When liquidity is not enough: moratorium and composition
A Swiss SME that cannot meet its payment deadlines may face attachment, enforcement proceedings, or, in serious cases, the threat of bankruptcy. Before compulsory liquidation, the Federal Act on Debt Enforcement and Bankruptcy (DEBA, SR 281.1) provides restructuring tools: the moratorium (suspension or deferral of collective liquidation) and the debtor composition (agreement with creditors, in German Nachlassvertrag or Vergleich).
For the CFO and the trust firm, these stages are not merely legal matters: they change the going-concern assumption, how liabilities and expected losses are classified, communication with banks and suppliers, and the regularity of ordinary bookkeeping. Inconsistent accounting treatment can jeopardize approval of the composition, create liability toward the audit body, or accelerate reporting obligations to the court under Art. 725 et seq. CO.
This guide outlines the typical path for SMEs, with reference to the Code of Obligations (CO) and DEBA, and explains how to maintain traceable records and defensible financial statements until the proceedings conclude.
Moratorium, composition, and bankruptcy: what changes for the company
The three situations progressively exclude one another over time, but during the moratorium the business may continue under supervision of the composition court and the commissioner:
| Aspect | Moratorium | Debtor composition | Bankruptcy (liquidation) |
|---|---|---|---|
| Objective | Buy time to restructure or negotiate | Satisfy creditors on agreed terms and save the business | Realize assets and distribute pro rata |
| Legal basis (indicative) | DEBA, Art. 293 et seq. (provisional or definitive moratorium, with commissioner) | DEBA, Art. 293 et seq. and 314 et seq. (ordinary composition in the moratorium context) | DEBA, Art. 171 et seq. and 191 et seq.; bankruptcy declaration by the competent court |
| Operational management | Generally continues; possible commissioner with control or management powers | Continues if the composition provides for it; constraints on extraordinary acts | Passes to the bankruptcy office; cessation of ordinary business activity |
| Effect on creditors | Suspension of individual enforcement actions (subject to exceptions) | Quorums and majorities; binding distribution quotas if homologated | Classification of claims; distribution under insolvency rules |
| Typical accounting impact | Reassessment of going concern; separation of proceeding costs | Recording of debt waivers, subordinations, possible shareholder contributions | Closing of accounts; final financial statements; possible switch to liquidation accounting |
Solvency, capital loss, and over-indebtedness: Art. 725, 725a, and 725b CO
Regardless of the moratorium, a company limited by shares or capital must monitor its financial position:
Art. 725 CO — Risk of insolvency
The board of directors monitors solvency. If there is a risk that the company will become insolvent, it takes restructuring measures and, if necessary, files for a composition moratorium under DEBA. The assessment is based on realistic liquidity and cash scenarios, not on order backlog alone.
In accounting: avoid delays in value adjustments on uncollectible receivables or obsolete inventory that mask the cash position.
Art. 725a and 725b CO — Capital loss and over-indebtedness
Art. 725a requires restructuring measures if net assets fall below half of share or corporate capital and legal capital and profit reserves. Art. 725b requires, where there is justified fear of over-indebtedness, interim accounts at going-concern and liquidation values (verified by the auditor); if both show over-indebtedness, the board notifies the court, unless exceptions apply (documented creditor subordination or restructuring within 90 days) or composition proceedings under Art. 173a DEBA.
Accounting must document the interim accounts and valuation criteria, useful for timely assessment of a composition moratorium.
Financial statements during moratorium and composition negotiation
As long as the business is not liquidated, Swiss accounting standards (Swiss GAAP FER for SMEs) generally require application of the going-concern principle. Starting a moratorium does not automatically revoke this assumption: it only falls away when liquidation is inevitable and can no longer be deferred. In SME practice, the turning point often coincides with rejection of the moratorium, inability to present a credible composition, or a commissioner or court decision requiring a sale of the business as a going concern.
Balance sheet items to treat with care
- 1.Receivables and inventory: accelerate write-downs on at-risk customers and slow-moving stock; document the link to the recovery plan proposed to creditors.
- 2.Fixed assets: verify whether carrying amount is still supported by future cash flows or only by sale assumptions; any impairments affect interim accounts under Art. 725b CO.
- 3.Expected composition liabilities: until the composition is homologated, avoid writing off debts in the balance sheet; provisions for estimated amounts (with disclosure) on the negotiated waiver quota may be recorded if the proposal is formalized and communicated.
