Freezing Orders: how are they enforced around the world? Switzerland perspective
This is the second in a series of articles which explore the enforcement of freezing orders in key jurisdictions around the world, including in England and Wales, Switzerland and the Middle East (specifically ADGM/DIFC). Read the first (England and Wales) here. Whilst each jurisdiction enforces freezing orders in their own distinct way, the underlying rationale for enforcement remains the same; to ensure the terms of the relevant order are complied with.
Introduction
The Swiss legal framework provides a variety of tools for asset recovery, involving the pre-trial gathering of information and the strategic use of freezing orders, criminal proceedings and enforcement of foreign court orders. This article examines these mechanisms, focusing on their suitability for each specific situation and their role in preserving debtor assets for creditors.
Swiss freezing orders and interim measures, governed by the Debt Enforcement and Bankruptcy Act and Civil Procedure Code, are crucial for preventing asset dissipation during legal proceedings. Criminal proceedings may also offer an avenue, in many cases leading to the seizure and forfeiture of assets linked to criminal activity though the criminal authorities. The enforcement of foreign orders requires careful legal navigation and international cooperation, presenting additional difficulties.
Given the inherent strategic and legal complexity in determining the best option for securing assets, the importance of expert legal advice cannot be understated. By understanding the tools discussed below, creditors can effectively recover assets in Switzerland, ensuring compliance with legal standards and enhancing their chances of success.
pre-trial gathering of information on a creditor and their assets
Intelligence gathering
In the realm of cross-border asset recovery, particularly for foreign creditors seeking to identify assets of a debtor located in Switzerland, intelligence gathering is a critical first step. This process involves a strategic approach to uncover information regarding a debtor’s assets, which may include bank accounts, real estate, investments, or other valuable holdings.
One of the primary methods for gathering intelligence on a debtor's assets in Switzerland is through public records and registries. The Swiss land registries, for instance, provide information on real estate ownership, which can be accessed to determine if the debtor owns any property. Similarly, while most legal entities in Switzerland are not required to maintain a publicly available share register, commercial registries contain data regarding the organs of Swiss companies or partnerships and can reveal interest therein. Switzerland also keeps track of aircraft and boats registered in the country through a dedicated public register.
By accessing the Swiss Official Gazette of Commerce (SOGC) and the local cantonal gazette, creditors can collect further information on assets. These contain publications from commercial registries, such as changes in corporate structures and, in certain circumstances, land ownership, as well as debt enforcement and bankruptcy-related publications required by law, which may reveal valuable information about a debtor's financial interests and activities.
In addition, legal tools such as information requests or discovery procedures may be used to secure details from other public authorities. Communes or Debt Collection and Bankruptcy Offices, in particular, can provide information regarding a creditors’ whereabouts and their credit information.
Engaging private investigators with expertise in Swiss jurisdictions may be a way to gather information, as they may have access to networks and resources that can uncover assets or trace complex asset structures. Moreover, collaborating with other creditors or stakeholders who have an interest in the debtor's assets can also be beneficial. Sharing intelligence and pooling resources can enhance the effectiveness of the asset recovery process.
In any event, consulting financial and legal advisors who specialise in Swiss law provides valuable insights. These experts can assist in collecting and interpreting data, regarding the debtors’ whereabout and their financial situation.
In some specific cases, it is also possible to access additional information, which is being held by a private or a public entity. For instance, Article 25 of the Swiss Federal Act on Data Protection (DPA) permits individuals to request access to their personal data held by third parties, which – in certain circumstances – can be utilised to gather information about a debtor's assets. Additionally, cantonal laws like the LIPAD (Law on Public Information, Access to Documents, and Protection of Personal Data) provide mechanisms for accessing public information and personal data, depending on the specific regulations in place within each canton.
Limitations of intelligence gathering
While intelligence gathering is an essential component of asset recovery – particularly for foreign creditors seeking to identify assets of a debtor in Switzerland or enforce claims against them –, it is subject to several limitations that must be carefully navigated.
Legal and regulatory constraints
The Swiss legal framework, including private agreements, impose strict regulations on the disclosure, collection and use of personal data. Laws on professional secrecy, private confidentiality obligations, and laws on Data Protection, such as the Swiss Federal Act on Data Protection (DPA) as well as certain cantonal laws, set boundaries on what information can be accessed and how it can be used. Non compliance with these laws can lead to significant legal repercussions, including civil and criminal liability.
