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23 March 2020

The regulation

For the first time since the First World War, the Federal Council ordered a nationwide stay of proceedings in the sense of art. 62 DEBA with the regulation of March 18, 2020. The stay of proceedings applies from March 19, 2020, at 7 a.m. to April 4, 2020, at 12 a.m. Immediately thereafter, the statutory debt enforcement holiday period over Easter will begin, lasting until April 19, 2020. After that the Federal Council could order a further stay of proceedings in accordance with art. 62 DEBA.

According to the people involved (quoted in the NZZ, edition of March 19, 2020), the Federal Council's decision has two purposes: on the one hand, the debt enforcement offices, who often have physical contact with customers in normal days, should obtain time to adapt to the Coronavirus situation. On the other hand, the stay of proceedings should bring relief to businesses with liquidity bottlenecks.

The meaning of the stay of proceedings: Prohibition of debt enforcement actions

During the lockout periods, which include the stay of proceedings and the debt enforcement holiday periods, no debt enforcement action may be taken, with the exception of attachment proceedings and of measures for the preservation of assets that cannot be postponed.

Debt enforcement actions are defined as actions with the purpose of initiating or continuing proceedings aimed at satisfying the creditor by recourse to the debtor’s assets by way of enforcement and interfering with the legal position of the debtor.

Debt enforcement actions are namely:

  • service of the payment order (summons to pay)
  • granting of the (provisional or definitive) setting aside of the objection to the payment order
  • notification of garnishment, execution of garnishment, supplementary garnishment
  • realizations (public auction, sale by private contract, transfer of claims)
  • bankruptcy warning and declaration of bankruptcy

No debt enforcement actions are, in particular:

  • all actions by the parties, e.g., the filing of a request for debt enforcement, for continuation, for realization or for bankruptcy, and objection to the payment order
  • all internal actions by the debt enforcement authorities, e.g., the issuance of the payment order or the garnishment deed
  • decisions of the supervisory authority which merely rule on the merits of an appeal, without ordering the enforcement bodies to take a specific enforcement action or ordering such an action themselves
  • all actions by the bankruptcy office or the bankruptcy administration after the declaration of bankruptcy
  • judgments in proceedings about the recognition of the claim or the release from the debt

Exceptions

Attachment proceedings and measures for the preservation of assets that cannot be postponed are excluded from the lockout periods, in particular:

  • attachment orders and execution of an attachment
  • precautionary measures in the context of a garnishment
  • premature realization (emergency sale) of chattels and claims
  • compilation of the inventory of assets
  • provisional orders in bankruptcy proceedings and in debt enforcement proceedings based on bills of exchange
  • drawing up of a lessor’s lien inventory and restitution of objects subject to the special lessor’s lien

Legal consequences of a violation of the stay of proceedings

In contrast to the other stay of proceedings of the DEBA, the stay of proceedings under art. 62 DEBA is a general stay of proceedings ordered in the interest of both debtors and creditors, because as a result of an epidemic the proper fulfilment of obligations is generally no longer possible. This stay of proceedings thus serves the public interest, which is why the doctrine predominantly assumes that a debt enforcement action carried out during the stay of proceedings is void. This means that the action has no legal effects whatsoever. In order to create legal certainty, however, it is advisable to have the voidness declared by the supervisory authority by way of an appeal.

This legal consequence (voidness) does not, however, apply to debt enforcement actions taking place during the other lockout periods. As a rule, a debt enforcement action during the other lockout periods is neither appealable nor void, but instead only takes effect after the end of the lockout period. The specific legal consequences are, however, controversial and must be examined on a case-by-case basis depending on the debt enforcement action and the lockout period violated.

Effects on deadlines

With respect to deadlines triggered by debt enforcement actions which have already started running before the stay of proceedings and which expire during the stay of proceedings or the debt enforcement holiday periods, the following applies: The stay of proceedings and the debt enforcement holiday periods do not change the fixed deadlines. However, if, with respect to the debtor, creditor, or a third party, the deadlines expire within a debt enforcement holiday period or a stay of proceedings, the deadline will be extended until the third day after the end of that period. Saturdays, Sundays, and public holidays are not counted when calculating the three-day-period.

The extension of three days does generally not apply to deadlines that expire after the stay of proceedings and the debt enforcement holiday periods. Some part of the doctrine, however, takes the view that the extension should also be granted in case the deadline expires immediately after the end of the lockout period. It is, however, not advisable to rely on an extension of the deadline in this case.

And what happens next?

According to its media release on its regulation on the stay of proceedings, the Federal Council admits that the stay of proceedings is not a suitable instrument for dealing with the economic difficulties caused by the protective measures taken against the Coronavirus in the long term. The Federal Council has therefore timely limited the stay of proceedings and will soon decide which measures will better protect the interests at stake.

In addition to the stay of proceedings, the DEBA also provides for an emergency moratorium (art. 337 et seqq. DEBA) in case of "exceptional circumstances". In the event of exceptional circumstances, in particular in the event of a prolonged economic crisis, the provisions on the emergency moratorium may be declared applicable by the cantonal government, with the consent of the Confederation, to debtors affected by such circumstances and for a specified period. The granting of an emergency moratorium in the individual case is then carried out at the request of the debtor by the debt restructuring court. The requirements are that 1) the debtor is unable to meet their obligations, through no fault of their own, as a result of the exceptional circumstances, 2) there is a prospect that the debtor will be able to fully satisfy their creditors at the end of such emergency moratorium and 3) the debtor provides the necessary evidence of their financial situation and submits a list of their creditors. The emergency moratorium including the extension may be granted for a maximum duration of ten months.

During the moratorium, debt enforcement proceedings against the debtor may be initiated and continued up to the garnishment or the bankruptcy warning notice. On the other hand, neither the realization nor the declaration of bankruptcy is permissible. In addition, many statutory debt enforcement periods are extended by the duration of the moratorium.

After expiry of the emergency moratorium, the debtor is not entitled to demand either a debt restructuring agreement or another emergency moratorium for six months. However, in view of the extended debt restructuring moratorium (in comparison to the emergency moratorium, the requirements are lower, the maximum duration of 28 months is longer and the effects are more extensive) and the other alternatives (such as the stay of bankruptcy proceedings and the consensual private debt settlement), the emergency moratorium is often regarded as superfluous by the doctrine.

With the regulation of March 20, 2020, the Federal Council has also already ordered that the court holidays over Easter applicable in civil and administrative proceedings shall begin earlier. They will now run from March 21, 2020, to April 19, 2020, during which time the statutory limitation periods or periods set by the court or authorities will be suspended. The suspension does not apply to proceedings in which no court holidays are applicable, namely in conciliation and summary proceedings.

Our litigation team and insolvency team will be happy to answer any further questions regarding the stay of proceedings or the lockout periods.

Author: Julia Käser

Topics: Dispute ResolutionCoronavirusStay of debt enforcement proceedingslockout periodsban on debt enforcement actions

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