A Q&A guide to restructuring and insolvency law in Norway
SECURITY AND PRIORITIES
1. What are the most common forms of security granted in relation to immovable and movable property? Are any specific formalities required for their creation and perfection (that is, made valid and enforceable)?
Mortgages are the most common form of security interest held over immovable property, such as:
Electric power cables.
However, under a mortgage, possession and legal title do not pass to the lender.
If the property owner consents, a mortgage can also secure third party debt. Consent from lenders with higher-ranking priority may be required to create a lower-ranking charge.
The most common types of security interest that can be held over movable property are:
Floating charges. These can be granted over certain classes of movable property, such as:
freely assignable trade receivables;
industrial fishing equipment; and
railway equipment and rolling stock.
Assets are not transferred to the borrower, and they fluctuate over time until default is declared.
Pledges. These can be created over any clearly definable property including:
Contractual claims (other than contractual claims for payment) cannot be pledged. However, a similar result can be achieved by entering into certain direct agreements or multipartite agreements with the involved parties in place of a pledge. Under these agreements, creditors can be granted contractual step-in rights. Pledges must be subject to a insolvent estate's general step-in rights (see Question 10).
One exception applies: under the Norwegian Petroleum Act, the security over a participation interest in a licence will comprise the pledgor's pro rata share or undivided interest (ideell andel) in the total assets at any time linked with the licence, as well as the pledgor's other rights in connection with activities carried out in accordance with the licence. This will also include certain contractual rights.
Retention of title. Buyers and sellers of goods can agree on a retention of title clause to secure payment of the purchase price. This means that title to property does not pass to the buyer until the seller has received full settlement. The retention of title can be lost if the goods sold are either:
Retention of title is not permitted for goods intended for re-sale.
Retention rights/liens. These rights come into existence where a creditor (with the owner's consent) is in possession of an asset (such as for repair). These rights do not require the owner's approval to come into existence, but the claim secured must be due and must have a natural link to the retained asset.
To establish security that is enforceable against and has priority over third parties, the following conditions must be fulfilled:
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.
Retention of title must be agreed before goods are delivered and must be confirmed in writing and recorded before any delivery to a consumer.
2. Where do creditors and shareholders rank on the insolvency of a company?
Distribution of funds is made in the following order of priority:
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:
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.
3. Are there any mechanisms used by trade creditors to secure unpaid debts?
Mechanisms used by trade creditors to secure unpaid debts (in addition to those referred to in Question 1) include:
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.
4. Are there any procedures (other than the formal rescue or insolvency procedures described in Question 6) that can be invoked by creditors to recover their debt?
The following procedures can be invoked by creditors to recover their debt:
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.
5. Please give brief details of the availability of state support for distressed businesses (if any).
There is no state support for distressed businesses.
RESCUE AND INSOLVENCY PROCEDURES
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:
ordinary trade debts;
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 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.
Conclusion. The proceedings (both voluntary and compulsory) end as follows:
Court-supervised debt restructuring proceedings. This applies to both voluntary and compulsory arrangements. These continue until they are closed by the court in the event of the following:
Successful conclusion. This can happen at the company's request, after the time limit for lodging claims has expired and all creditors have consented or received adequate security. A successful conclusion of proceedings can also take place at the request of creditors at a creditors' meeting, after completed proceedings have been approved by creditors and are sanctioned by the court; or
Unsuccessful conclusion and subsequent opening of insolvency proceedings. This occurs when, based on a recommendation from the creditors' committee, the court rules that there is no prospect to obtain the creditors' approval for a voluntary or compulsory debt settlement proposal. Proceedings are deemed unsuccessfully concluded if:
- the court refuses to initiate or approve a programme of compulsory restructuring proceedings; or restructuring proceedings (this is not applicable for compulsory proceedings) have not been completed within six months or within a court-approved time limit after a recommendation by the creditors committee.
