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On 15 April 2020, the Norwegian Government proposed a temporary act on restructuring (the "Restructuring Act") to aid businesses suffering from economic difficulties due to the Covid-19 virus outbreak and the intrusive governmental measures that have been adopted. The main purpose of the Restructuring Act is to prevent businesses from going bankrupt, when the businesses are profitable under normal circumstances, but are now facing sudden and presumably temporary financial difficulties resulting in an inability to pay its creditors. The proposal introduces a more flexible legal framework for continued business operations in close cooperation with the creditors.
The Restructuring Act aims to temporarily replace the relevant provisions of the current Norwegian Bankruptcy Act of 8 June 1984. Pursuant to current regulations, the debtor must 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 debt negotiation process. Under the proposed Restructuring Act, negotiations may now be applied for at an earlier stage and when the debtor has, or in the near future is expected to encounter, serious economic difficulties. Initiating a court sanctioned debt restructuring process at an earlier stage is expected to increase the likelihood of a successful outcome.
Close cooperation with creditors is a prerequisite for a successful restructuring. The court must appoint a debt settlement committee consisting of one leader (a lawyer) and a minimum of three creditor representatives. To simplify the process, it has however been proposed that the court may omit to appoint creditor representatives to the committee if settlement can be handled by the leader of the committee alone. It has also been proposed that creditor meetings may be held electronically without physical presence. Although adoption of the restructuring plan will still require a unanimous decision by the creditors, a simplified procedure for adoption of the plan has been proposed; If none of the creditors have voted against the proposal, and those in favour represent ¾ of the claims included in the plan, the resolution has been adopted.
The Restructuring Act also provides for more flexible restructuring procedures, and contains provisions in respect of converting debt into equity. It has been proposed that a conversion of debt to equity by way of issuance of new shares only requires a simple majority on the company's shareholders meeting when the conversion is done as part of a restructuring. The main rule (which is the case today) shall still be that conversion shall only apply to creditors who agree to such conversion. However, if weighty reasons makes it desirable, the court may decide that the conversion shall apply to all creditors if the non-consenting creditors have no reasonable grounds for their refusal. The proposal also allows for deviation of the principle of equal treatment of creditors when the restructuring is voluntary (as all creditors must consent), and a deviation of the minimum dividend requirement in the event of compulsory debt settlement.
Among the more notable provisions of the Restructuring Act is the proposed introduction of so-called secured, "super priority" loans, which may be assumed by the debtor during the restructuring period, at the expense of existing secured creditors. The proposal bears resemblance to similar regulation under US Chapter 11. The lack of any such possibilities under the current Norwegian Bankruptcy Act has often made it difficult to ensure sufficient financing of continued business operations during the negotiation period.
Under current law, taxes and VAT claims by the state are prioritized over other claims in the event of bankruptcy, which means that a reduction of debt does not apply to such claims. The Restructuring Act allows for exemptions from this to be set out in secondary legislation, but further details on possible grounds for exemptions have currently not been introduced.
While restructuring negotiations may only be requested by the debtor under current legislation, it is now proposed that creditors may petition the court for restructuring. However, as protection, the debtor may refuse restructuring, in which case the petition shall not automatically be treated as a petition for bankruptcy. The proposed Restructuring Act also protects the debtors from bankruptcy and debt enforcement during the period of negotiations.
The Restructuring Act is currently pending processing by the Parliament, but it is expected to be adopted in its current form and come into effect shortly.