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Employees in bankrupt businesses

If a company does not have sufficient funds to pay all its creditors, it may be declared bankrupt. All the assets of the company will be converted to money. The primary purpose of bankruptcy proceedings is to ensure that the funds of the company are distributed correctly amongst its creditors. As a general rule you as an employee will receive your pay in full. If your employer is unable to pay you, the State will guarantee your pay and holiday pay through the Wage Guarantee Scheme. The bankruptcy of your employer will have an effect on your place of work. If the business is closed down, you will lose your job; if the business is sold you may be entitled to continue in your job. The bankruptcy proceedings themselves will take some time. During this period the bankruptcy estate will normally decide whether you continue in your job or not.

Contents

1. What happens to the company during the bankruptcy proceedings?
2. The position of pay claims in a bankruptcy
3. Pay during notice
4. Holiday pay
5. Not all pay claims are preferred
6. The distribution of the assets of the bankruptcy estate
7. The Wage Guarantee Scheme
8. What claims does the Wage Guarantee Scheme cover?
9. How should the claim be presented?
10. You must register yourself as a job seeker at the employment centre
11. Funds for subsistence while your wage claim is being processed
12. What happens to your job?
13. Where the estate does not take over your contract of employment
14. If the estate decides to take over your contract of employment
15. What happens to your job if the business is transferred?
16. Representation on the board of trustees and at general meetings of creditors
17. What can you expect of the trustee?
18. Your duties towards the trustee

 


1. What happens to the company during the bankruptcy proceedings?

The bankruptcy of your employer may have one of three consequences for the continued operations of the company: The business of the company may cease immediately, it may be continued for a period and then wound up, or it may be transferred and continue under a new owner.

During the bankruptcy proceedings, the company is referred to as a bankruptcy estate.

If your employer is declared bankrupt, the Bankruptcy Court will appoint a trustee (an attorney at law). The trustee will take over management of the company and will be the person with whom you will deal. The former management of the company will no longer play a central role.


2. The position of pay claims in a bankruptcy

Provided that your pay claim is not too old it must be covered before other claims against the employer. In legal terms we say that it is a "preferred claim of Class 1" or put more simply a "preferred claim". If the company is unable to pay, the State will normally cover the claim through the Wage Guarantee Scheme. Not all pay claims are preferred - there are some exceptions: The pay claim must not be too old, i.e. the pay day must not be further back in time than four months prior to the "filing date". As a general rule the filing date is the day on which the bankruptcy petition reaches the Bankruptcy Court. The records of the court hearing at which bankruptcy proceedings commenced will show the filing date. The filing date will also normally appear in the announcement by the Brønnøysund Registers or the Bankruptcy Court that bankruptcy proceedings have commenced. The announcement will be published in a local paper and in Norsk Lysningsblad (the Norwegian Gazette).

An older pay claim may also be preferred if you have acted quickly and determinedly to ensure that it is covered. The rules on how to do this are complicated, but the trustee is there to guide and assist you.

The preferred position of pay claims is limited to a total of six months’ pay. If you are not on a fixed wage, the upper limit is six times your average monthly wage during the year leading up to the filing date. Interest on the pay claim will also be preferred. The same applies to reasonable expenses paid out for legal or other assistance in your attempts to recover your pay.


3. Pay during notice

Pay during your ordinary period of notice is also a preferred claim. The normal period of notice is the time provided for in statute or a collective wage agreement. Even if you have an agreement which provides for a longer period of notice, your pay during this extended period will not be preferred.

The size of the preferred pay claim will be reduced by the amount of any other income you receive during the period of notice. All such income must be reported to the trustee. Failing to report such income is a criminal offence. As an employee you should acquire other income during the bankruptcy proceedings in order to limit your losses.

To qualify for pay during the period of notice you are obliged to register as a job seeker, see head nr. 10.


