Bankruptcy of private limited companies
If a private limited liability company is no longer able to meet its financial obligations, the Board of Directors must consider if the company is bankrupt. The Board should then apply for bankruptcy with the district court where the company is registered. The purpose of the proceedings is to get an overview of assets and to turn these into money for distribution between the creditors.
In order for a private limited company to be considered bankrupt, the company must be insolvent. This means that the company is unable to fulfil its financial obligations by their due date and that there are not sufficient assets within the company to cover the debt either. In the event of insolvency, the company must be unable to fulfil its obligations for the foreseeable future.
The district court will open bankruptcy proceedings at the request of either the company itself or a creditor.
Applications for bankruptcy from the company
- The board is responsible for the financial situation of the company. The board must at all times ensure that the company has adequate capital and liquid assets in relation to the scope and risks of its business. If the board concludes that the equity is no longer sufficient, it is the board's responsibility to consider the basis for further activity. If the result of this assessment is that the company is insolvent, it is the board's responsibility to apply for bankruptcy to the local district court (Oslo City Recorder's Office in the case of Oslo).
- When a limited company of its own accord notifies the district court, this is known as 'applying for bankruptcy'. In addition to the application for bankruptcy, certain attachments (certificate of incorporation, list of creditors and pledged collateral, list of assets, minutes of board meetings and the most recent accounts) must also be submitted. Companies that apply for bankruptcy themselves are exempt from the requirement to pledge collateral and any liability for the expenses attributable to the bankruptcy proceedings.
The bankruptcy proceedings
- The district court will consider the application for bankruptcy and assess whether or not the company is insolvent. If the company is insolvent, the district court will open bankruptcy proceedings and an administrator will be appointed. The administrator is normally a lawyer and is the person who will carry out the bankruptcy proceedings.
- Bankruptcy means that all the company's assets will be seized in favour of the creditors. When the district court has opened bankruptcy proceedings, everyone who acts on behalf of the enterprise will immediately lose the right of disposal over the assets. This means that the company will no longer have the assets at its disposal. The right of disposal is transferred by the administrator to the bankruptcy estate.
- 'Assets' means all assets which belong to the company, such as cash, bank accounts, real property, vehicles, operating equipment, outstanding receivables, plant and machinery, registered trademarks and patent rights.
- In connection with the bankruptcy proceedings, administrators can in some cases opt to continue the business or to sell all or part of the business to a new owner.
- The board and general manager of the company are obliged to assist the estate free of charge. The board and general manager are obliged to provide the district court and administrator with all necessary information concerning their financial circumstances and their business before and during the bankruptcy proceedings. The debtor is also obliged to help obtain accounting vouchers and other documents of importance for the estate administration and provide other assistance as necessary.
- The company's accountant and auditor are obliged to disclose the debtor's accounting documents and inform the estate of the debtor's accounting and business practice. This obligation applies even if fees for the work that has been performed remain unpaid and irrespective of any confidentiality obligation.
- Once the administrator has carried out a complete review of the debtor's financial position, the administration of the estate will be concluded. The estate administration will be terminated by the district court if there are no funds to continue the process. If the estate does have funds, the estate administration proceedings will be concluded through the distribution of the estate's funds between the creditors, so that they receive proportional reimbursement.
After the bankruptcy proceedings
- The enterprise's shareholders will generally not be liable for the company's debt. Their liability is limited to the share capital to which they have subscribed. Nevertheless, compensation liability can arise in respect of board members, owners and others as a result of appropriations they have made in connection with the management of the enterprise. Guarantee liability can also arise with respect to some of the creditors, e.g. if the board members and/or shareholders have personally guaranteed the company's debt.