Banking & Finance 2020

Last Updated October 05, 2020

Norway

Law and Practice

Authors



Advokatfirma DLA Piper has three partners and six additional qualified lawyers dedicated to finance and projects matters, with further support available from the restructuring department. The team’s core expertise covers bilateral and syndicated bank lending (senior and mezzanine), asset finance (including shipping/offshore finance) and asset-based lending, acquisition finance, and project finance (including PPPs), among other matters.

Norway is highly dependent on its petroleum industry. The economy has contracted in recent months due to the COVID-19 crisis, which caused sharp falls in the global price of and demand for oil. The crisis also initially prompted a depreciation of the NOK currency and the Oslo All Share Index, but these have now retrieved much of their previous value. The sovereign oil fund, which is significant relative to the population in Norway, has remained relatively stable, as the impact of international equity price falls has largely been offset by the currency depreciation. Restructurings are expected in the oil and gas sector.

Tougher capital requirements previously introduced have facilitated a quite active bond market, particularly for high-yield bonds in Norway.

In order to prevent the banks stopping lending in the initial phase of the COVID-19 outbreak, the Norwegian government launched several programmes to mitigate negative effects. One of these programmes was a government-supported guarantee scheme for loans, which proved very successful. The banks are cautious under the current circumstances, but in general the banks’ willingness to lend has not been materially affected by the pandemic, and there have been no new significant directions, terms or trends.

The Norwegian high-yield market has been an important source of funding to borrowers where banks are reluctant to lend. The high-yield market has, to a lesser extent, affected financing terms and structures generally, and offers lighter conditions and may offer longer terms than traditional bank debt.

Norwegian companies are increasingly borrowing from alternative credit providers. Life insurance and pension companies are sometimes lenders in project finance deals and often appear in long-term financings of real estate and other stable assets. Direct lenders have had limited effect on bank financing terms and structures as the volume is still small compared to loans from banks.

The Norwegian finance market is relatively small, and influences come mainly from other jurisdictions. On larger deals there have been few new innovative finance techniques in recent years. On a smaller scale, in the midst of a tightening regulatory regime, the first peer-to-peer loan platforms have been launched, but this market will need to mature and acquire a more certain regulatory framework before it can conquer a larger part of the market.

PSD 2

The most important provisions of the Payment Services Directive (EU) 2015/2366 (PSD 2), including those on security and interaction, have been incorporated into the Norwegian Financial Undertakings Act of 2015 and through new regulations on payment services and payment systems. Bank customers in Norway have had access to the new PSD 2 services since 14 September 2019. The remaining provisions are scheduled to be implemented in connection with the revision of the Financial Contracts Act of 25 June 1999, expected to be adopted in late 2020 or early 2021.

CRR Financial Requirements

Norway has implemented Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms (CRR) and Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms (CRD IV) in the Regulation on Capital Requirements and national adoption of CRR/CRD IV (FOR 2014-08-22).

MiFID II and MiFIR

MiFID II and MiFIR have been incorporated in the Norwegian Securities Trading Act of 2007 and pertaining regulations. MiFID II regulations have applied since December 2017 and MiFIR regulations as of 1 January 2020.

EMIR Refit

EMIR has been implemented by reference in the Norwegian Securities Trading Act of 2007. EU regulation 2019/838 "EMIR Refit" has not yet been formally implemented, but the Norwegian Financial Supervisory Authority has stated that it will base its supervision on EMIR Refit rather than the now obsolete EMIR regulation. The Norwegian FSA expects entities under supervision to conduct their business in accordance with the current EU regulations.

Consumer Loans

On 12 February 2019, the Norwegian Ministry of Finance published a new regulation on prudent consumer lending practices. The regulation does not apply to entities that offer unsecured loans where no interest or costs are connected to the credit provided. The new regulation sets out detailed rules on debt servicing capacity, maximum debt-to-income and amortisation.

Mortgage Credit

On 5 July 2019, the Norwegian Ministry of Finance published a proposal regarding the implementation of the public parts of the Mortgage Credit Directive (Directive 2014/17/EU). It is proposed to establish a new act on loan intermediation, where loan intermediaries will be required to obtain authorisation for their business. It will cover intermediation of unsecured and secured loans. The loan intermediaries would be subject to new requirements on qualifications, reputation, suitability for qualified owners, insurance requirements, duty of good faith and fair dealing, rules on cross-border services, secrecy, etc. The consultation about the proposal has been completed, and the revised legal proposal is awaited. The private law aspects of the Mortgage Credit Directives will be implemented into the Financial Contracts Act of 25 June 1999, which is being revised.

In general, financing activities may only be carried out by banks, mortgage companies and other finance companies that are licensed under the Norwegian Financial Institutions Act of 2015. Necessary authorisations may either be obtained from the Norwegian FSA or passported to Norway.

Such financing activities include the granting of credit and the furnishing of guarantees for one's own account, financial leasing or other participation in the financing of businesses other than one's own.

Norwegian legislation contains further restrictions on how loans are marketed, originated and sold, how lenders administer loans on an ongoing basis, and how lenders may handle borrowers falling behind on their instalments.

