A Q&A guide to restructuring and insolvency law in Norway

Charges and mortgages. Mortgages over immovable property (see above, Immovable property) must be recorded in the appropriate public register. The mortgage must secure a fixed maximum sum of money together with interest.

Mortgages over ships that are still being built are valid.

Floating charges must be registered in the register of mortgaged movable property held at the Registry of Business Enterprises. The charge must secure a fixed maximum sum of money plus interest.

Pledges. If a pledge over a movable asset is not registered in the appropriate register, the debt instrument must be physically deposited with a third party. A pledge of financial instruments registered in the Central Securities Depository (Verdipapirsentralen) (VPS) must be recorded with the VPS. Specific requirements apply in the following situations:

• an unregistered pledge of shares is perfected by giving notice to the company whose shares have been pledged. The company must also register the pledge in its register of shareholders;

• a pledge of a bank account is perfected by giving notice to the operator of the relevant account; and

• a pledge (other than a floating charge) of an individual, readily identifiable and freely assignable receivable is perfected by giving notice to the relevant debtor.

Costs of proceedings. These costs are paid before any other debts of the insolvent estate. The insolvency estate is entitled to receive up to 5% of the value of the mortgaged asset if necessary to cover the costs of insolvency proceedings. This does not apply to mortgages over shares and bank accounts established under the Financial Collateral Act of 26 March 2004. For mortgages over immovable property, costs are currently capped at about NOK602,000 (about US$101,000).

Secured claims. These are claims which are lawfully secured on the debtor's assets, up to the value of the assets. If an asset is mortgaged for more than its value, the part of the mortgage which exceeds the value of the asset is unsecured.

First class preferential debts. These include employees' claims for wages for certain periods up to six months.

Second class preferential debts. These include:

• unpaid income tax;

• employee tax deductions;

• value added tax (VAT); and

• national insurance payments.

Unsecured creditors. These are all other claims ranking pari passu (equally).

Postponed debt. These include claims for accrued interest and donative promises made after the opening of proceedings.

Shareholders. Any remaining funds are distributed among shareholders in the same proportion as their respective shareholdings.

Retention of title. See Question 1, Movable property: Retention of title. A retention of title clause can only secure the price for the particular goods sold and not debts between the parties generally.

Guarantees. A guarantee is a promise by the debtor or a third party to ensure that the debtor will meet its obligations, and/or a promise to meet those obligations if the debtor fails to do so.

Promissory notes. These must be signed by the debtor before two witnesses. If the debtor defaults on payment, enforcement can take place more speedily and without the creditor obtaining judgment beforehand.

Insolvency notice. A creditor can file an insolvency notice, which demands payment within 14 days. If the debtor fails to pay the debt within this time period, insolvency proceedings can begin. See Question 6, Corporate insolvency: Substantive tests.

Application for summary judgment. An application for summary judgment can be made with the court of first instance and at low cost.

Enforcement proceedings. Enforcement proceedings can be brought on the basis of a promissory note or court judgment.

Attachment order. The order can be served if there is a risk that the debtor will try to avoid enforcement (for example, by moving or destroying property), thereby prejudicing the creditor's interest. Attachment is a temporary freezing order over some or all of the debtor's assets, pending ordinary enforcement through the courts.

If a creditor holds a charge over a ship and the claim relates to the ship itself, the order can be served on the shipowner, without the creditor providing proof that there is a risk that the owner will try to avoid enforcement. If the owner to which the claim relates owned another ship or ships when the claim arose, an attachment can also be served on the other ship(s) if they are still in his ownership.

Objective. The key aim is to rescue a viable business or preserve its operations so that the business can survive a period of economic distress (for example, involving defaulting on loan and debt obligations).

The focus is on assisting a business to continue as a going concern or for individuals to continue trading, by implementing procedures to reach agreement with creditors on revised terms and conditions for:

• bank loans;

• bond loans;

• ordinary trade debts;

• other obligations.

Relevant restructuring actions may include one or more of the following:

• postponement of payments;

• a moratorium in relation to old debt;

• a reduction of the debt;

• conversion of debt into equity.

Debt restructurings can be arranged with or without court involvement.

When proceedings are opened, a moratorium usually comes into effect in relation to "old" debt, giving the debtor an opportunity to incorporate this into the restructuring proposal. In servicing its debts, the debtor must ensure that all creditors are treated pari passu, except any creditors who have preferential rights or have agreed with the debtor in advance to accept less favourable terms.

How, when, by whom and to which companies. Court proceedings can only begin by the debtor filing an application. If the filing is approved, an independent lawyer should be appointed to lead a creditors' committee (comprising a minimum of one and a maximum of three creditors as representatives).

All companies registered in Norway or with their centre of main interests (COMI) in Norway can become subject to these proceedings.

Substantive tests. Debt restructuring proceedings can be opened when the company is unable to pay its debts as they mature, and the court considers that it is likely that a restructuring arrangement or compulsory debt settlement can be reached.

How long. Debt restructuring proceedings seldom last more than six months and usually end with the onset of insolvency if no restructuring agreement is reached.

Consents and approvals. Requirements vary depending on whether the proposal involves a voluntary or compulsory restructuring arrangement:

• Court-supervised voluntary arrangement (offentlig gjeldsforhandling). This must be approved by all creditors covered by the proposal. Each creditor receives a notification letter requesting their vote for or against the arrangement proposal attached to the letter. If no creditor has voted against and some have abstained from voting, then a second notification letter may be sent. If no parties votes against the proposal and more than 75% of creditors (calculated according to the aggregate outstanding debt) have consented, the proposal is approved.

