Country report om gjeldsforhandling og konkurs

1.0 Introduction and Overview

A. Secured Claims and Enforcement

The most common types of security in business financing are mortgages on real property, floating mortgages or liens on movable assets, so-called floating charges and financial factoring.

According to Chapter 1 of Act No. 2 of 8 February 1980 relating to mortgages (the Mortgage Act), the main rule is that any mortgage or security must be specified. Both the object and the amount to be secured have to be specified. If not, the lien is invalid and unenforceable.

Chapter 2 of the Mortgage Act requires that a mortgage on real property specify the exact real property by cadastre number. The amount has to be specified, as well as the priority between different mortgages.

Chapter 3 of the Mortgage Act allows floating liens on several classes of assets, such as inventories and production equipment. The security is defined to be the assets at any given time, whether rising or falling in value, since the particular assets are replaced when inventory is sold and machinery replaced. Therefore the value of the security floats.

If a debtor fails to pay, the creditor has remedies for breach of contract. The mortgage itself is a coercive means to than end. Creditors can petition the court for a forced sale. This legal action takes between three to six months and is quite efficient.

B. Unsecured Claims and Enforcement

According to Chapter 4 of Act No. 86 of 26 June 1992 relating to the enforcement of claims (the Enforcement Act) an unsecured claim that is overdue can be collected by enforcement only by the court. The unsecured creditor has to substantiate his claim and go to court to obtain a judgment. The court may decide whether or not the claim is valid and can be collected by enforcement. The court decision forms the basis of a forced sale of any of the debtor’s assets that are not fully mortgaged. This legal action takes between six to eight months and is quite efficient. Total court costs and lawyer’s fees are between USD 1,000 and USD 3,000.

C. Liquidation

Pursuant to Act No. 44 of 13 June 1997 relating to limited liability companies (the Limited Liability Companies Act) and Act No. 45 of 13 June 1997 relating to public limited companies (the Public Limited Companies Act), liquidation is a private matter but supervised by the authorities. Liquidation is not a judicial procedure. The company itself decides whether to liquidate and notifies the Register of Business Enterprises. The decision is announced in Norsk lysingsblad (The Norwegian Gazette) and the local newspaper. The creditors are requested to submit claims to the company. The company pays off all its creditors and undertakes a settlement supervised by an independent auditor. This settlement is relayed to the Register of Business Enterprises, which then declares the company liquidated and deletes it from the register.

Judicial liquidation is regulated by Act No. 58 of 8 June 1984 relating to bankruptcy (the Bankruptcy Act) and Act No. 59 of 8 June 1984 relating to creditors’ rights to satisfaction of claims (the Satisfaction of Claims Act). Only the debtor himself may petition the court for debt settlement. If the debtor has insufficient liquid resources to pay his debts, the court may decide to open proceedings. The court appoints a trustee in bankruptcy, a lawyer in private practice, to administer and carry out the proceedings. The court can appoint a creditor committee to participate in the liquidation and advise the trustee. The trustee sends reports to the court, which are issued to all known creditors. The main purpose is not to liquidate debtor’s business, but to find a solution allowing the debtor to continue to operate his business on certain conditions. However, one alternative is the liquidation of the debtor’s personal assets and his business or a part thereof.

D. Reorganization

Private non-judicially-administered reorganization is not regulated. The debtor and creditors are free to make any kind of arrangements.

Judicial reorganization is not regulated by law. The Bankruptcy Act regulates debt settlement proceedings, not the reorganization or restructuring of the debtor’s business. Only the debtor himself may petition the court for debt settlement. If the debtor has insufficient liquid resources to pay his debts, the court may decide to open proceedings.

The court appoints a trustee, normally a lawyer in private practice, to administer and carry out the proceedings. The court also appoints a creditor committee.

The main purpose is not to reorganize debtor’s business, but to find a solution allowing the debtor to continue to operate his business on certain conditions. The creditors may accept a change in payment terms, an extension, or debt reduction. However, one alternative is the liquidation of the debtor’s personal assets and his business or a part thereof. The liquidation of a part of debtor’s business is a kind of reorganization.

The debtor makes a proposal to his creditors, which they can accept or reject. If any creditor refuses, the debtor may apply for forced debt reduction. The debtor has to offer payment of at least 25 % of his debts. A majority decision is needed to have the debt terms changed. A certain percentage of the debt has to be covered to be accepted by a majority of the creditors. The court administers the proceedings and oversees whether the reorganization proposal has been made according to the law. One alternative is the liquidation of the debtor’s personal assets and his business or a part thereof. The liquidation of a part of the debtor’s business is a kind of reorganization.