Investing in bonds, notes and similar securities is not a regulated activity.

As Norway is part of the EEA, EEA-licensed entities may passport their licences from other EEA jurisdictions into Norway. Foreign lenders headquartered outside the EEA may conduct business in Norway by establishing a subsidiary or branch office in Norway and having such subsidiary or branch apply for authorisation from the FSA.

Foreign lenders may freely lend to Norwegian entities, provided such lending is made on the basis of reverse solicitation (ie, where the borrower solicits funding) without having obtained a permit from the FSA. However, foreign lenders without a licence may not actively market their financial activities in Norway, nor lend from a representative office in Norway.

Granting security or guarantees to foreign lenders is not restricted or impeded in any way, unless the lender is targeted by any relevant sanctions regulation, or unless such security or guarantees would otherwise serve an illegal purpose.

Norway does not operate any foreign currency controls (subject to anti-money laundering and tax considerations), but imports of foreign currency from countries outside the EU may need to be declared in customs declarations, and all electronic cross-border money transfers are reported to the Norwegian Currency Register.

The use of proceeds from loans or debt securities is not a regulated activity in Norway.

The concept of a trust as it exists under common law is not recognised in Norway. However, the use of an agent to act on behalf of certain finance parties or secured parties is recognised and well established in Norway. Such finance parties or secured parties might be required to appear in their own name in connection with legal proceedings. Bondholders can, however, represent the bondholders in legal proceedings.

Unless otherwise agreed with the borrower, a lender may freely transfer any monetary claim it has against the borrower to a third party. The perfection act is a simple notice to the borrower, and any security interest securing the claim is assumed to be transferred to the new lender, unless otherwise agreed.

Commercial lenders routinely sell individual loans or loan portfolios as part of their business. For syndicated loans, transfers usually follow standardised procedures and documentation for commercial lending in the European market.

Since lending is a regulated activity in Norway, assuming a creditor position as part of a loan transfer might trigger an authorisation requirement (subject to any applicable exemptions).

There is no general restriction under Norwegian law against debt buy-back by the borrower or sponsor. However, in larger deals such buy-back is often regulated by agreement allowing such buy-back but restricting some of the rights of the borrower or sponsor as lender under the facility agreement.

There is no legal requirement to document financing or provide a guarantee in respect of a voluntary offer to acquire shares listed on the Oslo Stock Exchange (OSE). A mandatory offer or an offer in relation to a squeeze-out requires a Norwegian law guarantee from a financial institution.

Irrespective of a guarantee being required, fairly standard LMA-based (or LMA-like) provisions are included in Norwegian public acquisition finance transactions to secure financing. Documentation tends to be comprehensive, but somewhat shorter than the equivalent documentation in the UK. Documentation is generally not publicly filed.

Norway does not currently impose any withholding tax on payments of principal or interest to lenders.

There are no general Norwegian taxes or duties that apply particularly to non-Norwegian lenders. However, lenders should be aware that a Norwegian borrower that is part of a group of companies may be restricted from deducting interest on external loans for tax purposes under certain circumstances.

There are no specific Norwegian laws imposing an absolute ceiling on the amount of interest that can be charged on a debt obligation.

A typical security package for a mid-sized Norwegian corporate financing will consist of fixed charges over shares, bank accounts and significant intra-group loans, and floating charges over inventory, operating assets and trade receivables, in addition to borrower-specific assets.

For some of the most relevant security interests, the following formalities apply:

  • Ownership and special rights in real property or unspecified parts of real properties – perfection is achieved by registration in the land registry, administered by the Norwegian Mapping Authority (Kartverket). The registration process usually takes two to three business days (from receipt of the duly completed registration forms), with a nominal fee per registration form.
  • Floating charges over operating assets (including intellectual property), inventory, trade receivables, motorised vehicles, machinery, fishing tools and farming tools – perfection is achieved by registration in the Norwegian Mortgaged Movable Property Register (Løsøreregisteret). The registration process usually completes in less than one week (from receipt of the duly completed registration forms), with a nominal fee per registration form.
  • Patents and patent applications that have been registered in the Norwegian Patent Register – perfection requires registration in the register. Registration usually takes one to two weeks and carries a nominal handling fee.
  • Monetary claims – any monetary claim under a contract may be charged or assigned by the creditor and perfected by notice to the relevant debtor.
  • Bank account deposits – deposits (including interest) in bank accounts (other than certain tax accounts and other restricted accounts) may be charged. Such charge is perfected by notice to the account bank, and it is not necessary to block the account in order to achieve perfection.
  • Shares – shares (and other securities) that are registered in a securities register may be charged and perfected by registration of the securities account in which the shares are deposited. Shares not registered in a securities register may be charged and perfected by notice to the relevant company, which will enter the security interest in its shareholder register.
  • Licences issued under the Aquaculture Act of 2005 and the Petroleum Act of 1996 – perfection is achieved through registration with the Norwegian Aquaculture Register or the Norwegian Petroleum Register. Registration usually takes three to four days in the Aquaculture Register and up to two weeks in the Petroleum Register. Nominal fees are payable for registration in the Aquaculture Register, and a fee of NOK11,500 (as of September 2019) must be paid upfront to the Petroleum Register.
  • Vessels and aircraft – security over commercial vessels is perfected by registration in the Norwegian Ship Register (either NIS or NOR), whereas security over aircraft is perfected through registration in the Norwegian Aviation Register. Registration might take up to two weeks, but is typically pre-agreed in advance to occur on a set date. Registration fees are nominal for registration in the Ship Register, but there is a tiered fee scale (at a maximum of NOK16,700 as of September 2019) for registration in the Aviation Register, depending on the secured amount.

