Norway International Update – Q2 2023
This update explores high level trends and legal developments across some of Norway’s key business sectors that have an international impact.
Norwegian economy has during Q2 been characterized by several increases in the policy rate, a weak Norwegian krone (NOK) and significant price growth. Starting from the policy rate of 3% set in March, the rate was further increased to 3.25% in May and again to 3.75% on 22 June. Additional increases are expected during Q3.
On September 28, 2022, the Norwegian government presented a proposition for new rules on taxation of profit from natural resources. In May the tax rate on fish farming was set to 25%, down from the proposed 35%.
The Norwegian Transparency Act is a relatively new law that came into effect on 1 July 2022. The Transparency Act aims to promote businesses’ respect for fundamental human rights and decent working conditions while ensuring public access to information. It imposes obligations on businesses, including the duty to provide information and carry out due diligence assessments that must be disclosed in a report. The deadline for publishing the first report was on June 30th.
Uncertainty continues to impact the M&A market in Norway. Macro-economics and markets are volatile, with interest rates continuing to rise and the level of inflation remaining high. Access to debt financing is still challenging, particularly for larger transactions, and the financing costs are increasing with increased interest rates. Consequently, real estate transactions are still at a very low level (as in most other European countries), now at a level of approx. 30% of transaction values in 2022. We have also seen political factors having an adverse impact for investments, especially for sectors hit by such new legislation such as the tax rate on fish farming and the handling of wind power tax.
The IPO market is currently quiet, with a limited number of new listings. There has been ongoing IPO activity, but few IPOs have been launched and completed. Investors are cautious, requiring pre-commitments before publicly launching an IPO. The market has seen a decline in IPOs compared to previous years, with only seven listings on Norwegian marketplaces in the first six months of 2023 (compared to 17 in the same period in 2022).
M&A and Corporate Law
Key contacts: Harald Hellebust, Jarle Kvam, Gunhild Dugstad and Svein-Helge Hanken
Uncertainty continues to impact the M&A market in Norway. Macro-economics and markets are volatile, with interest rates continuing to rise and the level of inflation remaining high. Access to debt financing is still challenging, particularly for larger transactions, and the financing costs are increasing with increased interest rates. Consequently, real estate transactions are still at a very low level (as in most other European countries), now at a level of approx. 30% of transaction values in 2022. We have also seen political factors having an adverse impact for investments, especially for sectors hit by such new legislation such as the tax rate on fish farming and the handling of wind power tax. The result has been a decline in the number of deals in the first half of 2023. Interestingly, there is also a downward trend from the first to the second quarter of 2023, with 174 deals in the first quarter to 167 in the second quarter, while historically, deal volumes have had an upward trend from the first to the second quarter.
However, deals are still being completed, particularly within certain sectors such as oil, oil service and shipping, and the number of small and medium sized deals is relatively good. Challenging markets have also led to more creativity on deal structures and risk mitigation. Joint ventures, co investments, minority investments and club deals are often used as tools for market participants wanting (or needing) to close a deal. Further, the public takeover activity is stable in terms of numbers, and increasing in terms of values: so far in 2023 at EUR 18.6 billion, up from EUR 4.8 billion in first half of 2022.
Although uncertainty in terms of macro-economics seems to continue in Q3, we also see a growing deal pipeline waiting for the conditions to improve, and investors and funds with equity waiting to be invested. Conditions can and do change quickly, particularly for some sectors. For the seafood sector we expect an increase in the activity after a finally getting some clarity on the salmon tax that was introduced in September 2022 (please see further description in section Tax and VAT below). However, both sellers and investors are cautious, and it will likely take some time and more stability before we see a real increase in transaction activity.
The Foreign Subsidies Regulation (FSR) – a game changer for M&A
On 12 January 2023, the EU Foreign Subsidies Regulation (the “FSR”) entered into force. The FSR aims to address distortions in the internal market caused by foreign subsidies to create a level playing field for companies operating in the EU. Unlike state aid granted by EU Member States, which is subject to stringent EU state aid rules and in many cases approval by the European Commission (“EC”), foreign subsidies from third countries have previously escaped the EC’s control. The FSR intends to close this regulatory loophole through filing requirements imposed on market participants and gives the EC a toolbox to tackle competitive advantages market participants operating in the EU obtain through foreign subsidies from non-EU Member States. The proposed information requirements in connection with the filings are extensive. The FSR regulatory regime is separate from and comes in addition to EU and national merger control/anti-trust filing regimes.
