Restructuring and insolvency law in Norway

1. What is the primary legislation governing restructuring proceedings in your jurisdiction?

The Reconstruction Act (Nw. rekonstruksjonsloven) is the primary legislation, though it is temporary and will repeal on 1 July 2025. In January 2023 the Ministry of Justice issued a consultation note with proposals for a new, permanent legislation.

General civil, corporate and labour law also apply to implementing restructuring tools.

2. How are restructuring proceedings initiated?

Restructuring can be petitioned by the debtor or by a creditor of overdue debt. The petition is filed to the District Court based on the registered business address of the debtor. The petitioner must show that the debtor cannot pay its debt as they fall due and must also provide an outline as to how the restructuring should proceed and be financed, and how the debt should be restructured. If the debtor initiates the proceedings, it must prove that it is liaising with its creditors and provide an overview of its assets, liabilities and any security interests.

If the District Court finds that the conditions are met, it opens the restructuring proceedings and appoints a reconstructor (an experienced lawyer who will usually be on a list of lawyers pre-approved by the court in a separate, informal tender process), who will have overall commercial and legal responsibility for the activity of the debtor during the restructuring. The reconstructor is usually supervised by a creditors’ committee also appointed by the court, consisting of between one and three members, who can have a more diverse background but will usually have some experience from restructuring and/or bankruptcy proceedings. The reconstructor and creditors’ committee together form the reconstruction committee.

3. Which different types of restructuring proceedings exist and what are their characteristics?

There is only one type of restructuring procedure, with the following different potential outcomes:

• voluntary restructuring: must be accepted by all the creditors covered by the proposal but no judicial approval required
• restructuring after compulsory debt settlement: must be supported by those creditors who have at least 50% of the total claim and be approved by the district court, or
• no solution: negotiations are concluded with no voluntary or compulsory solution. Bankruptcy proceedings are opened unless the debtor documents solvency, in which case control of the debtor reverts to the Board and general manager.

The following arrangements can be agreed:

• payment deferral
• write-down of debt
• conversion of debt to share capital, or
• sale of all or part of the company.

4. Are there different types of creditors and what is the significance of the differences between them?

Currently, there are no different types of creditors. However, the Norwegian Ministry has proposed to implement rules on different classes of creditors corresponding with Directive (EU) 2017/1132 (Directive on restructuring and insolvency).

5. Is there any obligation to initiate restructuring/insolvency proceedings? For whom does this obligation exist and under what conditions? What are the consequences if this obligation is violated?

The board of directors in a limited liability company must act promptly if the company’s equity or liquidity is not at a prudent level considering the size and risk of the business operations. Such actions include measures to improve the company’s financial situation, convening a shareholders’ meeting to find solutions with shareholders (e.g. issuing equity) and, ultimately, to file for restructuring or bankruptcy proceedings if it is unlikely that the financial difficulties can be resolved in the immediate future.

For an insolvent debtor it may be a criminal offence not to file for bankruptcy in time. According to the Reconstruction Act, the court shall also open bankruptcy proceedings if reconstruction negotiations have not been successful after 6 months, unless the court has set a later deadline after a petition from the reconstruction committee.

If the board of directors fails to meet its obligation to act and carries on business while the company is insolvent without taking prudent measures with a reasonable chance to rectify the financial difficulties, or incurs additional liabilities for the company without informing the counterparty of the financial difficulties, this may result in penal liability and/or liability for damages for the directors and/or senior management.

6. What are the main duties of the representative bodies in connection with restructuring proceedings?

The representative bodies must carry out the duties of the debtor, which include assisting the district court, the reconstructor, the creditor’s committee and the auditor in obtaining all information of importance for the reconstruction negotiations, including information about its business, its financial situation and its future prospects.

The debtor must comply with the instructions given by the reconstructor and the creditor’s committee regarding the business and financial affairs of the debtor. The debtor must not, without permission from the creditors’ committee, establish or renew debts, establish security interests, or dispose of or rent out its real estate, business premises or any other asset of significant importance. The debtor must also submit an operating budget and a financing plan to the reconstruction committee.

The debtor is obliged to present an outline for reconstruction of the business at the creditor’s meeting.

7. What are the main duties of shareholders in connection with restructuring proceedings?

Shareholders have no obligation to show up at the general meeting or to vote to approve the plan.

1. What is the primary legislation governing insolvency proceedings in your jurisdiction?

The Bankruptcy Act (Nw. konkursloven) and the Creditors Recovery Act (Nw. dekningsloven) are the primary pieces of legislation governing insolvency proceedings.

2. How are insolvency proceedings initiated?

The basis for initiating insolvency proceedings is either an insolvency petition by the debtor itself, or an insolvency petition from a creditor.

