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Maritimenews
No. 7
BergenKristiansand
OsloTrondheim
SingaporeStavanger
Tromsøwww.svw.no
– Liability for onshore decommissioning under the Petroleum Act
– New judgment – “Covenant to Pay” clauses in Deeds of Pledge
– Lifting of Iran Sanctions– New BIMCO anti-corruption clause– The bankruptcy of OW Bunker companies,
including Bergen Bunkers AS (Norway) – An update seen from Norway
– Early action crucial for a sucessful restructuring
– Proposed liberalization of the strict Norwegian financial assistance regime is likely to increase the room for leveraged buyouts
– Norwegian Limited Liability Companies –Overview of the responsibilities of the board in challenging times
– Norwegian industry EPC(I) standard contracts– NIS’ flag services restrictions in violation of
the EEA Agreement?
Editor: Hege Hellström Henriksen Senior Lawyer, Oslo office
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The challenging times in the maritime and offshore sector are continuing, and much of our work is now focusing on restructurings, advising on existing contracts to evaluate default scenarios, termination events, arrest of assets and preparing for financial difficulties of the counterparty. Both the bulker and offshore sector are struggling. Large values, loans and equity are at jeopardy. At the same time a new market is opening up in Iran, following the lifting of the sanctions by the international community. These questions are not only requiring assistance from strong shipping/offshore and banking/finance departments, but requiring support from other areas of expertise. Simonsen Vogt Wiig has one of the strongest shipping/offshore team in Norway and a very strong Banking and Finance team. We are also supported by strong departments within Oil & Gas, Corporate, Insolvency and Employment law. Also, our presence throughout Norway is unique for a Norwegian lawfirm. Our offices in Oslo, Kristiansand, Stavanger, Bergen, Trondheim and Tromsø provide support locally where the relevant company has its daily business. Our office in Singapore provides support on Asian transactions and on Asian time zone. In addition to easy access to our experts, this also provides cost efficiency.
We hope you will find the new edition of our newsletter informative and of assistance.
As always, we look forward to assist and work together with you all, and provide valuable advice whether it is restructuring or renegotiations, new acquisitions or transactions, or innovative developments.
— Maritime news
Dear reader,
Writer:Erlend Lous, Partner, Simonsen Vogt Wiig AS
1. IntroductionAs production under mature petroleum licenses inevitably come to an end, many of the almost 500 petroleum production and transportation facilities on the Norwegian continental shelf will have to be decommissioned in the years to come. It is a political goal to dispose of these facilities onshore and to recycle as much of the waste materials as possible, both to ensure a safe and environmentally sound “last phase” of the petroleum activities, but also to ensure that this multi-million NOK a year activity boosts regional industrial activity and employment. Thanks to the development of heavy offshore lifting capacity, decommissioning activities can increasingly be carried out onshore. As many facilities and related equipment are expected to arrive in
Norwegian fjords for onshore decommissioning, the question of liability for the activity, including possible damages to third parties and local pollution, is increasingly relevant.
This was one of the key questions in a case argued before the Gulating Court of Appeal in March 2015. The decommissioning facility (“Miljøbase Vats”, operated by AF Decom Offshore) is located in Vindafjord on the western coast of Norway and is one of four sites established in Norway for deconstruction and disposal of facilities used in petroleum-related activities. In recent years the largest supplier of scrapped petroleum production facilities has been Production License 018 (PL 018) on the Norwegian continental shelf, which is operated by ConocoPhillips. A fish
farm situated next to Miljøbase Vats claimed that fish farming was made impossible by pollution arising from the decommissioning activities conducted at the decommissioning facility. The fish farm held ConocoPhillips responsible for its loss resulting from the pollution, as operator and licensee of PL 018.
The court did not address the question of the extent of liability relating to decommissioning activities under the Petroleum Act, but based its decision on the claim being time-barred. Nevertheless, the dispute serves as a practical example of how the last phase of petroleum production activities may potentially have a detrimental impact on the environment and third parties, and raises the question of the scope of liability under the Petroleum Act for
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Writer:Frode Vareberg, Oslo office
Liability for onshore decommissioning under the Petroleum Act
Writer:Preben T. Willoch, Oslo office
petroleum licensees in relation to onshore decommissioning activity.
