NORWAY Law and Practice Contributed by: Ida Marie Windrup, Magnus Tønseth, Markus Nilssen and Daniel Jovanovic, BAHR
The relevant company must also, in line with grant- ing guarantees and security generally, assess corpo- rate benefit based on the specific facts and situation. Financial assistance for acquisition debt may not be granted if the board of directors concludes that it will not be in the interest of the company and/or that the requirement relating to adequate equity and solidity will not be satisfied. 5.5 Other Restrictions A resolution of the board of directors of the relevant company is normally the only consent required to approve a company’s granting of security or guaran- tees. Shareholder resolutions may be required if pro- vided for in the company’s articles of association or in acquisition financing scenarios. 5.6 Release of Typical Forms of Security Registrable security (such as a mortgage over a vessel and registrable security with the Norwegian Registry of Movable Property) is released through the mortga- gee or chargee submitting the original charge form, endorsed with “for deletion” and signed by an author- ised signatory of the existing beneficiary (alternatively under a power of attorney). For security perfected through notice to a third party (eg, account banks, debtors and insurance agents, etc), the security is released by sending a notice of release or discharge to such third party. 5.7 Rules Governing the Priority of Competing Security Interests The starting point for priority is that a charge receives priority from the time it obtains legal protection or per- fection, so that of competing security is determined based on time of priority (“first in time, best in right”). However, there are significant exceptions. Preferential claims may also affect priority, although many prefer- ential claims will apply only in the event of insolvency proceedings (including reconstruction proceedings). Subordination is a recognised concept under Norwe- gian law, both contractual and structural, and contrac- tual subordination of claims between creditor groups is standard. The consequences of subordination are not clear cut in all cases, however. For instance, the release mechanism for subordinated claims that may typically be seen in standard LMA intercreditor agree-
ments is untested under Norwegian law. It is believed that subordination under Norwegian law at least extends to turn-over provisions. Whilst in effect this will have the same end result, there is no mentioning of release in the preparatory works to the Norwegian insolvency legislation. Equitable subordination does not have an equivalent Under Norwegian law there are a limited number of security interests arising by operation of law which will prime a lender’s security interest. It is not normally possible to structure around such security interests, apart from the mitigating factors mentioned below. The bankruptcy estate of a party (a “Bankrupt Par- ty”) which has encumbered an asset as security for obligations owed, has a statutory lien over any such encumbered asset as well as over assets which a third party has encumbered, as security for the obligations of the Bankrupt Party. An exception applies for assets which are charged as security in accordance with the Norwegian Financial Collateral Act (which implements the Financial Collateral Directive). The statutory lien has priority over all other liens and security interests in the relevant asset, regardless of whether such other liens or security interests have been created voluntar- ily or involuntarily. However, it is limited to 5% of the value of sales proceeds up to a maximum amount equal to 700 times the court fee at any time (which at present means a maximum amount of NOK919,800) in respect of a mortgage of real property or vessels. Proceeds from the statutory lien (if any) received by the bankruptcy estate may only be applied towards its necessary expenses. under Norwegian law. 5.8 Priming Liens Also, pursuant to the Norwegian Reconstruction Act, a company undergoing reconstruction pursuant to that Act may raise financing for its operations during the reconstruction phase (including for costs related to the reconstruction). Such financing and costs related to the reconstruction will enjoy a statutory lien over the assets of the company undergoing reconstruction and the rules, as set out above in respect of statu- tory liens for bankruptcy estates, will otherwise be applicable. Assets secured pursuant to the Financial
457 CHAMBERS.COM
Powered by FlippingBook