The liquidation of a firm is one of the most significant actions marking the end of a establishment life-cycle. Due to the complexity of the liquidation method, it is regulated by law and ought to be carried-out with utmost precision in Norway. What one should know about the laws regulating firm liquidation is especially imperative when shutting down due to bankruptcy, becoming breakdown through reorganization, or just because the industry no longer serves a objective.
This article discusses the main issues of liquidation in country, i.e., the volunteerand obligatory; the steps; managers’ responsibilities; tax consequences; and substances for obligees and sharers.
1. Establishment Liquidation: What Is It?
Liquidation, or avvikling in Norwegian, is the standard method of dissolving an enterprise and allocation of its acquisitions. It consists of winding-up the affairs of the firm, discharging its disadvantages, and having it struck from the register at the Brønnøysund Register Centre (Norwegian official corporation registry).
- Norwegian laws mention two sorts of liquidations:
- Voluntary-liquidation (frivillig avvikling): initiated by the owners or by the board of the firm.
- Obligatory liquidation (tvangsoppløsning): order issued by the bodies or courts that usually dissolves bankrupt entities or infriges on the mandatory obligations.
2. Voluntary-Liquidation
When does this come into effect?
Provided the firm is solvent, voluntary-liquidation would be possible if the firm activities have ceased or are no longer worth chasing. The landlords may wish to put away the firm for private, strategic, or economic reasons.
Lawful Framework
Hence, voluntary-liquidation will be regulated under the Private Limited Liability Companies Act (Aksjeloven) or the Public Limited Liability Companies Act (Allmennaksjeloven) depending on the nature of the firm, i.e., a private or public firm.
Step-by-step Process
1. Passing the Board Resolution and General Meeting
The board has proposed the liquidation of the firm and, subsequently, sharers in a unrestricted meeting adopt the solution. It requires the support of a two-thirds majority of share capital and votes.
2. Appointment of Liquidator
Generally, a director or a member of the board shall assume the functions of the liquidator (avviklingsstyret). In some cases, it is permitted or even recommended that an independent party be selected. The liquidator shall supervise the liquidation method, settle debts, and disseminate whatever acquisitions remain.
3. Notification of Bodies
The determination made must be registered with the Brønnøysund Register Centre. A public announcement will hereby be made, whereby obligees have six weeks to make affirmations.
4. Honoring Debts and Selling Acquisitions
The liquidator must find out who the obligees are and pay them off. Acquisitions may be sold if the sale proceeds will satisfy part of the debt. However, if an issue arises, it will have to be resolved before the final dissolution of the firm.
5. Final Allocation and Report
When the debts are cleared, the liquidator distributes whatever funds or stock remain to the sharers. The liquidator then formulates a final liquidation account and report, which are filed with the Registry.
6. Deregistration
Deregistering serves as the final blow to the dissolution of the firm from the lawful point of view.
Timeline
Uncoerced liquidations normally last between 2 and 6 months, depends on the complexity of the firm and its responsibilities.
3. Obligatory Liquidation
When Is It Used?
Obligatory liquidation occurs when a firm fails to comply with lawful requirements, is insolvent, or engages in illawful activities. Common triggers include:
- Failure to file annual reports or accounts
- Operating without a valid board
- Court-declared bankruptcy due to bankruptcy
- Serious regulatory violations
Method
The obligatory liquidation is method through the courts in country. The obligees, the tax administration, or the Brønnøysund Register Centre may initiate the method.
1. Court Decision
The District Court (tingretten) considers the petition and, assuming the case is sufficient, declares the firm to be liquidated or bankrupt.
2. Assignment of Trustee
The trustee (bostyrer) is established by the court to assist the liquidation, generally a lawyer. They act independently and give precedence to creditor assertions.
3. Managing Acquisitions and Paying Creditors
The trustee examines the firm’s finances, sells the acquisitions, and distributes the profits according to creditor priority as stated under Norwegian bankruptcy lawmaking.
4. Deregistration
Once all of the above have been satisfied, the firm is stricken from the enroll.
Timeline
Since such forced liquidations tend to need a longer period of time—ranging from several months to a few years—they sometimes get complicated by matters pertaining to acquisitions or disputes.
4. The Role and Duties of Managers
Corporation managers during liquidation have the lawful obligation to assure obligees are taken care of. There is individual liability for any mismanagement, negligence, or willful wrongdoing.
Voluntary liquidation: Managers are needed to:
- Keep proper accounts and records
- Treat obligees equally
- Not engage in transactions that may prejudice the righteousness of the obligees
- Cooperate with auditors and bodies
- In pressing liquidation, the managers may be investigated for misconduct. If found guilty of fraud or gross negligence, they may be held financially and criminally liable.
5. Treatment of Creditors and Employees
Creditors
The remuneration to obligees in both types of liquidations is made according to the following order of priorities:
- Secured obligees (With collateral, e.g.)
- Employees (for unpaid salaries and pension contributions)
- Tax authorities
- Unsecured obligees
- Shareholders (if anything remains)
- Often, in bankruptcy, unsecured obligees can be paid even less than 20% of their claims.
Employees
Employees are well protected under Norwegian law. The Wage Guarantee Scheme (Lønnsgarantiordningen) pays out unpaid wages, allowances for vacation, and allowances for the notice period within limited amounts.
6. Tax and Accounting Obligations
The firm must comply with tax laws even upon liquidation:
- Submission of VAT and tax returns for the final period
- Closing of accounting books
- Expense of outstanding taxes and employer contributions
- Any acquisitions distributed will have to be disclosed and may give rise to tax liability in the hands of the sharers-the capital gains tax.
- Auditors (if the firm is required to have one) have to audit the last accounts and the liquidation report.
7. Alternatives to Liquidation
Options to consider before liquidation:
- Dormancy: The firm can remain registered and yet inactive.
- Merger or acquisition: A sale of the firm might do better.
- Debt restructuring: For companies with short-term cash flow difficulties.
- These paths might present better results when some acquisitions or brand value still remain.
8. Some More Useful Information Regarding Cross-Border Issues
If the firm has acquisitions, obligees, or operations outside country, further steps could be required in those foreign jurisdictions. The EU Insolvency Regulation needs recognition of liquidation proceedings in case of cross-border matters involving EEA countries.
9. Errors Must be Avoided
- Not serving obligees – By-passing notification or payment to a creditor is an unlawful act.
- Doing it in haste – Skipping any step will impair the finalization of the liquidation following the six weeks of creditor notice.
- Incomplete accounting – Negligence in accounting would definitely cause delays or otherwise complicate matters.
- Undervaluing the acquisitions – Courts often reverse the sale of acquisitions made at below value to the advantage of “insiders.”
10. Summary
Liquidation of a firm in country is a very formal and controlled procedure that assures the protection of obligees, employees, and the enterprise community. Volitional or compulsory, liquidation must be based on equally transparent grounds and in conformity with statutory conditions.
Corporation owners, whether singly or with others, should, from an early stage in the method, take guidance from lawful or economic professionals to avoid costly errors. Properly worked out planning, straightforward communication, and compliance with governing laws will ease a smooth transition and closure.