Source: https://iclg.com/practice-areas/securitisation/securitisation-2017/switzerland
Timestamp: 2018-03-20 21:21:18
Document Index: 102581838

Matched Legal Cases: ['Art. 104', 'Art. 117', 'Art. 116', 'Art. 208', 'Art. 287', 'Art. 27', 'Art. 4', 'e contrario', 'Art. 47']

Securitisation 2017 | Laws and Regulations | Switzerland | ICLG
Securitisation 2017 | Switzerland
In order to create an enforceable debt obligation of the obligor, it is not required that the sales of goods or services are evidenced by a formal receivables contract. Under the contract rules of the Swiss Code of Obligations (CO), a contract may not only be entered into in writing, but also orally or based on the implied conduct of the parties (behaviour). By taking the parties’ conduct into account, an invoice may constitute evidence of a contract.
The Swiss Consumer Credit Act and its implementing ordinance provide that the maximum interest rate (including commissions and other costs) for consumer credit (typically loans) may not exceed 15% per annum. Outside the applicability of the Consumer Credit Act, federal case law provides for a maximum interest rate of 18% per annum. However, such rate might be higher specific circumstances given.
If an obligor is in default in discharging the receivables of the seller, the receivables bear a default interest of 5% per annum (Art. 104 CO).
The Swiss Statute on Private International Law (PIL) of 18 December 1987 provides that, in the absence of an explicit choice of law, the contract will be governed by the law of the state with which it is “more closely connected” (Art. 117 para. 1 PIL).
It is presumed that the closest connection exists with the state where the party called upon to provide the ‘characteristic performance’ of the contract has – at the time of conclusion of the contract – its ordinary residence or, if the contract was concluded in the exercise of a professional or commercial activity, where such party has its place of business. In particular, the following shall be considered the characteristic obligation:
There are specific provisions regarding certain types of contracts that precede these rules as leges speciales. In particular, the following contracts are involved:
The sale of movable property is governed by The Hague Convention of 15 June 1955 on the Law Applicable to International Sales or Movable Property. However, this provision shall not apply within the scope of the United Nations Convention on the International Sales of Goods (CISG) of 11 April 1980, if the application has not explicitly been excluded by the parties (see question 2.4 below).
Contracts concerning real property (or its use) are basically governed by the law of the state in which the property is located. A choice of law by the parties is permitted. However, it has to be noted that the form of the contract is governed by the law of the state in which the real property is located unless that law permits the application of another law. In case of real property located in Switzerland, the form shall be governed by Swiss law.
Contracts for a performance relating to normal consumption, which is intended for a consumer’s or for his family’s personal use and not connected with his professional or commercial activities, are governed by the law of the state in which the consumer has his ordinary residence if (i) the offeror has received the order in that state, (ii) in that state, the conclusion of the contract was preceded by an offer or advertisement and the consumer has carried out the legal acts necessary for the conclusion of the contract in that state, or (iii) the offeror has prompted the consumer to go abroad and deliver his order there. In such cases, a choice of law by the parties is excluded.
Employment contracts are governed by the law of the state in which the employee has his ordinary place of work. If the employee ordinarily works in several states, the employment contract is governed by the law of the state in which the employer’s business establishment or, in the absence of such establishment, his domicile or ordinary residence, is located. However, the parties may subject the employment contract to the law of the state in which the employee has his ordinary residence, or in which the employer has his business establishment, domicile, or ordinary residence.
Contracts concerning intellectual property are governed by the law of the state in which the party transferring the intellectual property right or granting the use thereof has its ordinary residence. A choice of law is permitted. However, contracts between employers and employees in the course of performance of the employment contract shall be subject to the law governing the employment contract.
The Swiss PIL is based on the general principle of the parties’ autonomy to contract. This principle includes the right of the contracting parties to freely choose the governing law. For the purpose of this general principle, the Swiss PIL provides that contracts are subject to the law chosen by the parties (Art. 116 para. 1 PIL). This also applies where only one of the parties is located in Switzerland and the parties chose the foreign law of the party located outside of Switzerland.