2. Liability under Petroleum ActDecommissioning activities are governed by Norwegian law and non-statutory law and regulations which include provisions on liability for pollution and damages to third parties caused by such activities. However, a question remains as to whether these activities can be considered part of “petroleum operations” and thus covered by the special responsibility and liability for the operator and petroleum licensees under the Petroleum Act.
The scope of the Petroleum Act is limited to ‘petroleum activities’, defined in the act as: “all activities associated with the subsea petroleum deposits, including exploration, exploration drilling, production, transportation, utilization and decommissioning, including planning of such activities.”(1)
As decommissioning is both included in the definition of ‘petroleum activities’ and addressed in a separate chapter of the Petroleum Act, the question is not whether such activity is covered by the law, but rather the geographical and time limits of the law’s application to such activities. It is generally assumed by many practitioners that onshore decommissioning of petroleum facilities falls outside the scope of the Petroleum Act and that the law ceases to apply to such activities when a petroleum facility or related equipment is removed from its offshore location. The merits of this view are discussed below.
Geographical and functional Scope The scope of the Petroleum Act is functionally, and not geographically, defined. This implies that the Petroleum Act applies to an activity irrespectively of the location, as long as the activity falls within the functional scope of ‘petroleum activities’. As the Norwegian legal
system has a fragmentary structure, allowing for overlap of scope of several laws, the Petroleum Act may also apply in parallel with other relevant laws (e.g. environment, tort or planning laws).
As petroleum activities in Norway are predominantly conducted offshore, to be decommissioned onshore the relevant facilities and equipment must be transported to shore by being towed, or transported on a ship or barge. All vessels are flagged and registered in a ship
register in a nation state (the flag state) which has jurisdiction over the ship. Thus, the general rule is that the transportation of any type of goods – including decommissioned petroleum facilities and equipment – is governed by the flag state rules. However, this is only a starting point. Under customary public international law and the United Nations Convention on the Law of the Sea, coastal states may regulate all activities relating to the exploration and exploitation of petroleum conducted in their
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1. Petroleum Act § 1-6(c)2. United Nations Convention of the Law of the Sea 1982
exclusive economic zone and on their continental shelf – including construction and removal of installations in the area.(2) Under public international law, coastal states are (with some exceptions) further obliged to remove all such installations in these zones when the activities cease. This right to regulate decommissioning of offshore petroleum facilities is the basis for Chapter 5 of the Norwegian Petroleum Act. It is undisputed that the Norwegian Petroleum Act also applies to petroleum activities conducted on vessels, i.a. on seismic, supply or service vessels, but not to the vessel or the marine aspects of the activity by or on board the vessel. Thus it must also apply to petroleum activities conducted by ships that are transporting facilities or equipment to shore for decommissioning to the extent this activity, or part of such activity, is defined as “petroleum activities”. Whether this is the case must be decided in each individual case, based on the interpretation of petroleum activities and to what extent this phase in the decommissioning activities may be interpreted to fall within the scope of the law. While the towing of an entire production facility to shore as part of a decommissioning procedure seems to be within the law, transporting cut pieces of steel or used machine parts in containers may not constitute petroleum activity. However, even though this part of the decommissioning procedure may in some cases fall outside the scope of the Petroleum Act, this does not necessarily entail that the following steps in the procedure is outside the law.
“Petroleum activities”There is no doubt that the Petroleum Act also applies to onshore petroleum activities, i.a. in relation to onshore planning, construction and operation of facilities for extraction of petroleum from offshore petroleum deposits. Therefore, whether decommissioning activities are happening offshore or onshore is not
the issue, but whether such activity is an “activity associated with subsea petroleum deposits” – in other words, whether it is sufficiently related to and naturally falls within the definition of ‘petroleum activities’. There are several relevant parameters on which such an assessment could be made. Some key parameters are in our view i.a. the physical, safety, procedural, personnel, environmental, commercial and planning relation to the offshore production activities.
