1.1 What are the main trends/significant developments in the lending markets in your jurisdiction?
Despite the economic shock of the COVID-19 pandemic, the recovery of the Swiss economy has been quite swift with GDP growth in the low to mid-single digits for 2021, which is expected to continue in 2022. Unlike in 2020, at the beginning of the pandemic, no new state-backed credit support programmes in relation to the COVID-19 pandemic were introduced in 2021. The M&A and acquisition financing markets remained active but the deals were (with a few exceptions) less sizeable than in previous years.
In 2021, the change from LIBOR to other interest rates kept the market participants busy. Further, we have also observed the following trends:
- a growing demand for ESG-related financing, including by borrowers;
- competition on the lending market between traditional bank and syndicated lending, and non-bank lenders showing an appetite for higher leverage; and
- a growing appetite of private banking clients for leveraged transactions (increasing the demand by private banks for credit risk mitigation instruments (netting arrangements, sub-participation schemes, innovative risk-shifting methods)).
1.2 What are some significant lending transactions that have taken place in your jurisdiction in recent years?
Many transactions and, in particular, deal values remain confidential. Transactions that made headlines in 2020/2021 were the CHF 1.5 billion COVID-19-related and state-backed credit package for Switzerland's national aviation group "Swiss" and Roche's CHF 9.814 billion and USD 10 billion bridge facility for the repurchase of the participation of Novartis in Roche.
2.1 Can a company guarantee borrowings of one or more other members of its corporate group (see below for questions relating to fraudulent transfer/financial assistance)?
A company can guarantee borrowings of one or more other members of its corporate group. In case such other member of its corporate group is a direct or indirect shareholder of the guarantor or a subsidiary of such shareholder (i.e. a sister company of the security provider), the financial assistance restrictions described under question 4.1 apply.
2.2 Are there enforceability or other concerns (such as director liability) if only a disproportionately small (or no) benefit to the guaranteeing/securing company can be shown?
If the guarantee/security is not at arm's length, the financial assistance restrictions described under question 4.1 apply unless the guarantee/security is granted to a fully owned (direct or indirect) subsidiary of the guarantor/security provider. If such restrictions are not incorporated into the guarantee/security agreement, directors are exposed to liability risks. The law is not settled and there is only a limited set of precedents in relation to the enforceability of such a guarantee/security
2.3 Is lack of corporate power an issue?
Yes, the law is not settled and there is only a limited set of precedents in this regard (see questions 2.2 and 4.1).
2.4 Are any governmental or other consents or filings, or other formalities (such as shareholder approval), required?
No governmental or other consents or filings or other formalities are required except that, in practice, shareholder approval is sought in case of guarantees that require financial assistance restrictions because they are granted for the benefit of other members of the guarantor's corporate group that are either (direct or indirect) shareholders of the guarantor or subsidiaries of such shareholder.
2.5 Are net worth, solvency or similar limitations imposed on the amount of a guarantee?
Except for the financial assistance restrictions described under question 4.1, no such limitations are imposed on the amount of a guarantee. However, the directors of a Swiss company risk liability if a company prefers some creditors over others in case of a near insolvency or bankruptcy situation. This has the factual consequence that a company will not pay a guarantee if its directors determine that insolvency/bankruptcy cannot be avoided. In such scenario, guarantee claims will have to be filed with the bankruptcy or similar administration.
2.6 Are there any exchange control or similar obstacles to enforcement of a guarantee?
Currently, there are no exchange control or similar obstacles in Switzerland
3 Collateral Security
3.1 What types of collateral are available to secure lending obligations?
Typical collateral to secure lending obligations are pledges or transfer of ownership (for security purposes) of certain assets such as shares, cash, intellectual property or real estate, as well as security assignments of certain receivables.
3.2 Is it possible to give asset security by means of a general security agreement or is an agreement required in relation to each type of asset? Briefly, what is the procedure?
