

The procedure is built as a two-stage filter, so that the strong protection of a full moratorium is only granted once the court has seen that a restructuring has a real chance. The two phases differ in length, in publicity and in what they are for.

The provisional moratorium comes first and lasts up to four months. Its job is triage: the court grants it quickly, often appoints a provisional commissioner, and uses the time to see whether there is any genuine prospect of recovery. A valuable feature of the 2014 reform is that this phase can be ordered without public notice where publicity would itself sink the restructuring, so suppliers and customers need not learn of the distress before there is a plan. If the prospect is there, the court grants a definitive moratorium, normally four to six months and extendable to twelve, with up to twenty-four months reserved for genuinely complex cases. If the prospect is not there, the provisional phase can be ended early and the company moved into bankruptcy without the cost of a full moratorium.

What the moratorium does to creditors

The protective effects are what make the moratorium worth seeking, and they fall on the creditors. From the moment it is granted, debt enforcement against the debtor is stayed: pending and new Betreibungen are blocked, so no individual creditor can seize assets and break up the business mid-rescue. Interest stops running on unsecured claims, which halts the compounding that would otherwise widen the hole. And the debtor may no longer freely dispose of its assets or prefer one creditor over another; significant transactions need the commissioner's consent.

The protection is broad but not absolute, and the exceptions are where creditors fight. Secured creditors keep specific rights over their collateral, and certain privileged and first-class claims, such as defined employee entitlements, are treated differently from ordinary unsecured debt. A landlord, a secured lender and an unsecured supplier therefore do not stand in the same position during a moratorium, and a realistic plan has to model each of them rather than assume a uniform freeze. This is also why creditor engagement matters from the first week: the agreement that ends the moratorium will need their votes.

How it ends: the composition agreement

A moratorium is a means, not an end; what resolves the distress is the composition agreement (Nachlassvertrag) that the moratorium makes room to negotiate. It takes one of two principal forms, and the choice reflects whether the business survives or is wound down.

A dividend composition (Dividendenvergleich) keeps the company alive: the creditors accept a percentage of what they are owed, the debt is cut to a level the business can service, and trading continues. A composition with assignment of assets (Nachlassvertrag mit Vermögensabtretung, art. 317 SchKG) does the opposite for the company but often better for the creditors: they take over the right to realise the assets, or those assets are sold to a buyer, and the company is wound down outside the bankruptcy process, which usually preserves more value than a forced Konkurs auction. Either way the agreement only binds once it clears two gates. Under art. 305 SchKG the creditors must approve it, either a majority representing two-thirds of the claims, or a quarter representing three-quarters, and then the court must confirm it. Both the creditor vote and the judicial confirmation have to be earned; a plan that ignores either does not bind.

What the moratorium does not do

The moratorium is often hoped to be more than it is, and three limits decide whether seeking one is sensible.

It does not erase debt by itself. The stay buys time; it does not cancel a single franc. Debt is only reduced if and when a composition agreement is approved and confirmed, and that requires the creditors' votes. A debtor that enters a moratorium expecting relief without a deal has misread the procedure, because the relief is the deal.

It is not a hiding place. The price of protection is supervision. The commissioner watches the business, consent is needed for significant moves, and the court can end the moratorium if the debtor abuses it or no plan emerges. A company that wants a stay but not the scrutiny that comes with it is not a candidate for this procedure.

It is not automatic, and it is not free of the bankruptcy risk. The court grants a moratorium only where a restructuring looks realistic, and a moratorium that fails ends in the very bankruptcy it was meant to avoid, with months of cost added. The procedure rewards a company that arrives with liquidity to trade through the period and a credible plan, and punishes one that uses it to defer an inevitable failure. That is also why directors must act early, while options remain, rather than after the balance sheet has crossed into over-indebtedness.

How a moratorium is run in practice

The outcome of a moratorium is largely decided before it is granted, in the quality of the restructuring plan and the early reading of the creditors. We test first whether a moratorium is justified at all, because the worst result is a protected, expensive march into bankruptcy. Where it is justified, we prepare the application and the underlying plan, work with the court-appointed commissioner, and negotiate the composition agreement, the dividend or the assignment of assets, that the creditor majority and the court will accept. Our composition moratorium and financial restructuring services cover that path.

Sometimes the right answer is not a stay but a sale, moving the viable part of the business to a buyer while leaving the debt behind in an orderly wind-down. We run those distressed transfers as well, and judge the two routes against each other rather than defaulting to the one the client asks for. The rest of our litigation, debt and insolvency guides set out how the moratorium sits alongside enforcement and liquidation.