If construction of the facility falls under this definition, there is a presumption that deconstruction or decommissioning of the facility does likewise. When towing of a facility to its offshore location is comprised by the law, also towing to shore should logically be part of the scope. Further, even though the deconstruction of the facility does not directly affect extraction from the deposit, it has a certain direct impact on the timing of shutdown and on the production profile, as the costs of decommissioning may directly affect the profitability threshold of the activity.
Further, for to what extent cessation and decommissioning activities falls within the term ‘petroleum activities’ must be interpreted in conjunction with Chapter 5 of the Petroleum Act. Pursuant to this chapter, licensees are obliged to prepare and submit a decommissioning plan to the Ministry of Petroleum and Energy, on which the ministry will base its
“decision related to disposal”.(3) The decommissioning plan must include two sections: a disposal plan and an impact assessment.(4) The requirements of these plans are further detailed in the regulations and include detailed assessment of the decommissioning alternatives, procedures and effects. Pursuant to Section 5-4(1) of the Petroleum Act, the obligation of the licensee and owner of a facility is to ensure that the decision relating to disposal is carried out.(5) This responsibility
includes liability “for damage or inconvenience caused […] in connection with the disposal of the facility or other implementation of the decision”. Thus, the activity and the liability for the effects of such activity may be understood
to relate to fulfilment of the entire decommissioning plan, no matter where the different parts of this plan are conducted. The fact that both the decommissioning plan and the disposal decision generally detail obligations regarding onshore activities indicates that the scope of the law includes such activities.
Notably, this liability is not strict (as for pollution damage pursuant to Chapter 7 of the Petroleum Act), but depends on negligence or wilful misconduct by the licensee or owner of the facility. However, it is sufficient under Section 5-4 that a third party suffers “inconvenience” as a result of such acts, whereas under the corresponding provision of the Norwegian Neighbor Act, “unnecessary inconvenience” is required.
The subsequent question is where in the decommissioning process the activity seizes to be petroleum activity. Arguably, even if the scope must be assessed in light of the plan
As many facilities and related equipment are expected to arrive in Norwegian fjords for onshore decommissioning, the question of liability for the activity, including possible damages to third parties and local pollution, is increasingly relevant.
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3. Petroleum Act § 5-3, Paragraph 14. Petroleum Regulations §§ 43-455. Petroleum Act § 5-3, Paragraph 2
and disposal decision, the scope of the law cannot be expanded by a ministerial decision or a too broadly prepared decommissioning plan. The extent of the licensee’s liability must therefore be found by a broad based assessment weighing all the arguments described above. As the Petroleum Act will apply in parallel with other laws on such activities, the application of the Petroleum Act law and the special liability and operational requirements under the act will also depend on whether the regulatory objectives related to the activity and its effects are sufficiently regulated by other applicable law, i.a. environmental laws, tort law, etc. Finally, from the regulators’ and politicians’ point of view it might be seen as more appropriate that the large oil companies having benefitted from many years of exclusive rights to extract petroleum from the NCS also are kept responsible for the final phase of such activities, rather than that the considerable risk of damages and pollution in this phase are transferred to smaller and financially weaker local industry players.
As the question is not directly dealt with in the Petroleum Act or the preparatory works to the act, clarification via an amendment, ministerial clarification or court decision is keenly awaited.
3. CommentIf the holders of Norwegian production licenses are indeed responsible for third party damages and pollution arising from onshore decommissioning relating to such production licenses and such activities are covered by the Petroleum Act, this may influence decommissioning methods, the organization of such activities and contractual requirements imposed on contractors. It may also affect and potentially drive up the costs in the final phase of petroleum activities on the Norwegian continental shelf.
For further information on this topic please contact:
Preben Willoch ([email protected]) Frode Vareberg ([email protected])
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On 3 February 2016 Oslo City Court gave judgment in a legal action brought by the Singapore based company Symphony Ventures Pte Ltd against Dag Dvergsten AS. Partner Christian Bjørtuft Ellingsen and senior lawyer Tage Brigt A. Skoghøy were acting counsels for Symphony Ventures in the matter.
