PRACTICAL LAW RESTRUCTURING AND INSOLVENCY MULTI-JURISDICTIONAL GUIDE 2012/13. The law and leading lawyers worldwide

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1 PRACTICAL LAW MULTI-JURISDICTIONAL GUIDE 2012/13 RESTRUCTURING AND INSOLVENCY The law and leading lawyers worldwide Essential legal questions answered in 28 key jurisdictions Rankings and recommended lawyers in 49 jurisdictions Analysis of critical legal issues Top 10 global firms identified AVAILABLE ONLINE AT

2 Norway Richard Sjøqvist and Peter Bugge Hjorth Bugge, Arentz-Hansen & Rasmussen advokatfirma FORMS OF SECURITY agricultural and farm machinery; 1. What are the most common forms of security granted over immovable and movable property? Are there formalities that the security documents, the secured creditor or the debtor must comply with? What is the effect of non-compliance with these formalities? Immovable property Common forms of security. Security interests over immovable property are created by a mortgage. Formalities. Security granted over immovable property is mainly regulated by the Pledge Act 1980 (Pledge Act) (Panteloven), which provides rules concerning security over immovable and movable property, operating assets, inventory, receivables and other liens. Security over immovable property must be registered against the relevant property in the Norwegian Land Register (Grunnboka), which is a centralised land registry for all land in Norway. Effects of non-compliance. If the formalities are not complied with, the security interest is generally valid between the parties but is not be effective against third parties with an interest in the property. Movable property Common forms of security. Pledges are the most common form of security over movable property in Norway. A pledge over certain classes of assets requiring registration in the Register of Mortgaged Movable Property (Løsøreregisteret) will take the form of a floating charge (see below). current and future monetary claims against debtors concerning commodities sold or services provided in trade; and inventory. The pledge is created by providing a standardised pledge document relevant for the asset class. The pledge is perfected by registering the security against the name of the asset s owners. The pledge will take the form of a floating charge. Financial instruments and monetary claims. For security over financial instruments (such as shares and bonds) registered in a securities register, security is perfected by registration in that securities register. For pledges over monetary claims and security over financial instruments not registered in a securities register (typically shares in certain private limited liability companies), perfection requires notification to the company. Non-registrable assets. For non-registrable assets, and securities not registered in a securities register (such as pledges over monetary claims (that are not receivables) and pledges of limited partnership shares), security is perfected by delivery of the assets to the creditor or another third party, so that the assets are no longer in the owner s possession. Effects of non-compliance. See above, Movable property: Noncompliance with formalities. CREDITOR AND SHAREHOLDER RANKING 2. Where do creditors and shareholders rank on a company s insolvency? Formalities. Security granted over movable property is mainly regulated by the Pledge Act. Special legislation applies to security over particular assets such as ships and aircraft, which are considered to be separate asset classes for the purposes of granting security. Property, ships and aircrafts have separate registries and security is granted through grant of a mortgage. Formalities depend on the type of asset concerned: Classes of assets requiring registration in the Register of Mortgaged Movable Property. These assets include the following classes: machinery and plant; cars; construction machines and railway material; Secured creditors can claim from their security. This is subject to the following priority payments: Costs of insolvency proceedings. The insolvency estate has a statutory first priority lien, to cover the costs of the proceedings, over assets pledged by the insolvent company and third parties as security for the insolvent company s obligations. The costs of the proceedings are limited to a maximum of 700 times the court fee (Rettsgebyr). Currently, this means a maximum of NOK602,000 (as at 1 March 2012, US$1 was about NOK5.7). Certain ordinary property related taxes and duties. These include, for example, waste tax, and are generally considered to be minimal. This article was first published in the Restructuring and Insolvency multi-jurisdictional guide 2012/13 and is reproduced with the permission of the publisher, Practical Law Company.

