Debt Collection in Norway

• Domestic corporations payment conduct is in order , with payments made on average within 30 days, and domestic courts are fairly efficient at resolving conflicts in a timely manner.

• Having said that, consultation and consensus are seen as a condition for legal action and it is necessary to seek effective support in this regard.

• In the case of insolvency, debt recovery is impossible as insolvency mechanisms are unsuccessful and the default rules laid down in liquidation cases make it unlikely that unsecured creditors can obtain any portion of the revenue.

1. Summary

1.1. General financial information

1.1.1. It is easy to obtain accurate financial information on domestic companies as accountability is extended across documents, businesses, owners and financial records. These Limited Liability Companies have an obligation to disclose their financial statements, and these are made public to anybody. The Brønnøysund Registration Center, which keeps track of financial records and insolvency cases, also tracks company information such as registration and location, financial records, mortgage movable properties, and insolvency proceedings.

1.2. Key legal structures

1.2.1. Corporate debt responsibility is defined by legal structures, which can be summarized as follows:

• Sole proprietorship is possible for independently operated small businesses for which no contractual arrangement is needed. In this case, the owner shall be held liable for all commercial debts. Even two or more persons may decide to share responsibility and liabilities by Partnerships (ansvarlig selskap, ANS), in which case the partners may be collectively and separately responsible for the other spouses ' acts. Conversely, limited liability partnerships (Selskap med delt ansvar, DA) can give the partners limited liability.

• Private Limited Liability Companies (Aksjeselskap, AS) require minimum capital funds (NOK 30 000) while the responsibility of the partners is limited to their contribution. Joint-Stock or Public Limited Companies (Allmennaksjeselskap, ASA) represent the vast majority of companies in Norway because they used larger structures that were prepared to split their resources into tradable securities (at least NOK 1 million). The owners ' interest in those companies is limited to the valuation of their stock. All Norwegian businesses may be founded by a single shareholder.

• Instead, foreign companies can settle in Norway by branch offices which do not place liability limits on the foreign parent company since the branch office is not considered to be a separate legal entity; Joint ventures are concluded by contract, are not incorporated, and are not independent legal entities.

1.3. Regulatory framework

1.3.1. Norway has a system of civil law in which the rules are codified rather than established by the jurisdiction. The nation is part of the Agreement on the European Economic Area, hence most EU laws are now incorporated in Norwegian law.

1.3.2. The judiciary branches into Country-wide Conciliation Boards (present in most cities) and 66 District Courts (tingrett), which are able to deal with civil and criminal litigation. The district court handles all commercial disputes as there are no specialized courts in the country.

1.3.3. Disputes below NOK 125,000 where the parties are not represented by an attorney must normally be brought before being referred to the District Courts. The six Court of Appeal and the Supreme Court (located in Oslo) then serve as the second and final courts of jurisdiction, respectively.

2. Receiving payments

2.1. DSO - Days Sales Outstanding

2.1.1. Payments are made in Norway within a period of 30 daily and the payment conduct of local companies is outstanding. The DSO is slightly higher for listed companies, at 56 days.

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2.2. Late interests

2.2.1. Because Norway is not an EU Member State, the country has aligned its laws with the standards set out in EU Directive 2011/7/EU which requires payments to be made within 60 days. Pursuant to the Norwegian Act on Interest on Overdue Transactions, interest on late payment may be charged the day after the receivable accounts due.

2.2.2. Unless a contract offers a specific interest rate, the Norwegian Department of Justice's reference rate (reviewed every six months) may be applied, raised by 8 percentage points. Cost is usually paid by the investor but can also be used as a negotiating tool to preserve the business relationship.

2.3. Costs of debt collection

2.3.1. According to the Norwegian Debt Collection Law, debt collection charges should be paid to the debtor. Transaction expenses of EUR 40 may also be reported in compliance with the EU Directive, but these would be excluded from debt collection payments charged by the debtor under the Debt Collection Act. Collection experts will get reimbursement of such costs regularly.

2.4. Protecting ownership

2.4.1. Many countries allow the use of Retention of Title (RoT) with the intention of retaining land over products before full payment of the relevant invoice. Nevertheless, ownership security in Norway views RoT requirements as selling guarantees, and has therefore placed some restrictions on the term. Retention of possession of various mobile items (such as vehicles, cars, etc.) is not possible and can not be extended on products that would usually be resold or converted by the customer. It implies that Norway would not count for the most complex types of patented reservation devices

2.5. Payments

2.5.1. The most common methods of payment are as follows: bank transfers are the most common method of payment in Norway, because they are quick, safe and sponsored internationally and domestically by an increasingly integrated banking network. Transfers can nevertheless be insured for export purchases through an Export Credit Insurance policy, which aims to minimize the risk of immediate or accidental insolvency of consumers.

