Modernisation of the Norwegian insolvency legislation has been long overdue. Current legislation lacks sufficient flexibility in terms of allowing for successful restructuring outcomes due to strict requirements for creditor consent and minimum dividends, combined with insufficient legal protection to secure financing for the business to continue and no debt to equity swap option.
The outbreak of the COVID-19 virus has however prompted the Government to propose new temporary restructuring legislation to mitigate the enormous economic impact. The main objective is to avoid unnecessary bankruptcies in otherwise viable businesses by providing more flexibility and more “tools” in negotiations with creditors:
- Negotiations can be initiated at an earlier stage and it is no longer a requirement that the debtor is illiquid (unable to pay debt as it is due) or insufficient (meaning that the assets are less worth than the debt.)
- A restructuring plan can be approved with the consent of a simple majority of the creditors. Likewise, there will be no minimum dividend requirements.
- The proposal allows for a sale of the business and allows for conversion of debt to equity with a simple majority decision from the General Meeting.
- The proposal allows for temporary exemptions from the ranking order of tax and VAT claims as priority status claims. The option is limited to situations where a temporary exemption is an appropriate measure to remedy the adverse consequences of the outbreak of covid-19.
- Liquidity is crucial in order to secure continued operations and to finance the proceedings. The proposal allows for such funding with super priority provided that the position of existing secured lenders is not significantly weakened. Such funding must be approved by the court appointed trustee and may be challenged.
- Commencement of proceedings implies an automatic stay on enforcement and bankruptcy proceeding for as long as the proceedings are ongoing.
If you have any questions, please contact our insolvency and restructuring team.