According to PricewaterhouseCoopers (PWC) 2005 report, Norway's primary insolvency legislation comprises the Act on Debt Arrangements and Bankruptcy and the Creditors Recovery Act, passed in 1984 and effective since 1986. Norway's formal insolvency procedures include voluntary composition, compulsory composition, and actual bankruptcy, involving the liquidation of the debtor's assets. The laws treat both individual and corporate bankruptcy under the same provisions, but in the case of corporate bankruptcy the board of directors stands in the position of the individual debtor. According to the PWC report, the major shortcoming of the Norwegian insolvency regime is the fact that the company facing bankruptcy is responsible for covering the cost of its insolvency proceedings. As a result, even when voluntary or compulsory compositions are undertaken, they often become simple liquidations, and proceedings are often cut short due to insufficient funds. A further problem is that the application of the law is inflexible, so that there is no procedural distinction between the restructuring needs of a large enterprise versus those of a small company. In 2000, the Norway's insolvency legislation was revised in an effort to make it easier to pursue a business rescue option and to extend protection to unsecured creditors. The PWC report suggests that the revisions have achieved only limited success. There is insufficient publicly available information regarding Norway's compliance with the World Bank's Principles and Guidelines for Effective Insolvency and Creditor Rights Systems.

General Overview

The legislative heart of Norway's insolvency regime comprises the Act on Debt Arrangements and Bankruptcy (Bankruptcy Act), the Creditors Recovery Act, both of 1984, and the Debt Settlement Act of 1992. According to PricewaterhouseCoopers' (PWC) European Restructuring and Insolvency Guide 2005/2006, Norway participates in the Nordic Bankruptcy Convention of 1933, along with Sweden, Denmark, Finland, and Iceland, and participates in no other international insolvency conventions. The PWC report notes that the actual texts of Norway's laws are not available in English. However, the website of the Norwegian Advisory Council on Bankruptcy (Konkursrådet, or NACB) offers some explanations of Norway's bankruptcy and insolvency regime, and extracts of some of the legislation can be found online.

The 2005 PWC report identifies three formal bankruptcy procedures, two of which (voluntary and compulsory composition) have as their goal the settlement of debts through a cooperative agreement between debtor and creditors. The third (bankruptcy) specifically liquidates the debtor's assets for allocation to creditors according to a strict order of priority. According to the NACB website, a prerequisite of bankruptcy proceedings is the demonstrated inability of the debtor to satisfy his obligations to creditors. Proceedings may be initiated by the debtor or by creditors. All insolvency procedures are handled through the probate court. The procedure begins with the appointment of an auditor to assess the debtor's assets. An Estate Board is constituted, comprising creditor representatives, to take control of the assets and handles the practical aspects of selling off the property and allocating the monies realized from such sales. In some cases, debt reorganization is the preferred route. The court appoints a supervisory committee and an auditor to assess the value of the debtor firm. The debtor firm's board of directors must turn over control over the company to the supervisory committee and must provide access to any information required by the court, the appointed auditor, and the Estate Board. There is some provision for redress if the board of directors fears that the Estate Board is acting inappropriately. By the same token, if it is suspected that improprieties are being committed by the directors, the court may order that their freedom of movement be restricted.

According to the PWC report, the major shortcoming of the Norwegian insolvency regime is the fact that the company facing bankruptcy is responsible for covering the cost of its insolvency proceedings. As a result, even when voluntary or compulsory compositions are undertaken, they often become simple liquidations, and proceedings are often cut short due to insufficient funds. A further problem is that the application of the law is inflexible, so that there is no procedural distinction between the restructuring needs of a large enterprise versus those of a small company. The cost and complexity of pursuing a composition option is thus often perceived as too great for small businesses to bear. In 2000, the Norway's insolvency legislation was revised in an effort to make it easier to pursue a business rescue option and to extend protection to unsecured creditors. The PWC report suggests that the revisions have achieved only limited success. A new rule passed by parliament in 2004 and entering into force in 2005 made it possible for bankruptcy Estate Boards to seize as much as 5% of the debtor's pledged assets to cover the costs of the insolvency proceedings. However, this is only permissible if there are no other assets available for this purpose.

According to the European Commission's 2003 "Best Project on Restructuring and Bankruptcy" final report, the NACB was created in 1994, to which council members are appointed by the Ministry of Justice. Council members comprise individuals drawn from a variety of relevant walks of life, including accountants, lawyers, and court representatives. The NACB serves an advisory function, recommending changes to the insolvency regime as the need arises. The NACB website provides a great deal of publicly available information on insolvency.

The World Bank's "Doing Business in Norway" snapshot of business conditions for 2008 (available on the website as of 2007) provides data on the cost of business closure in time and money, and the return to creditors, in cents on the dollar. This information is presented alongside the average performance experienced by member states of the Organization for Economic Cooperation and Development (OECD). In Norway, business closures take an average of 11 months and cost an average of 1% of the total estate. Return to creditors averages 90.7 cents on the dollar. This compares quite favorably to the OECD member states, which average 1.3 years, cost an average of 7.5% of the total estate, and return an average of 74.1 cents on the dollar to creditors.