Government insolvency protection coming to an end: what to expect?

The Swiss economy was hardly hit by lock-downs and restrictions to public and private life across countries. The Swiss government acted quickly to prevent wind-downs and bankruptcies by supporting companies with various financial and non-financial measures. The end of many of financial government-sponsored measures will have an impact on many Swiss companies that will be challenged by a new business environment and will need to readapt quickly.

1. Economic outlook

The Swiss economy in 2020 is forecasted to shrink by more than 5%. Recovery will be slower than initially expected; Switzerland will not reach pre-COVID-19 GDP levels before 2022.

Switzerland and main export markets, YoY GDP growth (%)

With an imminent second wave, Switzerland and major trade partners (with the exception of China) are not expected to reach pre-COVID-19 GDP levels before 2022.

2. CFOs expectations

The Deloitte survey of Swiss CFOs’ sentiment indicates that executives are not yet confident about the near future with negative expectations for the next twelve months.

Percentage of CFOs who view Swiss economic outlook in a positive/negative way

Swiss CFOs surveyed in the second half of 2020 still have negative economic expectations for the next 12 months.

3. Government aids

The Swiss Government has reacted quickly and implemented different measures to support the economy. The lift of such schemes will have a direct impact on business sustainability.

Gradual phase-out of government support schemes – Concerns for more insolvencies

The suspension of the obligation to notify the court in case of over-indebtedness has expired on the 20th October 2020. Board directors’ responsibility to inform the judge may lead to an increase of insolvency cases. In addition, based on the current rules, short-time work is also bound to end in 2021 for companies that required continuous support since March 2020.

4. Company distress

Swiss companies will need to quickly assess their current situation to fully understand the implications of further pressure on business activities.

Continued pressure expected to lead to a more stressed environment

The lift of many of the government aids and schemes across countries will lead to a potential increased risk of bankruptcies. This might be exacerbated by new restrictive measures such as lock-downs due to an imminent second wave of COVID-19 infections. Particularly industries which have already been severely impacted such as automotive, aviation, oil & gas, hospitality, retail and wholesale (non-food) may suffer from continued unfavourable economic circumstances. Companies need to leverage the full range of response options while available and intensify their efforts to recover.

5. Key considerations to transform and turnaround the business

The upcoming challenges for Swiss companies can be faced by proactively focusing on a range of key areas in order to transform or turnaround the business and protect long-term value.

Key considerations

The proactive identification of business complexities is key to make sure that companies are prepared to face new challenges and achieve long term sustainability.

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