NORWAY Law and Practice Contributed by: Ida Marie Windrup, Daniel Jovanovic, Markus Nilssen and Steffen Rogstad, BAHR
During the first six months after initiation of bankrupt - cy proceedings, a secured creditor cannot enforce its security interests without the prior approval of the bankruptcy estate. This moratorium period lets the bankruptcy trustee assess whether continuing the business or selling the assets as a going concern might generate better recoveries for all stakeholders. When a bankruptcy decision is made, the court will immediately appoint a bankruptcy administrator – usually a lawyer. Under the Reconstruction Act, the court must immediately appoint a reconstructor and a creditor committee. The reconstructor must be a lawyer with experience in insolvency treatment. The debtor is subject to the supervision of the reconstruc - tor and the creditor committee, but maintains control over its business operations and assets. The above-mentioned restrictions on enforcement of security do not apply in relation to security qualifying as financial collateral. 7.2 Waterfall of Payments In principle, secured creditors are not deemed to be part of the bankruptcy proceedings to the extent the value of the security is sufficient to cover the under - lying obligations of the debtor. This recognises the proprietary nature of secured creditors’ rights over their collateral. Proposed debt arrangements must encompass and treat equally all known claims on the debtor arising before debt negotiations were opened. However, the following claims may be excluded or, if included, may receive better coverage than other claims: • claims with statutory priority; • claims secured by pledge or other security rights in the debtor’s assets, to the extent the security is assumed to cover the claim; • claims that may be decided by set-off to the extent covered by the counterclaim; and • claims belonging to creditors whose total receiva - bles are less than a specified amount. As a practical matter, employee claims with statutory priority are typically paid despite being junior in the formal waterfall, reflecting both legal requirements and
practical considerations of maintaining workforce co- operation during restructuring processes. 7.3 Length of Insolvency Process and Recoveries For reconstruction proceedings, if the reconstruction process has not been concluded within six months from opening or within a longer deadline set by the court at the request of the reconstruction committee, the court will discontinue the reconstruction process and open bankruptcy in the debtor’s estate. In practice, proceedings typically conclude within six to nine months, while bankruptcy proceedings may extend from 12 to 24 months depending on the complexity of the estate and the number of creditors involved. The reliability of recoveries varies signifi - cantly depending on whether the business continues as a going concern or undergoes liquidation. Secured creditors with properly perfected security interests typically achieve high recovery rates, while unsecured creditors’ recoveries are more variable and depend heavily on asset valuations and the success of ongo - ing operations or asset sales. 7.4 Rescue or Reorganisation Procedures Other Than Insolvency Out-of-court restructurings in Norway are common in the absence of an effective “reorganisation” bankrupt - cy such as Chapter 11 in the US which also comprises secured debt – a Norwegian reconstruction would only take effect for unsecured debt (or any underse - cured part of the secured debt). In practice, informal workout negotiations typically involve the debtor engaging directly with its key credi - tors – often a small group of creditors – to negotiate amended terms, including covenant waivers, payment holidays, or debt-for-equity swaps. These processes are consensual and require requisite creditor support, unless the restructuring transitions to a formal in-court process. The Norwegian legal framework does not provide statutory tools for binding minority creditors in out-of-court processes (such as schemes of arrange - ment, etc), which can complicate restructurings with diverse creditor bases.
202 CHAMBERS.COM
Powered by FlippingBook