Read more in our newsletter from 17.04.2023.
The FDI screening regime and its potential impact on M&A transactions
Foreign Direct Investment Controls (FDI controls) are increasingly important for transactions in different countries. Norway’s National Security Act (NSA) regulates FDI and is undergoing amendments that will expand filing requirements. Varied FDI regulations and frequent changes add complexity. Filing obligations can halt transactions and impose conditions. Thorough analysis is needed before deals, considering ownership interests and contractual terms.
In our newsletter from 17.04.2023 you can read more about NSA regulations and recommendations, along with proposed amendments.
Rules on Gender Representation in Limited Liability Companies
The government, in collaboration with the Confederation of Norwegian Enterprise (NHO) and the Norwegian Confederation of Trade Unions (LO), has developed a proposal to introduce requirements for gender composition in the boards of Norwegian medium-sized and large companies. The ministry proposes that medium-sized and large companies should have a minimum gender balance of 40 percent in their boards. The rules will be gradually implemented starting from 2024. Initially, the rules will apply to companies with over 100 million NOK in total operational and financial revenues. The rules will then be expanded annually. When the phased introduction is completed by 2028, the requirement for gender balance will apply to around 20,000 companies, including those with more than 30 employees and with over 50 million NOK in total operational and financial revenues
IPOs
Key contacts: Anne Lise E. Gryte, Simen Mejlænder, Sverre Sandvik and Tone Østensen
The IPO market in Norway is currently quiet, with a limited number of new listings. There has been ongoing IPO activity, but few IPOs have been launched and completed. Investors are cautious, requiring pre-commitments before publicly launching an IPO. The market has seen a decline in IPOs compared to previous years, with only seven listings on Norwegian marketplaces in the first six months of 2023 (compared to 17 in the same period in 2022). However, in June 2023, there were some indications of an improved IPO market in Europe, which gives reason for cautious optimism for IPOs in the remainder of 2023. With several well prepared IPOs in the pipeline, the IPO markets could be some of the firsts to benefit on more macro-economical stability. We could then see a repeat of the situation in 2020, when the IPO markets opened before the M&A market, which also lead to multiple dual-track deals.
Energy: Oil and gas
Key contacts: Jon Rabben, Sondre Dyrland, Inge Ekker Bartnes and Kjetil Stensvik
Late June the Norwegian Ministry of Petroleum and Energy approved the development of 19 new oil and gas projects. An all-time high number of new projects due to the incentives of the temporary tax regime implemented by the government during the covid pandemic. The new projects will come on stream during the second half of the 2020s and will contribute to a high activity level in the oil service industry the coming years.
The gas infrastructure on the Norwegian Continental Shelf is currently mainly owned by partnerships consisting of the O&G licensees and some financial investors. Key parts of the upstream gas infrastructure have license periods that expire in 2028, and the state has the right of reversion at the end of the license period. Late April 2023 the Ministry of Petroleum and Energy announced, slightly surprisingly, that the state aims to make use of the right of reversion and wants a full state ownership of the key parts of the upstream pipeline network. Where takeover possibly requires compensation, the state has signaled that such compensation must be based on the future expected net income that the owners of the infrastructure will have from their position. We assume that the most complicated takeover negotiations between the state and the owners will relate to the parts of the gas infrastructure without an explicit license period.
Energy: Carbon capture and storage (CCS)
Key contacts: Jon Rabben, Sondre Dyrland, Inge Ekker Bartnes and Kjetil Stensvik
The commercial interest in CCS continues. Two new exploration licenses relating to CO2 storage have been awarded in the southern part of the North Sea to two different license groups consisting of Aker BP ASA and OMV (Norge) AS, and Wintershall Dea Norge AS and Stella Maris CCS AS, a subsidiary of Altera Infrastructure Group. Another award, relating to the Trudvang license in the North Sea, was expected within the end of 1H 2023 but has not yet been published.
