Financing in Norway

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Norway has a long legal tradition in respect of financing of investments or financing of business enterprises in general. In this article I have tried to shed light on some of the legal topics that you are likely to get acquainted with when entering into a financing agreement governed by Norwegian law, or dealing with Norwegian companies as parties to financial agreements.

1. Loan and credit agreements

1.1. General
In the Norwegian market most types of loans or credit facilities are offered. This includes corporate working capital facilities, different types of acquisition finance facilities, asset finance facilities (especially within the shipping and real estate sector), and letter of credit, guarantee and bond facilities.

The banks operating in Norway can be divided into business banks, savings banks and foreign banks established in Norway with or without a separate branch. Apart from banks, finance companies and mortgage companies also offer financing. The larger Norwegian banks are regularly mandated as arrangers and agents for syndicated facilities. The Financial Supervisory Authority of Norway (“Finanstilsynet”) is the Norwegian agency for financial supervision.

1.2. Documentation
Even if the Norwegian legal tradition mainly follows the Central European legal tradition, loan and credit documentation is very much influenced by the Anglo-American tradition and English language is customary in documentation. This creates delicate interpretation issues, and when drafting documentation according to international standards, the possible interpretation by Norwegian courts according to their tradition should be kept in mind.

Bilateral loans from Norwegian banks are often made according to each bank’s standardised terms and conditions together with an individual term sheet describing the individual terms of the agreement. Syndicated loans, club loans and more or less sophisticated loans and credits are on the other hand made with more extensive documentation. LMA standards or modified versions of LMA standards are customary. Broadly speaking, Norwegian documentation tends to be less extensive than what is used e.g. in the Anglo-American tradition.

Loan and guarantee facilities regularly contain customary representations and warranties, covenants and default clauses.

The Norwegian Financial Contacts Act (1999/46) governs in principle all commercial loan and credit agreements granted by banks and financial institutions. The act has implemented EU’s Directive on Credit agreements for consumers (2008/48/EC) and several other EU directives. Only a few of the provisions are mandatory for loans and credits to professional parties. However, the act works as background rules of law, and awareness of the content of the act as well other relevant provisions is of vital importance when drafting documentation under Norwegian law.

Bond (and bill) loans are getting more common in the Norwegian market as an alternative to ordinary syndicated loans from banks. Several Norwegian investment firms have established departments arranging for issuing of bonds. Nordic Trustee ASA (former Norsk Tillitsmann ASA) acts as the Norwegian trustee for the purpose of protecting the rights of the investor vis-à-vis the issuer at the same time as the trustee is a single point of contact for issuer towards the investors. Most bonds are listed on the Oslo Stock Exchange, and are traded through the banks or through brokerage firms.

2. Contractual mortgages, charges and pledges
It is in principle possible to pledge most kind of assets belonging to a Norwegian business enterprise in order to secure existing or future debt. A charge or mortgage right is created according to the rules of contract law, but the mandatory provisions mainly set out in the Mortgages and Pledges Act (1980/2) need to be complied with. The procedure differs according to what kind of assets that is about to be charged. Accordingly, it is not possible under Norwegian law to create a general floating charge over all the chargor’s present and future assets.

Ownership and certain rights to real estate may be mortgaged by registering the mortgage in the Land Register. There is even a separate register for mortgaging power lines. Similar, aircrafts, ships and offshore installations may be charged by registering the charge at the relevant property registers. Depending on which register that is chosen for the relevant ship, pledges are either registered in the Norwegian International Ship Register (NIS) or in the Norwegian Ordinary Ship Register (NOR).

Movable property is either pledged by (a) creating a possessory lien over the asset, (b) by registering a charge in the Register of Mortgaged Moveable Property (c) by creating a security for unpaid purchases. Creating a possessory lien means in principle that the asset is deposited under control of the the pledgee (or a third party) and the pledgee (or the third party) will remain in possession of the assets until the secured claim is settled.

At the Register of Mortgaged Moveable Property different kind of charges over movables may be registered. Firstly, it is possible to register a floating charge over machinery and plant covering e.g. machines, tools, furniture and certain rights in trademarks, patents and designs and acquired copyrights. There are also specific categories of machinery and plant, namely for motor vehicles, construction machines, railway materiel, farming products and fishing gear. Secondly, it is possible to register a floating charge over inventory covering e.g. raw materials, finished products and commercial goods. Thirdly it is possible to register a floating charge over the chargor’s receivables. All the floating charges are characterised by that they comprise the different categories of assets owned by the Pledgor as they are at any time. It is however possible to limit a charge over machinery and plant and a charge over inventory to assets which relate to a separate unit of the chargor.

Apart from registering a charge over the receivables, simple monetary claims may be pledged by notifying the debtor. Negotiable debt instruments, promissory notes and other securities may be pledged by depositing the document with the pledgee (or by a third party on behalf of the pledgee).

Shares in limited liability companies are charged by either registering the charge with the company that issued the shares, or if the shares are registered in the Securities Register (according to the statutes of the company) the pledge shall also be registered in the Securities Register. Charges over other financial instruments registered in the Securities Register are also charged by registering the charge in the Securities Register.