Certain types of security interests (e.g. pledges or security transfers) may only apply to a specific class of asset and, therefore, it is rarely possible under Swiss law to cover all the types of assets that an entity may hold under one single security agreement. In theory, this would be possible if a company only held assets over which a single security interest can be taken. However, even in this case the general security agreement must cover different perfection requirements that may apply to various types of assets, which would defeat the purpose of facilitating the procedure of taking security over multiple assets in a single agreement. Consequently, it is standard practice in Switzerland to use separate agreements for each type of asset.
3.3 Can collateral security be taken over real property (land), plant, machinery and equipment? Briefly, what is the procedure?
Real property – land
Collateral over land is possible under Swiss law. For the purpose of securing lending obligations, the common forms used to create such collateral are either a security transfer of mortgage notes (Schuldbriefe) or a land charge (Grundpfandverschreibung).
Security transfer of mortgage notes
Mortgage notes are financial instruments representing a personal claim against the debtor that is secured by a pledge on real property. Mortgage notes exist in the form of bearer or registered certificates or in paperless forms.
Instead of a security transfer, it is also possible to pledge mortgage notes. However, practitioners generally prefer a security transfer of legal title over the creation of a pledge. The advantage of the former is the transfer of legal title of the mortgage notes will not become part of the debtor's bankruptcy estate.
In order to create a real estate security based on mortgage notes, such notes – if not already issued – must first be created, which requires a notarial deed. The parties then enter into a written security transfer or pledge agreement and transfer the legal title of the mortgage notes, either by transfer of possession in the case of paper mortgage notes, or registration of the transfer in the land register in the case of paperless (registered) notes.
A land charge is a mortgage that is entered into the land register and secures any kind of claim, whether actual, future or contingent. Other than in the case of mortgage notes, the secured claim is not entered in the land register and neither the land charge nor the secured claim is evidenced in the form of a negotiable instrument. For certain reasons, the land charge is less commonly used than mortgage notes. To grant security in the form of a land charge, the parties must enter into an agreement regarding the creation of the land charge in the form of a notarial deed and file this deed with the land register. Once the land register has registered the land charge, the security is created.
Real property – plant
As a matter of principle under Swiss property law, structures become part of the land on which they are built. An exemption from this principle is an independent building right with a duration of at least 30 years, which can be established on land for the purpose of building a structure such as a plant. In this case, Swiss law recognises the building right as a real property in its own right. In either case, a mortgage security over a land or a building right where the plant has or will be built is possible and follows the same principles and procedures as laid out above (see Real Property – land).
Machinery and equipment
It is possible to grant a pledge over movable assets such as machinery and equipment. However, since Swiss law does not recognise the concept of a floating charge, taking security over machinery or equipment is impractical and rarely pursued in a lending transaction.
A security over machinery or equipment can be created by a pledge or a security transfer of legal title in the machinery or equipment. These security interests entitle the pledgee or transferee to liquidate the machinery or equipment in case of enforcement. Unless specific rules apply in relation to certain types of movable assets, perfection of a pledge over movable assets requires the transfer of physical possession of such asset. The security is only established once the pledgor gives up its possession over the relevant assets and is no longer in the position to exercise independent possession rights. This makes it impossible to grant security over machinery and equipment while allowing the pledgor to make use of such assets.
An exception applies to certain types of movable assets, which are subject to specific laws. Most importantly, security over aircraft, ships and railroads is perfected by the entry of the security in the respective public register (such registration replaces the requirement to transfer possession).
3.4 Can collateral security be taken over receivables? Briefly, what is the procedure? Are debtors required to be notified of the security?
Security over receivables can generally be taken in the form of a pledge or assignment. However, in either case, the prerequisite for creating such security is the assignability of the receivables. This means that the assignability of the receivables must not be prohibited by applicable laws or excluded by contract or by the personal nature of the receivable (e.g. family law claims, but according to Swiss case law there are also receivables where the personal nature is less evident). If the assignability is restricted in an underlying contract, it is common to request the assignor to seek a waiver of such restriction from the debtor.
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Originally Published by International Comparative Legal Guides (ICLG), 08 April 2022
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.