3 Unsecured debts will rank in the following order: The remaining costs of running the insolvency estate and costs incurred by the insolvency estate (after payment of the statutory lien (see above)). Certain employee debts, including: unpaid wages for six months prior to the insolvency (but not the unpaid wages of managing directors or employees that own 20% or more of the company); holiday allowance for employees for 24 months prior to insolvency; and unpaid pension allowance for up to six months prior to insolvency. Various taxes, including income tax and wealth tax (subject to certain time limitations). Ordinary unsecured claims. Interest on claims accrued after the opening of the insolvency proceedings. Subordinated claims. Shareholders will only retain any residual value left in the insolvency estate after these payments are made (typically disputed claims which the insolvency estate does not wish to pursue). If the shareholder wishes to enforce such claims it must do so on behalf of the insolvency estate. UNPAID DEBTS AND RECOVERY consent during the first six months after filing. It is possible for the parties to agree to a private sale form of enforcement in the case of security over assets covered by the Financial Collateral Act of 26 March 2004 (Financial Collateral Act) (Lov om finansiell sikkerhetsstillelse) (for example, shares and other financial instruments) (see Question 1, Movable property). This form of enforcement can be carried out without the insolvency estate s consent. Bring a legal action against the debtor with the aim of obtaining an attachment (see Question 3). The creditor can only request an attachment when a final judgment has been obtained for the debt. Unsecured creditors cannot file for attachments during the insolvency period. Set-off Set-off may apply after the opening of insolvency proceedings. However, certain limitations apply to counterclaims that are considered to be fraudulent conveyances. Depending on the situation, these can include counterclaims against the debtor that: Were acquired from a third party. Fall due after the opening of the insolvency proceedings, and the debtor s claim against the creditor fell due before the opening of insolvency proceedings. See Question 9. STATE SUPPORT 5. Is state support for distressed businesses available? 3. Can trade creditors use any mechanisms to secure unpaid debts? Are there any legal or practical limits on the operation of these mechanisms? Trade creditors often try to secure unpaid debt through a retention of title clause. This will mean that title to property will not pass until the property has been paid for and that the asset cannot be sold to a third party until the trade creditor has received payment. However, retention of title may be lost if the goods sold are, for example, incorporated into plant or machinery. Retention of title does not apply to movable property that is registered in a separate register (such as vessels and aircraft) (see Question 1). If retention of title is not available, the trade creditor must bring a legal action for a judgment and attachment (that is, a temporary freezing order over some or all of the debtor s assets), or file for the debtor s insolvency (see Questions 4 and 6). 4. Can creditors invoke any procedures (other than the formal rescue or insolvency procedures described in Question 6) to recover their debt? Is there a mandatory set-off of mutual debts on insolvency? There is no general state support for distressed businesses. However, the following are in place: The Governmental Wage Scheme (Lønnsgarantiordningen). This scheme provides state support for employees who have a claim for unpaid wages or holiday allowances against their employer. Generally, the scheme will completely cover wages for a maximum period of six months, and holiday allowance for a maximum period of 30 months. The scheme does not usually apply to managing directors and employees who own 20% or more of the company. The Banks Guarantee Fund (Bankenes sikringsfond). The fund provides state support for holders of accounts with insolvent banks. It grants cover for deposits of up to NOK2 million for each depositary with the bank, regardless of whether that depositary holds more than one account with the bank or whether it is a natural or legal person. If the depositary has accounts in other banks, the limit will apply to each individual bank. All of the Norwegian savings and commercial banks, including Norwegian subsidiaries of foreign banks, are members of the fund. RESCUE AND INSOLVENCY PROCEDURES Debt recovery Creditors can: Enforce their security to recover their debt (see Question 1). After an insolvency petition has been filed, secured creditors cannot enforce their security without the insolvency estate s 6. What are the main rescue and insolvency procedures? Debt settlement proceedings Objective. Insolvency proceedings are governed by the Bankruptcy Act 1984 no. 58 and the Debt Recovery Act 1984 no. 59