A security interest that has not been validly perfected is void against attachments and execution proceedings, and against a bankruptcy estate.

Security cannot be created over all of the assets of a Norwegian company generally, and may only be created if specifically permitted by statute, such as the Liens Act of 1980. Norwegian law does not permit a floating or other universal security over all present and future assets of a company. Under the Liens Act, a floating charge may be created over all of a Norwegian company's inventory, operating assets, trade receivables and certain other asset classes.

A Norwegian limited company may generally provide downstream, upstream and/or cross-stream guarantees within the same group of companies, under certain conditions.

Corporate Benefit

The company's board of directors is required to ensure that it acts reasonably, within the objectives set out in the company's articles of association, and in the best interests of the company and its shareholders. The Private Limited Liability Companies Act of 1997 and the Public Limited Liability Companies Act of 1997 set out provisions designed to ensure that companies enter into agreements with shareholders and group companies on arm's length terms. The rules on corporate benefit are not precise, but the board should consider the following, among other things:

  • the company's equity;
  • the company's other obligations (including future and contingent obligations and debts);
  • the company's exposure under any guarantees or security agreements;
  • the extent of intercompany guarantees for the company's benefit; and
  • whether any part of a loan facility is made available to the company or its subsidiaries.

Transactions Between the Company and its Shareholders

Shareholder approval is required in order for a limited company to enter into contracts with its direct or indirect shareholders (or their related parties) if the fair value of the obligations of the company under the agreement at the time of the conclusion thereof exceeds 2.5% of the balance sheet amount of the company's last approved annual financial statement (the 2.5% requirement also applies to public limited companies). Such contracts would include guarantees or asset security provided to a third party lender for the obligations of a shareholder.

However, there are important exemptions to this principle. Most agreements with shareholders may fall within an exemption for agreements in the company's ordinary business at ordinary business terms. Guarantees and security provided to shareholders within the same group of companies (including foreign entities) are also exempt if the company's direct shareholder owns 100% of the shares in the company.

If an upstream or cross-stream guarantee (or other security) does not fall clearly within an exemption, shareholder approval is regularly required by the beneficiary of the guarantee (or other security).

If shareholder approval is required, the company's board of directors must provide a formal declaration to the general meeting, and prepare a statement.

Subject to certain conditions being fulfilled, a Norwegian limited liability company can provide financial assistance to a third party for the purpose of acquiring the company’s shares or the shares in its holding company. The statutory provision also applies to public limited companies (under similar provisions in the Public Companies Act 1997), and to a certain extent – with modifications – to companies with unlimited liability, such as unlimited partnerships (kommandittselskap – KS) and silent partnerships (indre selskap – DIS).

Financial assistance (eg, granting security or credit, or making payments) may only be provided validly up to the amount of the assets which the company may legally use for the distribution of dividends (distributable reserves). However, if after the acquisition the target company becomes a subsidiary of the acquirer (which must be incorporated within the EEA), the distributable reserves limitation will not apply, if certain conditions are met.

The conditions mandated by law are as follows:

  • the company’s assistance can only be provided in accordance with customary commercial terms and principles (normally this will include some sort of guarantee commission or similar);
  • the board must make a credit appraisal of the person(s) or entity(ies) receiving the financial assistance;
  • the board must give a report in connection with the provision of the assistance, and such report must contain the background for the provision of the financial assistance, the terms and conditions relating to the completion of the transaction, the price to be paid by the third party for the shares, an assessment of the company's interest (corporate benefits) in providing the financial assistance, and an assessment of how the financial assistance may affect the equity and liquidity of the company;
  • the board must declare separately that the financial assistance is provided in the interest of the company and that the equity and liquidity will remain sound;
  • the report must be signed by all board members;
  • the statement and the declaration must be attached to the summons to the general meeting of the company, and the general meeting must vote in favour of granting the financial assistance by at least two thirds of the votes; and
  • before the financial assistance is given, the statement and the declaration must be submitted to the Norwegian Register of Business Enterprises.

In addition, the board must report whether or not adequate security must be furnished for the claim for repayment or recovery.

Section 8-7 of the Companies Act and the Public Companies Act limits a Norwegian limited liability company’s right to grant credit to or provide security for the benefit of its shareholder(s) or a party closely connected to a shareholder. Parties closely connected to a shareholder include companies where the shareholder has a determining influence, typically subsidiaries of the shareholder. A party is always deemed to have a determining influence over a company if it owns sufficient shares in another company as to represent a majority of the votes in that other company, or if it has the right to vote in or vote out a majority of the directors of that other company.