In the stately funded Longship project, where CO2 is planned to be captured at two different sites, the carbon capture project at Hafslund Oslo Celsio’s waste-to-energy plant at Klemetsrud in Oslo has been temporarily halted due to significant cost overruns. Hafslund Oslo Celsio still intends to establish a carbon capture facility but will use the next year on cost reducing measures with the aim to reach a new investment decision.
Renewable Energy
Key contacts: Jon Rabben and Inge Ekker Bartnes
The Norwegian government is implementing stricter regulations for electricity suppliers due to concerns about high electricity prices and certain exploitative practices. The Consumer Protection Authority found potential breaches of the Marketing Act and the Cancellation Act, leading to compulsory fines. The government rejected a proposed template for standard spot price agreements and seeks a more easily comparable agreement. The Regulatory Authority for Energy (RME) proposes six measures, including new sanctions and stricter requirements.
Ahead of the upcoming tender for offshore wind acreage this fall, a draft contract for difference for offshore wind has been distributed to potential applicants for comments. In addition, the contract for difference scheme has been approved by the Norwegian parliament.
Stricter requirements for electricity suppliers
In line with the rise in electricity prices in recent years, increased scrutiny has also been placed on the practices of electricity suppliers in Norway. One issue highlighted has been that electricity supply companies have been able to break the law repeatedly without any real consequences. The Norwegian The Consumer Protection Authority’s (Nw.: Forbrukerrådet) annual report for 2022 revealed possible breaches of the Marketing Act, in addition to the fact that several electricity companies may have breached the Cancellation Act through possible over-invoicing of consumers and changes to terms during the contractual relationship. The agency decided to give 14 electricity sales companies notice of compulsory fines. The government has now announced that electricity sales will be more strictly regulated.
As part of the stricter regulation, the government has asked for a standardized spot price agreement that can be easily compared across suppliers. The government has recently rejected the new template for standard spot price agreements proposed by the industry organization Fornybar Norge, on the grounds that it “does not meet political expectations”.
In addition, the Regulatory Authority for Energy (“RME”), commissioned by the Ministry of Petroleum and Energy, has concluded that there is a need for new reaction and sanctioning options for power suppliers who sell power to end users. RME has proposed the following six measures:
- New sanction options for breaches of the energy regulations
RME recommends expanding the current response options by giving RME the competence to make decisions on the confiscation of dividends, which have been obtained in violation of the Energy Act and associated regulations. It is also recommended that the right to impose infringement fees on contributors to breaches of the energy regulations be reintroduced.
- Stricter requirements for knowledge of financial risk and requirements for suitability
It is recommended that electricity companies make a self-declaration that they are aware of the risk of offering price hedging agreements. RME further recommends that a requirement be introduced regarding the suitability of the board and other key persons in the company’s day-to-day management.
- Withdrawal of license based on breach of other relevant regulations
RME recommends that they be given the opportunity to withdraw a license in the event of a breach of regulations other than the Energy Act and related regulations. The measure will only be used in extraordinary cases.
- Individual conditions for concessionaires
RME proposes increased use of special adapted conditions for concessionaires who have committed breaches of the rules.
- Prohibition on entering into new agreements with end users
In cases where electricity suppliers have committed serious breaches of the regulations, RME recommends that there should be a time-limited ban on entering into new agreements with end users. RME wants the ban to apply until the breach of the rules is rectified.
- New license for power suppliers that have sales to end users
RME proposes that a separate, stricter set of conditions be developed for concessionaires who sell power to end users.
It will now be up to the government whether the proposals are to be incorporated into the regulations.
