How to Pursue Money Claims in Norway
Background
From time to time Norwegian private individuals and businesses are not able or willing to pay their obligations as they fall due and enter into default. For the creditors the question will be how to pursue their claims in order to obtain payment or at least some additional security for payment. We act for creditors in connection with enforcement of large and disputed money claims in Norway.
The intention here is to summarize the ways forward to obtain payment of debt. However, please note that this overview does not contain a complete and exhaustive account of the procedures described herein, and that specific legal advice should be sought in each actual case. It may be worthwhile in any matter at the outset to consider whether the debtor may have assets available for payment or attachment, and to assess whether the likelihood of success may justify the enforcement costs.
1. Legal grounds for enforcement
The creditor must have a valid legal ground for enforcement. The Enforcement Act 26 June 1992 No. 86 states that a creditor may only demand enforcement when he has a general or special legal ground for enforcement, and such legal ground is enforceable, i.e. that the claim is due for payment and in default.
1.1 General legal grounds for enforcement
The general legal grounds are inter alia a judgment or other final ruling by a Norwegian court, a Norwegian arbitration award or a settlement entered into before a Norwegian court.
En utenlandsk dom, forlik eller voldgiftskjennelse kan anses som et generelt rettslig grunnlag for fullbyrdelse dersom den vil være bindende og rettskraftig i Norge i samsvar med en internasjonal traktat, herunder Konvensjonen om jurisdiksjon og anerkjennelse og fullbyrdelse av dommer i sivile og kommersielle saker, vedtatt i Lugano 30. oktober 2007 («Luganokonvensjonen»), som gjelder som norsk lov.
Pursuant to section 19-16 of the Civil Disputes Act 17 June 2005, a final and enforceable ruling on civil claims rendered by a foreign court shall be recognized as final and enforceable in Norway if jurisdiction has been agreed between the parties in writing for a specific action or for actions that arise out of a particular legal circumstance, typically a certain agreement, provided such recognition would not be contrary to mandatory laws or be offensive to the legal order.
1.2 Special legal grounds for enforcement
Special legal grounds for levying a distress on the assets of a debtor are bills of exchange, cheques and, quite common, a promissory note on which the signature of the debtor is verified by two witnesses or in accordance with applicable regulations, and which contains an acceptance by the debtor that the debt may be enforced without civil action.
A special legal ground for enforcement is a written notification sent from the creditor to the debtor demonstrating the basis, extent and size of the claim. Claims based on invoices may qualify as such special legal ground.
Other special grounds for enforcement are perfected pledges in inter alia real estate, vessels, aircraft, movable property, operating accessories, financial instruments and receivables, distress, legal liens and sales liens.
2. Secured claims
As explained above perfected pledges in various assets may serve as a special legal ground for enforcement. It may be worth noting that Norwegian laws do not allow a general charge over all the assets of a debtor as security. Consequently, a pledge over an asset must have a legal ground which will be found in various acts.
2.1 The Liens Act
The majority of such grounds are laid down in the Liens Act 8 February 1980 No. 2. The act contains provisions relating to inter alia pledges over real estate, rental agreements regarding real estate, movable property, operating accessories, motor vehicles, construction machinery, railway equipment, agriculture equipment, crop and livestock, fishing gear, stocks of goods, sales liens, financial instruments including shares, money claims and receivables, and patents.
2.2 The Maritime Act
A vessel registered in the Norwegian Ordinary Ship Register or the Norwegian International Ship Register may be mortgaged according to the provisions of the Maritime Code 24 June 1994 No. 39 and subsidiary regulations. The act contains provisions relating to maritime liens, which take priority over registered mortgages securing debt.
2.3 The Aviation Act and the Cape Town Convention
Security interests may be taken in an aircraft registered in Norway by registering a Norwegian law aircraft mortgage in Norway or by registering an international interest in accordance with the Cape Town Convention and Aircraft Protocol.
Norwegian Aircraft Mortgage
The Aviation Act 11 June 1993 No. 101 contains provisions relating to the registration av an aircraft mortgage in the Norwegian Civil Aviation Registry.
Cape Town Convention registered international interest
The Cape Town Convention and Aircraft Protocol 16 November 2001 were incorporated into Norwegian law by an act 12 November 2010 No. 58. International interests under the convention relating to security take priority over the security provisions under the Aviation Act.
2.4 Applicable law relating to security
The Norwegian Supreme Court has in a judgment from 2017 taken the view that Norwegian rules relating to the validity and perfection of a pledge over receivables, contractually governed by foreign law, should prevail in a case between a pledgee and the bankruptcy estate of the Norwegian pledgor. Consequently, the validity of a pledge governed by non-Norwegian law, issued by a Norwegian pledgor, risks being considered in relation to Norwegian rules of pledge in a dispute with the debtor's bankruptcy estate.
3. Enforcement
3.1 Individual or collective enforcement
A creditor with an enforceable claim must consider whether to seek satisfaction of the claim by pursuing the claim alone, or by initiating insolvency or related collective proceedings in the estate of the debtor.