The case concerned the interpretation and effect of a “Covenant to Pay” clause in a Deed of Pledge subject to Cyprus law. In the “Covenant to Pay” clause in question the pledgor Dag Dvergsten AS undertook as primary obligor to pay the underlying debt without any limitation or reservation to pledgee Symphony Ventures Pte Ltd. The issue considered by the court was whether the payment obligation in the “Covenant to Pay” clause was to be understood and given effect in accordance with its wording, or whether there was any basis for a restrictive interpretation. The pledgor argued that the Covenant to Pay clause had been included in the Deed of Pledge owing to a formal legal requirement in the Cyprus Contract Law, that pursuant to market practice such clauses were included in Deeds of Pledge as a matter of form and that the parties never intended for the pledgor to undertake any obligation to repay the underlying debt.
The court rejected the arguments raised by the pledgor, and concluded that there was no basis for a restrictive interpretation of the clear and unambiguous wording. The court consequently found in favour of Symphony Ventures and ordered Dag Dvergsten AS to pay an amount of USD 4.3 million plus interest. Dag Dvergsten AS has lodged an appeal against the judgment.
Writer:Tage Brigt A. Skoghøy,
Oslo office
Writer:Christian Bjørtuft Ellingsen,
Oslo office
New judgment - “Covenant to Pay” clauses in Deeds of Pledge
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Following the Joint Comprehensive Plan of Action and the United Nations Security Council (UNSC) resolution, the EU and Norway lifted the main economic sanctions (the term used by the EU is “restrictive measures” ) against Iran on 16 January 2016. The lifting of the restrictive measures means, in principal, that EU citizens and companies can engage in business involving Iran on a broad scale.
Notwithstanding the new possibilities for interaction between the international community and Iran, there are a number of limitations which are important to have knowledge of. The limitations lay both within the EU regulations and, more importantly, the U.S. sanctions which remain extensive.
In the following, we will provide you with an overview of the basis for the international lifting of the sanctions against Iran, the frame work of what EU/Norwegian sanctions are lifted and what involvement with Iran remains sanctioned, , on what basis the UN and EU sanctions are lifted in Norway, as well as an overview of the position of the U.S. sanctions as described by the U.S. Department of the Treasury.
Lifting of Iran Sanctions
Writer:Anita Gerdin,Oslo office
Writer:Hege Hellström Henriksen,Oslo office
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The following terms are useful to know:
JCPOA: Joint Comprehensive Plan of Action of 14 July 2015 (Iran, P5+1: USA, Russia, China, UK, France + Germany and the EU)
Adoption Day: 18 October 2015, the day on which the JCPOA became effective and the participants in the JCPOA began to make the necessary preparations to implement their JCPOA commitments.
IAEA: The UN International Atomic Energy Agency
JPOA: Joint Plan of Action of 24 November 2013
Implementation Day: 16 January 2016, the day on which the JPOA ceased to be in effect, and the temporary suspension of certain sanctions under that arrangement was superseded by the relevant sanctions lifting provided as part of the JCPOA. On Implementation Day the IAEA verified that Iran had implemented the nuclear-related measures described in the JCPOA.
Transition Day: Will occur 8 years from Adoption Day or upon a report from the IAEA that all nuclear material in Iran remains in peaceful activities, whichever is the earlier.
Termination day: Ten years from Adoption Day, provided that the provisions of the previous Security Council Resolutions have not been reinstated in the interim, all provisions of the UN Resolution shall be terminated and none of the previous resolutions shall be applied. The Security Council will have concluded its consideration of the Iranian nuclear issue.
OFAC: US Department of Treasury’s Office of Foreign Assets Control
UNSC: United Nations Security Council
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The Joint Comprehensive Plan of Action and the role of the United Nations
Diplomatic efforts to reach a long-term to the Iranian nuclear issue resulted in the JCPOA concluded on 14 July 2015 by China, France, Germany, the Russian Federation, the United Kingdom, the United States, the High Representative of the European Union (the E3/EU+3) and the Islamic Republic of Iran.
On 20 July 2015, the UNSC unanimously adopted resolution 2231 (2015) endorsing the JCPOA and urging its full implementation. In the resolution, the UNSC declared that conclusion of the JCPOA marked a fundamental shift in its consideration of the Iranian nuclear issue and expressed a desire to build a new relationship with Iran.