(a) First, the election of a foreign law has to relate to an international matter. With regard to internationality, the determination as to whether there is an international element or not is to be made on a case-by-case basis. However, Swiss courts are rather reluctant to disregard the parties’ conscious election of foreign law if the case at hand has at least some international element.
In addition, the assignment of the receivables is typically governed by the law governing the receivables themselves.
With regard to mortgage-backed loans, the sale and transfer of receivables secured by a mortgage (Grundpfandverschreibung) as a right in rem over the underlying encumbered land to the purchaser will be effected by way of assignment. Such assignment is effective and perfected without notice to the respective obligors or filings with the competent land registry and will include the security over the encumbered land (which passes to the purchaser ex lege as ancillary right of the assigned receivables). Although no filings or registrations with the land registry are necessary for the perfection of the sale and transfer of receivables, purchasers will typically wish to be registered as creditors in the creditors’ register with the effect that insurers may not validly discharge their payment obligations to the land owner without the consent of the registered creditor.
A notification of the obligor is not required for the sale/assignment to be effective. No other formalities or filings with any administrative or governmental authority in Switzerland are required in order to render the sale/assignment of receivables effective. While the validity and effectiveness of the sale/assignment is not dependent on the notification to the obligor, the latter may validly discharge its obligations by payment to the seller/assignor, as long as the assignment has not been notified to the obligor.
In order to validly effect a sale/assignment of receivables, the obligor’s consent to the sale/assignment is not required, subject to the following exceptions, the contract between the seller/assignor and the obligor: (i) contains a prohibition of assignment or expressly provides for the assignment to be subject to the consent of the obligor; (ii) is considered to have been entered into intuitu personam; or (iii) is subject to Swiss banking secrecy. The receivables contract between the seller/assignor and obligor does not have to expressly permit the assignment of claims.
There is no requirement as to the form of the notice. One should, however, ensure that the obligor received the notice by sending the notice through adequate means (registered letter, courier, etc.). There is no limit beyond which notice is ineffective for Swiss law governed receivables against obligors domiciled in Switzerland. The notice applies to all (including future) receivables. For the effects of bankruptcy proceedings on future receivables, please refer to questions 6.1 to 6.5 below.
Yes, as mentioned above (under question 4.3), should a contract contain any such restriction, the seller can only assign subject to the obligor’s consent.
The “true sale” principle aims to ensure that the sale of assets from the seller to the purchaser is made on a “no recourse” basis both from a legal and accounting perspective. The Swiss legal framework is able to satisfy all requirements which result from this concept although it is not a recognised legal concept under Swiss law (but is an accounting and tax concept). The question as to whether or not the “true sale” requirement is met or not will widely depend on the economic conditions and circumstances of each individual case. The fact that the seller retains a credit risk, or an interest rate risk, or the control of the collection of the receivables is, as such, not a factor which may jeopardise perfection. The factors which may put a true sale at risk would be circumstances where the purchaser has no right to dispose of the purchased receivables, where the purchaser has an obligation to re-transfer the purchased receivables or where the price is not determined at arm’s length so that there is a risk of challenge by third party creditors requesting a “revocation” in the event of insolvency of the seller on the grounds that they have been defrauded by the sale of the receivables. The risk of such a claim is generally considered to be excluded if the sale of the receivables is made at market value.
Swiss law provides for the assignment of claims on a revolving basis (as and when they arise). The question of whether or not receivables that come into existence after the date of the seller’s bankruptcy can be validly assigned to the assignee, is not addressed under Swiss law (please refer to question 4.8 above).
The agreement itself would survive the seller’s insolvency but according to the literature, there would be no assignment of receivables that come into existence after the bankruptcy of the seller, rather after bankruptcy, these receivables fall within the bankrupt estate (also see questions 6.1 and 6.5 below).