- 4.Shareholder loans and subordination: capital contributions or subordinated loans must be recorded with clear dates and terms; they affect the position of unsecured creditors in the composition plan.
After homologation of the composition
Upon judicial approval, record the discharge effect on agreed quotas: reduction of liabilities against cash outflow (if provided) and/or recognition of extraordinary income from debt waiver, per the approved plan. Each entry should be linked to the homologation document for possible tax audits (treatment of debt cancellation as income in certain cases) and statutory audit.
Creditors, claim classes, and transparency toward the bank
Debtor composition rests on a proposal stating satisfaction quotas by creditor class. For accounting and controlling, it helps to map liabilities on the chart of accounts with reference to the insolvency class:
| Class (simplified) | SME examples | Recording note |
|---|---|---|
| Preferred | Arrears of wages (legal limits), certain social security claims | Often excluded from waiver; payment priority in the plan |
| Secured | Bank facilities with real or personal collateral | Align composition plan with any release of guarantees |
| Unsecured | Suppliers, VAT, taxes, non-subordinated loans | Main target of percentage reductions in the composition |
| Subordinated / shareholders | Shareholder loans, intragroup debt subordinated in writing | Usually last in distribution; often converted or waived |
During the moratorium, payments outside the ordinary course may be limited or subject to the commissioner’s consent. Recording every “extraordinary” payment with reason and authorization avoids disputes at homologation and simplifies bank reconciliation in a period when suppliers and lenders intensify monitoring.
Accounting continuity: entries, VAT, and personnel costs
The proceedings do not suspend bookkeeping obligations (Art. 957 et seq. CO), VAT deadlines, or, where applicable, ordinary tax filings. The operational risk for an SME is backlog building up while management attention is absorbed by the composition court and creditors.
Cost center “proceedings”
Isolate legal fees, commissioner, experts, and consultants in dedicated accounts (e.g. account 6200 with sub-account or project “moratorium/composition”). In the financial statements and management report this makes restructuring cost easier to read against operating margin.
Ordinary receivables–payables cycle
Continue invoicing with consistent numbering, record credit notes and receipts; do not mix company accounts with personal movements of a shareholder in distress. For VAT, check whether late payment generates deductible default interest and whether debt cancellations affect prior input tax deductions.
Salaries, social security/pension contributions, and withholding tax remain due under the usual rules; unpaid wage arrears can block the composition because employee claims rank among preferred claims. Payroll accounting must stay aligned with actual treasury, even when negotiating an instalment plan with the cantonal compensation fund.
Procedural stages and documents useful to the finance team
- Application for moratorium to the composition court at the company’s domicile: typical attachments include an updated statement of financial position, preliminary restructuring plan, creditor list. Accounting provides due-date extracts and customer/supplier aging lists.
- Moratorium with commissioner: the commissioner may approve critical payments (rent, utilities, raw materials) to maintain operations; track every written authorization.
- Filing of the composition proposal: percentages by class, any immediate payments and instalments; consistency with balance sheet figures and projected cash flow.
- Creditors’ meeting and homologation: after the vote, record accounting effects; update schedule of remaining debts.
Statutory audit and internal reporting
If the company has not opted out, the auditor examines going concern with heightened attention. Providing a weekly treasury plan, bank covenants, and correspondence with the composition court reduces the risk of a modified opinion or reference to Art. 725 et seq. CO. For the board or shareholders, a concise report (liquidity, normalized EBITDA excluding one-off proceeding costs, scenario with and without composition) supports informed decisions.
Accounting checklist for moratorium and composition
- ✓Interim financial statements with realization criteria for Art. 725b CO test documented in minutes
- ✓Creditor list reconciled with accounting balances and bank statements at cut-off
- ✓Proceeding expenses and legal costs separated on dedicated analytical accounts
- ✓Payment policy during moratorium (thresholds, dual signature, log of commissioner authorizations)
- ✓VAT/tax payment schedule updated despite negotiation with private creditors
- ✓Post-homologation entry template (debt waiver, partial settlement, new due dates)
Organization and digital tools
Moratorium and debtor composition require timely accounting that creditors can read and that holds up before the composition court. Centralizing invoices, payments, schedules, and proceeding documents in one system reduces errors under stress and speeds preparation of balance sheet attachments.
With Accountex you can maintain ordinary bookkeeping, monitor liquidity by due date, and produce extracts by creditor class, so lawyers, auditors, and management work from the same figures throughout the composition proceedings—from the first moratorium application through homologation of the composition.