United Nations Security Council Resolution (UNSCR) 2231 (2015): United Nations Security Council Resolution (UNSCR) 2231 (2015): UNSCR 2231 (2015) terminates all provisions of UNSC resolutions on the Iranian nuclear issue; UNSCR 1696 (2006), 1737 (2006), 1747 (2007), 1803 (2008), 1835 (2008), 1929 (2010) and 2224 (2015). Exemptions; Nuclear, ballistic missile, and arms-related transfers, asset freeze, travel ban.
“Snapback”:The UNSC will be notified by the participants in the JCOPA if agreed commitments have not been met, which might result in all the provisions of the relevant UNSCR being re-imposed.
In the event of a reintroduction of measures, the UNSCR will, as a general rule, not apply with retroactive effect to contracts signed prior to the snapback date.
Basis for implementing UN sanctions in Norway:Norway, as all UN Member States, is obligated under Article 25 of the Charter of the United Nations to accept and carry out the UNSC’s decisions. In order for the UN sanctions to be binding for private legal persons in Norway, the sanctions must be implemented as Norwegian law. The same procedure will apply for lifting the sanctions.
Sanctions adopted by the UNSC are implemented in Norwegian law through regulations passed pursuant to Act of 7 June 1968 no. 4 (“til gjennomføring av bindende vedtak av De Forente Nasjoners Sikkerhetsråd”).
EU – Proliferation-related sanctions and restrictions remaining in place after Implementation Day:These concerns the arms embargo, sanctions related to missile technology, restrictions on certain nuclear-related transfers and activities and provisions concerning certain metals and software which are subject to an authorisation regime.
Measures concerning inspection of cargoes to and from Iran and those related to the provision of bunkering or ship supply services continue to apply after Implementation Day in relation to items which continue to be prohibited.
Furthermore it is important to note that there is still a number of persons and entities left on both the UN and the EU consolidated lists which remain in force after Implementation Day, and with whom it is illegal to do business with. For persons and companies subject to Norwegian law, the updated lists can be found in the Norwegian Regulation of 2 September 2007, amended 15 January 2016, Section 23 and 23a, Annex VIII, IX, XIII, XIV. Furthermore, EU’s consolidated list of persons and entities applies pursuant to the Norwegian Regulation, Section 23 (3) and Annex A.
EU – Non-nuclear proliferation-related sanctions and restrictive measures:Sanctions imposed by the EU in view of the human rights situation in Iran, support for terrorism and other grounds are not part of the JCPOA, and remain in place.
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Sanctions lifted by the United Nations and Norway / the EU
Basis for implementing EU restrictive measures in Norway:Norway is, as an EEA country, not part of the EU common foreign and security policy and under no obligation to implement restrictive measures introduced by the EU. Norway has decided to mirror both the implementation and the lifting of the EU sanctions against Iran.
EU measures or other international non-military measures Norway is associated with can be implemented through regulation pursuant to Act of 2 April 2001 no. 14 (“for iverksetjing av internasjonale, ikkje-militære tiltak i form av avbrot eller avgrensing av økonomiske eller anna samkvem med tredjestatar eller rørsler”).
EU – lifting economic and financial sanctions: In accordance with the JCPOA and UNSCR 2231, the EU lifted, on the Implementation Day, all its economic and financial sanctions taken in connection with the Iranian nuclear programme. The EU restrictive measures are more extensive than the UN sanctions, which, different from the US sanctions, also apply to the range of measures lifted.
• Council Decision (CFSP) 2015/1863 of 18 October 2015 amending Council Decision 2010/413/CFSP concerning restrictive measures against Iran
• Council Regulation (EU) 2015/1861 of 18 October 2015 amending Regulation (EU) No 267/2012 concerning restrictive measures against Iran
• Council Regulation (EU) 2015/1862 of 18 October 2015 implementing Regulation (EU) No 267/2012 concerning restrictive measures against Iran.
EU restrictive measures – the following activities and associated services are no longer prohibited: • Financial, banking and insurance measures • Oil, gas and petrochemical sectors• Shipping, shipbuilding and transport sectors• Gold, other precious metals, banknotes and
coinage• Metals• Software• De-listing of persons, entities and bodies who are
consequently no longer subject to the asset freeze, prohibition to make funds available and visa ban. The de-listing covers both UN listings and EU autonomous listings.
