The number of insolvent companies in Switzerland has risen sharply over the past three years. What are the causes, and how can bankruptcy be avoided? Experts advise.
In 2023, the Federal Statistical Office recorded 15,447 bankruptcies, marking a 2.9% increase from the previous year. "Rising production costs, payment delays, recruitment challenges, and shifts in demand are driving the increase in insolvencies," explains Cyril Knellwolf, a partner at the accounting firm BDO.
Additionally, the COVID loans provided during the health crisis helped delay some bankruptcies. These low-interest funds allowed companies, often on the verge of insolvency, to temporarily bolster their cash flow. However, this was only a short-term solution. What are the early warning signs of bankruptcy, and how can they be effectively managed? Two experts offer their insights.
Managing cash flow effectively
Economic fluctuations are straining the cash flow of many businesses, with some even struggling to meet their short-term debt obligations. A liquidity shortage can pose a significant insolvency risk, even for profitable companies.
To avoid such situations, swift action is crucial. "Steps like adopting a more proactive approach to debt collection can help reduce late payments. For example, don’t hesitate to follow up on outstanding balances," recommends Cyril Knellwolf.
Many employers also face challenges in retaining staff, leading to high turnover rates that can weigh heavily on their finances. "To minimize these costs, companies must enhance their appeal in the job market by offering working conditions that align with today’s expectations: part-time options, flexible hours, or the ability to work remotely."
Additionally, close attention must be paid to accounting and financial management. "Financial difficulties often expose a company's underlying weaknesses. It's crucial to identify loss-making activities or unnecessary expenses. If certain services cost more than they generate, it's worth considering discontinuing them."
Approaching creditors or considering a debt restructuring agreement
When liquidity issues become severe enough to threaten a company's ability to pay off short-term debts, the most common solution is to approach creditors. "It’s important to communicate openly with your partners, making it clear that the company is facing difficulties without alarming them, and requesting staggered payments or an extension," advises Cyril Knellwolf. "In most cases, this approach is enough to reach an agreement. Creditors generally have no interest in forcing a debtor into bankruptcy, as it usually means losing any hope of recovering what they’re owed."
Bankruptcy law expert Eugen Fritschi notes that legal mechanisms exist to help renegotiate debts when necessary. "When a company is already over-indebted, or its cash flow has dried up, a debt restructuring agreement should be considered. Various measures can be taken during the debt moratorium, including selling assets or shares of the company (see sidebar), with court approval. This option typically gives the company some breathing room to implement recovery measures and submit a settlement proposal to creditors," explains the lawyer.
Filing for bankruptcy
In some situations, filing for bankruptcy becomes inevitable and even a legal requirement. "When a company is over-indebted and unable to reach agreements with its creditors or request a debt moratorium, it must declare insolvency with the appropriate court," explains Eugen Fritschi.
This filing must be done without delay. The lawyer warns: "If a company is already over-indebted and does not file for bankruptcy or seek a debt moratorium, it is already behind in the process. This can lead to civil liability claims and even criminal charges for mismanagement, fraud, or breach of the obligation to keep accounts."
To prevent an impending bankruptcy, it's crucial to stay alert to early warning signs, especially in cash flow. The key is to act proactively while there’s still time to steer the company back on track.
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Selling your business to a larger group
In cases of over-indebtedness, the debt restructuring process may involve the sale of the company or parts of it. Therelevant court must approve these transactions and can sometimes prevent the company from going bankrupt. "Large corporations are often keen to acquire smaller companies, as it allows them to expand at a lower cost. For the seller, joining a larger network can reduce management expenses, which are then handled centrally at the group’s headquarters," explains Cyril Knellwolf, partner at BDO.
However, such a move can have significant impacts on both staff and management. "It's essential to negotiate carefully with the acquiring group, especially if you wish to stay in control of your company or retain your staff. For example, you might agree on a two-year period during which no major organizational changes will be made to the acquired company."
Last modification 02.10.2024
