NORWAY Law and Practice Contributed by: Daniel Nygaard Nyberg, Karoline Ulleland Hoel, Ole Andenæs and Jens Fredrik Bøen, Wikborg Rein Advokatfirma AS
class members via the class representative. Conse - quently, although litigation financing is permitted in itself, the existing procedural framework in Norway might restrict its application. Cannabis-Related Investments Although Norway maintains a stringent stance on can - nabis consumption and marketing within its territories, this does not outright prevent funds from investing in cannabis production and development enterprises. However, it is imperative that such portfolio com - panies operate within the legal boundaries of their respective jurisdictions, ensuring that all associated activities remain compliant. 2.7 Use of Subsidiaries for Investment Purposes The use of subsidiaries for investment purposes is prevalent in private equity and real estate funds, among others, for several reasons. From a regulatory perspective, the use of subsidiaries might be significant. For many funds, leverage should ideally be applied at subsidiary level rather than at the fund level due to mandate restrictions or due to the calculation of AUM for sub-threshold AIFMs. From a practical perspective, it is often more effi - cient to structure financing (and pledging/securities) by using subsidiary structures/holding structures. Additionally, the use of subsidiaries may provide an additional level of segregation or limitation to liability (depending on the underlying asset). If holding physi - cal assets or assets providing interest income, it may be practical to hold such assets indirectly through subsidiaries (in contrast to the fund having direct ownership). Subsidiaries also serve the purpose of isolating spe - cific investment risks, thereby safeguarding the broad - er asset base of the parent company. This structural compartmentalisation establishes various levels of subordination for lenders when using external financ - ing, going beyond mere contractual stipulations and offering a more nuanced approach to risk manage - ment.
It is also quite common for funds to establish local holding structures for the purpose of acquiring target companies. This would, for example, enable the man - ager to take up debt financing in the local structure and offset the interest charges against taxable income in the target (through group contributions, provided the various criteria and limitations for doing so are met). A multi-layered structure could also allow distributions to be made prior to an exit without withholding taxes, by liquidating one or more of the intermediate holding companies enjoying the withholding tax-free status that liquidation proceeds currently have (although this may change in the future and could be challenged under Norwegian anti-tax avoidance rules). Additionally, the use of subsidiaries is instrumental in implementing investment platforms designed for add- ons, thereby enhancing operational flexibility. This is particularly relevant for private equity funds that aim to acquire multiple companies within the same sec - tor and consolidate them under a single operational umbrella. In summary, the use of subsidiaries in Norway is a stra - tegic choice that offers multiple advantages, includ - ing risk management, tax efficiency, and the effective implementation of diverse investment strategies. This approach aligns well with the regulatory landscape and is particularly prevalent in private equity and real estate funds. 2.8 Local/Presence Requirements for Funds Managers of Norwegian AIFs The AIFM Act in Norway does not stipulate the neces - sity of having a local AIFM for a local fund. Norway, being a part of the EEA, adheres to the European passport regime established by the AIFMD, which allows authorised AIFMs from EU/EEA member states to operate seamlessly across borders. In order to act as the AIFM of a Norwegian AIF, a man - ager must either be a Norwegian-based AIFM reg - istered with or authorised by the FSAN, or an EU/ EEA-based AIFM authorised and regulated by its local regulator, having exercised its right to manage AIFs on a cross-border basis in Norway in line with the AIFMD.
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