The Norwegian regulation Forskrift om sanksjoner og tiltak mot Iran av 2. september 2007, as amended 15 January 2016, entered into force on Implementation Day, 16 January 2016. In accordance with the EU decisions, the following measures are lifted:• Export and import restrictions – partly lifted, list of
goods and technology where sanctions remain in Annex I and II
• Restrictions on financing specific businesses - lifted• Freezing assets – de-listing of a number of
individuals and entities• Restrictions on money transfer and financial
services - lifted• Transport restrictions – partly lifted
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Sanctions lifted by the U.S. – an overview
Please note that all of the information below is a representation of information found on the U.S. Department of the Treasury home page and does not contain any interpretation by us. You should not rely solely on the information provided herein, which should not be construed as legal advice or opinion.
The US Government has mainly lifted nuclear-related secondary sanctions on Iran’s financial, banking, energy, petrochemical, shipping, shipbuilding and automotive sectors.
Secondary sanctions are generally directed towards non-U.S. persons for specified conduct involving Iran that occurs entirely outside U.S. jurisdiction and does not involve U.S. persons.
For any U.S. Persons, most sanctions against Iran remains. A U.S. Person means any United States citizen, permanent resident alien, entity organised under the laws of the United States or any jurisdiction within the United States (including foreign branches), or any person in the U.S. With the exception of 3 categories of activities none of the sanctions relieved apply to US persons:
− Exceptions related to commercial passenger aircrafts and related services.
− General Licence H relating to “U.S. Owned or Controlled Foreign Entities”.
https://www.treasury.gov/resource-center/sanctions/Programs/Documents/iran_glh.pdf
− License to import Iranian carpets and foodstuff, including pistachios and caviar.
Prohibition against transactions in USDPlease note that any transaction involving Iran processed to or through the United States or that involve a U.S. person, directly or indirectly, continue to be prohibited unless they are exempt from regulation or authorized by OFAC. The same applies to the clearing of U.S. dollar- or other currency-denominated transactions through the U.S. financial system or involving a U.S. person, which remain prohibited.
US Sanctions listThe US has also removed more than 400 individuals and entities from OFAC’s List of Specially Designated Nationals and Blocked Persons (SDN List), the Foreign Sanctions Evaders List (FSE List), and/or the Non-SDN Iran Sanctions Act List (NS-ISA List).
This means that non-U.S. persons will no longer be subject to sanctions for conducting transactions with any of the persons/entities who have been removed from the list. Some banks and shipping companies have been removed (such as Central Bank of Iran, provided a transaction does not involve persons/entities remaining on the list) and some still remain on the list.
OFAC has a Sanctions List Search Tool where it is possible to search for individuals or entities still on the list. For further information on the relevant lists and access to the Sanctions List Search Tool please see: https://www.treasury.gov/resource-center/sanctions/SDN-List/Pages/fuzzy_logic.aspx
Due DiligenceIt will be decisive both to carry out, but also to be able to prove, a thorough and relevant due diligence of all players and structures involved, before doing business with Iran. The wording of the sanctions provisions is often broad so an interpretation of the provisions is required to determine whether a transaction will be permitted under the relevant regulations. If in doubt any transaction should be pre-cleared with the authorities before proceeding. Files should be kept of all transactions and any investigations carried out to ensure compliance, such as investigation of counterparties and goods carried on board the vessel.
When doing business involving Iran, it should also be noted that Iran is considered as a country with extensive corruption. On the Transparency International Corruption Perception Index 2015 published in late January, Iran is number 130 of 168 countries (27 out of 100 points). Iran is also a jurisdiction of money laundering concern. It is important that anti-bribery and corruption policies and provisions are put in place and parties doing business with Iran should ensure that they comply with applicable anti-money laundering legislation.
A non-U.S. person is any individual or entity, excluding any United States citizen, permanent resident alien, entity organised under the laws of the US or any jurisdiction within the US (including foreign branches), or any person in the US.