Contracts for differences for offshore wind have been submitted for consultation
The Norwegian government has sent a draft contract for difference for offshore wind in the Sørlige Nordsjø II for a limited consultation with interested parties. Such contract relieves the producer of risk by securing that a certain pre-agreed price for produced energy can be considered, and on the other hand, it could bring income to the state if the price becomes high. Briefly explained, it means that if the spot price goes below the bid price in the contract for difference, the government must pay the difference to the producer, and if the spot price goes above the bid price in the contract for difference, the producer must pay the difference to the government. In this sense, the state is helping to bear risk, and the state will also be able to get part of a possible profit. This is the first government backed contract for difference scheme offered to the wind energy industry in Norway.
In addition, the Norwegian parliament, in its approval of the contract for difference, has raised the support ceiling from NOK 15 billion to NOK 23 billion. The deadline for prequalification for the Southern North Sea II acreage auction was originally 4 August but has now been postponed to 1 September.
Construction
Key contact: Hans Augun Parmann
Increased interest rates in combination with high construction costs has created uncertainty about continued growth in the Norwegian construction market. At the same time, large infrastructure projects continues to draw attention from major international actors. The PPP contract for the NOK 25 billion Rv. 555 highway was concluded last year between an international consortium consisting of Macquarie, Webuild and SK ecoplant. More recently, Skanska achieved financial close on the NOK 10 billion PPP contract for the E10 in Norther Norway. Both contracts involve the financing, design, construction and the operation of the highways for 15 years and represents the two largest highway contracts ever being entered into by the Norwegian state. Wiersholm is proud to have successfully assisted the supplier on both projects.
Real Estate
Key contacts: Tom Rune Lian, Ståle O. Meleng and Stig L. Bech
In Norway we have experienced a slowdown in the first quarter of 2023, but at the same time with a slight growth of 0,20 % of mainland GDP. Heightened inflation and interest rates have also had substantial impact on the transaction market, and on the decisions to effect new projects.
- Policy rate has been changed to 3,75 % as of 23 June.
- We have observed unusually high inflation rates. It remains to see whether the forecast will be correct, but it was raised in March to 5,0 % for the year 2023.
- Surprisingly the office rental market has continued in a robust manner during 2023, but there are signs off slowdown partly based on unemployment numbers rising marginally.
- The use og home office has not significantly affected the demand for space, different from what we see in most other regions.
ESG
Key contact: Georg Abusdal Engebretsen
The Norwegian Transparency Act is a relatively new law that came into effect on 1 July 2022. The purpose of the law is to promote businesses’ respect for fundamental human rights and decent working conditions, and to ensure the general public access to information. The law imposes obligations on businesses including a duty to provide information and to carry out due diligence assessments that must be disclosed in a report. The deadline for publishing the very first report was on June 30th.
Breach of the Transparency Act can result in prohibitions, orders, coercive fines and administrative fines. In case of repeated infringements of section 5 (duty to account for due diligence), section 6 (right to information) or section 7 (enterprises’ processing of requests for information) an administrative fine may be imposed by the Norwegian Consumer Authority. In February, a new regulation on measuring of coercive fines and administrative fines was adopted, which applies, among other things, to the Transparency Act. According to the regulation, an administrative fine of up to 4% of the company’s annual turnover or up to 25 million Norwegian kroner may be imposed, with the higher amount being applied. Many have criticized the way the regulation was introduced, as it was adopted without sufficient consultation related to the Transparency Act. Therefore, a consultation has been announced to take place this spring. However, a specific date for when the consultation will take place has not yet been set.
Another recent update in the ESG regulatory landscape, includes, as mentioned in our previous Q1 2023 update, the Corporate Sustainability Reporting Directive (CSRD). The CSRD entered into force in the EU on 5 February. We refer to our previous updates in 2022 and 2023 for more information about the directive.
In May, a public committee submitted a report to the Government on the national implementation of the European regulations. The report is currently open for public consultation until 4 of September 2023. The committee proposes that the scope of the regulations in Norway should be the same as in the directive, estimating that approximately 2,100 Norwegian companies will be subject to the new rules. Following the CSRD, the obligation to prepare sustainability reporting will be phased in from the 2024 fiscal year to the 2016 fiscal year. This means that the first companies will have to apply the rules for the first time in the 2024 fiscal year, for reports published in 2025. Furthermore, the CSRD makes it mandatory for companies to have an audit for the sustainability information they report by the company’s statutory auditor. However, the Member States have the option to allow companies to choose that the reporting be audited by another auditor or an indented assurance services provider. The committee proposes that both options be allowed in Norway.
