General Contractor Bankrupt, Liens on the Title: How Developers Can Rescue Their Project

8 November 2026 · by FiPAX

Monday morning, and the cranes are standing still. The general contractor is bankrupt, the subcontractors have pulled out their crews, and the first applications for construction liens have reached the court.

For the developer, a race has begun. Within days, it will become clear whether the project can continue at a manageable extra cost, or whether you end up paying for the same work twice.

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Why you can end up paying twice

Under Swiss law, tradespeople and contractors can demand a statutory lien on the building plot for their claims (Art. 837(1)(3) Swiss Civil Code). This also applies to subcontractors who never had a contract with you and, under the contested case law of the Federal Supreme Court, even if you have already paid the general contractor.

The lien must be registered no later than four months after completion of the work (Art. 839(2) CC). Subcontractors therefore usually apply quickly for provisional registration, for which it is enough to show that their claim is credible.

This is the point at which financing becomes critical. Under the conditions of Art. 841 CC, tradespeople who suffer a loss on enforcement can reach the share of the proceeds due to senior mortgagees. Banks often respond by halting drawdowns on the construction loan, which removes the very money you need to continue building.

The land remains liable, even if the developer settled the invoice long ago.

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Bank guarantees: fast but expensive

Adequate security can prevent or remove a lien (Art. 839(3) CC). The Federal Supreme Court requires the same cover the lien would provide: a bank guarantee must secure not only the principal but also default interest, which runs without time limit (BGE 142 III 738).

For individual stubborn or inflated claims, this is often the quickest route. As a blanket solution for dozens of creditors, it is rarely affordable: guarantees tie up equity and cost commission, while the claim itself remains unresolved.

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The stronger lever: verify, redeem, set off

A common misconception needs correcting here. Your claims for damages and defects are against the general contractor, not the subcontractors. You therefore cannot simply set them off against the subcontractors’ claims.

The correct route is provided by statute. An owner who pays a claim for which their land is liable as security acquires that claim against the general contractor by operation of law (Art. 110(1) Code of Obligations, Art. 827(2) CC). The owner can then set it off against any contract price still owed to the general contractor. In this situation, the Debt Enforcement and Bankruptcy Act expressly permits this even after bankruptcy has been declared (Art. 213(2)(1) DEBA).

Money you still owe the general contractor then goes towards redeeming the liens on your land rather than into the bankrupt estate. The land must actually be liable for the redeemed claim. Direct payments without this basis may not discharge you towards the estate, which makes double payment even more likely.

Every claim should be tested before any payment is made. Was the four-month deadline met? Is the work eligible for a lien at all? Architects and engineers are not, and pure material supplies qualify only for building materials ordered specifically for the project. And is the amount correct?

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Your plan for the first ten days

When	Action	Objective
Days 1–2	Stop payments to the general contractor (Arts. 82 f. CO), secure the site, contact the bankruptcy administrator: will it assume the contract (Art. 211 DEBA)?	No further outflows, a clear point of contact
Days 3–4	Have independent experts document progress and defects; reconcile contracts, payments and subcontractors	Secure evidence, establish the contract price still owed
Days 5–7	Verify claims; negotiate adjusted amounts and continued work with key trades	Remove inflated claims, secure continued construction
Days 8–10	Pay via escrow, concurrently with withdrawal of the application and deletion of the lien; involve the construction lender	Clear the land register, release the construction loan

Take care when ending the contract: bankruptcy does not automatically terminate it. The administrator can assume the contract; if it does not, your claim becomes a monetary claim in the bankruptcy. A hasty termination can be expensive, because withdrawal under Art. 377 CO requires full indemnification. It is usually cleaner to demand security under Art. 83 CO and set a reasonable deadline.

CHF 3.7 million becomes CHF 1.75 million

Cash outflow for the developer in the practical example

Pay the remaining contract price to the estate and settle every claim

CHF 3.7m

Claims reviewed, negotiated and settled

CHF 1.75m

Of which on top of the contract price still owed

0.35m

FiPAXThe remaining CHF 1.4m contract price is set off against the settled claims. Completion costs not included.

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In this situation, every day counts

When a general contractor fails, construction law, insolvency law and project finance all come into play at once. Our case study Crisis at the Jobsite shows how quickly a coordinated response can work.

FiPAX combines construction-law expertise with financing advice that is independent of any bank: we review claims, structure the redemption and bring creditors and the construction lender to the table.

Is your general contractor in difficulty, or has your site already stopped? Talk to us before you release your next payment.

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Selected legal sources

• Swiss Civil Code (CC): Art. 837, Art. 839, Art. 841, Art. 827
• Code of Obligations (CO): Art. 82, Art. 83, Art. 110, Art. 120, Art. 377
• Debt Enforcement and Bankruptcy Act (DEBA): Art. 211, Art. 213
• Federal Supreme Court: BGE 142 III 738 (adequate security)

This article is for general information only and does not replace advice on individual cases.