It is possible under Swiss law to sell/assign future claims (i.e. claims that come into existence after the date of the receivables purchase/assignment agreement) provided that they are sufficiently identified or identifiable as to the obligor, legal ground and amount (also see question 4.8 above). There is no further requirement for the sale and the assignment of future receivables to be valid and enforceable under Swiss law. There is no specific Federal Supreme Court decision regarding the enforceability of future receivables that have arisen (rather than matured only) after the commencement of Swiss bankruptcy proceedings with regard to the seller/assignor.
Since the assignor loses his capacity to dispose of the assigned claims upon the adjudication of bankruptcy/insolvency proceedings, receivables that arise after the seller’s insolvency may not be validly assigned and the competent insolvency official may challenge the validity of the transfer of future claims.
The assignment of receivables includes so-called ancillary rights. Some security interests constitute such ancillary rights, e.g. a pledge. Hence, when receivables that are secured by a pledge are transferred, the pledge automatically passes to the assignee ex lege. However, other security interests such as mortgage certificates (Schuldbriefe) do not constitute ancillary rights and do not pass ex lege. Hence, when the receivables secured by a mortgage certificate are assigned to the purchaser/assignee, specific action is required in order for the security interest to pass to the assignee. Bearer mortgage certificates must be transferred by physical delivery and registered mortgage certificates by physical delivery and endorsement. Please also refer to question 4.3 above.
After the receivables are collected by the servicer and passed through the SPV’s bank accounts to its paying agent(s), the paying agent(s) uses the receipts from the receivables to pay interest and principal due on the securities, and any other costs and expenses the SPV may have. Any money left over after all such payments have been made is extracted from the SPV and passed back to the originator using various profit extraction techniques. These include: (i) the originator taking fees for: administering the receivables contracts and collecting the receivables; arranging or managing the portfolio of receivables; and/or acting as a swap counterparty; (ii) the SPV paying the originator deferred consideration on the receivables purchased; (iii) originating, providing and receiving a fee from the SPV for credit enhancement arrangements; (iv) the SPV making loan payments on subordinated loans by the originator; and (v) the originator holding equity securities in the SPV.
When deciding how to extract profit, it is important to consider the reason for the securitisation, the tax consequences of the proposed method of profit extraction and the laws applicable to transferring receivables in the relevant jurisdiction.
It is not customary to provide for a ‘back-up’ security interest. However, the parties are at liberty to choose a back-up security.
Assigned receivables: the assignor and the assignee’s choice of a foreign law may not be asserted against, and will not be binding upon, the debtor without his consent if the law governing the receivables is different from the chosen law. In other words, the validity and perfection of the foreign law-governed assignment cannot be asserted against the debtor, unless the debtor consents to the foreign law, or the requirements for a valid and perfected assignment under the laws governing the receivables are met.
Pledged receivables: the pledgor and the pledgee’s choice of foreign law may not be asserted against, and will not be binding upon: (i) the debtor, if the law governing the receivables is different from the chosen law; and (ii) bona fide third parties, such as third party creditors.
Switzerland recognises escrow accounts. It is also possible to create a security interest over bank accounts located in Switzerland. There are two possibilities: bank account assets and claims against the bank relating to the bank account assets can either be: (i) pledged; or (ii) assigned by way of security. A pledge is preferable for the security provider/pledgor since he remains the owner of the bank account assets, whereas an assignment is preferable for the security taker/assignee because he becomes the owner of the bank account assets. He is also in a better position in foreclosure proceedings. For further reference, please see question 5.3 above.
Pursuant to the Swiss conflict of laws rules, the parties are free to choose the law under which they create a security interest. If the security interest over a Swiss bank account is validly perfected under the relevant foreign law, the security interest will generally be treated as valid and perfected under Swiss law between the parties (security provider and security taker). However, limitations apply in relation to the bank account. Foreign law may not be binding for the bank account. Please refer to question 5.4 above.