E. Non-Bankruptcy Workouts and Restructurings

The debtor and creditors are free to negotiate and decide on any kind of arrangements. It depends on the agreement between debtor and his creditors. There is no legal protection of the debtor’s or creditors’ rights. However the debtor has the right to refuse any creditors’ proposal and so does any creditor. There is a great need for procedural rules to secure the legal rights of the debtor and creditors and to create the opportunity for fair and reliable non-judicial proceedings at a lower cost.

The Bankruptcy Act and the Satisfaction of Claims Act regulate debt settlement proceedings. The main purpose is not to restructure the debtor’s business, but to find a solution allowing the debtor to continue to operate his business on certain conditions.

Only the debtor himself may petition the court for debt settlement. If the debtor has insufficient liquid resources to pay his debts, the court may decide to open proceedings. The creditors may accept a change in payment terms, an extension, or debt reduction. However, one alternative is the liquidation of the debtor’s personal assets and his business or a part thereof. The liquidation of a part of debtor’s business is a kind of business reorganization or restructuring. Settlement proceedings based on the Bankruptcy Act and the Satisfaction of Claims Act are very costly, seldom lead to an agreement and are therefore not practicable.

The system of non-bankruptcy workouts and restructurings system is rather weak and therefore not practicable.

2.0 The Legal Framework For the Rights of Creditors

2.1 Creation and Enforcement of Security in Real Property

Pursuant to the Mortgage Act security in real property must be specified. The object, i.e. the property, must be very precisely defined by cadastre number, since all real property is registered in the national cadastre system. Also the amount must be specified or set at a maximum, and the priority of the lien has to be set by the debtor and creditors. To have the mortgage legally protected, the creditor must register or record the security in the Norwegian Mapping Authority’s Real Property Register. All information recorded there is open to the public.

In case of failure of payment the creditor can petition the court for a forced sale of the property. The court appoints a real estate agent to sell the property under the protection of the court. The debts are covered according to the priority of the secured claims.

2.2 Security in Personal Property

According to the Mortgage Act, security in movable property (chattels) must be specified. The object, i.e. the item, must be precisely specified by a detailed description. Also the amount must be specified or set at a maximum. To have the security in movable property legally protected, the creditor must deliver the object to the creditor. This is not always practicable. Therefore the Act permits certain kinds of movable property to be secured without being delivered to the creditor. These are business assets or property such as machinery, items required for production purposes and inventory. Security in this kind of movable property can be registered or recorded in a national register. All recorded information is open to the public.

In the event of failure to pay the creditor may petition the court to have the movable property sold by enforcement. The court appoints a professional liquidator. The debt is covered according to the priority of the liens

2.3 Unsecured Claims

Pursuant to the Enforcement Act unsecured claims that are overdue may be collected by enforcement only by the court. Unsecured creditors must substantiate their claims. One of the remedies for such creditors is to petition to the court for a judgment. The court decides whether the claim is valid and may be collected by enforcement. The court decision is the basis for the forced sale of any of the debtor’s personal assets.

3.0 Liquidation

3.1 Principal Laws Governing Liquidation

The Limited Liability Companies Act and the Public Limited Companies Act regulate voluntary liquidation initiated by the company itself. This kind of liquidation is a private matter, supervised by the authorities and is not a judicial procedure.

Judicial liquidation is regulated by the Bankruptcy Act and the Satisfaction of Claims Act. In fact, this is an alternative to bankruptcy proceedings. The main purpose is not to restructure the debtor’s business, but to find a solution allowing the debtor to continue to operate his business on certain conditions.

3.2.Courts Which Administer Liquidation

Liquidation regulated by the Limited Liability Companies Act and the Public Limited Companies Act is not handled by the courts. This kind of liquidation is a private matter, supervised by the authorities, and is not a judicial procedure.

Judicial liquidation is regulated by the Bankruptcy Act and the Satisfaction of Claims Act. In fact, this is an alternative to bankruptcy proceedings. This procedure is administered by the District Courts. Up until recently the four largest cities of Norway had special courts for undertaking liquidations. The Storting (Parliament) has decided that in the future the bankruptcy courts are to be organized as a division of the District Courts. It depends on the local organization whether the court will have a specialized section with specially qualified judges to hear bankruptcy and liquidation cases, or if any district judge will be able to hear such cases. This has not been finally decided. It is likely that any district judge will be empowered to hear these cases, which means a loss of the specialized knowledge the former bankruptcy court judges possessed.

Only judges administer judicial liquidations, not executive officers. The decisions can be appealed to the Court of Appeal and further to the Supreme Court.

