When the bankruptcy is a fact, the businessman must operate according to the act on debt negotiation and bankruptcy (in Norwegian: Konkursloven). With respect to the legislation, there is a difference between bankruptcy in a limited company and a self employed business (sole proprietorship).
In order for someone to go bankrupt, he/she must be unable to meet his/her financial obligations (in a state of insolvency). In such a situation the debtor or one of the creditors must file for bankruptcy. The request for bankruptcy proceedings is sent to the local court.
Whoever files for bankruptcy risk having to pay some of the expenses caused by the proceedings. When the proceedings are requested, a sum meant to cover the expenses must be paid up front. If it turns out that the debtor’s financial situation is such that the costs are covered, the money will be returned.
Bankruptcy is not a criminal offence. On the other hand, bankruptcy may uncover illegal actions such as inadequate keeping of accounts. During bankruptcy, all the debtor’s assets are realized. Some assets are exempt from this rule – such as clothes, furniture and other personal belongings. The purpose of the sale is to obtain money to pay those who have a claim against the debtor.
A complete settlement does not occur very often. In most cases only a small portion of the required money is obtained. Bankruptcy will therefore result in a loss of money for both the debtor and those who hold a claim against the debtor - the creditors. A significant objective of the bankruptcy is that the money shall be distributed fairly among the creditors. Debt relief is not granted after bankruptcy. The debt that is not settled must be covered by the debtor’s future income. However, if a limited company (Ltd.) goes bankrupt, the company will cease to exist. This means that the debt will never be settled.
The Norwegian Advisory Council on Bankruptcy has written a comprehensible introduction to bankruptcy, see the link given in the right hand column.
Last changed: 28/11/2008 Print