2.5.2. Furthermore, Standby Letters of Credit (a bank guarantees the credit quality of the debtor and the ability to repay) are reliable guarantees even if they are not commonly used. It may also be known to be irrevocable and verified Documentary Letters of Credit (a debtor promises that a certain amount of money will be made available to a borrower through a bank once certain provisions have been specifically agreed upon by the parties).

2.5.3. Bank guarantees overall are fairly available but can be expensive. Checks are no longer used in Norway as a method of payment and some Norwegian banks do not accept foreign checks anymore. Checks (issued within six months), trade bills and promissory notes appear to be used more as loan identification names than means of payment. When left outstanding they would thus become enforceable directly with the courts.

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3. Collecting payments

3.1. Amicable action

3.1.1. Negotiating opportunities for amicable settlement should always be seen as an alternative to formal proceedings. Therefore, before beginning legal proceedings against a debtor, asset appraisal is important because it allows assurance as to whether the business is still successful and whether chances of recovery are at best. Therefore, it is important to be mindful of the solvency condition of the debtor: once insolvency proceedings have been launched, the execution of a loan (see below) is indeed unlikely.

3.1.2. Under the auspices of the Conciliation Committees, Norwegian laws offer strong incentives to use a financial conciliation system (Forliksradet). Such material is transmitted by the Board to the applicant, who is obliged to give his opinions to the Board in writing. Afterwards the sides must consult with the Conciliation Board to reach an agreement (this procedure is often performed without lawyers). If no agreement is reached by the parties but the allegation is legally grounded, or if the claimant fails to respond within three weeks, the Board may rule for the parties and make an enforceable decision. Therefore, the allegation will be sent to the trial and will end in ordinary legal action. This often takes up to a year to finish.

3.2. Legal proceedings

3.2.1. Ordinary proceedings. If the debt is certain and uncontested, a bailiff is first entitled to issue a payment order of the same value as a court judgment. So if the debtor fails to pay as requested, the bailiff may begin forced execution.

3.2.2. Nevertheless, if the claimant contests the claim, the matter must be settled through the Conciliation Board or a regular bargain. Usually, the claimant must file a claim with the District Court that would call the claimants to a conference to discuss the cases, and schedule proceedings to obtain evidence and arguments before making a decision.

3.2.3. Normally courts in Norway would award remedies in the form of costs of damages, interests, and litigation. There are no potential punitive damages.

3.2.4. Required documents:

• Confirmation of contract, invoices, declaration of accounting, notice of execution, arrangement between the parties and any other records which show the rights of the creditor.

3.2.5. Time limits. In fact, however, the parties can decrease or expand this limitation period by up to ten years, legal cases must be placed before the court within three years.

3.2.6. Precautionary measures. Pending a final decision, precautionary measures can help to protect the interests of the debtor. The courts may, in addition, require temporary steps aimed at protecting properties (attachment orders, order restrictions). Nevertheless, the complainant will prove that it has a strong case, and that imposing these interventions will deter irreparable harm from happening. As in most cases, courts that decide in emergency situations to make ex parte rulings (in the absence of the debtor), but the complainant would be required to provide cost-security to protect the defendant against reckless behavior. There are no Same-day requests in Norway.

3.2.7. Appeal lodging. First-instance decisions may be challenged before the Court of Appeal within four weeks. Furthermore, second-instance rulings may also be put before the Supreme Court for appeal. Nevertheless, in this situation, the applicant may ask for the authorisation of the Review Committee of the Court.

3.2.8. Enforcing court decisions. A verdict remains enforceable for ten years as long as it becomes definitive (i.e. when all the courts of appeal have been exhausted). If the debtor fails to satisfy the judgment, it may become necessary to ask the regulatory authority to compulsorily execute the judgment, which will then seize the debtor's properties and money for settlement of the demand.

3.2.9. Duration of a legal action. The period of the trials can differ from court to court and therefore a consistent average term for litigation proceedings can not be provided.

3.2.10. Legal action over debt collection is the same for domestic and foreign creditors, and court decisions on claims brought by foreign creditors do not require more time. Nonetheless, as the case may be more complicated, hearings that take longer.

3.2.11. Costs of a legal action. The losing party will typically be required to pay the expenses of the successful party in full as a general rule, but in fact the court also requires the plaintiffs to compensate for their own expenses in accordance with the litigation.

