Key Take-aways
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1. More and more Swiss hospitals are finding themselves in situations of financial distress due to rising costs. |
2. It is the duty of the board of directors as the highest management body of a hospital organized as a Swiss stock corporation to assess and, if necessary, adopt restructuring measures. |
3. The debt restructuring proceedings pursuant to articles 293 et seq. DEBA are an important restructuring instrument and can be a suitable way to avoid bankruptcy. |
1 Background
Rising costs in the Swiss healthcare system are a concern not only for politicians and the public, but also for hospitals as businesses. For years, they have been faced with rising expenditure, growth in the number of patients and high labor costs for highly qualified staff. In particular, because of flat rates per case introduced in 2012 and the increase in outpatient treatments costs can no longer be covered in some cases. As a result, more and more hospitals are experiencing financial difficulties. One restructuring instrument that hospital management can then seek is debt restructuring proceedings in accordance with articles 293 et seq. of the Swiss Federal Act on Debt Enforcement and Bankruptcy (DEBA). As reported in the media, this course was recently chosen by Zurich's Wetzikon Hospital, operated by GZO AG. In particular, this was done in order to postpone the repayment of a CHF 170 million bond issued by GZO AG and to find a solution with creditors, while at the same time being able to continue hospital operations more or less unchanged. However, debt restructuring proceedings are not always the right instrument for resolving a crisis.
Rising healthcare costs are a concern not only for politicians and the public, but also for hospitals as businesses.
2 General information on debt restructuring proceedings
If a company cannot resolve financial difficulties through business management measures and out-of-court solutions with its creditors, judicial debt restructuring proceedings pursuant to articles 293 et seq. DEBA can offer an opportunity for (partial) restructuring and averting imminent bankruptcy. When bankruptcy proceedings are opened, the debtor's business is normally shut down immediately. Bankruptcy must end with the liquidation of all of the debtor's assets and the dissolution of the company. This is highly problematic for hospitals, as patients must continue to be treated and patient files must be transferred. In contrast, debt restructuring proceedings are aimed at the continuation of the company. As with bankruptcy proceedings, debt collection and court proceedings are suspended and claims against the debtor are deferred. Under the supervision of the debt restructuring court, debt restructuring proceedings therefore give the insolvent debtor a "grace period" during which he has the opportunity to find a solution with creditors and to restructure his business in whole or in part, while it can continue to operate practically without restrictions and under the management of the same bodies, but under the supervision of an administrator.
3 Duty of the board of directors to submit a request for a debt restructuring moratorium
Swiss hospitals are predominantly and increasingly run as stock corporation. In a stock corporation, the board of directors bears the overall responsibility for the financial management of the company: it has the non-transferable and inalienable task of organizing the accounting, financial control and financial planning systems as well as submitting an application for a debt restructuring moratorium and notifying the court in the event of over-indebtedness in accordance with article 725b of the Code of Obligations (CO). Consequently, the board of directors cannot discharge its duty and liability with regard to the financial management of the company in general and the aforementioned tasks in particular – especially the filing of an application for a debt restructuring moratorium – by delegation to the management or third parties.
The law describes three financial distress scenarios of the stock corporation in more detail with corresponding duties of the board of directors to act. The board of directors must always act "with the required urgency". Debt restructuring proceedings can be relevant in all three scenarios, which often occur simultaneously:
In situations of financial distress, the board of directors has a duty to act with the required urgency.
In the event of imminent insolvency in accordance with article 725 CO, the board of directors must, if required, take restructuring measures and submit, "if necessary" an application for a debt restructuring moratorium. The same applies in principle in the event of capital loss in accordance with Art. 725a CO. The law does not define specific restructuring measures in the event of imminent insolvency or capital loss. It is therefore up to the board of directors to decide at its own discretion which steps are suitable for ensuring liquidity and, if necessary, for the long-term restructuring of the company. Examples include renegotiating existing contracts with financial institutions (in particular loan agreements), extending payment terms, taking out or applying for new loans, restructuring assets (sale and lease back), increasing capital by resolution of the general meeting, or reducing costs through job cuts or salary reductions. There is also no legal definition of when debt restructuring proceedings as a restructuring instrument must be initiated "if necessary" so that the board of directors may avoid liability.
In case of over-indebtedness in accordance with Art. 725b CO, the board of directors is generally obliged to notify the court: It must submit a request for a debt restructuring moratorium or notify the court for the purpose of opening bankruptcy proceedings (so-called "notice of overindebtedness").
Debt restructuring proceedings give a company time to restructure while continuing to operate.
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