New Norwegian restructuring (reorganization) law
A temporary law, which is likely to become permanent
On 15 April, the Norwegian government presented a proposal for a new law for the restructuring of Norwegian entities. The new law is a temporary law and replaces the restructuring part of “Konkursloven” ("Act relating to Bankruptcy").
The background for the proposed implementation of this law are the findings in a report written by judge Leif Villars-Dahl of the Oslo County Court from 2016. The proposed law is now due to be debated in Parliament.
The coronavirus pandemic has had a major impact on the economy. According to the Norwegian government, the purpose of the proposed law is to reduce the risk of unnecessary bankruptcy for, companies (who until the time of the pandemic were otherwise healthy) that have seen a sudden drop in income due to the lock down caused by the pandemic. However, the law is likely to become permanent.
In comparison to the position in other jurisdictions, the current Norwegian regulations on debt negotiation are rarely used. The proposed law has several new features that makes it more applicable, and has similarities to the system in the US (Chapter 11), UK and a large part of Europe.
The main part of the proposed law is summarised as follows:
- An opening in the regulations is proposed in order to introduce a temporary exemption from the existing rules so that public claims for VAT and taxes are not given preferential treatment over other creditors.
- An opening in the regulations is proposed in order to allow for “pre-pack”-solutions for small businesses.
- The proposed law will lower the threshold for a restructuring compared to the current rules. It is proposed that a restructuring could be opened even though the company still has some liquidity available. In the current rules, here is an absolute requirement for illiquidity in order to apply for debt negotiations. The condition for opening a restructuring is proposed to be that the company “has or for the foreseeable future will be in severe economic distress”.
- A creditor may file a petition for a restructuring to be opened. However, the threshold is higher than if the company itself applies for the restructuring. If the company rejects the opening of the restructuring, the petition for restructuring will be denied.
- The financing of the company’s operations during the restructuring period and the financing of the restructuring itself are proposed to be carried out using a loan, with the lender being granted a charge in the company’s operating equipment, inventory and outstanding claims.
- As opposed to the current rules, no proposal has been made to distinguish between a voluntary restructuring and a compulsory restructuring. The distinction will only apply when there is a vote for the restructuring proposal.
- There will no longer be a demand for equal treatment of the creditors in a voluntary restructuring. This is due to the rule that a proposal for a voluntary restructuring needs a unanimous vote from the creditors in order to pass. In a compulsory restructuring there will no longer be a demand for a minimum level of coverage of the claims, as opposed to the current demand for a coverage of 25 % of the claims. Also, it will be sufficient that >50 % of the creditors vote in favour of the proposed restructuring plan, as opposed to today’s rule of a >66,6 % majority.
- The rules on converting debt to share capital will have an exemption from the rules in the Norwegian Public Limited Liability Companies Act, because only >50 % of the shareholders at the general meeting must be in favour of the conversion.
- During a restructuring, the company will be protected from bankruptcy proceedings and other enforcement.
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