3.3.Commencement of a Liquidation

Pursuant to the Limited Liability Companies Act and the Public Limited Companies Act, liquidation is a private matter, supervised by the authorities, and is not a judicial procedure. The company itself decides to liquidate and notifies the Register of Business Enterprises. This decision is announced in Norsk lysingsblad (The Norwegian Gazette) and the local newspaper. The creditors are requested to submit claims to the company.

Judicial liquidation is regulated by the Bankruptcy Act and the Satisfaction of Claims Act. Only the debtor himself may petition the court for debt settlement. If the debtor has insufficient liquid resources to pay his debts, the court may decide to open proceedings. The court appoints a trustee in bankruptcy, a lawyer in private practice, to administer and carry out the proceedings. The main purpose is not to liquidate debtor’s business, but to find a solution allowing the debtor to continue to operate his business on certain conditions. However, one alternative is the liquidation of the debtor’s personal assets and his business or a part thereof.

3.4.Parties to a Liquidation

Parties to a liquidation are the debtor and all his creditors. The Limited Liability Companies Act and the Public Limited Companies Act protect the rights of any creditors by requiring that the company send a notification to Norsk lysingsblad (The Norwegian Gazette). The creditors are requested to submit claims to the company.

Parties to a judicial liquidation are the debtor and all creditors. The Bankruptcy Act protects the rights of creditors by requiring that the District Court send a notification to Norsk Lysingsblad (The Norwegian Gazette). The creditors are requested to submit claims to the trustee appointed by the court. Creditors are summoned to a hearing. The court may appoint a creditor committee to participate in the debt settlement proceedings in close contact with the trustee. This is done to protect the creditors’ legal rights. The debtors’ legal protection is guaranteed both by the trustee and by the court. The Act sets a limit on debt recovery, since the debtor is guaranteed some basic economic rights and also some basic legal protection.

3.5.Liquidation Estate

As for the non-judicial liquidation regulated by the Limited Liability Companies Act and the Public Limited Companies Act, the liquidation estate is handled by the company itself. However, the company must pay off all claims as a condition of liquidation pursuant to the Acts. The company is required to send a statement to the Register of Business Enterprises.

The trustee appointed by the court handles the liquidation estate. The trustee shall collect all property and assets belonging to debtor, calculate their value and engage a real estate agent or other professionals to sell the assets. If possible, the debtor’s business is sold as a going concern. Otherwise the estate’s assets are sold one by one, either by professional liquidators, by auction or other means, to obtain the maximum net profit. If a creditor committee is appointed, the committee members participate in the procedure.

The debtor has the opportunity to buy his liquidated business either as a going concern or the estates’ assets one by one on the same terms and conditions as anyone else. Since the Act does not prohibit this arrangement, debtors sometimes abuse the bankruptcy system in order to clear their debts and have a fresh start under false pretenses.

3.6 Administrative Powers

A liquidation pursuant to the Limited Liability Companies Act or the Public Limited Companies Act is administered by the company itself. The company appoints a board or executive committee to carry out the liquidation.

The court administers judicial liquidation proceedings. This kind of liquidation is an alternative to bankruptcy. Pursuant to law the court has a rather active role. However, traditionally it has been a passive role, since the appointed trustee and creditor committee play the main role. The court mainly administers the hearings, appoints the trustee in liquidation, appoints an auditor to examine the accounts, appoints real estate agents and professional liquidators, requires reports from the trustee and the creditor committee, oversees the proceedings, issues rulings in case of disputes between the debtor and creditors or between factions of creditors and settles the creditors’ final recovery of the debts.

The Norwegian Advisory Council on Bankruptcy has no power to interfere with the court’s handling of a liquidation. The Council may only give general advice to courts, recommend new routines or propose new regulations, but never make decisions vis-à-vis the courts.

The trustee in debt settlement and bankruptcy is a private lawyer appointed by the court. The trustee position is described in the Bankruptcy Act. The trustee shall submit a statement of all assets and properties belonging to the debtor, a statement of all claims secured or not, sell properties and other assets, and submit a proposal for a statement of debt recovery using the net proceeds from the sale of the debtor’s assets.

The creditor committee’s role is regulated by the Bankruptcy Act. The committee is appointed by the court, not elected by the creditors. The committee oversees the trustee in liquidation and can make decisions concerning the proceedings. The decisions made by the committee may be appealed by the debtor and any creditor.

3.7 Creditors and Claims

The Limited Liability Companies Act and the Public Limited Companies Act protect the rights of all creditors by requiring that the company send a notification of the planned liquidation to Norsk lysingsblad (The Norwegian Gazette). The creditors are requested submit claims to the company.

The company pays off all creditors and makes a settlement overseen by an independent auditor. The settlement is reported to the Register of Business Enterprises, which then declares the company liquidated and deletes it from the register.