4 (Dekningsloven). The aim of debt settlement (composition) proceedings (gjeldsforhandling) is for a company that is (or may become) insolvent to reach a debt settlement scheme with its creditors. In some situations, the debtor may use a petition for debt settlement proceedings as a defensive measure to prevent ordinary insolvency proceedings being opened (see below, Insolvency proceedings). In practice, debt settlement is normally not practical as it has limited flexibility, arising from: Strict requirements for creditor consent and minimum dividends for unsecured creditors (see below, Substantive tests). Insufficient legal protection to secure financing for the business to continue while the debt settlement scheme is negotiated (because the legislation does not provide any means to grant security to a lender during the debt settlement period). Lack of powers for the estate to seek debt-to-equity solutions (such as writing off debt against receipt of shares). Lack of involvement of shareholders. Therefore, debt settlement proceedings are only used when the debt structure is reasonably controllable. Initiation. If the debtor is illiquid (that is, unable to pay its obligations as they fall due and the position is not temporary), he can voluntarily initiate debt settlement proceedings through filing a petition to the court of first instance (see below, Substantive tests). When the company is insolvent (that is, both in illiquidity and in insufficiency (negative equity)), the board of directors have a duty to file for debt settlement or insolvency proceedings (see Question 8, Directors). The petition must include evidence that the conditions for debt settlement proceedings are met. The merits of the petition are based on the evidence provided and the court will grant the petition if it considers it likely that a debt settlement scheme is achievable. If the court decides to commence debt settlement proceedings, the opening of the proceedings will be registered and announced in the electronic publication record (Norwegian Gazette) of the Norwegian Company Register (Brønnøysund) and in a local newspaper. precede the opening of the debt settlement proceedings, except for: claims that have priority in insolvency proceedings (see Question 2); secured claims, to the extent that the claims do not exceed the secured property s expected value; and claims that a creditor can use as a set-off against the company s counterclaim, to the extent that that the claims do not exceed the counterclaim. Supervision and control. The company is under the supervision and control of the courts. The court will elect a creditor committee, which will consist of: A lawyer heading the committee. One to three persons chosen from the creditors. An employee representative, if this is requested by a majority of the employees. The creditor committee s task is to assist the debtor in developing the debt settlement proposal. Protection from creditors. After the petition is granted, the debtor will benefit from a six month-protection period while the debt settlement scheme is negotiated, under which: Secured creditors cannot enforce their security, unless they obtain the creditor committee s consent (Article 17, Bankruptcy Act) (see above, Supervision and control). Unsecured creditors cannot file for attachments (see Question 4). Length of procedure. The procedure usually takes up to four months but can take longer. Conclusion. The debtor and the creditors, or the creditors among themselves, negotiate with the aim of reaching an agreement to reduce the debts or change the terms of payment so that the debt can be paid off without default. The debt settlement procedure does not affect the employees except for their right to be represented in the creditors committee (see above, Supervision and control). Substantive tests. The debtor must be unable to pay its obligations as they fall due (it is illiquid) (section 1, Bankruptcy Act) (see above, Initiation). There are two forms of debt settlement proceedings: Voluntary debt settlement (frivillig gjeldsordning). A voluntary debt settlement requires all unsecured creditors consent to the proposed debt settlement scheme. It will only bind those creditors who have voted in favour of the proposal or are not affected by the proposal. Compulsory debt settlement (tvangsakkord). A compulsory debt settlement requires a super majority of the unsecured creditors (that is, at least 75% in number and in outstanding debt) to approve the proposed debt settlement scheme. All unsecured creditors must receive at least a 25% dividend (there are some exceptions to this rule). The compulsory composition binds all creditors whose claims Voluntary and compulsory debt settlement proceedings are rarely successfully concluded (see above, Objective). If the required level of creditor consents is obtained, the court will decide whether the proposal should be implemented. If the court decides not to implement the proposal, or if no proposal is adopted within six months, the court will start ordinary insolvency proceedings (see below, Insolvency proceedings). Insolvency proceedings Objective. The objective of insolvency (konkurs) proceedings is to liquidate the debtor s assets for the benefit of its creditors, and distribute the proceedings among the creditors according the order of repayment rules (see Question 2). Initiation. Both the debtor and the debtor s creditors can file for insolvency proceedings provided that the debtor is insolvent (see below, Substantive tests). If the debtor is a company which

