A major change in Swiss bankruptcy Act in 2025: Impact on independents and businesses
Introduction
As of January 1, 2025, a significant amendment to the Swiss Federal Debt Collection and Swiss Bankruptcy Act (LP) will come into force. This reform aims to tighten the rules for recovering public debts and to address abuses of bankruptcy procedures, but it could have profound consequences for independents and businesses, especially those operating as sole proprietorships.
Legal Basis
The change is based on a modification to the Federal Debt Collection and Swiss Bankruptcy Act (LP), specifically its provisions concerning the recovery of public debts. Until now, Article 43 LP allowed these debts to be recovered through seizure, enabling the merchant to continue operating. With the reform, the Federal Council has revised the procedures to require direct recovery through bankruptcy for all debtors listed in the commercial register (Art. 43, para. 2 LP).
This modification applies in particular to tax debts (income tax, VAT), social contributions (AVS, AI, LPP), and administrative fines. Bankruptcy proceedings will result in the total liquidation of the business, marking the end of its commercial activity.
Impact of Swiss Bankruptcy Act in 2025 on Sole Proprietors
For independents operating as sole proprietorships, the consequences of this reform are particularly severe. Unlike joint-stock companies (SA/AG) or limited liability companies (Sàrl/GmbH), sole proprietorships’ debts are not limited to the business’s assets but also extend to private assets, such as:
- Savings accounts,
- Real estate (e.g., family homes),
- Personal vehicles.
As a result, bankruptcy could have catastrophic consequences for the families of independents. Furthermore, the bankruptcy’s registration in the commercial register and its public visibility could permanently damage the debtor’s reputation.
Impact of Swiss Bankruptcy Act in 2025 on SA/AG and Sàrl/GmbH
Businesses structured as joint-stock companies (SA/AG) or limited liability companies (Sàrl/GmbH) are partially shielded from the severity of the measures. In these structures, debts are limited to the company’s assets, and the personal assets of shareholders or partners are not directly affected.
However, the consequences for SA/AG and Sàrl/GmbH are not negligible:
- Loss of credibility: Bankruptcy undermines the trust of creditors, clients, and partners.
- Damaged reputation: Bankruptcy registration in the commercial register is publicly accessible.
- Potential legal consequences: In cases of mismanagement or breach of fiduciary duties, executives could be held personally liable.
Objective of the Reform
The main goal of this amendment is to combat abusive practices by certain businesses that used bankruptcy as a way to avoid paying their debts, particularly employee salaries. This situation created unfair competition and harmed public creditors.
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Recommendations to avoid bankruptcy
To help debtors prepare for this new rule, cantonal authorities, particularly in Vaud and Geneva, have launched awareness campaigns. Here are some recommendations:
- Analyze existing debts: Identify overdue public debts and prioritize them.
- Negotiate with creditors: Explore arrangements or installment payment plans.
- Debt restructuring (debt restructuring moratorium): Consider this procedure to temporarily suspend proceedings and implement a financial recovery plan.
- Transition to an SA/AG or Sàrl/GmbH: Independents may consider restructuring their business as a joint-stock company or limited liability company to protect personal assets.
The upcoming amendment to the Debt Collection and Swiss Bankruptcy Act in 2025 represents a significant reform that will increase the financial responsibilities of sole proprietors and businesses registered in the commercial register. To avoid devastating consequences, it is essential to prepare now by adopting prudent debt management practices and exploring available legal options. Independents are encouraged to regularize their situation before the reform takes effect to safeguard their business and personal assets.