3. What are the legal reasons for insolvency in your country?

Only an insolvent debtor can be declared bankrupt. A debtor is insolvent if its assets (taking into account the real value, i.e. not the book value) exceed its liabilities (asset deficiency or insuffisiens), and it lacks the capacity to pay its debts as they fall due if this lack of capacity is not only temporary.

4. Which different types of insolvency proceedings exist and what are their characteristics?

There is only one type of insolvency proceedings, where all the assets of the debtor are transferred to a bankruptcy estate (which is a separate legal person) and an estate administrator is appointed by the bankruptcy court. The court can (and often will) also appoint a creditors’ committee, which shall oversee the work done by the administrator. The primary job of the administrator is to maximise the recoverable value of the debtor’s assets. The administrator has wide discretion as to how this is done, including by way of liquidation or, if prudent, continuation of the whole or parts of the debtor’s business and sale as a going concern.

The process may lead to one out of three outcomes:

• the estate may have funds to be distributed to creditors, and before the estate is closed, there will be a dividend payment to the creditors
• the estate shall be closed if there are no funds to be paid to creditors or to fund the estate’s administration
• the estate can also be handed back to the debtor if the bankruptcy proceedings show that there are sufficient funds to cover all the creditors, or the creditors agree to hand back the estate or the debtor manages to negotiate a settlement with the creditors.

The court shall approve the final distribution from the estate.

5. Are there different types of creditors and what is the significance of the differences between them?

The classification of creditors is based on the type of their claims.

Secured creditors can seek recovery from secured assets.

The different types of claims have different priority and are covered in line with the following priority order:

• expenses of the bankruptcy and obligations incurred by the administrator on behalf of the estate
• preferential claims of the first degree (such as unpaid salary or other remuneration to the bankruptcy debtor’s employees, claims for holiday pay/holiday remuneration, claims for pension payments and claims for maintenance for spouse or children)
• preferential claims of the second degree (such as tax claims, VAT claims, claims for social security contribution, and certain refund claims related to tax and social security contributions etc.)
• ordinary unsecured claims
• interest on claims accrued after the opening of the insolvency proceedings
• subordinated claims.

6. Is a solvent liquidation of the company an alternative to regular insolvency proceedings?

It is an alternative. A solvent liquidation can be decided by a two-thirds’ majority of the shares at a general meeting. If a solvent liquidation is opened but it turns out that the company is unable to pay its debt, the board has an obligation to petition the court to open an insolvency procedure.

1.  If a lender wants to monitor its borrower very closely (i.e. more closely than the usual information covenants in the credit agreement require), what options are there?

Notwithstanding any contractual rights of information, a lender can perform regular credit assessments of which payment notices and debt collection cases are registered, i.e. ongoing enforcement and monitoring different registers (the register of moveable property and the land registry where the debtor owns real property) for any attachments to the borrower’s assets. 

2. What issues arise if a creditor extends credit facilities or offers support conditional on additional or extended guarantees to a company in financial difficulties and/or takes asset security?

Transactions made by the company, and which are deemed “extraordinary” in the circumstances before bankruptcy, or which give rise to a fraudulent preference of certain creditors, can subsequently be set aside by the courts following request from the bankruptcy estate manager. Extraordinary payments may include:

• payments made by other means than money (transfer of assets)
• payments made prior to the original maturity date
• payments that have substantially weakened the debtor’s financial position (at the expense of other creditors).

Furthermore, new security interests for old debts can be clawed back, i.e. nullified, by the bankruptcy estate up to 3 months after the perfection of the security interest. Guarantees from third parties are not considered security interests, but may raise different issues if the guarantor runs into financial difficulties.

1. How does a lender sell a loan?

There are several ways of transferring a loan:

• by assignment (the loan and the lender’s obligations are assigned to the transferee)
• sub-participation (the economic benefit of the loan is transferred to the transferee but this does not affect the original loan contract between the original lender and the borrower. The original lender remains the lender of record and the buyer of the debt takes the credit risk not only on the borrower but also on the original lender), and
• synthetic arrangements.

2. If the underlying credit agreement prohibits transfer or assignment (i.e. a change in the lender of record), how else – if at all – can a lender transfer the economic risk and/or benefit in the loan? For instance, are sub-participation agreements allowed under the law of your jurisdiction?

Loans are commonly traded between lenders. Syndicated lending documentation is becoming standardised on the terms of the Loan Market Association. This allows for free transferability of debt between lenders, with the security being held on their behalf by a security trustee/agent and the debt being administered by an agent. Further, there are no restrictions on sub-participation agreements.

3. Regulatory issues: is any form of licence or prior authorisation from any regulatory authority required for the purchase, sale and/or transfer of loans? Does it fall within the definition of providing banking or financial services in the territory of the assignor or the borrower?

A one-off purchase of a non-performing loan does not require a licence, but purchasing non-performing loans as part of a business would qualify as providing a financial service and would consequently require a licence from the Financial Supervisory Authority of Norway.