The credit to or guarantees for the benefit of such companies may under Section 8-7 only be validly granted up to the amount of the assets that the company may legally use for the distribution of dividends (distributable reserves), and only if adequate security is furnished for the claim for repayment or recovery. Whether a credit or security may legally be granted pursuant to the Act must be determined on the basis of the situation at the time when the credit or security is granted.

The term "security" covers both real security (ie, security interests, mortgages, etc) and personal security (ie, guarantees, co-debtor arrangements, etc). A negative pledge from the subsidiary in connection with the shares in the company being pledged as security for a loan to a shareholder is generally considered not to involve a grant of security under Section 8-7.

An exemption from this prohibition is available where the financial assistance is provided to another company within the same group of companies (No. konsern) as defined in the Companies Act. However, if the parent of the group is not a Norwegian limited company, the financial assistance must serve the group’s "economic interests", which for all practical purposes means that such financial assistance must not serve to pay dividends to the ultimate owners of the group.

In most cases, board approval is sufficient to approve the grant of security or guarantees, but a shareholder resolution may be required if there is more than one shareholder in the company granting such security or guarantee. Other than legal costs, the costs in connection with such approvals are limited.

Security interests are typically released between the parties by agreement or declaration, without further formalities. Following such release, security that is registered in a public register is deregistered, normally by delivering the original registration forms signed for discharge to the relevant registers. Deregistration generally carries no registration fees. For some registers, such as the Ship Register, deregistration may be agreed in advance to coincide with the registration of new security in favour of a refinancing lender. Other registers, such as the land register, will not make any agreement on registrations, and new security is normally registered on lower ranking priority, but with step-up rights.

Security not registered in a public register is normally released by notice to the relevant debtor (in the case of monetary claims, including bank account claims and insurance claims) or company (in the case of shares). For shares and other securities registered in a securities depository, the relevant account operator (a bank) is instructed to deregister the security over the securities account in which the securities are held.

Under Norwegian law, conflicts with entitlements of third parties and problems related to competing security interests are, as a rule, determined by the first-in-time principle, under which the security established first shall have the best priority.

A pledgee may accept to have priority behind pledges of a certain amount at any time, or may accept to have priority after a specified, later established security interest. This means that a pledgee may only initiate enforcement proceedings if all claims with better priority are covered by the value of the pledged asset.

There are some exceptions to the main rule. First of all, if a pledge can be registered in a securities register, the security that is registered first holds the best priority regardless of when it was established. Also, security in a specified asset may rank in front of a floating charge covering that asset.

Contractual subordination of debt is normally set out in the relevant loan agreement, agreed in a separate intercreditor agreement or declared by the creditor in a separate statement.

If a company or a person is declared bankrupt, a creditor's security interest must be fully perfected in order to enjoy protection from bankruptcy seizure. Creditors with collateral security have a special privilege in the settlement of their claim in one or more stated assets. Contractual arrangements made between different creditors may be valid between the parties, but have no effect against seizure in bankruptcy. Contractual subordination provisions may therefore not survive the insolvency of a borrower.

The enforcement of security interests is generally subject to the mandatory provisions of the Norwegian Enforcement Act of 1992, and must be carried out through the Norwegian enforcement authorities. Prior to the occurrence of an enforcement event, the parties are generally not permitted to agree any other enforcement procedures; any such agreement will not be recognised by the Norwegian courts. However, certain exemptions apply, in particular for financial collateral, pledge of monetary claims and bank accounts, and separate pledges of patents and plant breeder's rights. The primary enforcement measure under the Enforcement Act is a forced sale, which can be carried out either as a public auction or – as is the usual solution – through a third-party seller (eg, a real estate broker) appointed by the court. The forced use of an asset is also available for certain assets (eg, real estate, aircraft and vessels). A forced sale is administered by an enforcement officer, who is responsible for ensuring that the sale, in his or her discretion, generates the best possible return.

A security holder only has a right to the value of the security asset, not to the asset itself.

If the security assets are registered in a security register, the sales price must be confirmed by the courts before the bid can be accepted. In such cases, it is not unusual for the sales procedure to take as long as six months.

A private sale bypassing enforcement proceedings is only possible if security is given in financial assets subject to the Financial Collateral Act of 2004, and the transfer of property rights is agreed in the security agreement from the outset. Financial assets for the purpose of the Financial Collateral Act include, but are not limited to, bank deposits and financial instruments such as transferable securities (including shares and bonds).

Choice of Law

The choice of foreign law as the governing law of a contract will generally be upheld by the courts of Norway, subject to Norwegian public policy and any mandatory applicable provisions of law.

Choice of law clauses are only binding and enforceable between the parties, and will not affect the standing of a third party. Choice of law clauses that relate to insolvency, reorganisation and other laws of general application relating to or affecting the rights of creditors may render provisions or documents void or voidable, or otherwise limit or affect their enforcement.

Any security created over assets located in Norway will be subject to Norwegian law. The Norwegian Supreme Court has stated that the validity and perfection of a Norwegian security asset shall automatically be subject to Norwegian law.