Access to public records
While public records and registries are valuable resources for identifying assets, the federalist system of Switzerland – which grants Cantons and Communes a great deal of administrative liberty – and the lack of (public access to) central registries, may limit the search for specific information. For example, there is currently no possibility to conduct a nation-wide search of a debtors’ residence or of his or her real estate, so a creditor must know the rough location of the debtor’s whereabouts or their real estate, to secure information from the public authorities. The residence must also be known to request an extract from the respective Debt Collection and Bankruptcy Office.
Private Investigators and collaboration with other creditors or stakeholders
The use of private investigators is constrained by legal and ethical considerations. Private investigators must operate within the existing legal framework, respecting privacy laws and avoiding any actions that could be deemed intrusive or could lead to civil or criminal liability. Caution is advisable, as the principal may be considered an associate of the investigator or even an instigator or accomplice.
While sharing intelligence and pooling resources can greatly facilitate the process to recover assets, the collaboration between creditors or stakeholders needs to be clearly defined in advance and, in certain cases, urgency considerations should prevail.
Final Considerations
Intelligence gathering must be conducted lawfully. Overstepping legal boundaries can not only undermine the integrity of the recovery process, but also lead to reputational damage or personal legal consequences of the creditor.
Understanding and addressing these limitations is crucial for conducting effective and lawful intelligence gathering. By acknowledging these constraints and working within the established legal frameworks, creditors can enhance their chances of successfully gathering information while excluding potential risks or pitfalls. The collected information will allow them to determine the best way to proceed with legal action.
Freezing orders in Switzerland
Introductory remarks
Under Swiss law, freezing orders are legal mechanisms used to preserve a debtor's assets during legal proceedings. These orders prevent the debtor from freely disposing over his assets and, in particular, dissipating or concealing them, thus ensuring they remain available to satisfy a potential judgment. In Switzerland, freezing orders are primarily governed by the Swiss Debt Enforcement and Bankruptcy Act (DEBA) and the Swiss Civil Procedure Code (CPC), which will be addressed below:
Attachment under the Swiss debt enforcement and bankruptcy act
The attachment is a provisional measure aimed at securing assets located in Switzerland to satisfy a creditor's claim and are primarily governed by arts. 271 et seq. DEBA. A creditor must file an application with the competent Swiss court, demonstrating a prima facie case for the claim, the existence of a ground for attachment – such as for example the debtor's intent to evade creditors or the absence of a domicile in Switzerland – and the existence of the debtor's assets in Switzerland. The court may require the creditor to post security to cover potential damages to the debtor. Once granted, the attachment order prevents the debtor from disposing of the attached assets until the creditor obtains a final judgment.
In practice, this attachment is very common and usually executed when the creditor has a general idea of the location and details of the assets, the debtor is domiciled abroad or the creditor holds a final ruling.
Interim measures and security under the Swiss civil procedure code
In civil litigation, a party may request interim measures – or in cases of special urgency ex-parte interim measures – to secure assets that are the subject of the dispute or necessary to satisfy a future judgment. The applicant must demonstrate urgency and a credible claim, showing that without the order, enforcement of a future judgment would be jeopardised. The court assesses the likelihood of success on the merits and the necessity of the order to prevent irreparable harm. The order restricts the debtor's ability to transfer or encumber the specified assets during the litigation and may include, for example, an injunction, the blocking of the land registry regarding a specific property or the freezing of an account. If the debtor provides appropriate security, the court can refrain from ordering interim measures.
In practice, such freezing orders are also common but must be based on the factual evidence that the debtor will or is currently trying to cause not easily reparable harm by dissipating assets. Such evidence may be difficult to secure.
Criminal proceedings
Criminal complaint
Provided there is a suspicion of criminal wrongdoings, it is possible to file a criminal complaint in Switzerland. If the conditions for an investigation are fulfilled, the responsible public prosecutor will open a criminal investigation and investigate the circumstances of the case. Since private claimants have a general right to inspect the case files, this step may serve to gather additional information regarding the creditor, which may also be used within a civil procedure against the debtor.
Orders of forfeiture and seizure orders
In criminal procedures, assets that are believed to have been acquired through or are proceeds from criminal activity or were used in the commission of a crime, may be confiscated by the authorities. Likewise, such assets, as well as items or assets that will be used as i) evidence, ii) to secure procedural costs or iii) to be returned to the victims can be seized. Such orders are typically initiated by the public prosecutor and aim to prevent the dissipation of these assets during a criminal investigation or trial.