Out-of-court voluntary arrangements. These are concluded as follows:
the company reaches agreement on its proposals with all creditors;
the company does not obtain creditor approval and therefore decides to:
make a court application for a court-supervised voluntary arrangement or court-supervised compulsory arrangement (offentlig akkord); or
open insolvency proceedings (see below, Corporate insolvency); or
no conclusion is reached and it is at the discretion of the company and its board of directors to take the necessary action at the right time according to the applicable legal provisions.
Creditors who do not accept the situation will file an insolvency petition against the company (see below, Corporate insolvency).
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:
registered priority; and
- the price obtained for each relevant assets.
Insolvency proceedings are concluded when:
all assets have been sold and/or abandoned by the creditors' committee;
the trustee has delivered a final report together with the estate's final accounts to the court; and
final accounts have been approved by the creditors and sanctioned by the court.
It is also possible for creditors to conclude insolvency proceedings by agreeing on a compulsory arrangement (see above, Debt restructuring).
7. What type of stakeholder has the most significant role in the outcome of the restructuring?
The key issues in restructurings are usually whether creditors (particularly banks and bondholders) are willing 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).
These options provide the current owners and/or new investors with the necessary comfort to encourage them to:
Among creditors, banks and bondholders often have the most significant role in the outcome of a restructuring.
LIABILILTY AND TRANSACTIONS
8. Are there any circumstances in which a director, parent company (domestic or foreign) or other party can be held liable for the debts of an insolvent company?
Directors and officers of the company can be held personally liable for economic loss caused by an insolvent company. They must have caused the loss by intentionally or negligently violating their statutory and legal duties. Whether any person has acted in this way is evaluated on an individual basis and is subject to the discretion of the court.
Anyone assisting the company in connection with an audit and/or liquidation can become liable in the same way.
The directors and officers are in general liable to the following parties:
Those persons can have a right to compensation or a cause of action.
The insolvency estate can claim compensation for loss suffered by the company or for the creditors (collectively as a group). Only economic loss which is only relevant to individual creditors (rather than the group) can be claimed by those creditors themselves.
The board must file for insolvency proceedings if:
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.
A parent company can become liable for the debts of an insolvent subsidiary. This applies if the business of the subsidiary is organised in an unjustifiable or unsound way (for example, by thin capitalisation relative to the size or extent of the subsidiary's business), and economic loss is consequently suffered by a third party acting in good faith.
The criteria are strict, and actions against parent companies are rarely brought and are in most cases unsuccessful.
Generally, individuals can be liable for economic loss caused by an insolvent company. The individual must have willingly or negligently caused or contributed to causing the loss and there must be a causal link between the act and the economic loss suffered.
9. Can transactions that are effected by a company that subsequently becomes insolvent be set aside?
The trustee of a court-supervised insolvency estate (in the event of compulsory arrangements or bankruptcy) can require certain transactions to be set aside, if entered into during a specific time period before:
This is provided these applications were followed by compulsory arrangement proceedings and/or bankruptcy proceedings.
If the relevant creditor does not voluntarily accept the request to reverse or set aside a transaction made by the trustee, the trustee must apply to the court to obtain a judgment in relation to this.
Generally, limitation periods are calculated by reference to one year from the opening of the relevant insolvency proceedings (Test Date). Transactions can be set aside on an "objective" or "subjective" basis.
These rules apply regardless of whether the third party in the relevant transaction has acted unfairly, fraudulently or in good faith. They apply to transactions carried out during three months before the Test Date.
If the third party is a person or company that is closely related to the insolvent company and/or to its owners or directors, the limitation period is extended to two years from the Test Date.
Transactions that can be made void include:
Settlement of a debt before the due date.
Settlement using unusual means.
Settlement at a level that materially weakens the company's ability to settle its total debts, provided that the relevant payment or settlement cannot be classed as ordinary.
Providing security for old debts.
Settlement made by set-off of a claim against the insolvent company, in relation to a third-party claim acquired after the company's claim arose.
Settlement to connected persons to buy goods or services in a transaction that is not at arm's length.
Unreasonable salary payments to connected persons.
These rules apply where the third party to the relevant transaction has acted in any of the following ways:
- In bad faith
These rules apply to transactions carried out during the last ten years before the Test Date.
