Entrepreneurs may be able to avoid bankruptcy by anticipating difficulties - if they keep a close eye on the financial situation of their business.
There is a difference between bankruptcy in limited companies and bankruptcy in partnerships.
Bankruptcy is dealt with in the following Acts, among others:
Procedure in case of insolvency
An enterprise can avoid going bankrupt if it has good financial management and contacts its creditors at an early stage to assess the situation. By way of negotiations between the enterprise and its creditors, an agreement may be concluded to resolve the debt situation.
Deferral of payment
An enterprise that is unable to meet its commitments can enter into an agreement with its creditors to defer payments or agree upon a new payment schedule. This can help to improve liquidity in the enterprise in the short term, which may be sufficient if the enterprise has a temporary liquidity problem.
A composition is a percentage reduction of the debt where the creditors grant a remission of part of the debt. A composition means that the business gets into a better financial situation.
Financial restructuring of the balance sheet
This is a measure that involves an analysis of the balance sheet to improve the financial situation in the enterprise by e.g.:
- selling surplus assets
- reducing the lock-in period for current assets
- extending repayment periods for debts
- options for generating new equity
If the enterprise cannot settle its liabilities and other measures have been considered without a solution being found, bankruptcy is the last resort. The assets of the enterprise are converted into cash and distributed pro rata among the creditors.
A condition for initiating bankruptcy proceedings is that the enterprise (the debtor) must be insolvent. When someone has decided to file for bankruptcy, a request to open bankruptcy proceedings is sent to the local court.
To open bankruptcy proceedings, the district court is the authority the enterprise needs to apply to. The district court mainly handles civil disputes and criminal cases.
How to handle bankruptcy
In the event of insolvency/bankruptcy, the Bankruptcy Act and the Satisfaction of Claims Act provide guidance on settling claims from creditors.
Entrepreneurs having experienced bankruptcy should not lose confidence in their ability to embark on a new business.
Procedure in the event of bankruptcy: a guide
The application for bankruptcy must be made in writing. If the debtor is a private individual, the application should be submitted to the district court where he/she lives. If the debtor is an enterprise, the application should be submitted to the district court where the business is run.
Expert guidance should be obtained on how to lay out the application for bankruptcy. For example, the bankruptcy court or a lawyer may be contacted beforehand.
When the district court has received an application for bankruptcy, the debtor is usually summoned to a meeting. The person who applied for bankruptcy will also be summoned.
The district court can then take a view as to whether the conditions for initiating bankruptcy proceedings are in place. Alternatively, proceedings may be opened in the debtor's absence.
If the debtor is declared bankrupt, the district court will normally appoint a lawyer as official receiver.
The person who wishes to have someone declared bankrupt must lodge security to cover the costs of the bankruptcy proceedings.
Quarantine means that the person concerned cannot set up a limited company, a branch of a foreign company, a commercial foundation, housing association, housing cooperative, etc., or take on new duties as a member or deputy member of the board or become the managing director of any such entity. They must also be relieved of any such duties they already have.
Procedure for compulsory liquidation of a company
The district court can call for the compulsory liquidation of a company that does not meet the requirements of the Limited Companies Act. This may be a company that does not have share capital of at least NOK 30,000, a company that does not have a board of management that satisfies legal requirements, does not have a managing director or auditors as required by law, or has not submitted annual accounts.
These matters are passed to the district court from the Register of Business Enterprises or the Register of Company Accounts in Brønnøysund. Before sending these to the district court, the Register Centre will have notified the enterprise that the conditions set out in the Limited Companies Act are not satisfied.
The enterprise will be given one month's grace to put matters in order and will be informed of the consequences of exceeding the time limit. If the enterprise has not rectified the situation by the end of the grace period, official notice will be given.
The notification states that the conditions for winding up the enterprise are in place and that the enterprise has two weeks from the date of notification to rectify the situation. At the end of this time, the Register of Business Enterprises or the Register of Company Accounts will notify the district court, which will declare the enterprise dissolved by court order without further notice.
The court order has the effect of an order to initiate bankruptcy proceedings; cf. Section 16-17(2) of the Limited Companies Act.
Procedure for compulsory liquidation of a company
Where there are specific grounds for doing so, the district court can order the compulsory liquidation of an enterprise that has not been reported finally dissolved no later than one year after the enterprise itself has submitted its decision to wind up.
The Register of Business Enterprises notifies the district court that this deadline has expired.
Before the district court decides to assume responsibility for compulsory liquidation of the enterprise, the board (or liquidation board) must be given the opportunity to comment.
If the district court decides to wind up the enterprise, the court order has the effect of an order to initiate bankruptcy proceedings.
You can obtain detailed information on winding up an enterprise from the Bankruptcy Act and the Norwegian Advisory Council on Bankruptcy.
You can find further information on the following web sites:
Enforcement Officer (Namnsmannen) - your web site for information on compulsory enforcement, the work of the Conciliation Board and the Chief Summoner.