5 is insolvent, the board of directors have a duty to file for debt settlement or insolvency proceedings (see Question 8, Directors). If the court decides to commence insolvency proceedings, it will immediately notify: The Norwegian Register of Business Enterprises. Other registers where the debtor may have assets recorded. A notice will be published in a newspaper and forwarded to each known creditor, and the employees informed. Substantive tests. The basic condition for opening insolvency proceedings is that the debtor is insolvent. A debtor is deemed to be insolvent if the court finds both: Insufficiency (that is, balance sheet insolvency, where its debts exceed the value of its assets). Illiquidity (the debtor is unable to pay its debts as they fall due, and the situation is not temporary). Protection from creditors. For a period of six months, calculated from the opening of the insolvency proceedings: Secured creditors cannot enforce their security, unless they obtain the insolvency estate s consent (Article 117, Bankruptcy Act). This is not usually granted if the assets relate to the core business of the company. Unsecured creditors cannot file for attachments, although enforcement through private sale may be available for certain assets (see Question 4). Length of procedure. The insolvency proceedings last until they are closed (usually when the insolvent company s assets are liquidated and distributed) (see below, Conclusion). The proceedings usually last about 12 months. Conclusion. If insolvency proceedings are opened, the insolvency estate is automatically created as a separate legal entity, and is registered in the Register of Business Enterprises with its own organisation number. If both conditions are met, the court will open insolvency proceedings. Supervision and control. The administration and supervision of the bankruptcy estate involves the: Appointment of a liquidator. On deciding to use insolvency proceedings the court will appoint a liquidator (konkursbo) to dissolve the estate (this person is usually a lawyer). The liquidator acts on behalf of all the debtor s creditors with the primary objective of recovering assets for the creditors. The liquidator is in charge of the day-to-day administration of the insolvency proceedings. Appointment of a creditor committee. If proceedings are likely to be complex and/or for a long period of time, the court may also appoint a creditors committee. The committee acts as a decision-making body for the insolvency estate in significant matters where it is inappropriate for the liquidator to act alone. Appointment of an auditor. The court also appoints an auditor to audit the estate, unless the assets of the insolvency estate are insignificant or the estate is not complex. Creditors meetings. From time to time during the insolvency proceedings, the liquidator and the court will arrange for creditors meetings, at which all creditors are entitled to attend. Any decision taken by the creditors meeting will be binding on the liquidator and the creditors committee (where applicable). Court s supervision. The court has general supervision of the insolvency proceedings. The court can overrule a decision taken by the liquidator, the creditors committee or the creditors meeting, if the decision is evidently: unreasonable; illegal; in conflict with the rights of the debtor, a creditor or a third party. The court will also, among other things, receive reports from the liquidator, hold court hearings, determine disputes, and close the proceedings. The insolvency estate will automatically seize all of the debtor s assets and rights on a global basis as of the date of the court s order to institute insolvency proceedings. The debtor will have no right to dispose of or control the assets. All liabilities of the debtor can be filed with the insolvency estate as claims. Normally, the liquidator will terminate all employment contracts, save for certain key employees that may be retained to assist the liquidator. The normal conclusion of insolvency proceedings is that all assets are liquidated, and the proceeds paid out to the creditors according to their order of priority. After the insolvency proceedings have been completed, the debtor is, in principle, still liable for debts that have not been settled. For corporate entities, however, this only applies in theory, since the company will be automatically dissolved and deleted from the Register of Business Enterprises on the completion of the insolvency proceedings. The assets of the insolvency estate can be handed back to the debtor and the insolvency proceedings concluded in three situations: The debtor successfully appeals the decision to open insolvency proceedings. All creditors have received full payment of their claims or security for full payment. A compulsory debt settlement scheme is approved during the insolvency proceedings (see above, Debt settlement proceedings). STAKEHOLDERS ROLES 7. Which stakeholders have the most significant role in the outcome of a restructuring or insolvency procedure? In debt settlement proceedings, creditors and shareholders must work collectively to reach a settlement. In insolvency, finance creditors (such as banks) and to a lesser extent trade creditors have the most important role.

