The Norwegian government was acting quickly this week to amend and expand its bankruptcy law, to offer companies options to liquidation. By allowing protection from creditors during a reorganization, troubled but still potentially viable companies like Norwegian Air could remain in business.
The new law, which won unanimous support from a united justice committee in Parliament, was due to be approved on Friday, according to committee leader Lene Vågslid of the Labour Party. It looks set to become Norway’s version of Chapter 11 of the US Bankruptcy Code, which allows a company to seek protection from creditors in court as it attempts to reorganize or restructure. A company basically files for protection under a specific chapter of the bankruptcy code, rather than for bankruptcy itself.
“We have handled this (proposal from the government) very quickly, precisely so that we can quickly start using debt negotiation plans and a reorganization (referred to as a “reconstruction” in Norwegian),” Vågslid told Norwegian Broadcasting (NRK). “Then we’ll have a regulatory framework that can function, when those we had weren’t good enough.”
Saving jobs and companies
The goal is to save jobs and companies suddenly faced with liquidation after abruptly losing all their revenues when the government imposed strict Corona virus containment measures that shut them down. Among the largest in Norway at present is airline Norwegian Air, which has been offered as much as NOK 3 billion in emergency state aid but must win concessions from creditors in order to meet strict capital requirements.
It’s in the state’s interests that Norwegian Air, with most of its aircraft grounded by Corona and heavy debt, resumes flying as a competitor to rival Scandinavian Airlines (SAS). Speculation is flying, meanwhile, that Norwegian may need to drop its intercontinental flights and maybe even European flights, but could at least continue as a domestic carrier and then possibly rebuild again.
Håvard Wiker, an attorney and bankruptcy expert, told NRK that the new law “could help Norwegian” because it could offer an opportunity to convert secured debt into shares in the newly reorganized company, and force creditors to accept minimum payments set during a court-administered distribution of the company’s values. Unsecured creditors, however, are worse off.
Often used by US airlines
Chapter 11 has been used by numerous companies in the US, not least airlines that have re-emerged from serious financial problems and are still flying. Unsecured creditors can wind up with nothing, pension plans have often been lost along the way, layoffs can still be massive and salaries are generally cut, but the company survives and can rebuild.
The justice ministry is aiming to be able to put the law into force within two weeks, by May 11. It will also be made retroactive, so that all debt negotiations commending since March 1 could come to be included under the new rules, according to Justice Minister Monica Mæland.
The law will initially be put into effect on a temporary basis, applying for the next 18 months, but Mæland said it can become permanent.