The priority of mortgages and pledges is as a starting point determined by the date and time when the security was created. There are however certain exemptions and a few are worth mentioning here:

(i) A pledgee needs to obtain legal protection (according to the rules set out above) for the mortgage/pledge in order to keep the initial priority from when the security right was created.

(ii) The pledgee and the pledgor may also agree on different priority than what is established by the said principles, and inter-creditor agreements are regularly entered into in order to determine the priority between the creditors.

(iii) Certain claims are secured by a legal mortgage, and these kinds of mortgages may have the best priority ranking without being registered or established in other respects. Of practical importance is that the bankruptcy estate for a company has in principle a legal mortgage over all charged assets amounting to up to 5% of the value of the asset in order to secure funds for bankruptcy proceedings.

3. Guarantees and letters of credit
There is a wide variety of guarantees in use in the Norwegian market. Parent company guarantees, guarantees from subsidiaries and guarantees from personal owners are customary. In respect of financing of business enterprises, banks often require independent guarantees from parent companies or subsidiaries. The Financial Contracts Act contains mandatory provisions regarding guarantees, and these need to be observed and complied with.

4. Financial assistance restrictions
Financial assistance restrictions are important and need to be observed by Norwegian limited companies being party to loan agreements or providing guarantees or other security rights.

A company may only grant credit to or provide security for the benefit of a shareholder or a party related to him if the company has distributable reserves, and if adequate security is provided. These restrictions do broadly speaking not apply for credit of customary duration in connection with commercial agreements, for credit or security for the benefit of the parent company or other company in the same group (national group), and for credit and security for the benefit of a legal person with a controlling influence or subsidiary of such legal person (international group) provided that the credit or furnishing of security is intended to serve the financial interest of the group.

In addition there are restrictions on the company’s possibility to provide financial assistance in connection with the acquisition of shares or an option for shares in the company or the company’s parent company.

For limited partnerships (KS), and to some extent for general partnerships (ANS), similar restrictions as for limited companies apply.

5. Leasing
Both operational and financial leasing is well-known in the Norwegian market, especially for the purpose to lease computers, equipment and vehicles used in trade and industry. Mandatory provisions apply especially for financial leasing agreements.

6. Restrictions related to company law
A resolution to sign a finance document needs to be made by the competent corporate body, and the person or persons signing the document need to be appointed by the company as its representative(s).

For limited companies (AS/ASA), the board of directors is as a starting point the competent corporate body to execute financial documents. The representatives of the company need to be authorized according to the statutes or by separate resolution by the board. It is important to note that the relevant company act, the articles of association of the company or separate instructions by the General Meeting may require a resolution by the General Meeting to authorize execution of financial documents. Auditor approvals and specific decision-making procedures may also be required.

For general partnerships (ANS) and limited partnerships (KS), the Partnership Meeting is as a starting point the decision making authority. It is common for partnerships to decide to have board of directors and a general manager, although the authority of the board and the general manager need to be assessed in respect of each company.

The directors of a Norwegian company have extensive obligations to manage, ensure proper organisation and supervise the company’s management and business operations. These obligations of the directors need to be observed when entering into finance documents and when complying with the relevant finance documents. Of practical importance in this respect is the obligation to maintain adequate capital in the company, to propose measures to restore the capital and if required file for bankruptcy or debt settlement negotiations.

7. Debt collection/enforcement
Enforcement of overdue claims and security rights is handled by the execution and enforcement authorities. Different documents can be basis for execution, such as judgements by Norwegian courts, arbitration awards or enforceable security documents and debt instruments. The execution and enforcement authorities can also allow monetary claims to be secured through an execution lien and mortgages and pledges may be collected through e.g. a sale of the asset.

The Financial Collateral Act (2004/17), implementing the Financial Collateral Directive, gives the possibility to agree on enforcement mechanisms that are handled by the parties themselves, without involving the execution and enforcements authorities.

Lenders liability issues need to be observed in event of default situations. Such situations may as an example arise if the bank starts to instruct the borrower to an extent that leaves the bank with the actual control of the borrower.

If the owner of the pledged asset is declared bankrupt, the estate has the possibility to abandon the pledged assets to the benefit of the pledgee.

8. Legal opinions
Legal opinions are regularly issued by the lawyers handling the finance and security documentation. The format of legal opinions in Norway usually follows international standards. Customary assumptions and reservations should be expected.

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And there is of course a lot more to tell about financing in Norway as the summary above is only a very simplified introduction. Get in touch if you want to learn more or if you require legal advice on any specific matter.

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Contact us for assistance with financing in Norway
Our lawyers have provided loan- and guarantee documentation for numerous of facilities in the Norwegian market. We have assisted lenders and borrowers in respect of most kind of questions that may arise during the life of a loan- or guarantee-facility. Get in touch with us if you have any questions or require assistance regarding financing in Norway.

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About the author

Harald Sætermo_1
Harald Sætermo
is a Norwegian attorney-at-law and a partner in the law firm Rime. Harald has more than 15 years experience as a business lawyer in Norway. His work includes representing some of the largest financial institutions in Norway and the Nordic countries, listed companies, other commercial enterprises and private individuals. He has previously been an in-house lawyer at Nordea, Senior Lawyer at the Law firm Schjødt in Oslo, and teacher/external examiner at the Faculty of Law, University of Oslo.

Contact Harald:
has@rime.no
Tel +47 906 50 410

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