3.2.12. Court fees would also occur, although depending on the type of prosecution and the number of days spent in legal, these would differ. Contingent fees which allow legal professionals to earn a percentage of the final award are deemed unlawful.

3.3. Alternatives to legal action

3.3.1. Alternative Dispute Resolution Methods are common in Norway, where mediation and arbitration are increasingly being used as a means of avoiding ordinary lawsuits within the business community. Mediation requires the appointment of a mediator who is in control of having the sides reach a compromise. In other terms, the mediator has no policy-making powers on behalf of the parties and they can not commit the parties to a judgment. The arbitration is only final where a settlement agreement is reached at the conclusion of the negotiations between the parties. The mediator really does serve as mediation facilitator.

3.3.2. Arbitration requires the parties agreeing to rely on an independent and impartial arbitrator from a third party who has the power to resolve a disagreement on their behalf. Decision of the arbitrators will be binding upon the parties.

3.3.3. As an out-of-court mediation process, ADR can be cost-effective, usually eliminates appeals, requires secrecy to be maintained and creates a legal judgment that can then be applied before the courts if appropriate. The legal tribunal may also be regarded when including international transactions.

3.3.4. External mechanisms It is not appropriate to use an external tribunal to achieve an enforceable ruling, but Norway is a signatory to the Hague Convention of 15 June 1955 on the Law Applicable to the Foreign Sale of Goods, which authorizes the parties to a deal to choose the law governing their business relations. International traders may therefore decide to settle their business conflicts in an international court (i.e., under foreign law or before an international tribunal).

3.3.5 However, it is essential that the agreement be characterized by an international connection (e.g. one party has elected domicile in another country, or the place of execution is located abroad), and that a jurisdiction clause be drawn up specifically for this purpose.

3.3.6 As regards ownership protection, the courts have established that only Norwegian law would be applicable, despite any agreement between the parties to rely on a foreign forum.

3.3.7. Enforcement of foreign awards. Although it is rather unusual to use foreign forums to obtain enforceable decisions against domestic debtors, foreign decisions issued against foreign debtors may be enforced in Norway, provided certain conditions are met. On the one hand, decisions made in an EU country would benefit from the particularly advantageous conditions for enforcement. In addition to EU payment orders which are normally enforceable directly in domestic courts, the two main methods of enforcing an EU judgment in Norway are the use of a European Enforcement Order (EEO, as provided for in Regulation EC No 805/2004) where the claim is unchallenged or the registration of the judgment under the provisions of Brussels I Regulation (44/2001).

3.3.8. If the judgment qualifies as an uncontested claim, it can be directly enforced (i.e. without registration) through the use of an EEO provided the debtor has identified assets in the country. Similarly, a European Small Claims Procedure (as provided for in Regulation EC 861/2007) aimed at eliminating intermediate steps can be relied on while enforcing decisions of up to EUR 2000.

3.3.9. The procedure for registering an EU judgment with domestic courts is relatively simple, if the claim is disputed. To order for the judgment to be recognized, the judgment holder will appeal to the court involved and provide the court with, among other records, an approved copy of the judgment, a validated transcript and, if interest is asserted, a letter stating the amount and interest rate at the time of the application and forwards. Once the judgment has been published, it can be applied as if it had been given by domestic courts (according to Recast Regulation EC 1215/2012, such an exequatur process will no longer be required as from January 2015).

3.3.10. On the other hand, decisions made in foreign countries outside the EU will generally be accepted and applied on a mutual basis, given that the issuing nation is a party to a bilateral or multilateral arrangement with Norway drafted for this reason.

3.3.11. For example, the 1977 Act No 71 on the acknowledgement and compliance of Nordic rulings specifies that the domestic courts may follow final decisions taken by Danish, Finnish, Icelandic or Swedish courts. Exequatur proceedings would take place before domestic courts, in the absence of reciprocal arrangements.

3.3.12. As a general rule, foreign judgments can not be reviewed on the merits of the case, but courts would deny admissibility where the foreign decision in the issuing country is neither final nor enforceable, deemed incompatible with domestic public policy or with decisions taken by domestic courts, if the defendant has not benefited from a proper legal process, etc.

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4. Managing insolvent debtors

4.1. Insolvency in Norway

4.1.1. The debtor needs to be both insolvent and 'insufficient' in order to apply for insolvency proceedings (Konkurs) in Norway. While insolvency (illikvid) refers to the permanent inability to pay outstanding debts as they fall due, insufficiency rather describes a situation where the debt exceeds the assets of the company.