6 LIABILITY 8. Can a director, parent company (domestic or foreign) or other party be held liable for an insolvent company s debts? Directors The board of directors of a Norwegian limited company has a duty to monitor the financial situation of the company to ensure that the company will be able to continue its normal operations and honour its obligations as they fall due. A company must at all times have sufficient equity compared to its debt, considering the risk and nature of its business. The board must specifically take action if the actual equity of the company is less than 50% of its nominal share capital, by: Dealing with the matter immediately. Calling a general meeting within a reasonable time (and within a minimum of six months for public companies). Provide a status overview of the company s financial difficulties at the general meeting. Propose actions that will provide the company with a reasonable debt-to-equity capital ratio. If the company becomes insolvent, the board risks criminal and/ or civil liability if it does not file for debt settlement or insolvency proceedings, although it does have discretion for attempts to remedy the situation: Criminal liability. The board of directors commits a criminal offence if it does not file for debt settlement proceedings or insolvency when the directors knew, or should have known, that not all creditors will be paid, provided that (section 284, Criminal Code): this has the result that reversible transactions or enforcement actions cannot be reversed due to the delay and this results in a significant weakening of the creditors potential recovery; or the board of directors should have understood that the business was clearly loss-making and that the creditors would not be paid within a reasonable time. Criminal liability does not apply where the debtor has operated in consultation with creditors representing a significant number of the creditors and value of the claims. Directors can face fines and imprisonment for up to three years. Civil liability. Civil sanctions are more frequently imposed than criminal liability, as the test is wider. The directors can face personal liability for any loss incurred by any party. When assessing whether the directors are liable, the court must assess the then likelihood of being able to refinance the business, compared to the additional risk inflicted on creditors by not filing for insolvency immediately. In particular, the board may be liable if the company took on new debt without informing the other parties, such as trade creditors, of the financial situation. Norwegian courts are traditionally reluctant to overrule the business judgment of the board of directors, as long as it is founded on the interests of the company, and not influenced by arbitrary or irrelevant motives or considerations. Parent companies Parent companies are not usually responsible for the debts of a subsidiary that is a limited company, according to the principle that each company is regarded as a separate legal identity. Therefore, parent companies and other shareholders will not be liable to creditors of the subsidiary, or to make any payment either to the subsidiary or to its insolvent estate, except where provided in the share subscription documents. However, case law provides that there are circumstances where the court will be prepared to pierce the corporate veil and find shareholders personally liable. This does not, in itself, abolish the company s position as a separate legal entity; rather it is a form of shareholder liability. Although each case will depend on the court s assessment of the particular circumstances, the court has pierced the corporate veil where: A shareholder or secured creditor has a right of control over the company so that the company is in reality not organisationally or financial independent as required by the Companies Act The company has been under-capitalised compared to the financial risk involved in its operations for a long time (under-capitalisation may not in itself be a legal reason to pierce the corporate veil, but may indicate the company is not sufficiently independent of its owners). The company s funds have been used against its interests to benefit its shareholders. SETTING ASIDE TRANSACTIONS 9. Can an insolvent company s pre-insolvency transactions be set aside? If so, who can challenge these transactions, when and in what circumstances? Are third parties rights affected? During debt settlement and insolvency proceedings, the court can set aside certain transactions that the debtor entered into before the opening of the proceedings, when it was in a distressed financial situation, to prevent the creditors being deprived of asset (the liquidator, acting on behalf of the insolvency estate, will apply for these transactions to be set aside). For example: Gifts. Transactions involving a gift element can be set aside if they are completed less than one year before the opening of proceedings. Set-off. Payments made by set-off can be set aside if the counterclaim against the debtor was acquired less than three months before the opening of proceedings, if the setoff is made against a claim that the debtor had before the counterclaim was acquired (see Question 4, Set-off). Security. Security can be set aside if the security: is given for old debt (see below); or has been perfected with unnecessary delay after the debt was incurred. Security can be given for old debt, for example, where a bank deposit is pledged. In that case, any additional amounts that are deposited after the creation of the pledge are considered to be security for old debt and can be set aside if proceedings are opened within three months after the additional deposit was made. However, there are exceptions under the Financial