Judicial liquidation is an alternative to bankruptcy, and is in fact debt settlement. At the debtor’s request, the court may declare debt settlement proceedings opened. The court announces the debt settlement proceedings in Norsk lysingsblad (The Norwegian Gazette) and the local newspaper. The court appoints a trustee, an auditor and a creditor committee to draft a proposal for the creditors.

The trustee in liquidation shall give a complete statement of all creditors’ claims. All claims are carefully examined. If there is any doubt, the trustee shall ask the creditor for more information or documentation. The trustee then proposes a statement of claims for creditors to accept and a way for them to agree on the debts.

The Satisfaction of Claims Act sets the priority of claims. First priority is for all expenses of the liquidation including the court fee, trustee’s fee and creditor committee’s fee. Employees’ wages have second priority. Salaries for the debtor, board members and executives of the debtor’s business have no priority. Tax claims have third priority. If there is anything left, claims without any priority are covered. Often there is not much left for these creditors, and it is seldom that more than ten percent of the amount such debts is covered.

Secured claims are, in the main, not interfered with in the liquidation, as such claims are secured by liens or other valid security. However if the security is not sufficient to cover the secured amount, the creditor is in the same position as creditors unsecured claims.

3.8 Officers, Directors, Affiliates

When a company decides on liquidation pursuant the Limited Liability Companies Act or Public Limited Companies Act, all members of the board of directors and the chief executive officer are immediately dismissed. Instead, a board of liquidation is appointed by the company itself to carry out the liquidation.

Only the debtor himself may petition for a judicial liquidation. This means filing a petition for debt settlement. The main purpose is to reach an agreement on the debts. Generally, no one is dismissed, whether officers, directors or affiliates. Only in case of bankruptcy are the debtor, board members and chief executive officer automatically dismissed. In a bankruptcy, the debtor, board members and chief executive officer may be held liable for a creditor’s losses. This includes liability for damages and being subject to criminal prosecution. Pursuant to the Bankruptcy Act, the debtor, board members and chief executive officer may be suspended from serving as a board member or officer for period of up to two years, if they are guilty of mismanagement or if the person in question is subject to criminal penalties.

Officers and employees cannot be suspended, but might be held liable for misconduct and be liable to criminal prosecution. As in the case of voluntary liquidation as a result of debt settlement proceedings there are no remedies of suspension. However officers, directors and affiliates may be held liable to pay damages and be subject to criminal prosecution.

3.9. Non-Judicial Liquidation

Private non-judicial administered liquidation is not regulated by law. However, a company may only be officially liquidated according to the procedure described above in the Limited Liability Companies Act and the Public Limited Companies Act. An alternative is the judicial procedure described above as a debt settlement pursuant to the Satisfaction of Claims Act.

4.0 Rehabilitation/Composition/Schemes

4.1.Overview of Schemes for Rehabilitation

Private non-judicially administered reorganization is not regulated by law. The debtor and creditors are free to make any kind of arrangements they choose.

Judicial reorganization is not regulated by law. The Bankruptcy Act regulates the settlement of debts, not the reorganization or restructuring of the debtor’s business. Only the debtor himself may petition the court for debt settlement. If the debtor has insufficient liquid resources to pay his debts, the court may decide to open debt settlement proceedings.

The court appoints a trustee, normally a lawyer in private practice, to administer and carry out the proceedings. The court also appoints a creditor committee.

The main purpose is not to reorganize debtor’s business, but to find a solution allowing the debtor to continue to operate his business on certain conditions. The creditors may accept a change in payment terms, an extension or debt reduction. However, one alternative is the liquidation of the debtor’s personal assets and his business or a part thereof. Liquidation of a part of debtor’s business is a kind of reorganization.

The trustee and creditor committee make a proposal to the debtor and the creditors, which they can either accept or reject. If any creditor rejects it, the debtor may apply for a compulsory debt reduction. A majority decision is needed to have the debt terms changed. The debts have to be covered by up to a certain percentage and be accepted by a majority of the creditors. The court administers the proceedings and checks to see that the reorganization proposal is according to the law. One alternative is the liquidation of the debtor’s personal assets and his business or a part thereof. Liquidation of a part of debtor’s business is a kind of reorganization.

E. Non-Bankruptcy Workouts and Restructurings

The debtor and creditors are free to negotiate on and decide any kind of arrangement. It depends on what the debtor and his creditors agree to. There is no legal protection of the rights of the debtor or creditors. However the debtor has the right to refuse the proposal of any creditor, and so does any creditor. There is a great need of procedural rules to secure the legal rights of debtors and creditors, in order to create the opportunity for fair and reliable non-judicial proceedings at a lower cost.