4. Holiday pay

Accrued holiday pay will be paid out during the bankruptcy proceedings - even if you would not otherwise be entitled to the holiday pay until the following year. Holiday pay earned during the last 24 months before the filing date is preferred. Older claims may be preferred provided that the due date does not lie further back in time than four months. The due date may however lie further back if the claimant has sought enforcement of the claim without due delay but has not managed to obtain a "writ of fieri facias" which must be respected by the estate, or has taken steps as regulated in the bankruptcy act § 63 to declare the company bankrupt, but not within four months after due date has managed to file a bankruptcy petition that is complied with. The preferred status of accrued holiday pay is limited to a total of 30 months since holiday pay on pay earned during the period of notice, up to six months, also has priority.

Your are entitled to receive pay and holiday pay. The bankruptcy estate is not entitled to set such amounts off against car loans or similar debt to the employer unless this has been agreed in writing in advance. Unless otherwise agreed, you are entitled to set off travel expenses and other non-preferred claims against any claims your employer may have against you, for example a loan for a car. The trustee will help you with this.


5. Not all pay claims are preferred

The claims of employees are preferred, but not those that independent contractors or businesses may have against the bankruptcy estate. It may not be easy to distinguish between an employee and a contractor and a business.

If you are the general manager, your claim for pay and holiday pay will not be preferred.

Directors’ claims for pay and holiday pay are not preferred. This applies to all types of directors’ fees and pay. Nevertheless, if you are an elected representative of the employees, your claim for pay and holiday pay will be preferred, but your claim for directors’ fees will not be preferred.

If you own the business, your claim for pay and holiday pay will not be preferred. You are usually regarded as the owner if you have an ownership stake of at least 20% alone.


6. The distribution of the assets of the bankruptcy estate

All the company’s assets and claims against the company will be converted to money.

Pay for work done for the estate after the commencement of bankruptcy proceedings is a "preferential claim". Other preferential claims are the trustee’s fees and claims incurred during the bankruptcy proceedings. Preferential claims are against the estate, not against the company undergoing bankruptcy proceedings. Preferential claims are paid in full before any of the assets of the estate are applied in the payment of other claims.

Once all preferential claims have been covered, remaining assets will be distributed between the preferred pay claims. Assets are distributed proportionally. If the estate is unable to cover all the claims in full, each claim will receive the same percentage rate. Any part of the preferred pay claims that the estate cannot cover from its assets will normally be covered by the Wage Guarantee Scheme (see below).

When the preferred pay claims have been covered, the remaining assets will be applied in paying preferred claims of Class 2. These claims are for certain types of taxes and duties.

Any remaining funds will be distributed amongst the non-preferred claims, the ordinary claims. Claims of this type might include travel expenses or pay claims that are too old to be preferred. A bankruptcy estate will rarely have sufficient funds to cover much of these claims.


7. The Wage Guarantee Scheme

As part of its social policy the State guarantees pay claims in the case of bankruptcies. A law has been adopted on this subject - the Act concerning State guarantees for wage claims in the case of bankruptcies etc. of 14 December 1973 No. 61 (the Wage Guarantee Scheme Act). The Ministry of Labour and Social Affairs has adopted regulations to the Act. This scheme is administered by the Directorate of Labour Inspection. Questions about the scheme can be put to the Directorate for Labour Inspection, Wage Guarantee Section, P.O. Box 8103 Dep., 0030 Oslo, telephone 22 95 70 00. Two short introductions to the subject exist and are available free of charge from your local labour inspectorate. One of these introductions is also included on Oslo Bankruptcy Court’s website. An information leaflet in Norwegian (order No. 429) may be purchased from Tiden Norsk Forlag. This leaflet is also available on the Labour Directorate’s website www.arbeidstilsynet.no. The trustee is also required to provide you with information.


8. What claims does the Wage Guarantee Scheme cover?

As a general rule, the Wage Guarantee Scheme will cover all preferred pay claims as outlined above. There are some exceptions, however.

Firstly, the Wage Guarantee Fund will not cover claims in excess of three times the basic National Insurance amount (3 G). The basic National Insurance amount is adjusted annually. As at May 2004, 3 G is equivalent to NOK 176 334,-.