National Security
Key contact: Georg Abusdal Engebretsen
On 31 March 2023, the Government presented a legislative proposal for amendments to the Norwegian Security Act. On 1 July, several of the proposed changes to came into effect. The purpose of the new rules is to ensure increased control over the acquisition of a company that have significance for national security interests.
Among the most important changes that have now come into effect, is that a ministry may decide that companies of significant importance to national functions or companies of significant importance to national security interests, shall be subject to the law, without being directly linked to a fundamental national function (cf. Section 1-3 third paragraph). Additionally, when assessing risks, businesses shall identify properties that, based on their location, may enable activates which present a threat to security to critical national objects or infrastructure. If it is not possible to maintain an appropriate level of security through measures, the National Security Authority or the supervisory authority shall be notified (cf. Section 7-6).
Sanctions
Key contact: Georg Abusdal Engebretsen
Due to Russia’s continued illegal warfare in Ukraine, the framework for sanctions is continuously evolving. On 23 of June, the Council of the EU adopted an eleventh package of economic and individual restrictive measures against Russia, intended to strengthen existing EU sanctions and crack down on their circumvention.
The package of sanctions contains measures aimed at strengthening bilateral and multilateral cooperation with third countries to prevent the circumvention of sanctions, measures to prohibit the transit of goods and technology through Russia, and measures to tighten export restrictions. A total of 1544 individuals and 240 companies are now subject to an asset freeze, which means that EU citizens and companies are forbidden from making funds available to them. It is expected that Norway will join the eleventh package of sanctions and implement it into Norwegian law.
Tax and VAT
Key contacts: Nicolay Vold, Andreas Bullen and Bettina Banoun
- The Norwegian Directorate of Taxation has issued a statement allowing companies that were part of a joint VAT registration to claim retroactive VAT settlement for input VAT on costs incurred during their membership after exiting the joint registration.
- The Ministry of Finance has proposed changes to the regulation on the deduction of interests between related entities, including limitations on costs related to financial leasing of real estate.
- The government has also implemented a resource rent taxation on fish farming, with a tax rate of 25% and a valuation discount on aquaculture licenses.
- Furthermore, the government has proposed changes to the resource rent taxation on hydro power, reducing the minimum contract duration for the contractual exemption.
VAT
The Norwegian Directorate of Taxation issued a Statement of principle (No: prinsipputtalelse) on 11 May 2023 regarding retroactive VAT settlement pursuant to a company’s exit from a joint registration in the Norwegian VAT register.
The question for the directorate was whether a company which had suffered input VAT on costs incurred while the company was part of a joint registration, could claim retroactive VAT settlement after the company has exited the joint registration.
The directorate concluded that a claim of VAT settlement for input VAT on costs incurred while being part of a joint registration, could be claimed retroactively after the company has exited the joint registration, if all other requirements for VAT deductions were met at the time the costs were incurred.
The statement is available here (not available in English).
Tax
Regulation on limitation of deduction for interests between related entities
The Ministry of Finance has proposed that the regulation regarding limitation of deduction for interests between related entities should be changed to include limitations also on costs related to financial leasing of real estate.
The proposal indicates that when the rules pertaining to limitation of deduction of interests between related entities are applied, an interest element must be calculated on costs relating to financial leasing to the extent the leasing agreements are under an obligation to be entered on the balance sheet pursuant to the Norwegian Standard of Accounting re. rental of real estate (“NRS 14 Leieavtaler”). The calculated interest must be in accordance with the NRS.
The Ministry of Finance states that the proposal is aligned with the OECD’s BEPS recommendations and would have been mandatory for Norway to apply if Norway were bound by the ATAD directive in the EU.
In addition to include costs on financial leasing, the proposal also includes a regulation to prevent adaption by “interest camouflage”. The proposal implies a change in the regulation in relation to what type of interest costs that should be covered by the EBITDA regulation between related parties, and an adjustment of what type of group contributions which should reduce the deduction limit.
