The purpose of claw back claims is to recover assets extracted from or given away by an insolvent debtor for the benefit of its insolvency estate and ultimately its creditors. Transactions may be subject to claw back actions if:

  1. within one year prior to the opening of bankruptcy or insolvency proceedings, assets were given away for free or without adequate consideration; or

  2. within one year prior to the opening of bankruptcy or insolvency proceedings, the debtor was already over-indebted but nevertheless (a) provided security for existing obligations without being previously obliged to do so, (b) settled a monetary debt other than by cash or other common means of payment, or (c) discharged an undue debt;

  3. within five years prior the opening of bankruptcy or insolvency proceedings, a transaction was carried out with the intention to harm creditors, and the party profiting from such transaction knew or should have known of the debtor’s intention.

Further, and independent of any suspicion period, a set-off is subject to a claw back if the counterparty acquired the set off claim against the debtor prior to the opening of bankruptcy proceedings but knowing of the debtor’s insolvency, in order to gain an advantage at the expense of the insolvency estate.

The debtor's insolvency estate, which has been diminished by a challenged transaction, is to be restored to the status it would have had at the relevant time without the challenged act. The beneficiary of the transaction is hence obliged to return the assets in kind or to pay compensation for their value to the debtor’s insolvency estate. The right to bring claw back actions expires and becomes time barred three years after the opening of bankruptcy proceedings or the court-approval of the composition agreement by the court, respectively.

The risk of a transaction by or with a debtor in financial distress must be carefully assessed. Certain transactions giving raise to claw back claims may also expose the management of the debtor and potentially also the contracting party to criminal liability.
 
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This is the fourth part of our restructuring series. Stay tuned for further insights into Swiss restructurings. Up next: the recognition of foreign bankruptcy decrees in Switzerland.