• Out-of-court voluntary arrangement (frivillig gjeldsforhandling). All creditors must receive full and adequate information relevant for their vote in respect of the proposal. All creditors covered by the proposal must approve it.

• Court-supervised compulsory arrangement (offentlig akkord). If the proposal involves a dividend of at least 50% to unsecured creditors, then 60% of creditors (both in number and by outstanding debt) must consent.

  If the proposal involves a dividend of less than 50% to unsecured creditors, 75% of creditors (both in number and by outstanding debt) must consent.

  A 25% dividend to unsecured creditors is a minimum requirement for compulsory debt arrangements.

Effect. The effect varies depending on the kind of restructuring proceedings initiated:

• Court-supervised voluntary arrangement. An adopted proposal is legally binding on all creditors holding claims accrued up to the opening of proceedings, provided the company acts and performs in accordance with the proposal and provides no undisclosed preferences:

  • to creditors;

  • to itself; or

  • through a third party, to creditors with preferential claims, secured creditors and creditors with certain set-off claims, who can be excluded from the proposal.

  With the consent of all creditors, a creditor or group of creditors (that is, creditors with only minor claims below an agreed threshold) can be treated differently to others.

  While restructuring proceedings are pending, restrictions apply concerning who can file for the opening of insolvency proceedings against the company. The application cannot generally be filed during the first three months from the opening of proceedings. After this period, an insolvency application can only be made at the request of at least three unsecured creditors, representing at least 40% of the outstanding claims qualifying for a dividend.

  While proceedings are pending, restrictions also apply on enforcement. During the first six months of restructuring proceedings, distraint actions cannot be made, and forced sale of assets take place, without the creditor committee's prior consent.

• Out-of-court voluntary arrangement. An adopted proposal is legally binding when all creditors have received adequate information and approved it. Under these arrangements, no freeze periods apply in relation to filing for insolvency proceedings, execution liens or forced sales against the company while restructuring is pending. However, a freeze period can be enforced if the creditors have entered into a separate agreement in relation to this. This is generally uncommon if many creditors are involved.

• Court-supervised compulsory arrangement. Compulsory arrangements are legally binding on all creditors holding claims accrued up to the opening of proceedings. To satisfy minimum requirements for dividends (see above, Consents and approvals), a debt conversion cannot be used.

  The creditors' committee values all mortgaged assets, though their valuations can be appealed to the courts. Outstanding debts outside of court-approved asset valuations expire.

  The arrangement is not binding on:

  • creditors holding preferred claims;

  • secured creditors (with claims falling within court-approved values);

  • creditors holding certain set-off rights and a counterclaim setting off the balance.
    

Objective. The aim is to dissolve and liquidate the debtor company by selling all assets at the best possible price and by arranging the best possible settlement or dividend for various creditor groups. The main focus is on the interests of creditors, and not debtors.

How, when and by whom and which companies. Insolvency can affect all companies registered in Norway, and any company with its COMI in Norway.

Insolvency proceedings can begin by the company itself or a creditor filing a court application. If the court approves the application, it appoints an independent lawyer as trustee to lead a creditors' committee with at least one and no more than three members to represent the creditor groups.

Substantive tests. The company must be insolvent (that is, insufficiency and illiquidity requirements must be fulfilled). Unless proven otherwise, insolvency is usually presumed under the Act on Debt Arrangements and Bankruptcy if:

• the company declares that it insolvent;

• the company has stopped making payments;

• enforcement measures which have taken place in the preceding three months make it evident that the company's assets are not sufficient to fully cover the outstanding debts; or

• the company has received an insolvency notice (see Question 4) and has not made payment within 14 days from giving notice, in which case the creditor can file for insolvency of the debtor. The debtor has the burden to prove insolvency. An insolvency notice can be filed on the debtor where:

  • a clear debt (that is, it is not contested on a justifiable basis) that has arisen; and

  • the debt is due for payment.

How long. Insolvency proceedings usually last about 12 months. More complex proceedings can take between two to three years.

Consent and approvals. During proceedings, the creditors' committee makes major decisions. Minor decisions are made by a trustee in bankruptcy appointed by the court. The creditors' approval is not generally required.

Effect. The trustee and the creditors' committee take control of the company and replace the previous management. The business is liquidated and the trustee arranges for the sale of all assets either individually or as a going concern.

The estate can also extinguish contracts with lenders, or contracts concerning assets that are pledged above their value or are without economic value.

If the estate can establish that the highest overall price can be obtained by selling the assets together or by selling part or the whole of the business as a going concern, it can do so and can then extinguish all mortgages and encumbrances over the relevant assets that are not covered by the proceeds of sale.

The proceeds of sale are distributed to the relevant lenders and pledgees according to:

Prolong the repayment of loans.

Adjust the repayment schedule.

Suspend, modify or waive certain loan agreement provisions (such as minimum value, cross-default, financial covenants and acceleration).

Create new equity.

Invest new subordinated loan capital into the company.

The company does not, on more than a temporary basis, have sufficient equity and/or liquidity to repay its debts as they mature.

The management or shareholders have not succeeded in making or implementing efforts to reach an acceptable equity level.

Incurring or renewing a debt.

Providing security over any asset.

Selling or leasing out the company's: