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Lietuvių kalba For many people, bankruptcy can be unfamiliar and unmanageable. Below is a brief review of the general processes that take place in bankruptcy proceedings. The list is neutral in relation to your position in connection with the bankruptcy, whether you are a bankruptcy debtor, petitioner, creditor, debtor, employee or others. Special issues related to some of these groups will be discussed in more detail in separate articles.
What is a bankruptcy petition?
Any bankruptcy begins with a petition. There are two different types of petitions: a petition for reorganisation and a petition for bankruptcy.
A winding-up petition is submitted to the district court by the company's own board of directors on the basis that the board believes that the company is insolvent and that the company's payment challenges are not of a temporary nature.
A bankruptcy petition is filed with the district court by a creditor on the basis of an unpaid claim. The debtor can be both a company and a private individual. The creditor can be an employee, a supplier or, for example, a bank. Often, however, it is the Norwegian Tax Administration that petitions a company or private individual for bankruptcy. The reason for bankruptcy in these cases is due to non-payment of VAT, tax, advance tax, employer's national insurance contributions, fees, interest or other claims under public law that the Tax Administration collects.
The person who submits a bankruptcy petition is called the bankruptcy petitioner. In a bankruptcy petition, the petitioner must prove that the debtor is insolvent or fulfil certain conditions for a presumption of insolvency, in addition to its unpaid claim. The Bankruptcy Act sets out several procedures to ensure that non-payment of claims can be put forward as proof that the company is insolvent and unable to pay its obligations as they fall due.
The bankruptcy petitioner must provide security for the estate administration up to a maximum of 50 court fees. This amounts to NOK 58,600 in 2020. The amount must be paid to the district court prior to the opening of bankruptcy proceedings. Employees and the company itself are exempt from paying this amount.
If your customer fails to pay, you can consider whether it is desirable to file for bankruptcy. Please contact us if you require legal assistance in such a process.
How is a bankruptcy opened?
A judge in one of the country's district courts decides by order that a company or private individual should be placed under bankruptcy proceedings. If the basis for the bankruptcy is a petition from a creditor, the bankruptcy petition will be processed in a court hearing at which both the petitioner and the debtor are obliged to attend. Under certain conditions, bankruptcy can be opened despite the debtor not attending.
A winding-up petition is not dealt with in a formal court hearing, but by a judge/assistant judge as an office procedure.
The decision to open bankruptcy will be stated in the court's bankruptcy opening order. Such an order will briefly state who the petitioner is and the grounds for the petition. It will also state whether the bankruptcy debtor recognises its inability to pay and insolvency. An approximate estimate of the bankruptcy debtor's assets and liabilities is often also stated. The court appoints a lawyer who is responsible for the estate, and the lawyer's name and contact information must also appear in the order. In addition, the order must state the deadline for the estate, as well as the deadline for creditors to lodge claims against the estate. See separate article for the procedure for reporting claims in our bankruptcy estate. The date of the estate's probate meeting will also appear in the ruling.
What are the consequences of going bankrupt?
When bankruptcy is declared, the trustee is in charge of the company's assets. This means that the company's board of directors/management, or the bankruptcy debtor personally, lose all right of disposal over their own assets. With effect from the time the bankruptcy is opened, the bankruptcy debtor is not allowed to dispose of the estate's assets. They can neither use, pledge nor sell the assets included in the bankruptcy estate's seizure. Nor can a bankruptcy debtor accept fulfilment of the estate's outstanding claims or notices of termination on behalf of the estate, or incur obligations for the estate.
The bankruptcy debtor is also obliged to assist the trustee in the work of recovering possible assets and clarifying matters of significance to the creditors' ability to cover their debts. The duty to assist also includes the obligation to provide or obtain all information about the company's financial circumstances and the business conduct that has been carried out, as well as to submit correspondence, accounting records and other documents of importance to the estate administration. The bankruptcy debtor is also obliged to provide assistance in order to secure the estate's assets and determine the extent of the estate's obligations to any third parties.
It should be noted that if the bankruptcy debtor is a company, it is the board of directors, usually represented by the chairman, that is subject to this duty of assistance. Persons who have had formal roles in a bankrupt company in the last year before the bankruptcy is opened are also subject to this duty of assistance.
What happens during an estate administration?