The Bankruptcy Act regulates debt settlement proceedings. Their main purpose is not to restructure the debtor’s business, but to find a solution allowing the debtor to continue to operate his business on certain conditions.

Only the debtor himself may petition the court for debt settlement. If the debtor has insufficient liquid resources pay his debts, the court may decide to open proceedings. If the parties agree, the creditors usually accept a change in payment terms, an extension or debt reduction. However, one alternative is the liquidation of the debtor’s personal assets and his business or a part thereof. The liquidation of a part of a debtor’s business is a kind of business reorganization or restructuring. These proceedings are based on the Bankruptcy Act and the Satisfaction of Claims Act. Debt settlement proceedings are very costly, seldom lead to an agreement and are therefore not practicable.

The non-bankruptcy workout and restructuring system is rather weak and for that reason not practicable.

4.2 Courts That Administer Reorganizations

The District Courts administer judicial rehabilitations. Neither the courts nor the judges are specialized. Reorganizations are handled by a District Court judge. In some courts, those that hear a number of reorganizations and bankruptcy cases, the judges obtain specialized knowledge and expertise in handling reorganizations. Courts that handle a small number of reorganizations do not obtain the same level of expertise. This is a weakness of the legal system. Some courts, owing to their internal organization, allow certain judges to specialize, by allowing them to deal with certain kinds of cases for a couple of years at a time. However, reorganization, liquidation and bankruptcy cases are not considered such a specialty.

4.3 Commencement of a Reorganization

Only the debtor may petition the court for rehabilitation. This means filing a petition for debt settlement. Since the debtor must do this of his own free will, no creditor can force a rehabilitation. If a debtor pursuant to Chapter 1 of the Bankruptcy Act is incapable of paying his debts, the District Court declares proceedings to be opened. The court appoints a trustee and a creditor committee to prepare a proposal to reduce the debtor’s debts, which may include any kind of reorganization of the debtor’s business.

If the creditors do not accept the proposal, the debtor can file a petition to force the creditors to accept a scheme for debt reduction. The court carefully examines whether the legal conditions are being met, since a solid majority of creditors has to accept the scheme and a certain percentage of the debt has to be repaid. If the debtor is unable to satisfy the legal conditions, the alternative is bankruptcy.

4.4.Participants and Their Roles

The parties involved are the debtor and all his creditors. The Bankruptcy Act protects the right of all creditors to participate in the rehabilitation, such as being present at all court hearings, receiving information about the proceedings and having copies of reports made by the trustee in liquidation/debt settlement.

The court appoints a creditor committee and an auditor or accountant to prepare a statement and make a proposal to the debtor and his creditors. This proposal mainly deals with the debtor’s claims, but may include a reorganization of his business.

4.5 Reorganization Estate

The reorganization estate is established by the debtor while business continues during the reorganization proceedings. Debtor has disposal over his assets. Neither his creditors nor the court nor the trustee is entitled to dispose of debtor’s estate or assets.

The conditions of a debt reduction may include a reorganization. The law does not regulate reorganization alternatives. The alternatives have to be worked out by the debtor in cooperation with the appointed trustee, the creditor committee and the auditor or accountant.

4.6 Administrative Powers

The court administers the reorganization proceedings. According to the law, the court has a passive role. The appointed trustee and creditor committee play the main role. The court principally administers the hearings, appoints the trustee, the creditor committee and the auditor or accountant.

The Norwegian Advisory Council on Bankruptcy has no power to interfere with the court’s handling of a reorganization. The council may only give general advice to the courts, recommend new routines or new regulations, but never make decisions vis-à-vis the courts.

The trustee in reorganization is a private lawyer appointed by the court. The trustee’s duties are described in Satisfaction of Claims Act. The trustee administers the preparation of a debt reduction and reorganization scheme in cooperation with debtor, creditor committee and auditor or accountant.

The creditor committee is appointed by the court, not elected by the creditors. The committee oversees the trustee in reorganization and participates the drafting of a proposal.

4.7 Creditors and Claims

The decision by the court to open debt settlement proceedings for a debtor is advertised in Norsk lysingsblad (The Norwegian Gazette) and the local newspaper. However there is not much publishing in connection with debt and reorganization proceedings.

The trustee, creditor committee and the auditor or accountant shall collaborate to give a complete statement of claims according to debtor’s accounts. All claims are carefully examined. If there is any doubt, the trustee shall ask the creditor for more information or documentation. The trustee then prepares a statement of claims to be accepted, their priority and the percentage to be paid under fixed conditions, which can include a reorganization of the debtor’s business.

Mainly there are four alternatives for such statements:

• debts are totally discharged

• debts are partly discharged up to a certain percentage

• extension

• a combination of the above alternatives

Lien holders, whose claims are secured by collateral and are not affected by a bankruptcy or liquidation, are primarily involved with reorganizations in order to give debtors a fresh start.

