NORWAY Law and Practice Contributed by: Ida Marie Windrup, Magnus Tønseth, Markus Nilssen and Daniel Jovanovic, BAHR
6.4 A Foreign Lender’s Ability to Enforce Its Rights Lending is a strictly regulated activity in Norway as previously noted. However, even if a loan was granted in breach of Norwegian licensing rules, the loan agree- ment and appurtenant security agreements would not on this basis alone be rendered void and unenforce- able. Limitation on enforcement of security could apply to the extent that the acquisition of the secured asset is subject to a licensing requirement, such as the acquisition of qualifying holdings in regulated institu- tions or assets subject to Norwegian national security/ FDI legislation. The rights of a secured creditor must be respected in both individual and joint enforcement, however, bank- ruptcy proceedings will generally limit the secured party’s participation in the joint proceedings, as they will be led by a liquidator appointed by the court. An automatic stay of up to six months may apply before the security is enforced on an individual basis. Excep- tions apply, however, including in respect of security granted under the Financial Collateral Act as described in 6.1 Enforcement of Collateral by Secured Lenders . 7.2 Waterfall of Payments 7. Bankruptcy and Insolvency 7.1 Impact of Insolvency Processes The rules for payment of dividends to (unsecured) creditors in an insolvency are complex and follow from mandatory provisions of law. Generally, the waterfall can be described as follows: • costs incurred as a result of the bankruptcy or by the bankruptcy estate during the insolvency pro- ceedings; • various salary claims incurred prior to opening of bankruptcy; • taxes, VAT, etc; and • various subordinated claims (and agreed subordi- nated claims). Secured creditors are allowed to claim as unsecured creditors for the part of their initially secured claim which was not covered by enforcement of the security.
7.3 Length of Insolvency Process and Recoveries This will vary depending on the complexity of the bank- ruptcy estate. As a general rule, all assets which are secured in favour of lenders will usually be released by the bankruptcy estate and made available to the secured creditors quickly after opening of bankruptcy. 7.4 Rescue or Reorganisation Procedures Other Than Insolvency A company that has or will have in the foresee- able future, serious financial difficulties may file for reconstruction under the Reconstruction Act. The Reconstruction Act introduces a more flexible legal framework for continued business operations in close co-operation with the creditors and has since its adoption in 2020 been utilised with success on high-profile complex matters. Debt negotiations can be entered into by the debtor without involving the courts. Unless a secured creditor has expressly agreed not to enforce or take ownership of the collateral, the secured creditor is not affected by these negotiations. Court-administered debt nego- tiation proceedings can only be initiated by a willing debtor. This debtor must demonstrate that they are unable to meet their payment obligations as they fall due and that it is not unlikely that the debtor will obtain a composition with their creditors. 7.5 Risk Areas for Lenders There is a clear distinction under Norwegian law between secured and unsecured creditors. A secured creditor would normally get access to its security asset from the bankruptcy estate manager quickly dur- ing the bankruptcy process. There is a good chance of recovery for a secured creditor if the value of the assets has upheld well, taking into account that there usually would be some costs incurred in connection with realising the security asset. Unsecured creditors would be paid out after creditors which are manda- torily preferred by law, and the chances of recovery are usually very low. A typical payment to an unse- cured creditor would normally be a small percentage of the face value of the claim. On this basis, typically unsecured creditors try to negotiate with a borrower in financial difficulty a solution whereby they can obtain security for their claim. As secured creditors have a
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