Furthermore, the parties cannot decide which law shall govern their own capacity, and any action brought before a Norwegian court will be subject to Norwegian rules on civil procedure.

Submission to Foreign Jurisdiction

Under Norwegian law, the submission to foreign jurisdiction is governed by either the Disputes Act of 2005 or, for international civil cases, the Lugano Convention of 2007.

The main rule under both the Disputes Act and the Lugano Convention is that the parties are free to agree that the national courts of one or several countries shall have jurisdiction to settle disputes that have arisen or may arise in connection with a particular relationship. Such agreements must be entered into in writing. For consumer agreements, Norwegian courts will not recognise agreements on jurisdiction unless they are entered into after the dispute arose. Special rules also apply to consumer contracts under the Lugano Convention.

There is a risk that jurisdiction clauses that are asymmetrical or for one party's benefit only may be set aside or revised by Norwegian courts in line with recent case law from some European courts. Norwegian courts have not yet ruled on the validity of such clauses.

Waiver of Immunity

Norwegian courts will recognise a waiver of immunity to the extent it is permitted by international law.

A Norwegian court will recognise a foreign judgment if it is given by a court chosen by the disputing parties, provided Norwegian public policy is not violated or frustrated by the recognition of such a judgment.

A judgment given in a state bound by the Lugano Convention will be recognised in Norway without any special procedure being required. A party who is domiciled or registered in a country that is not a member to the Lugano Convention and who raises the recognition of a judgment as the principal issue in a dispute may, subject to certain exemptions and qualifications, apply for a decision for the judgment to be recognised.

Norway is a party to the New York Convention, with no reservation for reciprocity. A foreign arbitral award rendered in a contracting state to the New York Convention will therefore be recognised and enforced by Norwegian courts in accordance with the New York Convention and related Norwegian laws.

Norwegian law includes a general principle of fairness in contracting, enabling the revision of unfair contract terms. In addition, there are certain statutory rules that apply to financial institutions, such as the mandatory requirement to include a maximum liability for a security interest or guarantee if that security interest or guarantee is given in favour of a financial institution (other than in respect of security provided for the borrower's own debt).

Norwegian law poses certain challenges in the context of project finance and some other types of asset lending transactions, as security cannot – as a general rule – be granted over contracts as such (only monetary claims arising under a contract), except for mortgages on leases of land and the houses thereon, requiring careful structuring of these types of transactions.

A new interim Act for the restructuring of Norwegian entities has been enacted, in accordance with a government proposal made in April. The new Act is only given temporary effect and replaces the restructuring part of Konkursloven (Act relating to bankruptcy) when a company is under restructuring. However, the law, with revisions, is likely to become permanent.

The purpose of the interim law is to reduce the risk of unnecessary bankruptcy for companies that have seen a sudden drop in income. It has several new features that make it more applicable, and has similarities to the system in the USA (Chapter 11), the UK and a large part of Europe.

The main part of the interim law is summarised as follows:

  • temporary exemption from the existing rules so that public claims for VAT and taxes are not given preferential treatment over other creditors;
  • facilitation for “pre-pack” solutions for small businesses;
  • lower thresholds for restructuring compared to the current rules, with a proposal that a restructuring could be opened even if the company still has some liquidity available. Under the current rules, there is an absolute requirement for illiquidity in order to apply for debt negotiations. The condition for opening a restructuring is proposed to be that the company “has or for the foreseeable future will be in severe economic distress”;
  • a creditor may file a petition for a restructuring to be opened, albeit with a higher threshold than if the company itself applies for the restructuring. If the company rejects the opening of the restructuring, the petition for restructuring will be denied;
  • the financing of the company’s operations during the restructuring period and the financing of the restructuring itself will be carried out using a loan, with the lender being granted a charge in the company’s operating equipment, inventory and outstanding claims;
  • there is no demand for equal treatment of the creditors in a voluntary restructuring, as a proposal for a voluntary restructuring needs a unanimous vote from the creditors in order to pass. In a compulsory restructuring there will no longer be a demand for a minimum level of coverage of the claims, as opposed to the existing demand for a coverage of 25% of the claims. Also, it will be sufficient that >50 % of the creditors vote in favour of the proposed restructuring plan, as opposed to the rule of a >66.6 % majority;
  • the rules on converting debt to share capital will have an exemption from the rules in the Norwegian Public Limited Liability Companies Act, because only >50 % of the shareholders at the general meeting must be in favour of the conversion; and
  • during a restructuring, the company will be protected from bankruptcy proceedings and other enforcement.

If the borrower has opened debt settlement proceedings, security cannot be enforced for a period of six months.

If the borrower is declared bankrupt, the security holder can take over property rights to the security to effectuate a sale, so long as the value of the security does not exceed the value of the loan. Otherwise, the bankruptcy estate has six months to effectuate a sale, failing which a public execution sale can be enforced.

Apart from non-statutory passivity rules that first come into play in cases of unreasonable delays caused by the creditor, there is no time limit to enforce a security. A lien will thus continue to be attached to the security asset even if the underlying claim is barred. In cases of default, the lender will nevertheless be best served to enforce the security as soon as possible in order to avoid complications (such as the statutory six-month delays described above in cases of insolvency).