The proposal is suggested to take effect from 1 January 2024.
The proposal is available here (not available in English).
Resource rent taxation on fish farming
On September 28, 2022, the government presented a proposition for new rules on taxation of profit from natural resources. The proposal introduced a resource rent-taxation on inter alia fish farming, with effect from 1 January 2023. The government proposed an updated bill on resource rent tax on the fish farming industry on 28 March 2023. The updated bill had a tax rate at 35%, down from 40% in the original proposition. Revenues subject to this new tax are based on market value when the fish are removed from the cage. The companies will set the market value themselves for 2023, but from 2024 the aim is to establish an independent price board. The proposal also included a standard deduction of revenues of NOK 70 million before the new tax is applied on the excess.
The government achieved a narrow majority in the Norwegian parliament to adopt the resource rent tax on fish farming, however with some adjustments from the proposal from March 2023. The majority agreed on the following:
- An effective tax rate of 25%, down from the proposed 35%.
- A valuation discount on aquaculture licenses on 75% for net wealth taxation purposes, up from the proposed 50%.
- The host municipalities and counties will receive a higher income from the Norwegian aquaculture fund for 2023 than originally proposed.
In addition, the government published their proposal for the independent price board on 29 June 2023. The proposal implies:
- The market price on fixed price contracts shall be based on future prices at the time of conclusion of the contract.
- The market price on salmon, trout and rainbow trout shall be determined for a fixed period based on a distinct quality, weight and potentially other parameters as the price board deems appropriate. The proposal indicates a weekly pricing period, but when the board deem it appropriate the pricing period could be shorter.
- The proposal also implies certain procedural and organizational rules of the price board.
The proposal regarding the price board is available here (not available in English)
Resource rent taxation on hydro power
The hydro power industry has been subject to a resource rent tax for many years already. On 30 June 2023, the government proposed to decrease the minimum number of years that a long term fixed price contract for resource rent taxation purposes can be entered.
The main rule on resource rent taxation of hydro power is that the power shall be valued at a spot price determined in the market and that this price is the basis of the calculation of gross income subject to the taxation. There is an available exception for long term contracts regarding industrial use of the power (power intensive industry), where such power is valued at contract price rather than market price in the spot market (the “contractual exemption”).
To be eligible for the contractual exemption on industrial use of the power there is a requirement that the contract has a minimum period of seven years, while the contractual exemption regarding standardized long term contracts has a minimum period of three years.
To provide flexibility for the power intensive industry, the proposal implies that the contractual exemption will apply for fixed price contracts with a duration of minimum three years, thus aligned with the rules for standardized contracts.
The proposal is available here (not available in English).
Financial regulatory
Key contact: Kjersti T. Trøbråten
A number of new acts and regulations entered into force on 1 July, including the new Act on Credit Intermediation. The Credit Intermediation Act shall contribute to consumer protection and financial stability by new requirements relating to, inter alia, authorisation, organisation and good business practice. The Act implements parts of the Mortgage Credit Directive, but is not limited to intermediation of mortgages. Furthermore, parts of the Shareholder Rights Directive II have been implemented through amendments in the financial market regulation.
The Ministry of Finance has set the interest on overdue payments for the second half of 2023 to 11.75 percent.
Further, the Ministry of Finance has presented for consultation a proposal on sustainability reporting. The deadline for the consultation is set to 4 September 2023. The Ministry of Finance has also asked the Financial Supervisory Authority to assess the implementation of the new Digital Operational Resilience Act (DORA) into Norwegian law, with deadline set to 28 September 2023. The Ministry of Foreign Affairs has in collaboration with the Financial Supervisory Authority published new guidelines on financial sanctions (Nw. frysveileder)
The temporary regulation on investment services from companies outside the EEA to, inter alia, professional clients (the Contract Continuity Regulation) was in February extended to 1 October 2023.
The Act on Credit Intermediation aims to improve consumer protection and financial stability. The Act sets out, inter alia, authorisation and organisation requirements and rules relating to good business practice and remuneration. The new Act affects a number of entities, including credit intermediaries and financial institutions that have arrangements with intermediaries. The regulatory framework contains transitional rules.