Secondly, the Wage Guarantee Scheme will not cover claims that have been transferred before the bankruptcy proceedings opened. You may only apply to the Guarantee Fund for payment of your own claim. You cannot claim for pay or holiday pay that has been transferred to you from a third party. The exceptions to this rule are transfers that are obviously not an abuse of the Wage Guarantee Scheme and claims transferred to a government agency.

9. How should the claim be presented?

Claims for pay and holiday pay must be reported to the trustee on a form available from the trustee. The trustee will be able to help you to complete the form and will take care of other details of filing claims against the estate and the Wage Guarantee Fund. You will be notified if your claim is not accepted.

It is important that you complete the form as accurately as possible. Any missing details will involve extra work for the trustee, which means that you will have to wait longer for payment.

Even if all other parts of the bankruptcy proceedings stop, the trustee is required to help you with your claim.


10. You must register yourself as a job seeker at the employment centre

Unless you have already found other work you must register yourself at the employment centre as a job seeker within 14 days of the commencement of bankruptcy proceedings. Unless you do so, you will not qualify for pay from the State during your period of notice. You must not register yourself as unemployed if you are employed by the bankruptcy estate during your period of notice.

Any income received in place of your job with the debtor must be deducted from the claim for payments of wages during the period of notice. The trustee will require you to give a declaration on what income you have received. The trustee will not submit further pay claims for you until you have provided him/her with such a declaration. The declaration must be submitted in arrears after each pay day.


11. Funds for subsistence while your wage claim is being processed

Bankruptcy proceedings may take some time. You should not expect your pay, holiday pay and pay during the period of notice to be paid out on your usual pay day. This applies irrespective of whether your claim is paid by the estate or by the Wage Guarantee Fund.

Until you secure other income-generating work or receive payment from the bankruptcy estate or the Wage Guarantee Fund, you must take advantage of the ordinary benefit and social security schemes. If necessary you may apply for social security, see Section 5-1 of the Social Services Act.

You may also be entitled to unemployment benefit during unemployment. As a precondition for paying you unemployment benefit if you have a preferred wage claim during the period of notice, the job centre will require you to sign a declaration that the unemployment benefit is an advance which you may be required to repay it if you receive coverage of your wage claim from the Wage Guarantee Fund or the bankruptcy estate, see Section 2-1 of the regulations on unemployment benefit during unemployment.

If the trustee is sure that sufficient funds are available, he may pay out your claim fairly quickly provided that it is not disputed or complicated.


12. What happens to your job?

The start of bankruptcy proceedings does not of itself mean that your contract of employment has come to an end. The bankruptcy estate will decide whether or not your contract of employment should continue (whether or not to take over your contract of employment). You cannot simply assume that you can go home as a result of the bankruptcy until the estate has decided on this question. Nevertheless, you may resign, giving the usual period of notice.

You can require the estate to decide within three weeks whether or not it intends to continue your contract of employment. It is customary for the employees to come to work on the day after bankruptcy proceedings commence. If you receive no instructions or information, you are not required to go to your workplace on the following day.

It is polite for the employees to assist the trustee in "clearing and tidying" for a period of 2 - 3 days. Your pay for doing so will normally be covered by the Wage Guarantee Fund.


13. Where the estate does not take over your contract of employment

If the estate decides against continuing existing contracts of employment, the trustee must notify the employees to this effect within three weeks of the commencement of bankruptcy proceedings. This notification must be given in writing and may be given to all employees together. In addition, the trustee must send all employees a standard letter of notice as provided for in the Working Environment Act. You must make yourself available to the bankruptcy estate until it has decided on the question of whether or not to take over your contract of employment.

Even if the estate decides against continuing your contract of employment, it may enter into a new contract of employment with you. This contract will often be of a temporary nature. For example, the estate may conclude a new contract of employment to perform clearing up duties after the end of the "clearing and tidying" period, selling off stocks, assistance in updating the accounts etc. You are entitled to pay from the estate for any work you are instructed to perform.

If the estate intends to conduct limited business operations as part of the winding up process, it may normally decide which employees it needs and intends to use, provided that this choice is objectively made on the basis of the requirements of the estate. The seniority rule will not determine who the estate concludes agreements with.