In general, existing receivables validly assigned are bankruptcy remote. This means, in the event of bankruptcy or similar insolvency proceedings against the seller, the existing receivables will not fall within its bankrupt estate. Moreover, the openings of bankruptcy or similar proceedings do not cause an “automatic stay” of such receivables under Swiss law. Accordingly, the purchaser is free to collect, transfer or otherwise exercise his ownership rights over the assigned receivables.
Future receivables are defined as assigned receivables that have not yet come into existence. Such receivables may be assigned under Swiss law if the future claims can be defined with sufficient specificity, whereas the assignment becomes effective upon existence of the assigned receivable. However, a valid assignment of future receivables will cease to be valid if bankruptcy proceedings are opened against the originator of the receivables. The opening of bankruptcy proceedings causes all obligations to fall due, according to Art. 208 para. 1 of the Federal Statute on Debt Enforcement and Bankruptcy (Bankruptcy Act) of 11 April 1889. Pursuant to the current jurisprudence of the Swiss Federal Supreme Court, future receivables are not deemed to have been validly assigned and therefore fall within the bankruptcy estate of the seller in the event of bankruptcy or similar insolvency proceedings against the seller (Durchgangstheorie). Regarding the assigned future receivables, the purchaser will be treated as an unsecured creditor ranking equal to all the other unsecured creditors of the bankruptcy seller (mainly in the third class). Although no “automatic stay” applies under Swiss law with respect to future receivables, the purchaser is not entitled to collect, transfer or otherwise exercise ownership rights.
(b) The insolvency official may avoid the granting of collateral for existing obligations without the obligation to do so, the settlement of a debt of money by unusual means and the payment of an obligation not yet due for payment, provided that (i) the debtor carried them out during a suspect period of one year before the seizure of assets or the opening of bankruptcy proceedings, and (ii) the debtor was, at that time, already insolvent. The transaction is not avoided, however, if the recipient proves that he was unaware, and need not have been aware, of the debtor’s insolvency (Art. 287 Bankruptcy Act).
As long as the purchaser is legally independent from the seller and is acting on arm’s length terms, the risk of consolidation is quite remote from a Swiss law perspective. The legal concept of a “true sale” is not established in Switzerland (see question 3.4 above). Therefore, no distinction is made between “true sale” and secured financing under Swiss law. However, in a secured financing, the seller may reserve the right to repurchase the assigned receivables from the purchaser. In such a case, the insolvency official may assume that there is no valid assignment of the receivables, which would lead to a de facto consolidation. However, such risks can be prevented by a proper wording and structure of the assignment agreement. In addition, should the purchaser be owned by the seller or by an affiliate of the seller, this could affect the consolidation analysis.
A court in Switzerland might not give effect to a contractual provision alone limiting the recourse of parties to available assets. The whole transaction as a whole must be structured in a way that the “no recourse” basis is possible (please refer to question 4.9 above).
The principle of liberty of contracts governs Swiss law. The parties are thus at liberty to enter into an agreement waiving the right to take legal action against the SPV. Such non-petition clauses are enforceable, subject to the following limitations: a party may not validly waive its rights under compulsory provisions of Swiss law or in a way that would be against “bonos mores” (Art. 27 CC). Further, such a waiver may be subject to challenge in the case of bankruptcy of one of the parties who has waived his rights against the SPV, in accordance with the limitations which result generally from Swiss bankruptcy law.
In Swiss securitisation transactions, the SPVs are most often not incorporated in Switzerland due to withholding tax issues but in tax-efficient jurisdictions such as Luxemburg, Ireland, the Cayman Islands, etc. If located in Switzerland, these SPVs are incorporated either in the form of a joint stock corporation (Aktiengesellschaft) (AG) or a limited liability company (Gesellschaft mit beschränkter Haftung) (GmbH). Switzerland might be chosen for marketing purposes or in case of a listing at SIX Swiss Exchange.