Nevertheless, it is worth noting that an entity that is owned or controlled by a United States person and established or maintained outside the United States (a “U.S.-owned or -controlled foreign entity”) is eligible to participate in transactions or activities subject to the sanctions lifting under the JCPOA only to the extent the U.S.-owned or -controlled foreign entity is authorized by OFAC to engage in such transactions or activities. An entity established or maintained outside the US is “owned or controlled” by a US person if the US person (1) holds a 50 percent or greater equity interest by vote or value in the entity (2) holds a majority of seats on the board of directors of the entity or (3) otherwise controls the actions, policies or personnel decisions of the entity.
Please note that non-US persons are still prohibited to carry out transactions that involve individuals and entities still on the list.
The Clause is an optional clause designed for voyage and time charter parties, not bareboat charters although parts of the clause can also be implemented in such charters. The BIMCO Anti-Corruption Clause does not refer to any specific anti-corruption law or jurisdiction, but rather refers to any applicable anti-corruption legislation. The clause refers to applicable criminal law, not the law governing the charter party. This can be the legislation where the parties are based, where the ship is registered, the local law where the ship is located or other legislation with extra-territorial effect.
Norwegian anti-corruption law is applicable to acts committed in Norway, hereunder any permanently placed installation on the Norwegian continental shelf used for exploration, exploitation or storage of submarine natural resources. Supply and support vessels for such activities or tankers loading petroleum from such offshore installations are not regarded as installations and are thus not covered. The legislation further applies to Norwegian flagged vessels, including Norwegian flagged drilling platforms or similar mobile installations. If a Norwegian flagged vessel or movable installation is within the territorial waters of another nation state, the Norwegian anti-corruption legislation only applies to acts committed by member of the crew. The Norwegian anti-corruption legislation is also applicable to acts committed abroad by any Norwegian national or a person domiciled in Norway or on behalf of the company registered in Norway if the act is also punishable in the country where the act took place.
Under the new BIMCO Anti-Corruption Clause the parties undertake to comply at all times with all applicable anti-corruption legislation and have procedures in place to prevent offences under such legislation on its behalf.
New BIMCO anti-corruption clause
Writer:Anita Gerdin,
Oslo office
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The international battle against corruption continues, also within the Shipping Industry, and one of the latest efforts on this arena is the new Anti-Corruption Clause for charter parties launched by BIMCO in November 2015. In December 2015 BIMCO also issued a special circular with guidelines to the Anti-Corruption Clause.
According to the BIMCO guidelines the intention has been to set a high threshold, although it is not expected that the anti-corruption systems in place will be effective every time. The parties also undertake to keep books, records, and accounts to reflect transactions in connection with the charter.
An important section in the BIMCO Anti-Corruption Clause targets so-called “facilitation payments”, which the shipping industry is particularly vulnerable to. Serious efforts are made in the shipping industry to stop such payments, such as the international Maritime Anti-Corruption Network established by vessel owning companies. Large international companies often have explicit prohibitions against facilitation payments in their Codes of Conduct and procedures for reporting demands. The new Anti-Corruption Clause states that if an illegal demand is made, the owners and the charterers shall cooperate in resisting such demand. If, the demand is not withdrawn, the Master or the owners may issue a letter of protest, having the effect that the Vessel shall not be place off-hire as a result of any delay caused by the demand. The background for the clause, as explained in the guidelines, is of course that the charterers will have instructed the vessel to call on such port and should thus first of all join in fighting such claim and secondly bear the costs the demand has led to. The result of a breach of the BIMCO Anti-Corruption Clause is that the failing party shall indemnify the other party against any fine, penalty, liability, loss or damage and for any related costs arising from such breach and the charter may be terminated with immediate effect. In fact the termination must be effected immediately; the affected party cannot use it as an opportunity to get out of the charter at a later stage. However, a party may also choose to ignore the breach of the Anti-Corruption Clause by the other party and not use the right to terminate. While some jurisdictions have zero tolerance against facilitation payments, regardless of size, the Norwegian anti-corruption provisions gives the court discretion to decide whether the payment constitutes an “improper advantage”, taking into account inter alia the economic value of the advantage and the particular circumstances of the case. The preparatory works to the provision states that if a person is forced to make a payment to get his passport back or to leave a country such payment should not be punishable.
