9.1.1 Would the airline be required to file for insolvency protection?
If there is good cause to suspect overindebtedness, an interim balance sheet must be drawn up and submitted to a licensed auditor for examination. If the interim balance sheet shows that the claims of the company's creditors are not covered, whether the assets are appraised at going concern or liquidation values, the board of directors must notify the court unless certain company creditors subordinate their claims to those of all other company creditors to the extent of the capital deficit. On receiving notification the court commences bankruptcy proceedings. If the company is clearly overindebted and the board of directors fails to notify the court of this, then the auditor will notify the court.
The court may grant a stay of bankruptcy proceedings on request of the board of directors or a creditor where there is a prospect of financial restructuring; in such case the court will order measures to preserve the company's assets. However, a stay of bankruptcy proceedings is not common in practice.
9.1.2 Do the available forms of insolvency protection in the Relevant Jurisdiction involve the appointment of either an officer of the court or a specifically court appointed official to take control of the Airline (an Insolvency Official) while in insolvency protection?
In case of a granted stay of bankruptcy proceedings, the court may appoint an administrative receiver (Sachwalter) and either deprive the board of directors of its power of disposal or make its resolutions conditional on the consent of the administrative receiver. The court may appoint one or more natural or legal person as administrative receiver.
If bankruptcy proceedings are opened and the proceeds of the inventoried assets are likely to cover the costs of ordinary proceedings, the first creditor committee decides whether the bankruptcy office (Konkursamt) or one or more persons shall form the bankruptcy administration (Konkursverwaltung).
9.1.3 Does the Insolvency Official have authority to negotiate and reach agreement with the Owner in relation to matters such as the payment of unpaid rent, continuation or termination of the Lease and repossession of the Aircraft without the need for court approval?
The bankruptcy administration has to maintain and realize the bankruptcy estate and to represent the estate in court proceedings. Under Swiss law, bankruptcy proceedings do not automatically lead to the termination of the lease agreement. In general, the lease as agreed by the parties will remain valid. The bankruptcy administration is entitled – but not obliged – in the debtor's stead to fulfil synallagmatic contracts which had not or had only partially been fulfilled at the time of opening of bankruptcy proceedings. If the owner requests the handing over of the aircraft based on an ownership claim, the bankruptcy administration may not approve such request on its own, but has to wait for the decision of the second creditor committee. If the bankruptcy administration denies the claim, the owner has to file a suit with the court within 20 days.
9.1.4 Does the opening of insolvency protection involving the appointment of an Insolvency Official in the Relevant Jurisdiction have the effect of prohibiting the Owner from taking the following actions to enforce the lease after opening of such protection:
- (a.) Applying any security deposit held by the Owner against any unpaid amounts due under the Lease? Yes. The owner is prohibited from taking such acts if the security deposit held by the owner is part of the bankruptcy estate and not part of the estate of the owner.
- (b.) Accepting payment of rent or other lease payments from:
- (i.) the Airline? Acts of the debtor after opening of bankruptcy proceedings in relation to assets belonging to the bankrupt estate are invalid towards the creditors. The payment could hence be reclaimed from the owner by the bankruptcy administration.
- (ii.) a guarantor? The owner is not prohibited from accepting payments from a guarantor.
- (iii.) a shareholder? The owner is not prohibited from accepting payments from a shareholder.
- (c.) giving notice of default under the lease? Notice of default may be given.
- (d.) obtaining a judgment or arbitral award for unpaid lease payments? After the opening of bankruptcy proceedings, court proceedings against the lessee and bankruptcy estate, respectively, may no longer be initiated in Switzerland and pending court proceedings are stayed. The owner has to file its claims for unpaid lease payments with the bankruptcy office within one month after the opening of bankruptcy proceedings were announced. It is disputed whether the same applies to arbitration proceedings.
- (e.) giving notice to terminate the leasing of the Aircraft? The owner may request security for future payments if the lessee is in bankruptcy proceedings. The owner needs to give an adequate deadline to the lessee and the bankruptcy administration for providing such securities in written form. If no security is furnished to the lessor within the set deadline, the lessor may terminate the contract with immediate effect.
- (f.) exercising rights to repossess the Aircraft? In general, the opening of bankruptcy proceedings does not prohibit the owner from exercising its rights to repossess the aircraft. However, the owner cannot take action against the airline itself, but has to file its claim with the bankruptcy office.
9.1.5 Can the opening of Bankruptcy proceedings have retrospective effect in relation to any such actions taken before opening? If so, for what period can there be a look back?
The opening of bankruptcy proceedings itself does not have a retrospective effect on such actions. However, the bankruptcy administration and the creditors may challenge certain transactions of the lessee that were undertaken before the opening of the proceedings (so called "Anfechtungsklagen"). Defendants in this case are persons with whom the lessee concluded such transactions (e.g. the owner).