The appointed trustee is responsible for ensuring that a number of investigations and tasks are carried out during the estate administration. This can be briefly summarised as, among other things
- secure assets in the company
- Investigations to uncover and recover possible assets/irreconcilable/indemnifiable matters, including reviewing accounts
- withdraw from any leases and other agreements
- assess criminal offences and bankruptcy quarantine
- assess the time of insolvency
- If necessary, carry out a claim assessment and payment of dividends
What is a probate collection?
A bankruptcy meeting is a court hearing in the district court at which the judge, trustee and chairman of the board of the bankrupt company, or the bankruptcy debtor in the case of personal bankruptcy, are obliged to attend in person.
During the corona pandemic, both Nedre and Øvre Romerike District Courts have decided that all their probate sessions will be conducted by telephone conference. It is not yet known how long such an arrangement will take place.
At the probate meeting, the trustee must present the trustee's interim report and briefly review the document's important aspects. Among other things, the document should say something about what the company has been doing, why it has gone bankrupt, whether assets and liabilities have been uncovered, whether the company is insolvent, possible criminal offences and the completed estate administration.
Shift assembly is over - now what?
In some smaller bankruptcy estates, it will be possible to terminate the bankruptcy proceedings already at the probate meeting. An important condition for this to be possible is that the deadline for reporting claims in the estate has already expired, and that all necessary steps in the estate proceedings have been completed. If these two conditions are met, the document presented at the probate meeting in the district court will be a combined temporary report and final report with associated bankruptcy accounts and status.
In many bankruptcies, however, the deadline for filing a claim has not expired at the time of the bankruptcy meeting. It is therefore not possible to finalise the bankruptcy at the probate meeting in many cases. If the estate administration was largely completed at the probate meeting, the estate will be finalised relatively quickly. In some cases, however, the actual work on the estate is not completed, either because, for example, matters have not been clarified, the collection of outstanding debts or other claims is ongoing, or further investigations must be carried out in relation to possible criminal offences and the preparation of a report. This means that the time aspect for further estate administration will vary greatly. Many bankruptcies will be finalised within three months, while some bankruptcies will continue for several years. It is not possible to say anything in general, but a specific estimate for each bankruptcy estate can be found in section 11.3 of our interim reports.
If you disagree with the bankruptcy opening - can you appeal?
Anyone affected by the opening of a bankruptcy has the right to appeal the district court's bankruptcy order. The appeal must state what the party believes was wrong with the ruling and prove that the company or private individual was not insolvent. The appeal deadline is 1 month. The appeal must be sent to the district court that opened the bankruptcy. For our bankruptcy estates, the actual appeal process will take place at Eidsivating Court of Appeal. Despite the filing of an appeal, the necessary estate administration to prevent losses will be carried out while waiting for the appeal to be processed.
What happens after the end of bankruptcy proceedings in a corporate bankruptcy?
After the bankruptcy proceedings are finalised, a bankrupt company will cease to exist. The company's organisation number and registration of the company in the Register of Business Enterprises will thus be deleted. After this, it will generally not be possible to recover claims against the company and the creditor will have to recognise the claim in its own accounts. The exception to this general rule is where the bankrupt company's board of directors, in their capacity as directors, have intentionally or negligently caused damage. Anyone affected by such damage may claim compensation for their loss directly from the party that caused the damage. It should be noted that such an obligation to compensate the board of directors is an exceptional rule, and that such claims often require civil action against the board's representatives. If a creditor wishes to initiate such a process, we recommend that the litigation risk is assessed against the size of the claim, etc. If your claim is not against a company where one of us is appointed as trustee, we can assist in such an assessment and any further litigation.
What happens after the end of bankruptcy proceedings in personal bankruptcy?
In cases where the bankruptcy debtor is a private individual, all debts that are not covered in their entirety by any dividend payment will continue to exist after the end of the bankruptcy proceedings. The individual creditor can therefore continue any claims against the debtor after the end of the bankruptcy proceedings.
If the bankruptcy debtor is the owner of a sole proprietorship, it should be noted that this will not be deleted as a result of the bankruptcy. In many cases it will be the case that the personal bankruptcy debtor, even during the bankruptcy proceedings, will continue his activities in a small sole proprietorship if this is considered financially favourable for the debtor and the creditors. Such continued operation will generally be at the bankruptcy debtor's own expense and risk.