To be classed as void, the relevant transaction must meet all of the following conditions:
Give preference to one creditor at the expense of the others, prevent the company's assets from being used to pay off the creditors, or increase the company's debt in a way which is detrimental to creditors.
Weaken the company's financial situation.
Have been entered into in circumstances where the third party knew or ought to have known about the company's financial difficulties and the circumstances that made the transaction improper.
10. Please set out any conditions in which a company can continue to carry on business during insolvency or rescue proceedings. In particular:
During restructuring proceedings, the company carries on its business operations with the existing management and board. In all court-supervised proceedings, the operation is supervised by the debt restructuring committee.
However, certain decisions and measures require the creditors' committee's consent, including:
Incurring or renewing a debt.
Providing security over any asset.
Selling or leasing out the company's:
business premises; or
Assets included as part of a floating charge can be sold with the committee's consent. This is provided that this can be achieved in the ordinary course of business without weakening the pledgee's position.
The committee works out a plan to secure the interests of all security holders during proceedings. It can decide that a pledgee will receive a certain proportion of any sale proceeds.
New assets that have been acquired since the opening of proceedings do not become part of any previously existing floating charge.
The creditors' committee can pledge new assets (including trade receivables) as security for owners or creditors. This provides the company with funding for the business operation during proceedings.
Under insolvency proceedings, the company is generally represented by an administrator and liquidator, who has a limited scope to continue the business operation.
An insolvent estate (represented by the creditors' committee) can decide to operate the company for a limited period to achieve a sale of the business as a going concern. This generally results in receiving the best possible price for the assets. This process involves close co-operation between key creditors and pledgees.
The insolvent estate has step-in rights in relation to the company's contracts. However, a contract can in certain cases (depending on the nature of the contract) be terminated by a third party as a result of the company becoming insolvent or being unable to provide adequate security for its obligations in the contract.
If the insolvent estate steps into the contract but the contract is already partly fulfilled, the estate can only generally "step in" to the contract for the unfulfilled part of the contract. However, this is not possible if the unfulfilled part of the contract or the consideration cannot be separated from the rest of the contract.
If the insolvent estate steps into the contract, it has the same rights and obligations as the existing company. Third party claims under the contract rank with superior priority against the estate. In some cases, third parties require security to fulfil the estate's contractual obligations.
The trustee and the committee handle all assets and the remaining elements of the business. New debts can only be incurred to the extent deemed necessary for business purposes. The trustee abandons assets which are of no economic value to the estate.
When proceedings are completed, the trustee arranges for the company to be dissolved.
11. Please state whether:
Courts in your jurisdiction recognise insolvency and rescue procedures in other jurisdictions.
Courts co-operate where there are concurrent proceedings in other jurisdictions.
There are any international treaties relating to insolvency to which your jurisdiction is a signatory.
There are any special procedures that apply to foreign creditors.
Recognition. Norway is a party to the Nordic Bankruptcy Convention of 1933 regarding mutual recognition of insolvency proceedings (Bankruptcy Convention). The other parties are Sweden, Denmark, Finland and Iceland.
Norwegian courts do not generally recognise foreign insolvency proceedings beyond the scope of the Bankruptcy Convention.
Norway is not a party to Regulation (EC) No. 1346 on insolvency proceedings and mutual recognition.
Concurrent proceedings. If concurrent proceedings are pending abroad, the Norwegian courts normally grant assistance to the foreign court. This is usually achieved by freezing assets.
If there is lack of jurisdiction and it is not possible to open concurrent proceedings in Norway, it is possible for a foreign insolvency estate to request ancillary proceedings to be opened in Norway to assist the foreign insolvency proceedings. The venue for these proceedings is Norway, and the eventual proceedings will take place where the company's assets are located.
International treaties. See above, Recognition.
Procedures for foreign creditors. No special procedures apply to foreign creditors and their clients.
Creditors holding claims in foreign currency must lodge these claims to the Norwegian insolvent estate in Norwegian currency at the exchange rate quoted as of the Test Date (see Question 9).