Following transactions may be challenged:
- All gifts and unpaid disposals made by debtor in the year prior to the opening of bankruptcy proceedings. Transactions which include a disproportionate counter-performance are deemed equivalent to a gift.
- Certain acts (granting of collaterals, unusual settlement of debt or payment of unmatured debt) of the debtor carried out in the year prior to the opening of bankruptcy proceedings, provided they were at that time already overindebted.
- All transactions carried out by the debtor five years prior to the opening of bankruptcy proceedings with the intent of disadvantaging their creditors or giving a preferential treatment only to certain creditors.
9.1.6 Is there, either under law or as a matter of practice in the Relevant Jurisdiction, a period of time within which the Insolvency Official will either “adopt” the lease and pay rent and other lease payments as an expense of the insolvency or “reject” the lease and permit the Owner to enforce such rights as it may have under the lease?
No, there is no time period within which the bankruptcy administration is required to “adopt” or “reject” the lease.
9.1.7 If the lease is “adopted” will the Insolvency Official also pay any unpaid lease payments due as at opening of the insolvency protection?
No. Unpaid lease payments which were due before the opening of the bankruptcy proceedings are classified as ordinary unsecured claims (third class, see question 9.1.9) and will not be paid separately. These claims have to be filed in the bankruptcy proceedings.
9.1.8 If not or if the lease is “rejected”, would the Owner's claim for any outstanding sums rank equally with other ordinary unsecured creditors of the Airline?
Yes. The owner's claim for any outstanding sums would rank equally with other ordinary unsecured creditors (third class, see question 9.1.9). However, if the owner's claims had been secured, they would be satisfied directly out of the proceeds from the realisation of the collateral.
9.1.9 Are there certain types of preferred creditors whose claims will rank above claims of the Owner?
Yes. Secured claims are satisfied directly out of the proceeds from the realisation of the collateral. Unsecured claims and uncovered parts of secured claims are satisfied out of the proceeds of the remainder of the bankruptcy estate in the order of their class. The first and second class will rank above the claims of the owner. The first class includes, among others, certain claims of employees and certain claims of insured persons derived from the Federal Statute on Accident Insurance and from facultative pension schemes and claims of pension funds against employers. The second class includes, among others, contributions due under certain federal statutes (such as, for example, the Federal Statute on old-age and survivor's insurance, the Federal Statute on disability insurance, and the Federal Statute on accident insurance). The claim of the owner would rank in the third class with all other ordinary unsecured claims. Creditors of the same class are equal among themselves. Creditors of a class only receive proceeds once all creditors of the class or classes above have been satisfied.
9.1.10 If the Aircraft is in the possession of a person other than the Airline at the commencement of Insolvency Protection of the Airline, for example an independent maintenance facility, will such person be entitled, under the laws of the Relevant Jurisdiction, to assert a lien arising under law or contract over the Aircraft in respect of amounts then due and unpaid to such person by the Airline?
Under Swiss law, a creditor has a statutory right of retention over movable assets which have come into his possession with the debtor's consent to secure a claim against the debtor which is intrinsically connected with the retained asset. The creditor can exploit the retained asset in the same way as a pledged asset. However, if the debtor (airline) is not the actual owner of the aircraft, the right of retention arises only if the owner explicitly or implicitly agreed to the creation of the retention situation. If the owner did not agree thereto, the creditor may only assert a right of retention if he was in good faith at the time of the transfer of possession. The good faith requirement relates to the entitlement of the possessor to transfer possession over the aircraft to the creditor.
However, if the aircraft is registered in the Aircraft Record, the creditor may not assert a right of retention. Further, a retention right may not be exercised to the extent it conflicts with the provisions of the 1933 Rome Convention for the Unification of Certain Rules Relating to the Precautionary Arrest of Aircraft.
9.1.11 Is a person other than the Airline, for example an airport authority, entitled under the laws of the Relevant Jurisdiction to seize possession of the Aircraft after commencement of Insolvency Protection and assert a lien arising under law or contract over the Aircraft in respect of amounts then due and unpaid to such person by the Airline.
Under Swiss law, a right of retention can only be asserted by persons who are in possession of the movable assets with the debtor's consent at time of assertion. Therefore, persons not in possession of the aircraft or in possession of the aircraft without the debtor's consent cannot assert a lien over the asset in question.
Moreover, according to the Federal Aviation Act and the 1933 Rome Convention for the Unification of Certain Rules Relating to the Precautionary Arrest of Aircraft, aircraft actually put in service on a regular line of public transportation and any other aircraft assigned to transportation of person or property for hire are exempted from arrest.
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