The mere purchasing, ownership or collecting of receivables will neither require a foreign purchaser to do business or obtain any licence in Switzerland nor is such a purchaser qualified as a financial institution (e.g. securities dealer, financial intermediary, investment fund, bank, insurer, etc.) under Swiss law.
In Switzerland, the processing of information is mainly regulated in the Federal Act on Data Protection (Data Protection Act) of 19 June 1992. The Data Protection Act applies to the processing of data pertaining to natural persons and corporations by private persons and federal bodies. However, it does not apply to personal data that is processed by a natural person exclusively for personal use and which is not disclosed to outsiders. Data that does not qualify as ‘sensitive personal data’ or ‘personality profiles’ under the Swiss Data Protection Act can be communicated without the consent of the debtor (Art. 4 para. 5 e contrario Data Protection Act).
The use or dissemination of data by Swiss banks requires special precautions due to Swiss banking secrecy. Swiss banking secrecy is based on the contractual relationship between the bank and its clients, e.g. the bank’s loyalty as an agent to the client as principal, the bank’s obligation not to contravene the client’s privacy rights and Art. 47 of the Swiss Federal Act on Banks and Savings Institutions (Banking Act) of 8 November 1934 which makes the violation of banking secrecy a criminal offence.
Swiss banking secrecy imposes an obligation upon the bank, their executive bodies and their employees to treat any client-related information confidentially so as to avoid any disclosure of information potentially harmful to a client’s interests. However, a client’s right to privacy does not mean that Swiss banks do not need to know the identity of their clients. Moreover, Swiss banks are obliged to identify each of their contractual partners and specifically the beneficial owner of the assets involved in any business relationship. Thus, it has to be noted that there are no ‘anonymous accounts’ in Switzerland as regards the bank’s duty to identify their clients. This banking secrecy has never been absolute, and the obligation to secure their client’s privacy does not dispense banks from federal and cantonal disclosure obligations. In particular, legal assistance is granted in the event of tax fraud.
Payments by a Swiss debtor are, in general, not subject to Swiss withholding tax (provided the terms under which the obligation to pay was created are at arm’s length). However, interest payments may be subject to Swiss withholding tax at a rate of 35% if made under a banking account, bond, debenture or money market paper, or if a Swiss debtor’s overall financing activities are regarded, for tax purposes, as so-called “collective fund raising”. In addition, interest payments made to non-Swiss lenders are subject to a withholding tax at source if the debt is secured by mortgages in Swiss real estate. A deferred purchase price might indeed be recharacterised as interest-bearing debt. As regards the SPV level, a way to mitigate withholding taxes, is to domicile the SPV outside of Switzerland.
No stamp duty is payable on sales of receivables unless such receivables are regarded as bonds, debentures or money market papers and are transferred by, or via, a “securities dealer” (as defined for tax purposes in Swiss stamp tax law). The statutory stamp duty rate amounts to 0.15% on the transfer of Swiss bonds, debentures or money market papers, and to 0.3% on bonds, debentures or money market papers issued by a non-Swiss person.
The sale of goods and the provision of services, including those of a collecting agent (“servicing”), are, in general, subject to Swiss value-added tax (VAT) at the current standard rate of 8.0%.
The sale of receivables is exempt from VAT as a financial transaction.
In general, the taxing authority will not be able to make such claims regarding taxes.
As regards VAT, under certain conditions, a secondary liability of the purchaser with respect to VAT included in receivables sold/assigned and remaining unpaid in the insolvency of the seller.
There can also be a secondary liability of the recipient of a payment for withholding tax if the payment received should have suffered a withholding tax deduction but has not (i.e. always provided withholding tax is applicable at all; see question 9.1 above).
A mere postponement of the liability (i.e., an arrangement that renders the liability unenforceable subject to conditions, with the liability continuing to exist with the possibility to become enforceable again at a later point in time, e.g. equity referenced arrangements with floating reference values) will not have Swiss income tax consequences. If the debt is extinguished, then this can constitute taxable income.