The Swiss Criminal Procedure Code and the Swiss Penal Code provide the legal framework for orders of confiscation or forfeiture and seizure orders in criminal proceedings. Authorities must justify such orders; whereby certain restrictions apply. Once issued, such orders prevent the transfer, sale, or disposal of the specified assets. This ensures that the assets remain available for potential confiscation, restitution to victims, or other legal actions following the conclusion of the criminal proceedings. Often, such actions are advisable in complex or international white-collar-crime cases, such as fraud, or when there is a large number of creditors, but each creditor only has a small claim.
However, one significant disadvantage of relying on criminal proceedings for asset recovery is the potential lengthening of the process. Criminal investigations and trials can be time-consuming, delaying the recovery of assets. Additionally, there is no guarantee that the authorities will decide to reimburse the private claimant with the frozen assets, as such assets are often used to cover procedural costs and compensation, as well as monetary penalties. The decision to allocate assets to victims or claimants is subject to legal and procedural considerations, and the outcome may not always align with the plaintiff's expectations.
Orders of forfeiture and seizure orders in criminal proceedings are a vital tool for law enforcement agencies to combat financial crime and ensure that illicit gains are not dissipated. However, they must be applied in accordance with legal standards to balance the interests of justice with the rights of individuals affected by the order. In practice, criminal proceedings are rarely the primary option when aiming for asset recovery.
Enforcement of foreign freezing orders or injunctions
Civil and criminal orders
Under Swiss law, it is not possible to directly apply a foreign freezing order as such. These orders must be first either recognised by a Swiss Tribunal, when the order may be deemed as final, or be executed through international mutual legal assistance. The first option is unlikely to apply to foreign freezing orders, as such orders are by essence temporary, thus not final. The second option, however, allows for a foreign authority to request the involvement of its corresponding Swiss authority, through State-to-State channels, to execute its (foreign) freezing order. In this case, Swiss authorities cooperate with foreign jurisdictions to freeze assets located abroad or to recognise and enforce foreign freezing orders in Switzerland. This is facilitated through mutual legal assistance treaties and international agreements.
However, one of the main issues encountered in international mutual legal assistance proceedings is the delay to obtain the approval of all involved authorities. Indeed, depending on the countries involved, it may take several months for the authorities of each country to take position on the request. In the meantime, the party recipient of the foreign order, knowing that its effect is ‘suspended’ by the assistance procedure, is free to dissipate its assets before the end of said procedure.
Unless the foreign authority gives such orders without the party’s knowledge – as is regularly the case in international criminal cases – such orders or injunctions have limited effect when the assets are located abroad.
Provisional measures in arbitration
In arbitration proceedings, parties may seek interim relief, including freezing orders, to preserve assets pending the outcome of the arbitration. However, the arbitral tribunal has jurisdiction but not imperium. While it is empowered to adjudicate, it lacks the authority to exercise direct coercive power. This raises the question of its legitimacy to "order" (as in "order for interim measures"), which is often requested in provisional measures.
Consequently, if there is a genuine or perceived urgency, the need for expediency should lead the parties to bypass the intermediate step of the arbitral tribunal and address the court directly, which has imperium and can intervene even when the arbitral tribunal is seized. There is no lis pendens exception in this matter. In this respect, the system aligns with the Lugano Convention or the Federal Act Swiss Private International Law in ordinary international justice, as well as with domestic law under Article 13(b) CPC.
Conclusion
Freezing orders are powerful tools in asset recovery, but they require careful navigation through legal frameworks and procedures. Creditors must first gather intelligence on the assets located in Switzerland they intend to obtain, while respecting the existing legal constraints. Conducting such investigations without legal advisors bears the risk of jeopardizing the investigation and, possibly, the debt recovery.
Once in possession of the necessary intelligence, it is important to assess which legal strategy is most suited and efficient to obtain the appropriate result, i.e. recovering the assets. Depending on the case, civil freezing orders or interim measures may be the most suitable, as they ensure that the assets thus recovered will be allocated to the creditor. In other cases, orders within criminal procedures may be the most efficient way to freeze the expected assets. However, there is no guarantee that the creditor (and claimant) will obtain the reimbursement of its claim through the seized assets. Moreover, criminal procedures tend to be particularly long. Thus, it is necessary to carefully assess which legal steps is the most appropriate for each situation.
Finally, the direct application of foreign or arbitral orders is usually not advisable, forcing the parties to proceed either directly through the Swiss proceedings or through the official State-to-State channels. Both options, however, present their respective pitfalls.
In conclusion, it is important to contact an expert in the legal profession to be able to assess the situation, the information at hand and those that are possible to legally obtain, as well as the proper way of action to reach the best outcome.
