And yet it moves: Study recommends revision of Swiss chattel insurance law
Current status
Swiss chattel mortgage law has remained essentially unchanged since the Civil Code came into force in 1912. More than practically any other legal system, it emphasises the Faustpfand principle: this principle stipulates that security interests in movable property can only be effectively created if the collateral provider gives up possession of the property. In addition, there are serious deficiencies in the retention of title and deficiencies in the right of assignment. This unsatisfactory legal framework for chattel mortgages means that companies cannot use substantial parts of their assets as collateral. This particularly affects SMEs, which have above-average difficulties in accessing credit.
Possible reform scenarios
While academics and practitioners have been pointing out these deficits for a long time and with increasing urgency, politicians have so far shown no interest. However, at the beginning of October 2021, the Federal Administration published a regulatory impact assessment that systematically analyses the deficits of the current law, compares them with foreign legal systems and, above all, estimates the economic effects of a reform. The study estimates the positive economic impact of a reform at CHF 0.5 to 14 billion, depending on the reform scenario. The study also shows that Swiss companies face severe restrictions in accessing secured debt financing compared to practically all foreign jurisdictions. A reform would therefore also sustainably improve the international competitiveness of Swiss SMEs.
The study recommends a modernisation of chattel mortgage law focused on companies. The most important elements are the admission of non-possessory collateral (chattel mortgage) on all types of movable property. Publicity is to be guaranteed by a digital register, which is to be operated centrally by the Confederation. Other important elements of the reform programme are a modernisation of the retention of title, the right of assignment and reforms with regard to intellectual property rights and intangible assets. Finally, the authors recommend a swift ratification of the Cape Town Convention, which guarantees a uniform security interest for internationally used chattels.
The study develops three differently ambitious reform scenarios:
MINI revision: on the modernisation of the simple retention of title within the framework of the existing codification.
MIDI revision: In addition to the MINI scenario, the extension forms of retention of title and a general chattel mortgage are introduced. If possible, implementation will also take place within the scope of codification.
MAXI revision: This scenario creates a stand-alone legal framework for the use of all possible balance sheet assets (especially receivables and intangible assets), integrating all known collateral instruments (regular and irregular pledge, transfer of ownership by way of security, assignment by way of security as well as the finance lease). An implementation of such a comprehensive revision is only possible within the framework of a special law (Federal Act on Chattel Collateral).
Whether and when action will follow is currently unclear. The responsible federal agencies (State Secretariat for Economic Affairs, SECO, and the Federal Office of Justice, FOJ) are currently examining the further course of action and will submit an application to the Federal Council if necessary.
The study was preparedunder the leadership of INTERFACE Politikstudien Forschung Beratung GmbH. Dr. iur. Hans Kuhn of Wicki Partners was co-project leader and is co-author of the study.
If you have any questions on this topic, please feel free to contact Dr. iur. Hans Kuhn.