3.2 The Norwegian Court system
In Norway some cases, on certain conditions, must firstly be filed with a Conciliation Board, which is found in each municipality. This board does not consist of professional judges, but of persons appointed by the municipality. The intention is that the board shall try to settle the matters brought before it.
The professional courts consist of many local first instances named a "tingrett". Norway has five courts of appeal, divided geographically. The final and third instance is the Supreme Court of Norway.
4. Individual enforcement
4.1 The Enforcement Act
Enforcement shall as a main rule follow the mandatory provisions of the Enforcement Act. An agreement to the contrary will as a point of departure be considered invalid. Prior to an actual default the parties may not agree that enforcement shall be carried out without the involvement of the enforcement authorities.
The Enforcement Act provides for a forced sale of a security, or in some cases for forced use and repossession of assets.
If the creditor needs to obtain a general or special legal ground for enforcement, the complaint must as a main rule be filed with the local Conciliation Board. In some cases the filing may be done directly to the court of first instance, notably if the claim amount is at least NOK 200,000 and both parties have been assisted by attorneys.
Where the creditor has a general or special legal ground for enforcement, the request for enforcement may be filed with the enforcement authorities, normally the local enforcement bailiff, and in some cases, with the court of first instance.
4.2 The Financial Collateral Act
A financial collateral established in accordance with the provisions of the Financial Collateral Act 26 March 2004 No. 17 may be enforced in accordance with the act. The security must be agreed between a legal person and certain financial institutions or authorities (or between such institutions and authorities), and relates to security in cash deposits, financial instruments (including shares) and debt obligations. If agreed between the pledgor and the pledgee, the act facilitates enforcement of the financial collateral in ways easier than provided for in the Enforcement Act.
4.3 The Cape Town Convention
The Cape Town Convention contains enforcement provisions which deviates substantially from the procedures laid down in the Enforcement Act. The enforcement of international interests being security is facilitated, and the repossession of an aircraft is made considerably simpler for a financier or lessor.
5. Collective enforcement
The Norwegian insolvency legislation has up to May 2020 made it difficult for Norwegian companies to obtain successful financial restructuring arrangements, and more often than not a composition proceeding in Norway ended up in a bankruptcy proceeding. However, as a result of the Covid-19 pandemic outbreak in March 2020, the Norwegian Parliament in May 2020 adopted the Temporary Restructuring Act to Aid Businesses Facing Bankruptcy due to Covid-19.
Because of the historically inefficient rules relating to composition proceedings, Norwegian businesses have traditionally sought to negotiate financial restructurings out of court. Such negotiations quite often take place between the financial creditors and the debtor, leaving minor trade creditors somewhat unaffected.
Because of the change in the way companies now is financed, i.e. to a large extent with bond debt instead of bank loans, such negotiations tend to be more complicated as compared to the old regime with loans from a few banks and financial institutions.
5.1 Restructuring proceedings
Reconstruction proceedings
In Norway a company may have two alternatives with the courts; either to apply for reconstruction proceedings or to file for bankruptcy. The main Norwegian insolvency legislation is found in two acts: the Debt Composition and Bankruptcy Act (1984) (the Bankruptcy Act) and the Debt Recovery Act (1984) (the Recovery Act).
Panteloven (1980), samt særbestemmelser om pant og heftelser i andre lover, som sjøloven og luftfartsloven, er også av betydning ved vurdering av kreditorposisjonen ved insolvens. Sammen representerer de to hovedlovene en struktur for å nærme seg de aktuelle problemene i en debitors økonomi på en måte som er ment å være tilpasset kravene til et moderne forretningsmiljø. Det er imidlertid verdt å merke seg at konkurslovens tidligere system for å håndtere situasjoner der moratorium og/eller delvis ettergivelse av gjeld kunne hindre avvikling og danne grunnlag for fortsatt sunn drift av skyldneren, ikke er blitt den folkelige suksessen man så for seg i 1984. Denne delen av lovgivningen var bygget på de samme prinsippene som den amerikanske «Chapter 11»-prosessen, men gikk ikke så langt i å gi retten fleksibilitet til å styre prosessen til et resultat som kunne anses som akseptabelt av alle involverte parter.
Following the outbreak of the Covid-19 pandemic, the Norwegian Parliament therefore passed a temporary act on reconstruction (the Reconstruction Act). The Reconstruction Act replaces relevant provisions of the Bankruptcy Act, as well as other acts, until its date of expiration on 1 July 2023.
The main purpose of the Recontruction Act is to prevent businesses from going bankrupt, when the businesses are profitable under normal circumstances, but are facing sudden and presumably temporary financial difficulties resulting in an inability to pay its creditors. However, businesses that are generally non-profitable may also apply for reconstruction under the act. The proposal introduces a more flexible legal framework for continued business operations in close cooperation with the creditors.
Voluntary or compulsory reconstruction
When a company is unable to fulfil its obligations as they fall due (illiquidity), the company may petition the court to commence reconstruction proceedings in order to negotiate with its creditors regarding reconstruction. Reconstruction can be voluntary or compulsory for the creditors.
