Theboard of directors and management of Norwegian companies may be held personally liable for failure to warn creditors of a company`s financial difficulties per the Norwegian
Limited Liability Companies Act Section 17-1. The question of liability will typically arise in a bankruptcy situation, where the company is not able to fulfil its obligations to creditors. The subject matter of the article is what degree of financial difficulties should trigger this obligation to warn creditors.
The Norwegian Supreme Court has in its latest verdict on the topic (HR 2017-2375-A Ulvesund) stated that directors’ liability towards creditors does not necessarily correspond to the liability of the companies themselves. According to the verdict, the directors can in certain situations refrain from warning creditors, even after the company has become insolvent. The company, on the other hand, has an obligation to warn creditors from the point of insolvency.
The article discusses the legal basis for this threshold in relation to previous case-law and especially the obligation in the Norwegian Limited Liability Companies Act Section 3-4. The latter entails an obligation for the board of directors to ensure that the company at all times has equity and liquidity which is sufficient based on the risk and extent of its operations. The conclusion of the article is that the Ulvesund-verdict represents a step too far in disregard of the interests of the creditors.