As an employee the Wage Guarantee Fund requires you to take other work in order to limit your loss of wages when your contract of employment ceases.


14. If the estate decides to take over your contract of employment

Unless it gives a declaration to the contrary within three weeks, the estate will automatically take over your contract of employment. Your employment will continue as before and the bankruptcy estate will be your employer. Even so you may terminate the agreement at one month’s notice. The estate may withdraw from the agreement at one month’s notice, but the period of notice will apply in the usual way. You are required to make yourself available to the estate until the end of the period of notice.

You cannot require the estate to give you work to do throughout the entire period of notice, but you are entitled to wages for the whole period. If the estate takes over a limited contract of employment, the contract of employment will cease at the end of the agreed period.

Your pay for work on behalf of the bankruptcy estate is a preferential claim and is payable by the estate.


15. What happens to your job if the business is transferred?

If the business is sold by your old employer to a new owner before bankruptcy proceedings commence, you are protected against unfair dismissal by Section 60 of the Working Environment Act. You are entitled to continue in your job with the new owner of the business.

If the business is transferred before bankruptcy proceedings commence you may nevertheless receive Wage Guarantee coverage up until the date of takeover.

The bankruptcy estate may sell the business to a new owner after the commencement of bankruptcy proceedings. If so, you also have a preferential right to be employed by the new owners of the business. If there are fewer jobs in the new business than in the old business, the rules on selection differ in the case of bankruptcy from those which normally apply.

If the premises and production equipment have been mortgaged for more than their value, they will generally be abandoned by the trustee. This normally entails that the bankruptcy seizure is reversed and the abandoned asset is returned to the debtor or returned to the lien-holder. It is therefore difficult to say anything general about what rules apply with regard to the right to continue in a job.


16. Representation on the board of trustees and at general meetings of creditors

Once bankruptcy proceedings have commenced, everyone with a claim against the company will be convened to a meeting at the Bankruptcy Court (a general meeting of creditors). The notice convening the meeting will be published in the Press. As an employee you are entitled to attend to this general meeting of creditors, but you are under no obligation to do so. Further information on this is available from the trustee.

The general meeting of creditors may appoint a creditors committee. In straight-forward and uncomplicated estates, the Bankruptcy Court may decide against appointing a creditors committee. The creditors committee, working in cooperation with the trustee, will protect the joint interests of the creditors and the employees.

If a majority of the employees so require, the Bankruptcy Court will normally appoint a representative of the employees to the creditors committee. The same will apply if the request is put forward by one or more trade unions representing a majority of the employees. The Bankruptcy Court may decide against such an appointment if for example it is clear that the bankruptcy proceedings will have to stop fairly soon and it is not possible to save any jobs.

Any wishes or demands for the employees to be represented on the creditors committee must be put to the Bankruptcy Court before or after the general meeting of creditors (the court hearing announced in the Press). If you are appointed to the creditors committee you will not normally receive payment. As a member of the creditors committee you represent the interests of the creditors. You will not normally be permitted to withdraw from the committee until bankruptcy proceedings have been completed, even if you no longer have any personal interests in the proceedings.


17. What can you expect of the trustee?

After three weeks you are entitled to a clear decision from the trustee about whether or not your job will continue.

You are entitled to expect guidance on your rights as regards your claim for wages and how to present your claim. The trustee is under an obligation to assist you with the claim at no cost to yourself.

If there are items at your workplace that belong to you personally, for example tools or equipment, you may take them home with you. You should not take anything home with you until the trustee has been notified, and preferably not without the consent of the trustee.


18. Your duties towards the trustee

You should provide the trustee with information on the company and its assets.

You should also assist in ensuring that the assets of the estate do not go astray. If you have tools, equipment, computer equipment, mobile phone etc. belonging to the company in your own home, you must inform and return the equipment to the trustee.

Preventing the inclusion of assets belonging to the company in bankruptcy proceedings is a criminal offence. Aiding and abetting in the prevention of the inclusion of assets belonging to the company from the bankruptcy proceedings is also a criminal offence.

 

 

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