4.8.Officers, Directors, Affiliates

All members of the board and the chief executive officer remain in their positions to continue operating the business during the proceedings. Their freedom of action is limited, however, since properties and other assets cannot be sold and new debts or liabilities cannot be assumed.

In the case of a rehabilitation and debt settlement, the debtor, board members and the chief executive officer can be held liable for the creditors’ losses. This includes liability for damages and being subject to criminal prosecution. However this is not regulated in the Satisfaction of Claims Act but by Act No. 10 of 22 May 1902, the General Civil Penal Code and Act No. 26 of 13 June 1969 relating to compensation in certain circumstances (the Civil Compensation Act).

4.9.Reorganization Plan and Process

The trustee, appointed by the court, plays the main role in the debt settlement and reorganization process. The trustee shall prepare a proposal for an agreement on debts, which may include a reorganization plan. The first step is an analysis of the debtor’s financial situation. The auditor, appointed by the court, shall present a statement to the trustee. The trustee shall prepare a plan and proposal for the remainder of the process. The trustee keeps in close contact with the creditor committee. It should be underscored that the law does not regulate reorganization only, but primarily in terms of payment, as an extension or reduction of debts.

Once a plan and a report are prepared, they are relayed to all creditors. The creditors are invited to accept or disagree within two weeks. If only one of the creditors disagrees with the plan, the debts cannot be settled.

In the event of non-acceptance, the debtor has the opportunity to petition the court for compulsory debt settlement. The trustee is to prepare a new proposal, which must first be accepted by the debtor. If accepted, the plan and a report are relayed to all creditors. If a solid majority of creditors agrees with the plan, the minority is obliged to accept the plan even though it disagrees with the conditions. The minority has legal protection in that the law requires a very substantial majority and for a certain percentage of the debts to be repaid, normally 25%. In such circumstances, the court shall accept the plan and declare the plan ratified.

4.10 Fast-Track/Prepackaged Reorganization Procedures

The Satisfaction of Claims Act does not regulate fast-track or prepackaged reorganization procedures. The only procedure regulated is the one described above.

The debtor is free to submit to private non-judicial reorganization. The debtor needs the acceptance of the creditors involved.

4.11 Insolvency Treatment of State-Owned Enterprises

State-owned enterprises may be organized in different ways. A state-owned enterprise may be organized as a subdivision of the government administration. This kind of state-owned enterprise is not subject any kind of insolvency treatment, since such enterprises receive their budget from the central government

State-owned enterprises organized as limited liability companies are subject to the same proceedings and conditions as privately-owned companies. Insolvencies of such enterprises occur rarely, if ever.

4.12 Insolvency Treatment for Banks and Financial Institutions

According to banking law, neither commercial banks nor saving banks undergo the same insolvency proceedings as ordinary enterprises. Bankruptcy is excluded. In the event of insolvency, a bank comes under governmental administration.

The Banking, Securities and Insurance Commission of Norway shall notify the Ministry of Finance of the insolvency. The Government can decide to place an insolvent bank under governmental administration. All members of the board and the chief executive officer are immediately dismissed.

The Government appoints a council whose duty is to reorganize or liquidate the bank. The council shall appoint a creditor committee to participate in the reorganization or liquidation. If the council does not succeed in reorganizing the bank within a year, the bank is to be liquidated following the same procedure as for ordinary private entities.

5.0 Institutional Framework for Insolvency

5.1 Role of Governing Institutions/Judicial Authorities

The Storting (Parliament) is the nation’s legislative body. The Storting may in no respect instruct the courts in their handling of cases or to reverse judicial decisions. The courts are independent in handling particular cases.

Nor may the Government instruct the courts or reverse a judicial decision.

Norwegian courts are administered by the National Courts Administration. This office is run by civil servants and headed by a board that is appointed by the Government for a term of four years. Board members are appointed on the basis of professional expertise and knowledge.

The courts receive their budgets from the National Courts Administration. Each court prepares a draft budget a year in advance. The Administration then prepares a draft budget for all courts and submits the draft to the Government. The Government prepares its draft budget once a year, which is then debated by the Storting, which is constitutionally empowered to appropriate funds. In this respect both the Government and the Storting set the budget for the courts. However, the Storting makes the final decision. Even so, neither the Storting nor the Government may interfere with the courts’ handling of particular cases.