4.1.2. The primary Norwegian law on insolvency is focused on two key pieces of legislation. The 1984 Creditors Recovery Act (the Recovery Act) regulates procedures for debt recovery, sets the relevant deadlines and clarifies priorities. Instead, the Debt Reorganization and Bankruptcy Act of 1984 (the DNB-Act) governs all mutual and involuntary debt settlement and bankruptcy proceedings.

4.2. Insolvency procedures

4.2.1. The Norwegian district courts conduct bankruptcy proceedings. There is, however, a separate court in Norway that manages all the bankruptcy proceedings.

4.2.2. Insolvency proceedings. Personal reorganizations which are not handled by the judiciary are usual in Norway but prosecutions are not regulated by law. I focus on this method because it guarantees a secure negotiation process between the parties. A debtor and their creditors are thus free to make any kind of arrangements they choose but the DNB rules are often applied in practice and many creditors (such as credit insurance companies, factoring companies and banks) will require an external party (lawyer or accountant) to handle the process.

4.2.3. The termination of bank debt settlement proceedings (under the DNB Act) can only be undertaken by a committed claimant who has to show that the corporation is illiquid, i.e. unable to satisfy their obligation as it comes due, unless this requirement is conditional. The financial situation of the debtor is examined with a supervisory committee formed by the court and a plan for a structure (confidential phase) is prepared. If the court finds it likely to succeed, both an Arrangement Committee and a court-appointed administrator must oversee the activities of the debtors and prepare an arrangement agreement. A suspension means the debtor is safe from prosecution of individual claims during this period. A debt settlement process can result in a completed debt settlement, composition or–usually–bankruptcy proceedings beginning.

4.2.4. Nevertheless, the Norwegian Advisory Council on Bankruptcy noted in a 2012 report that DNB procedures did not become the common success envisaged in 1984. While the bill is influenced by the U.S. Chapter 11 never offered the court the versatility necessary to reach win - win settlements. Furthermore, although procedures should be confidential, they often quickly become public in practice, pushing debtors into confidential negotiations outside the courthouse.

4.2.5. Winding up proceedings. Bankruptcy proceedings may be initiated after appeal by a court decision either from the claimant (and his staff) or a creditor. A borrower who files for bankruptcy proceedings to begin must pledge expenses related to the proceedings (limited to NOK 43,000).

4.2.6. The court must designate a trustee (usually a lawyer) upon the start of the bankruptcy proceedings and determine the need for a creditor committee before granting a bankruptcy decree and allowing creditors three to six weeks to file a petition. The loan is assessed for all the debtor's properties and a collection of allegations is created.

4.2.7. The procedure is completed when the debtor's properties are allocated to the investors or when owing to inadequate means the process is terminated.

4.2.8. Priority rules. Generally, priority rules apply when transferring the profits to the creditors. Pension, income, and tax statements are given priority over preferred and unsecured claims.

Before the remaining funds of the estate are distributed among the investors, preferred demands must be fulfilled in full.

4.2.9. Furthermore, section 9.2 of the Creditors Recovery Act provides a full overview of the different types of preferential claims. Sources of such charges would be the costs incurred when selling the assets, the costs for the trial and the charge for the trustee. If the family maintains the debtor's company after the bankruptcy proceedings have started, the operating expenses accrued after the conclusion of those proceedings would also constitute favorable statements. Throughout fact, favorable representations may also be of a non-monetary type, e.g. the demand for possession of an item owned by the bankruptcy family. Profit accruing on preferred claims has preference claim status.

4.2.10. In the event of bankruptcy, investors with a RoT right are in a special position, but this would not extend to all mobile products (such as planes, cars, etc.) and can not be extended on items that would usually be resold or converted by the consumer. Many unsecured allegations will remain unsolved.

4.2.11. Cancelation of suspicious transactions. Some conditions made by the debtor prior to bankruptcy may be reversed, such as bankruptcy-motivated contracts (generally going back two years, in some instances longer) and, strictly speaking, donations, inheritance denunciations, exceptional debt payments or protection guarantees for existing debt during the period prior to the cut-off

4.2.12. Duration of insolvency process. Insolvency proceedings may take from one to many years, whether it is in the form of debt settlement or bankruptcy.

4.2.13. Necessary documents: A bankruptcy motion must be sent where the plaintiff shows the company should be declared bankrupt. In this case, in addition to the documents requested under legal action, any documents which could support this should be provided.