7 Collateral Act, for example, where there an agreement has been entered into, in advance of the additional deposit, to top up margin security where debt has increased due to market fluctuations. Extraordinary payment. A court can set aside a payment that was made later than three months before proceedings were instituted if payment was made: with unusual means of payment (for example, paymentin-kind rather than cash); before payment was due; or with an amount that substantially reduced the debtor s ability to pay, as long as the payment did not appear ordinary in the circumstances. All of these transactions can be set aside regardless of whether the other party to the transaction acted in good faith. The insolvency estate can demand that the other party hands over any profit achieved as a result of the transaction. In addition, it is possible to avoid transactions where the other party has not acted in good faith. These are transactions that are completed less than ten years before the opening of debt settlement or insolvency proceedings and that did one or more of the following: Improperly gave preference to one creditor at the expense of the other creditors. Prevented the debtor s assets from being used to pay off the creditors. Increased the debtors liabilities in a manner detrimental to the creditors. These transactions can be set aside if the: Debtor s financial situation was weak, or was seriously weakened by the transaction. The other party to the transaction knew or should have known about both the: debtor s financial difficulties; circumstances that made the transaction improper. In this case, the insolvency estate can demand that the other party compensate the estate for the loss that the transaction has inflicted on the estate. Third parties that have received assets are only liable to compensate the insolvency estate if they knew or should have known of the circumstances making the transaction vulnerable to being set aside. CARRYING ON BUSINESS DURING INSOLVENCY 10. In what circumstances can a company continue to carry on business during insolvency or rescue proceedings? In particular, who has the authority to supervise or carry on the company s business and what restrictions apply? Circumstances Debt settlement proceedings. During a debt settlement procedure, the company will continue to operate under its management. However, the creditors committee will have an important role. Its consent is required for important transactions, such as: Borrowing. Granting security. Selling assets. Acquiring property. Letting certain important assets. Shareholders rights (for example, to attend and vote at a general meeting) will still be intact. Transactions done in good faith can be valid even if the consent of the creditors committee was not obtained. Insolvency proceedings. The insolvency estate effectively confiscates all assets and the shareholders, directors and management of the company are effectively prevented from making a disposal of the company s assets. The insolvency estate (either through the liquidator or through the liquidator and the creditors committee acting together) will make all important decisions. The court has authority to instruct the insolvency estate and must supervise its activity. As the liquidator can be liable for incurring unnecessary costs and losses, it will normally, on the opening of insolvency proceedings: Cease all business operations. Freeze all payments immediately. Typically there will also be insufficient funds to finance continued business operations (which to a large extent must be based on upfront payments if no trade credit is available). Therefore, continuing the business in whole or in part can only take place for a very limited period of time, and only where the liquidator can secure significant gains at limited cost and risk for the creditors. The insolvency estate may, however, elect to continue certain profitable of the debtor s profitable contracts (cherry picking). In that case, all new obligations that the estate enters into under these contracts are first priority claims with a right to receive a full payment. Authority/supervision Debt settlement proceedings. The company continues to operate under its usual management. However, consent from the creditors committee is required for important transactions. Insolvency proceedings. The liquidator can resume control of the company s business if the business is continued partially or in full (including any profitable contracts that are cherry picked by the liquidator). The work undertaken by the liquidator is generally supervised by the creditors committee and the court. The creditors can also instruct the liquidator at the creditors meeting. Intellectual property licences Debt settlement proceedings. Intellectual property licences agreements will continue (similar to other forms of agreements). The opening of debt settlement proceedings will not as such entitle the counterparty to terminate the agreement. Insolvency proceedings. The liquidator has a general right to continue (enter into) intellectual property licenses agreements similar to other forms of agreements (cherry picking). If the

8 liquidator decides to continue such agreements, the estate will be bound by the terms of the agreements going forward. Cost incurred by the estate under an agreement going forward will be regarded as cost for the insolvency estate with priority ranking (see Question 2). Claims arisen under the agreement prior to insolvency proceedings must be filed in the estate and will rank equal to other unsecured claim (see Question 2). ADDITIONAL FINANCE 11. Can a company that is subject to insolvency proceedings obtain additional finance (for example, debtor-in-possession financing or equivalent)? Is special priority given to the repayment of this finance? A company that is subject to insolvency proceedings cannot obtain additional finance unless it obtains the consent of all the creditors. MULTINATIONAL CASES 12. What are the rules regarding recognition, concurrent proceedings and international treaties in multinational cases? What are