5.2 Specialization Among Courts/Judges and Tribunals

Up until recently the four largest cities in Norway had special courts to deal with bankruptcies, liquidations, inheritance and registering land. The Storting has decided that in the future bankruptcy courts are be organized as a division of the District Courts. Whether such courts will have a special section with qualified judges to handle bankruptcies and liquidations or whether such cases will be heard by any District Court judge, will depend on the local organization. This has not been finally decided. It is likely that any District Court judge will be empowered to hear these cases, which means a loss of the specialized knowledge held by the former bankruptcy court judges.

5.3 Organization of the Court

Bankruptcies are handled by the District Courts. These courts are not specialized. Some of the 66 District Courts have only three or four judges, whereas the District Courts in the larger towns and cities have between 10 and 80 judges.

In the largest cities the District Courts are organized into divisions, each consisting of six to eight judges. However, since the courts are not specialized, there is no division that specifically handles bankruptcy cases.

The District Courts engage deputy judges for limited terms of up to three years. These deputies are recruited from among recent law graduates. Although most of them are very skilled, they lack practical experience. Even so, in many courts it is these deputy judges who administer insolvency cases, judges with scant knowledge of bankruptcy and business law.

Civil servants of executive officer rank employed by the courts are not empowered to make any judicial decisions, since they perform clerical work only.

The Courts of Appeal, like the District Courts, are organized into several divisions but are not specialized.

5.4 Court Operations

In bankruptcy cases, the court has mainly a passive administrative role. The court takes part in three steps of the proceedings: issuing the bankruptcy order, administering the creditor hearing and confirming the final notice of payment to creditors. The court also settles disputes over the creditors’ claims.

Once it has received a bankruptcy petition from a debtor, the court deals with the petition as soon as possible, usually the same day. If there is no contradiction or dispute between debtor and the creditors and the legal conditions are satisfied, the court declares the debtor bankrupt by a judicial order.

If a creditor files a bankruptcy petition with the court, a due notice of a hearing must be given to the debtor. The date of this hearing is to be fixed within one week. No other creditors or third parties are yet involved, since the court is hearing the petition as a matter between the particular creditor and the debtor. There may be a dispute between the debtor and the creditor about the claim and whether the debtor is insolvent. The debtor may propose any scheme for payment of his debts or offer a composition. If the creditor accepts the scheme or composition, no further steps to bankruptcy are taken. If a scheme or composition is not accepted, the court may declare the debtor bankrupt. The court publishes its decision in Norsk lysingsblad (The Norwegian Gazette) and in local newspapers. A public hearing is fixed for four week afterward. The court appoints a trustee in bankruptcy with the power to administer the debtor’s business, collect all assets, examine the creditors’ claims and selling the debtor’s assets piecemeal or the entire business as a going concern.

The public hearing is in fact a creditors’ meeting administered by the court. Not only creditors, but also the public has the right to be present at the hearing. Since the debtor has been declared bankrupt, there is no scheme of payment or offer of composition at this stage. The agenda is mainly to set the procedure for the liquidation. A creditor committee is appointed only if the court decides to do so. An accountant may be appointed if necessary. The court decides who is to be appointed.

After the hearing the court has a rather passive role. The trustee in bankruptcy has the power to collect all the debtor’s properties and assets except basic necessities such as clothing, linens and tools and sell them, since the net proceeds of the sale are to be distributed among the creditors. The trustee has a rather independent position in relation to the court. However, the creditors and debtor may appeal to the court. The court has the power to reverse the trustee’s decisions, even business-related transactions.

The trustee in bankruptcy shall examine all creditors’ claims and draft a final notice of payment to creditors. The court settles disputes over the proposed notice of payment.

5.5 Judicial Decision-Making

Sessions of the District Court are with one judge only. This judge is empowered to rule on any matter brought before the court. The adversarial principle is basic to the process. Although there is usually a hearing, in some cases there are only written proceedings.

All judgments may be appealed, either by the debtor or by the creditors involved.

5.6 Appellate Process

The appeal petition is to be sent to the District Court. However, the District Court cannot reverse the decision. The district court may only examine the formalities.

The appeal petition is sent to the other parties involved in the bankruptcy case or particular dispute. The District Court then submits the appeal to the Court of Appeal.

In bankruptcy cases, appellate proceedings are usually written proceedings.

The decision of the Court of Appeal may be appealed to the Supreme Court.

5.7 Institutional Integrity

The Constitution guarantees the independence of the courts and judges. The court is administered by a senior judge. Neither the Storting nor the Government may interfere with the administration of the courts. Each of the judges is independent. The senior judge does not have the power to interfere with any judge’s decisions.

Neither the Storting nor the Government has the power to interfere with a particular case being dealt with by a court.

The courts are administered by an independent institution, the National Courts Administration. This institution is run by civil servants and headed by a board, which is appointed by the Government for a term of four years. Board members are appointment ion the basis of professional expertise and knowledge.