A Norwegian bankruptcy estate has a statutory lien in all pledged assets belonging to the company at the time of the commencement of bankruptcy proceedings and which may be subject to disbursement or bankruptcy seizures. The bankruptcy estate also has a statutory lien in assets that third parties have pledged as collateral for the company's debt, when the security exists at the time of the commencement of the bankruptcy proceedings. The pledge amounts to up to 5% of the assets' estimated value or sales value. For security registered in an asset-based register, the pledge amounts to a maximum of 700 times the Norwegian court fee (NOK1,172 as of January 2020) per asset. The statutory lien ranks ahead of all contractually agreed pledges, and has to be respected by all pledgees.

The priority of payments in insolvency is as follows:

  • secured creditors (from proceeds of security realisations);
  • certain property taxes;
  • ring-fenced costs of proceedings;
  • remaining costs;
  • certain employee liabilities;
  • other taxes;
  • other unsecured creditors;
  • interest on claims; and
  • subordinated creditors.

Norway does not have a concept of equitable subordination. However, Norwegian law contains several claw-back provisions aimed at voiding certain transactions carried out by the company before bankruptcy. Examples include transactions that give rise to a fraudulent preference of creditors, or transactions that involve an extraordinary method of payment from the debtor (ie, payments carried out in means other than money, payments made prior to their maturity date or payments that substantially weaken the debtor's financial position at the expense of other creditors).

The Norwegian Recovery of Claims Act of 1984 contains several claw-back provisions. The timeframes under which transactions can be challenged by liquidators are tied to the time that debt settlement proceedings or insolvency proceedings are opened.

Norwegian law reserves the longest period (ten years) for voidable transactions that involve an element of counterparty bad faith. This prerequisite is established where the counterparty knew or should have known of the debtor's financial situation and the improper circumstances of the transaction. Secured lenders have due diligence obligations to ensure that the borrower is not already insolvent at the time of the conclusion of the security agreement.

Transactions entered into by the debtor for no consideration (ie, gifts) and transactions including a gift element may be set aside by the court if they are concluded less than one year before proceedings were opened.

For transactions concluded less than three months before proceedings are opened, the court has the power to set aside certain extraordinary payments (including by way of set-off) made by the debtor. Security granted in respect of existing debt is subject to the same three-month hardening period. This further applies to security that has been perfected with unnecessary delay after the debt was incurred.

Project finance has traditionally not been a significant source of financing in the Norwegian market, although it has become more relevant in recent years. Project finance was used in the oil and gas industry during the capital-intensive exploration and development on the Norwegian continental shelf in the late seventies and early eighties. One of the first such project financings was provided by a consortium of local and international banks to AmocoNoco in 1982, in connection with the development of the Valhalla field. In later years, oil companies operating out of Norway have mainly relied on other structures for external financing, such as bond issues or reserve-based lending, which may offer better pricing or more flexible terms.

Norway also has large deposits of metals and minerals, and a long history of mining such resources as well as natural stone. Project finance has not been a major source of financing for this industry but remains a possible structure, with the most recent announcement being the proposed financing of the development by Nordic Mining of the Engebø rutile deposit on the western coast of Norway.

Today, the market for project finance in Norway is dominated by large projects in the renewable energy sector, particularly onshore wind power projects. Norway's geography and available land are well suited for wind parks and well-developed infrastructure. Norway has also provided stable and credible renewables incentives, although such support is (in common with most European jurisdictions) being scaled back as Norway is to withdraw from the el-certificate scheme (jointly administered with Sweden) in 2021. Recent wind projects have been supported by power purchase agreements with large, credit-worthy corporate end users, which, together with reducing construction costs, is allowing for project financings that are less dependent on subsidies. Thus, project finance structures lay behind major onshore developments in Norway, such as the 1 GW Fosen wind park and the 208 MW Tonstad wind park.

There is no regulatory framework in place in Norway that applies specifically to project finance, but the parties to such structures will have to take into consideration the legislation that applies to the underlying asset or to the conduct or set-up of the borrower and its ability to service principal and interest from revenue generated. Licensing requirements for the various sectors will also be a significant consideration when structuring a deal. In addition, there are rules of general application that may interfere with the ability of lenders to take security over certain assets, such as rights under project agreements, or to enforce their rights in an insolvency situation.

The public-private partnership (PPP) as a method of financing and constructing infrastructure projects has received appraisal by the government as well as private sector market participants, but such transactions have not become commonplace in Norway in the same manner as in some other European jurisdictions. This is partly due to the ability of the state to fund infrastructure projects at a lower cost than through external financing. There is also considerable political opposition against engaging the public sector in long-term structures that bind spending over several budget periods.

Despite the scepticism, experiences from PPP transactions in Norway have generally been positive since the first project was launched in 2004, a road project on E39 (Klett–Bårdshaug). Two more road projects have since been completed (E39 Lyngdal–Flekkefjord and E18 Grimstad–Kristiansand), and three further road projects are ongoing as PPPs: Rv555 (Sotrasambandet), E10/Rv85 (Tjeldsund–Gullesfjordbotn–Langvassbukt) and Rv3/Rv25 Ommangsvollen–Grundset/Basthjørnet.