the procedures for foreign creditors? in another jurisdiction, a Norwegian court will not open debt settlement or insolvency proceedings. At the same time, if a petition for bankruptcy is filed in Norway, the court cannot refrain from opening bankruptcy proceedings (if the jurisdictional and the substantive tests are met) simply by referring to foreign (non-nordic) proceedings having been initiated. The latter means that if the jurisdictional and substantive test is met, Norwegian proceedings will commence according to Norwegian law, regardless of foreign (non-nordic) proceedings. In practice, protection against creditors filing for bankruptcy in Norway must be established and sanctioned by the foreign court where the foreign insolvency proceedings are opened. A similar issue is how Norwegian courts will deal with foreign (non-nordic) proceedings aiming to collect/sell assets or enforce claims in Norway, where Norwegian courts are not considered to have jurisdiction (home or main seat is not located in Norway). There are examples of Norwegian case law supporting the notion that Norwegian courts could potentially recognise foreign (that is, non-nordic) proceedings (for example, the Supreme Court s decision in Rt s. 25 (Hydro vs. Alumix) and Rt s. 465). The position is, however, at this point unclear, and you will find sources of law that supports the opposite (for example, the preparatory work of the Bankruptcy Act, NOU 1972:20 s. 243, and legal theory; Brækus, Omsetning og Kreditt 1 s. 93 and Huser 2 s ). Recognition Norwegian courts jurisdiction to open proceedings. Norwegian courts have jurisdiction to open insolvency and debt settlement proceedings if the person s home or company s main seat is located in Norway. This means, among other things, that if a company s business is organised though a non-norwegian limited company that performs all of its business through a Norwegian branch office, Norwegian courts will have jurisdiction. Furthermore, Norwegian bankruptcy legislation applies a universal principle which presupposes that all assets belonging to an insolvent debtor are to be seized for the benefit of the insolvency estate or liquidator, regardless of the jurisdiction (section 2-2, Creditor s Recovery Act). However, the extent to which this principle is enforceable will depend on whether a Norwegian insolvency is recognised in the relevant jurisdiction (under local law) (see also below, International treaties). Recognition of Norwegian proceedings in foreign jurisdictions. The extent to which a foreign jurisdiction recognises Norwegian bankruptcy or debt settlement proceedings will depend on the legislation of the country in which the company s assets or business operations are located (local law). As an alternative, foreign liquidators or insolvency estates may try to seek assets through separate debt recovery proceedings in accordance with Norwegian law. In this context, however, it is also unclear whether a foreign liquidator will be recognised to have legal competence on behalf of a debtor s creditors to seek such separate debt recovery in Norway, or if creditors must seek recovery on an individual basis. International treaties Norway has entered into the Nordic Convention (see above, Recognition). The Nordic convention gives extraterritorial effect to the decision of a court in another member state to commence bankruptcy proceedings and requires the same member state s bankruptcy legislation to apply in the subsequent proceedings. In addition, Directive 2001/24/EC on the reorganisation and winding up of credit institutions (Credit Institutions Directive) has been implemented into Norwegian law. Procedures for foreign creditors No special procedures apply to foreign creditors. REFORM Recognition of foreign proceedings based on international conventions/ treaties is limited. At present, the only such convention binding Norway is the Nordic Bankruptcy Convention 1933 (Nordic Convention) (along with Sweden, Denmark, Finland and Iceland, although Iceland has not ratified the revised version (see below)). Concurrent proceedings The jurisdictional test for determining whether a Norwegian court will be considered to have jurisdiction is whether the person s home or company s main seat is considered to be in Norway. This means that if a company s main seat is considered to be 13. Are there any proposals for reform? The debt settlement proceedings are generally seen as inadequate (see Question 6, Debt settlement proceedings: Objective). There is an ongoing process to modernise the legislation, but nothing specific has been initiated as yet.

9 CONTRIBUTOR DETAILS RICHARD SJØQVIST Bugge, Arentz-Hansen & Rasmussen advokatfirma T T F E ric@bahr.no W Qualified. Norway; England and Wales Areas of practice. Restructuring; insolvency; debt finance. Recent transactions Representing Norsk Tillitsmann ASA as trustee for three bond issues which defaulted and the following enforcement actions against Petromena ASA. Representing bondholders in Petrojack ASA relating to the enforcement of an offshore construction. Representing the issuer in connection with a potential default under a bond indenture. Representing Nordea Bank Norge ASA as agent in respect of a US$2.4 billion secured facility involving 14 FPSO units. Qualified. Norway Areas of practice. Restructuring; insolvency; debt finance. Recent transactions PETER BUGGE HJORTH Bugge, Arentz-Hansen & Rasmussen advokatfirma T T F E pch@bahr.no W Representing Norsk Tillitsmann ASA as trustee for three bond issues which defaulted and the subsequent enforcement actions against Thule Drilling AS. Representing Norsk Tillitsmann ASA as trustee for three bond issues which defaulted and the subsequent enforcement actions against Petromena ASA. Advising the Luxembourg subsidiary of an insolvent Icelandic bank, Glitnir, in a complex refinancing and several pieces of litigation.

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