The Norwegian Ministry of Finance (the “MoF”) has made several regulatory amendments to implement parts of the Shareholder Rights Directive II, including amendments to the Financial Institutions Regulation. The amendments relate to, inter alia, disclosure of investment strategies and strategy for shareholder involvement.
Every six months, the MoF amends the interest on overdue payments. For the second half of 2023, i.e. from 1 July, the rate shall be 11.75 percent. By comparison, the rate that applied until 30 June was 10.75 percent. The standard compensation for recovery costs is also set every six months. As of 1 July 2023, the rate is NOK 460.
In February, the temporary regulation on investment services from companies outside the EEA to, inter alia, professional clients (the Contract Continuity Regulation) was extended to 1 October 2023. At the same time, the Norwegian Financial Supervisory Authority (the “NFSA”) was asked to assess whether there is a need for a new national framework governing investment services provided by companies outside the EEA to professional clients and eligible counterparties in Norway. The proposal from the NFSA was presented for consultation with deadline set to 7 June.
In May, MoF presented for consultation a proposal from the Legislative Committee on Securities regarding the implementation of the Corporate Sustainability Reporting Directive (CSRD) into Norwegian law. The rules aim to improve the reporting by the companies so that there is sufficient public information on sustainability risks, and also how the companies affect the environment, people and society. The MoF aims to present a proposal to the Norwegian Parliament (Nw: Stortinget) in time for the new rules to be introduced in Norway at the same pace as in the EU. The deadline for the consultation is set to 4 September 2023.
In June, MoF asked the NFSA to assess the implementation of the new rules on Digital Operational Resilience (DORA) into Norwegian law. NFSA has been given a deadline set to 28 September 2023.
Restructuring and Insolvency: Recognition of foreign financial restructuring proceedings
Key contacts: Kristine Hasle and Ståle Gjengset
In times of increasing financial instability, we are likely to see a surge in insolvency activity. The Norwegian insolvency rules have long been criticized for being too rigid, making consensually negotiated solutions the only real alternative to bankruptcy. The position was improved by the introduction of the Reconstruction Act of 2020, but a considerable weakness remains, as creditors with debt secured in the assets of the debtor are – to the extent of the value of that security – not entitled to vote and not bound by the reconstruction plan. Accordingly, the Reconstruction Act is suitable foremost for less sophisticated or asset light companies, or as one of several tools in more complex situations.
Due to the inflexible nature of Norwegian insolvency regulations, an increasing trend is for debtors to seek protection under foreign financial restructuring proceedings, such as US chapter 11 or UK schemes of arrangement. This raises questions as to recognition of such foreign restructuring proceedings in Norway. Recognition is generally important to protect against action from creditors in Norway and is in some instances, such as schemes of arrangement, also a condition for the local court’s sanctioning of the proceedings.
The starting point for recognition of foreign proceedings in civil matters in Norway is the Norwegian Dispute Act, which establishes that final and enforceable rulings on civil claims rendered by a foreign court shall be final and enforceable in Norway if jurisdiction has been agreed in writing for a specific action or for actions that arise out of a particular legal circumstance (agreed venue principle). Recognition based on the agreed venue principle pursuant to the Dispute Act will depend on the interpretation of the governing law clause in the finance documents, i.e. whether this is sufficiently broad to cover submission to the relevant proceedings.
The Dispute Act also establishes that civil claims that have been decided in a foreign state by way of a final and enforceable ruling passed by that state’s courts or administrative authorities or by way of arbitration or in-court settlement, shall also be legally enforceable in Norway to the extent provided by statute or agreement with the said state. Relevant treaties for such purposes are among others the Lugano convention, and, following Brexit, the bilateral 1961 convention between the UK and Norway.
Both the Lugano Convention and the 1961 Convention establish an exclusion for bankruptcy proceedings. In terms of English law proceedings such as schemes of arrangement and the more recently adopted UK restructuring plan (so-called “RPs”), it is hence relevant for recognition purposes to assess whether such proceedings fall within or outside of the mentioned bankruptcy exclusions.
