Requesting debt enforcement: An effective way to receive payment
When faced with bad payers, SMEs can easily and inexpensively initiate proceedings to demand payment. Here's how it works.
All SMEs have to deal with bad payers at some point. When they do, they need to take the right steps to collect the funds they are owed. If sending a reminder—which is not required, but highly recommended—doesn't work, the creditor (to whom the money is owed) will have to submit a request for debt enforcement proceedings in order to recover the debt from the debtor.
Types of debt enforcement in Switzerland
The Swiss Debt Enforcement and Bankruptcy Law (LP) identifies three types of debt enforcement:
- Seizure: Only the possessions needed to pay off the debt are seized. This is the most common type of debt enforcement.
- Bankruptcy: All of the debtor's possessions are confiscated and sold.
- Realization of pledged property: The creditor holds pledged real property or a mortgage belonging to the debtor and sells it to pay off the debt.
Initiating debt enforcement proceedings
The start of the procedure is the same for all types of debt enforcement: the creditor sends a debt enforcement request to the debt enforcement office where the debtor is domiciled—or where the company's registered office is located—who then sends the debtor an order to pay. If the debtor is a minor, the competent debt enforcement office is the office where the debtor's legal representative is domiciled. If the debtor's domicile is unknown, the office will give notice of the order to pay by publishing it in the official gazettes.
The following information must appear on the debt enforcement request form:
- Creditor's full name and address
- Debtor's full name and address
- Exact amount of the debt in Swiss francs
- Instrument (contract, invoice, etc.) or reason for the debt
- Bank or postal details for the payments
Debt enforcement requests may be filled out online on the debt enforcement portal of the Swiss Federal Department of Justice and Police (FDJP). Just print the completed form, sign it and send it to the debt enforcement office.
The debt enforcement portal also offers a tool to help you find the competent debt enforcement office for your situation.
Opposition and continuation of the procedure
Debtors who wish to contest the existence of the debt may do so within ten days after being notified of the order to pay. The proceedings are suspended, and it is up to the creditor to restart the procedure. The creditor must prove the existence of the debt. To do so, the creditor has to submit to the competent judge a request to set aside the debtor's objection, along with supporting documents such as a contract entered into with the debtor.
The costs of the proceedings must be advanced by the creditor, but they are included in the debt if the proceedings are legitimate. Costs vary depending on the canton and the debt amount. For sums of less than CHF 10,000, costs are usually between CHF 50 and CHF 100.
For an overview of the costs, click on the link below:
Debt enforcement in a foreign country
Means of redress in Switzerland do not allow for initiating debt enforcement proceedings against debtors in foreign countries. Companies dealing with bad payers in foreign countries must use the means of redress of the country in question, unless:
- The debtor has elected domicile in Switzerland or owns an establishment in Switzerland (company, offices, etc.) and the debt is in some way connected to it (Art. 50 LP);
- The debt is guaranteed by a pledge over movable property or by a mortgage in Switzerland (Art. 51 LP);
- The debtor owns property in Switzerland. In such cases, it is possible to sequester this property (Art. 52 and 271 LP).
In any case, the debt must have a sufficient connection to Switzerland.
Once the proceedings are initiated, the order to pay is sent to the foreign country by the competent debt enforcement office.
Creditors interested in requesting debt enforcement must keep at least two things in mind:
- If the debtor opposes an order to pay, the creditor must then decide whether it is worth the effort to try to recover the payment. Is the sum of the payment high enough to justify continuing the procedure? Does the creditor have solid evidence (e.g. a written contract as opposed to an oral agreement)?
- Another important point: the debt enforcement offices never initiate proceedings on their own. Cases must always be referred to them. It is the creditor's responsibility to initiate each phase of the procedure.
Sources: FDJP, ch.ch, startups.ch, Association Cantonale Vaudoise des Boursiers Communaux, Rusconi et Associés (Eric Muster).