Apart from road developments, a limited but growing number of other infrastructure projects are also being arranged as PPPs, mainly constructions of schools and hospitals. For these projects, the sponsor has usually been the constructor, but the end user is the state or local authorities. Operation of the road or building is normally outsourced to the private sector for a long period after completion. For the road project on Rv3/Rv25, the agreed period is 20 years after completion.

There is no specific legislation in Norway regulating PPPs, although aspects are addressed in certain political statements and policies, such as the national transport plan (which is non-binding), and the current conservative government has proposed a framework for the use of PPPs in road development. Relevant legislation includes the Public Procurement Act of 2016 with regulations, most notably the Regulation on Public Procurement of 2016/974. There is also sector-specific regulation regarding public procurement, and any PPP transaction must take requirements as to pay and working conditions in public contracts into consideration.

Environment, health and safety laws will also have to be considered in a PPP transaction. These may be of a general nature, such as the Pollution Control Act of 1981 and the Working Environment Act of 2005, or sector-specific, such as the Planning and Building Act of 2008, the Petroleum Activities Act of 1996 and the Water Resources Act of 2000. More detailed regulation exists for certain sectors, such as the Regulation Concerning Safety, Health and Working Environment at Construction Sites and the Framework Regulation on Health, Environment and Security in Petroleum Activities and at Certain Onshore Facilities.

Due to the infrequent use of PPP for infrastructure projects in Norway, there is no set standard for PPP contracts in the Norwegian market, except for the standard for road developments prepared by the Directorate of Public Roads and used for the three completed PPP road projects. A standard for the construction of public buildings is under consideration. The lack of standardisation means there is often uncertainty in the negotiation process, and project contracts that are unclear (particularly on the placement of risk) or based on non-standard conditions may make the project more difficult to sell after completion for the sponsor (which is often also the contractor).

Whereas the construction of a project may require one or several licences or other government approvals, few are normally required for the financing of a project in Norway. However, government approvals may be required when taking security over assets that require a licence to own or operate. One notable example is that taking security over petroleum production licences requires the prior consent of the Ministry of Petroleum and Energy. Other than in respect of security documents, no registration or filing of the transaction documents in connection with the financing is required with any governmental body.

Registration fees are payable in connection with the registration of security assets in public registers, such as the land register and the Norwegian Register of Mortgaged Movable Assets. For most registrations, these fees are nominal and have no progressive element based on the secured amount. Security that requires such registration includes charges over land rights (including mineral extraction permits), operating assets, trade receivables (as a floating charge), electrical certificates and petroleum production licences. Security created over assets that do not require registration in a public register does not involve any notarisation or similar acts carrying stamp duties or other charges. Security that does not require registration in a public register includes charges over shares, bank accounts, contract receivables (excluding floating charges) and insurance claims.

The governing law of the main project finance documents is normally determined by the lender. The choice is often Norwegian or English law, but other jurisdictions may be selected. For the special case of PPP transactions, the governing law is invariably Norwegian. All security agreements regulating Norwegian assets are governed by Norwegian law, without exception.

The Ministry of Petroleum and Energy has the overarching responsibility for the energy sector and the oil and gas sector, as well as the state's ownership in Equinor (Statoil), Gassco and Petoro and the State's Direct Financial Interest. The Directorate for Water Resources and Energy and the Petroleum Directorate are the government specialist directorates and administrative bodies for the energy sector and the oil and gas sector, respectively; both report to the Ministry of Petroleum and Energy. The Norwegian Energy Regulatory Authority is an independent subdivision of the Directorate for Water Resources and Energy, and is the national regulator for the Norwegian electricity and downstream gas market. In addition, the Ministry administers the state enterprises Enova SF, which promotes renewable energy production and administers the Norwegian Energy Fund scheme, and Statnett SF, which is the system operator in the Norwegian energy system.

The Ministry of Trade, Industry and Fisheries has overall responsibility for the mining sector. The Directorate of Mining is the technical agency for administering the extraction of mineral resources. The Ministry of Trade, Industry and Fisheries is also consulted when new petroleum licences are granted, in order to balance the interests of stakeholders in the petroleum and fisheries industries. The Ministry of Trade, Industry and Fisheries further administers the state's ownership in the state enterprise Statkraft SF, which is Europe's largest generator of renewable energy.

The Ministry of Finance has overall responsibility for taxes in the energy and the petroleum industry. The Petroleum Tax Office determines and collects tax payments, and the Directorate of Norwegian Customs determines and collects the NOx tax.

The primary act regulating the oil and gas sector is the Petroleum Activities Act of 1996. There are several regulations and guidelines applying to the sector, most notably the general Regulation to the Petroleum Activities Act of 1997/653.

For the energy sector, the main legislation is found in the Energy Act of 1990, with the main regulations being contained in the Regulation on Production, Conversion, Transmission, Trading, Distribution and Use of Energy, etc of 1990/959.