For schemes of arrangement, it is generally assumed that these proceedings would fall outside of the bankruptcy exclusion, and hence be subject to the 1961 Convention. A scheme is a statutory procedure under the UK Companies Act, which is not preconditioned on the insolvency of the scheme company, notwithstanding the fact that a scheme of arrangement may also be established when a company is insolvent. Further, in the preparatory works delivered as a white paper in connection with new Norwegian legislation on the recognition of foreign insolvency proceedings, it is stated that Regulation (EU) 2015/848 on insolvency proceedings Annex A may give guidance on what should be characterized as foreign insolvency proceedings that may be recognized as such in Norway under the new legislation. Annex A does not include schemes of arrangement under English company law among the insolvency proceedings in that respect, even though this was an existing procedure when Regulation (EU) 2015/848 was adopted. Accordingly, a scheme will most likely not be characterized as foreign insolvency proceedings as a matter of Norwegian insolvency law.
For RPs, however, the position is more complex. Unlike a scheme, an RP is preconditioned on the “financial difficulty” of the company, which makes it more likely to be characterized as foreign insolvency proceedings under Norwegian law. Further, and perhaps more importantly, the Gategroup judgement establishes that an RP is an insolvency proceeding for the purpose of the Lugano bankruptcy exclusion as a matter of English law. In our view, the position of the English courts based on the Gategroup judgement is likely to be taken into account by Norwegian courts.
An interesting feature in this context is that the 1961 bankruptcy exclusion is arguably more narrow than the corresponding exclusion in the Lugano Convention. This does not appear to be intentional – rather the 2020 amendment adopted in anticipation of Brexit to confirm the 1961 Convention assumes that the scope of the two conventions are overlapping, and that the 1961 Convention as amended in 2020 will replace the Lugano convention in the relationship between the UK and Norway from such time as the Lugano Convention ceases to apply to the UK.
If a proceeding is deemed to be a foreign insolvency proceeding as a matter of Norwegian insolvency law, its recognition will be subject to the terms of the Bankruptcy Act. New rules on recognition of foreign insolvency proceedings were recently incorporated into the Norwegian Bankruptcy Act and came into force on 1 July 2021. The problem is that the criteria for recognition under the Bankruptcy Act are quite stringent, requiring, inter alia, that the proceedings include the debtor’s total assets, that they are opened where the debtor has its centre of main interest and that the proceedings are collective. These are criteria that will typically not be fulfilled in the case of proceedings instigated by a Norwegian debtor in a foreign country.
In conclusion, the rules for recognition, based on the Dispute Act on the one hand and the Bankruptcy Act on the other, seem to have left a void in which there may not be basis for recognition of certain foreign financial restructuring proceedings.
Arbitration: Use of NOMA arbitration is picking up speed
Key contact: Christian Hauge
The use of NOMA arbitration is increasing in the offshore and maritime industry, both in Norway and Denmark. This is demonstrated by the first NOMA award under the Nordic Marine Insurance Plan and two awards from Denmark tied to bunker agreements. NOMA arbitration has seen broader adoption, even between parties located outside of the Nordic countries, which is supported by market feedback. Based on our experience, it is also regularly incorporated into jurisdiction clauses for contracts in this industry.
NOMA Arbitration Rules provide a framework with minimal institutional elements, allowing the parties and arbitrators to lead the process. However, NOMA can intervene when needed, such as to appoint arbitrators if parties don’t comply, removing arbitrators when they are unavailable, and potentially adjusting arbitrators’ fees and expenses when contested by a party. These interventions aim to be swift, transparent, and professional, facilitated by the new NOMA Administrative Procedures released in April 2023.
In practice, NOMA Best Practice Guidelines are widely used in Norwegian ad hoc arbitrations, regardless of the industry. This is seen as a positive trend as these guidelines promote transparency and efficiency in the arbitration process. The increasing preference for NOMA arbitration, by both Nordic and non-Nordic parties, reflects its acceptance and effectiveness within the maritime and offshore industry. You can follow NOMA’s development on LinkedIn, click here.
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