On 15 April, the Norwegian Government proposed to the Parliament a Temporary reconstruction law to remedy financial problems as a result of outbreaks of covid-19 (Reconstruction Act)
The proposed new legislation will, if it is passed by the parliament, be favourable for the ongoing restructuring efforts in Norwegian. The proposed legislation includes, among other things, the following:
- The debtor is entitled to apply to the court for initiation of a formal restructuring procedure whereby the business of the debtor will continue under supervision of a creditor committee
- The debtor will be protected from bankruptcy and enforcement proceedings during the reconstruction.
- It is proposed to introduce rules on the establishment of security for loans for continued operation during the reconstruction period and financing the negotiation of the reconstruction in operating equipment, inventory and receivables with so-called «superpriority» with higher priority than existing mortgage holders (i.e. a statutory lien).
- A reconstruction proposal shall be made, which may include an extension of the due date for repayment of debt, a reduction of all debt by a certain percentage, conversion of debt to equity, transfer of the debtors business in whole or in part to new owners without liquidation, transfer or liquidation of the debtors business and assets in whole or in part against the debtor is released from the debt not being covered by the liquidation or a combination of these restructuring methods.
- The votes needed in the EGM for a resolution to convert debt to shares is reduced from 2/3 to 1/2. Hence, it will be more difficult for minority shareholders to block a restructuring.
- All creditors must ordinarily consent to a restructuring, but the court is granted authority to decide that a restructuring shall be binding on all creditors in the event that certain creditors do not have a reasonable basis for not consenting to a restructuring proposal.
As to the conversion of debt. Engelsk oversettelse. For the creditors, it is proposed that a scheme of debt being converted into share capital, as a general rule, shall be voluntary for the individual. At the same time, a safety valve is proposed where the court is given the right to decide that the scheme shall include all creditors when weighty considerations speak for it, and those creditors who have opposed the scheme clearly do not have a reasonable reason to object.
Ordinarily the legislation process will take years, but in this case we are probably taking about days or weeks before the proposal is handled by the parliament. The proposal will have an impact on the ongoing restructuring in Norwegian and as Norwegian has already summoned for a shareholders meeting and bondholders meetings, Norwegian may use this in an attempt to persuade the shareholders and the bondholders to accept the proposals rather than being subjected to a formal restructuring process pursuant the expected new legislation.
The above is based on the governments draft proposal to new legislation and is subject to changes from both the government and from the parliament.
Hans P. Bjerke Halfdan Lowzow