In voluntary reconstruction, all creditors must as a main rule approve the reconstruction plan. Compulsory reconstruction means that a majority of the creditors may adopt the plan on behalf of all creditors involved. Naturally, voluntary reconstruction allows for more flexible solutions. For efficiency, the procedural regulations in the Reconstruction Act do not differentiate between voluntary and compulsory reconstruction. This means that the petition to open reconstruction proceedings does not need to specify whether voluntary or compulsory proceedings are being requested.
Who may petition for reconstruction?
Pursuant to the Bankruptcy Act, the company had to be in a situation in which it is unable to pay its debts as they mature in order to apply for and be granted a court ordered reconstruction process.
Under the Reconstruction Act, negotiations may be applied for at an earlier stage when the company has, or in the near future is expected to encounter, serious economic difficulties. Initiating a court-sanctioned debt reconstruction process at an earlier stage is expected to increase the likelihood of a successful outcome, as the debtor still has liquidity and thus a better chance at negotiating with its creditors.
Under the Reconstruction Act, creditors may also petition the court for reconstruction. The reason for this is that creditors might in some cases assess the debtor's economy and need for help at an earlier stage and more correctly. The threshold to open proceedings is however higher, as the creditor must be able to substantiate that the debtor is illiquid in order for reconstruction to be opened.
The Reconstruction Act contains provisions which protect the debtor from bankruptcy and debt enforcement during the period of negotiations.
The court may order that the petitioner pays an adequate advance payment to cover costs related to the proceedings or provides security for such payment. As reconstruction may now be petitioned by a creditor, it is important to note that the creditor might be ordered to provide such payment or security, however so that the creditor will only remain liable for the excess part of the advance payment not covered by the debtors assets.
The reconstruction proceedings may be initiated by a creditor. However, it is more likely that such proceedings will commence either by the initiative of the debtor or when the debtor counter a claim for payment by applying for reconstruction proceedings.
5.2 Bankruptcy proceedings
According to section 60 of the Norwegian Bankruptcy Act 8 June 1984 No. 58, an insolvent debtor shall be subject to bankruptcy proceedings when the debtor or a creditor so requests.
A creditor may choose to file a bankruptcy petition if a claim is not paid and there is reason to believe that the debtor is insolvent. The debtor is insolvent when he or she cannot meet his or her obligations as they fall due unless the insolvency may be assumed to be of a transient nature. However, insolvency does not exist if it can be assumed that the debtor's assets and income will be able to provide full coverage of the debtor's obligations, even if compliance with the obligations will be delayed because the coverage must be sought through the sale of assets.
In addition to put leverage on the debtor to pay a claim, a bankruptcy petition may be filed for other reasons, inter alia because the creditor suspects that other creditors have been paid in a situation of fraudulent preference, the debtor has committed other fraudulent acts, the debtor's business has been conducted in a negligent way that has brought losses upon the creditor and the debtor's management and/or board of directors should be held liable for losses.
When is the debtor insolvent?
It may be difficult for a creditor to prove that a debtor is insolvent. Sections 62 and 63 of the Bankruptcy Act contain provisions relating to presumption of insolvency.
If the debtor acknowledges being insolvent, or if the debtor has ceased making payments or the creditor has been unable to achieve coverage through attachment or some other form of legal enforcement of debt during the last three months before the bankruptcy petition was submitted, insolvency is assumed.
If the debtor has a statutory obligation to keep accounting records, or has had such obligation during the last year before the bankruptcy petition was submitted, insolvency in general shall be assumed to exist when bankruptcy is petitioned by a creditor who can prove to have filed a claim against the debtor for a clear debt that has fallen due, and who at least four weeks thereafter has served a notice on the debtor to pay within two weeks. In such case the bankruptcy petition must have been received by the court during the first two weeks after the expiration of the payment deadline. The service of a payment notice is frequently used as a collection measure.
5.3 Foreign insolvency proceedings
Norway may by an agreement with a foreign state accept to recognize foreign insolvency proceedings as binding in Norway. By a convention 19 November 1934 entered into between Norway and the other Nordic states Denmark, Finland, Iceland and Sweden, the states agreed that a bankruptcy in one of the states should also comprise the debtor's assets in the other states.
Apart from the Nordic bankruptcy convention, Norway has as of 2022 not entered into any bankruptcy convention. This means, as a point of departure, that inter alia U.S. Chapter 11 proceedings, UK schemes of arrangements or other similar foreign proceedings, as a main rule are not recognized in Norway, and do not as a matter of Norwegian law prevent other creditors from seeking satisfaction of their money claims in Norway. This understanding was confirmed by the Supreme Court in a ruling from 2013.
However, in 2021 the Bankruptcy Act was amended to include provisions stating that a foreign insolvency proceeding that comprises all of the assets of the debtor, shall have effect in Norway if the proceedings are commenced at the center of main interest of the company,, they are collective, the debtor wholly or partly is deprived of disposal of his assets, a receiver or trustee has been appointed, the debtor is a legal person, and the foreign proceedings take place in a jurisdiction which acknowledges similar Norwegian proceedings (reciprocity).
The content of this overview is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