6.0 Regulatory Framework for Insolvency

6.1 The Existence of a System of Regulation

The Bankruptcy Act regulates the administration of the insolvency cases. Chapter 1 of the Act regulates voluntary and compulsory debt settlement, the proceedings and the alternatives, the appointment and role of trustee, the auditor and creditor committee. Chapter 2 regulates bankruptcy, mainly the proceedings, the appointment and role of the trustee and the creditor committee.

The Satisfaction of Claims Act regulates debt recovery. The main rule is that all of the debtor’s properties and other assets are to be sold to cover creditors’ claims. The debtor has the legal right to keep his personal belongings, such as clothes, linens and tools.

The Mortgage Act regulates the establishment of mortgages on and security in a debtor’s real property and other assets, the legal protection of secured rights and priority of secured rights, the circumstances under which a forced sale is held and the proceedings.

6.2 The Role and Function of Regulatory Bodies

According to the Constitution, the ultimate regularity authority rests with the Storting. The Storting may delegate to the Government the authority to issue regulations on certain limited conditions. The main regulations are approved by the Storting and only the details by the Government.

6.3 The Role and Function of Office Holders

All members of the board of directors and the chief executive officer of the debtor’s business are dismissed. However they are obliged to assist the trustee in bankruptcy and the creditor committee during the insolvency proceedings, usually without pay. The ordinary employees are also obliged to assist, but only for one or two days without pay. Otherwise they are to be paid a salary.

7.0 Cross-Border Insolvency

7.1Recognition of Foreign Cases, Representatives

The Norwegian legal system is national and based on national authorities. However several bilateral and multilateral treaties are accepted as the basis for the recognition of foreign cases. Pursuant to Act No. 109 of 27 November1992 relating to implementation into Norwegian law of the main agreement on the European Economic Area (EEA) etc. (the EEA Act), which regulates Norway’s relationship with the European Union, Norway has several legal obligations.

A foreign national has the same right as Norwegian citizen to bring a lawsuit against anyone, including filing a petition for bankruptcy with any District Court in Norway. The only requirement is that the debtor reside or his company be registered in Norway.

The language of the national courts is the national language. A foreign national has the right to bring an interpreter with him to court. He may be represented by either foreign or Norwegian legal counsel. All documents are translated.

7.2 Recognition of Foreign Creditors and Claims

As the legal system is based on national jurisdiction, a claim settled in a foreign country may, as a main rule, not be recognized by a national court, and cannot be enforced by courts or any national administrative bodies. However, several bilateral and multilateral treaties are accepted as the basis of the recognition of claims settled in foreign countries.

As for a claim settled in Norway, a foreign national has the same right as a Norwegian citizen to bring a suit against any one, including for collecting on a claim.

A foreign national has the same right as Norwegian citizens to appeal any judicial decision.

7.3 Recognition of Foreign Judgments or Orders

The legislation does not accept foreign bankruptcy judgments. The national courts therefore may not recognize a judgment or order of a foreign court concerning bankruptcy, for example to collect or sell assets or enforce payments of claims against the debtor.

Only bilateral or multilateral treaties are accepted as basis for the recognition of foreign judgments or orders. Norway has only one multilateral treaty on bankruptcy, with the five Nordic countries.

7.4 Return of Assets to a Foreign Representative

Norwegian legislation does no accept foreign bankruptcy judgments or orders. Therefore, assets cannot be returned or sold on behalf of the foreign court or foreign representative.

As for a claim settled in Norway, a foreign creditor or his representative may file a petition with a court to have debtor’s assets liquidated in a compulsory sale and the net proceeds transferred to the foreign representative.

7.5 Conflict of Law Issues

The main rule is that national law has preference. Pursuant to some multilateral treaties, in case of conflict, the treaty has preference. In the event of any conflict, the Storting has to amend national law in accordance with the treaty.

7.6 Bankruptcy Treaties and Conventions

Norway has accepted a multilateral treaty on insolvency embracing only the five Nordic countries. There are several treaties recognizing foreign judgments and orders.

8.0 Proposed or Pending Legislation

There is no proposed or pending legislation in this area. The Norwegian Advisory Council on Bankruptcy has made the following recommendations:

Since the District Courts do not specialize in handling bankruptcy cases, establishing specialized bankruptcy courts or reorganizing the District Courts by creating a special division for handling bankruptcies ought to be considered.

Bankruptcy judges should be well qualified and have business or commercial law experience. Deputy judges should not administer bankruptcy cases.

Too many enterprises are wound up. Reorganization should be regulated by law as a realistic alternative for giving the debtor or his business a fresh start.

Bankruptcy is limited to national jurisdiction. There is a lack of international treaties and cooperation in this matter.

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