The downturn in the shipping and offshore sector has spurred a significant number of financial workout and insolvency proceedings over the last years. Wikborg Rein is involved in a significant number of the on-going restructurings within the OSV segment in Norway and also several international companies in the UK, US, Brazil, China and Mexico. The international nature of the shipping and offshore industry may complicate the financial workout when a company goes into distress, however, the global presence of a company may also present opportunities as the rules of statutory debt reorganisations vary.
There are numerous reasons for a debtor, creditor or stakeholder to prefer a particular jurisdiction when faced with insolvency proceedings. However, as mentioned in the article “Forum shopping when restructuring” on page 23 in this Update, access to a particular jurisdiction may be of little value if the implemented restructuring is not recognised in jurisdictions where the debtor has assets or operations. A number of countries now recognise foreign insolvency proceedings. Simply speaking this means that should a company become insolvent then the insolvency proceedings in these states will recognise assets in other states, providing greater protection in a situation of insolvency. This will provide an incentive for companies to seek access to the jurisdiction of these states.
International rules and regulations
As early as in 1933 the Nordic countries entered into the Nordic Bankruptcy Convention which automatically provides recognition of bankruptcy (both in respect of individuals and companies) within Denmark, Finland, Sweden, Iceland and Norway. In 1997 the UN issued the UNCITRAL Model Law on Cross-Border Insolvency (the “Model Law”). Legislation based on the Model Law has now been adopted in 41 states in 43 jurisdictions. The EU member states also recognise insolvency proceedings within the other EU member states under EC Council Regulation 1346/2000 (the “Regulation”); this is not however applicable to EEA states.
Changes to the Norwegian Bankruptcy Act
The aim of the Amendment is to arrange for well-functioning winding-up processes where debtors have assets in several jurisdictions in line with the Model Law and the Regulation. The changes give the Bankruptcy Act a reciprocal effect. This means foreign insolvency proceedings will be recognised in Norway if they are commenced in states with legislation that recognise insolvency proceedings commenced in Norway. Shortly explained, once insolvency proceedings have been notified in Norway, the estate may seize a debtor’s assets in Norway and the debtor will have no right to control such assets.
The Amendment also includes changes to the rules on choice of law in respect of the effect of foreign insolvency proceedings in Norway. As a main rule this means that the law of the state in which the insolvency proceedings have been commenced will determine whether and to what extent a foreign estate may seize assets in Norway and to what extent the debtor’s control over such assets will be limited. There are however exceptions to this main rule.
The Amendment has not yet been implemented. However, once implemented Norway will become part of those jurisdictions that provide reciprocal protection for foreign insolvency proceedings and thus is likely to become a more attractive option for debtors, creditors or stakeholders when a company faces insolvency.