The Minerals Act of 2009 (currently under evaluation for a possible revision) and the Mining Code for Spitzbergen of 7 August 1925 regulate mineral extraction in Norway. Further regulation is found in the Regulation to the Minerals Act of 2009/1842.

In addition to the sector-specific legislation, the Planning and Building Act of 2008 and related regulations are important legislation for virtually all land-based (and nearshore) projects.

The undertaking of infrastructure projects in Norway is dominated by large, sometimes international, sponsors experienced in project finance. Consequently, deals are generally structured in the same manner as in other jurisdictions in Europe. Financing is long term and made available on a non-recourse basis, with debt service based on cash flows generated in the project company.

The project company operates as an SPV and is usually organised as a private limited company, which is subject to the Private Limited Companies Act, and is owned directly or indirectly by one or more sponsors.

There are few absolute restrictions on foreign investment in Norway, and such restrictions are rarely relevant for project finance deals.

One issue that is particular for Norway, and which has an impact on the risks to the funders of a project, is the inability to take security over contractual rights other than monetary claims that may arise against a contracting party or contractual rights that are registered in a public register, such as the land register. To mitigate this, lenders commonly enter into direct agreements and other arrangements granting step-in rights in case the project company defaults on its obligations. However, if the project company goes into bankruptcy, the bankruptcy estate may by law step into the contractual position and terminate any prior agreed step-in right in favour of the lenders. This issue can, therefore, potentially limit the lenders' enforcement options (when compared with project financing in some other jurisdictions) as it may not be possible for them to effect an asset sale while keeping the project a going concern. The security package will invariably include a pledge over the shares in the SPV, and enforcement by way of share sale is not affected by this issue.

For some types of projects, this issue has been solved through legislation. For instance, the Road Traffic Act of 1965 allows the right to collect road tolls (including the necessary land rights) to be registered in the land register and charged in favour of the lenders, subject to the prior consent of the Ministry of Transport and Communications. Furthermore, a step-in right agreed in connection with guaranteeing or pre-paying the buyer's obligations under a long-term power purchase agreement will, by law, be enforceable against the other creditors or the bankruptcy estate of the buyer, as long as the agreement on such step-in right is entered into no later than the date of the power purchase agreement.

Most project financings in Norway are funded as bilateral or club deals, with lenders including commercial banks, international financial institutions, infrastructure funds, insurance companies, pension funds and export credit agencies. Lenders are typically based in the Nordic countries, but there is an increasing number of lenders from outside the Nordics, particularly in the larger infrastructure developments. Some Norwegian banks rarely provide project finance due to the long-term commitment required by such financing. Export credit agencies typically seen in project financing transactions are the Norwegian Export Credit Guarantee Agency (GIEK), the Swedish Export Credit Corporation (SEK) and Denmark's Export Credit Agency (EKF).

Project bonds have not yet been used actively in Norwegian project finance as there is currently no appetite in the Norwegian bond market for this type of risk.

Norway exports most of its production of oil and gas, and is the third largest exporter of natural gas in the world. In the mining sector, a significant portion of extracted minerals and natural stone is exported. There are no relevant export controls, other than for resources that may be restricted for safety or national security reasons, or restricted under international conventions or regulations.

The acquisition of natural resources extracted in Norway is generally not restricted, except for the same reasons export may be restricted. However, the extraction of natural resources on the continental shelf or on the mainland will require one or more licences from the state (such as a production licence for the exploration and production of oil and gas, and a mining licence in respect of extracting metals, minerals and natural stone). Electrical power is traded on Nord Pool and is subject to the rules of the exchange.

Under the Working Environment Act 2005, the employer is responsible for ensuring that the enterprise maintains a healthy and safe working environment. The Ministry of Labour has the overall responsibility under the Working Environment Act, although the administrative, supervisory and information responsibilities under the act have been delegated to the Norwegian Labour Inspection Authority, which reports to the Ministry. The Petroleum Safety Authority has the corresponding supervisory authority for the administration of the work environment, safety and emergency preparedness in the oil and gas sector, pursuant to the Regulation to the Petroleum Activities Act 1997/653.

The Pollution Control Act of 1981 is the principal legislation concerning pollution control and waste management. The Ministry of Climate and Environment has the overall responsibility for environmental protection under the act. The Environment Agency reports to the Ministry and is the administrative body responsible for managing Norwegian nature and preventing pollution. The Ministry of Transport and Communications has responsibility for providing emergency response to acute pollution in Norwegian coastal waters, with the Coastal Administration as specialist agency. The Directorate of Mining has certain responsibilities in respect of pollution from mining, which falls within the Mineral Act of 2009.

Advokatfirma DLA Piper

Bryggegata 6
N-0114 Oslo
Norway

+47 24 13 15 00

info.norway@dlapiper.com www.dlapiper.no
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Advokatfirma DLA Piper has three partners and six additional qualified lawyers dedicated to finance and projects matters, with further support available from the restructuring department. The team’s core expertise covers bilateral and syndicated bank lending (senior and mezzanine), asset finance (including shipping/offshore finance) and asset-based lending, acquisition finance, and project finance (including PPPs), among other matters.

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