The full wording of the BIMCO Anti-Corruption Clause is available from the BIMCO web site www.bimco.org
Simonsen Vogt Wiig Compliance Simonsen Vogt Wiig’s Compliance Group assists with corporate governance, preventative efforts, sanction regimes, preparation and implementation of ethical guidelines, anti-corruption and anti-money-laundering programmes, warning systems and other compliance rules. We are also experienced in drafting anti-corruption clauses, and implementing procedures and routines to ensure compliance with these rules. Please contact us for more information on what we can assist you with or further information on the Norwegian sanctions rules, anti-corruption or anti-money laundering legalisation.
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IntroductionFollowing the spectacular bankruptcy of several OW Bunker companies in the end of 2014 hundreds of shipowners have been billed twice for the same bunker, both from OW Bunker (claims invoked to have been assigned to ING Bank N.V.) and the physical supplier.
Shipowners that purchased bunker from the OW Bunker subsidiary Bergen Bunkers AS in Norway, have even a third party to consider. The trustee of the bankrupt estate Bergen Bunker AS does not accept that the claim for the purchase amount have been lawfully assigned to ING Bank N.V. . Thus, both of them have contacted the shipowners and claimed to be the right owner of the claim for payment of the bunker.
To limit the risk to have to pay twice, or even three times, for the same bunker delivery, shipowners have been awaiting a legal clarification of whom to be the right claimant. Proceedings are underway in numerous courts.
Simonsen Vogt Wiig has been instructed by and advising
shipowners from the early beginning of this complicated matter, handling arrest, guarantee and payment issues both in Europe and Asia.
We will here present a short update on two important court cases.
The test case called Res Cogitans (UK)One crucial issue is whether the shipowners should pay the estate of OW Bunker/Bergen Bunker, with whom they contracted, or the physical supplier.
The one test case where “everybody” seems to be waiting for a final decision is the so called Res Cogitans case in England. (The parties in the case are PST Energy Shipping 7 LLC and Product Shipping and Trading SA vs. OW Bunker Malta Ltd and ING Bank SA.)
The issue in this test case has now been decided in favor of OW Bunker (ING Bank) as the contracting party, and against the shipowner, by three tribunals in a row. The English Court of Appeal handed down the latest judgment
The bankruptcy of OW Bunker companies, including Bergen Bunkers AS (Norway) – An update seen from NorwayThe test case Res Cogitans (in UK) and the legal dispute between ING Bank N.V. and the bankrupt estate Bergen Bunkers AS (in Norway).
Writer:Bjarte Grønlien,
Bergen [email protected]
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in this case 22 October 2015. The shipowner has been seeking leave to appeal to the English Supreme Court and a leave to appeal was granted on 11 February 2016. The matter is set for a hearing on 22 March 2016.
The Supreme Court has now indeed expedited the appeal process. A judgment is expected to be delivered within a few months, maybe already in May 2016.
We shall not go in to details of the complicated (and maybe also surprising) reasoning of the court’s decision in favor of the contracting party, but all OW Bunker companies, inter alia Bergen Bunkers, are expected to plead the same legal principles as applied in the test case.
It should also be noted that the reasoning of the latest Res Cogitans ruling, according to some legal experts, also has left multiple owners in danger of paying twice for fuel, i.e. both the contracting party and the physical supplier.
However, it is important to realize that the Res Cogitans decision will not necessarily affect all OW Bunker/Bergen Bunker/ING claims. Each case has to be considered on its individual merits, taking into consideration, inter alia, local law and parties involved.
The bankrupt estate Bergen Bunkers AS vs. ING Bank N.V. (Oslo City Court)In respect of bunker supplies purchased from Bergen Bunkers AS, Norway, there is another problem to be solved.
Both the trustee of the bankruptcy estate Bergen Bunkers and ING Bank claim to be the owner of the claims for payment against the buyers of the bunker supplies. They have not (yet) agreed upon a joint collection of the debt.
ING Bank argues that the claims are assigned to ING Bank by way of security in respect of a credit granted by ING Bank on behalf of a syndicate before the opening of the bankruptcy proceedings.
The Credit Agreement referred to is a USD 700,000,000 Multicurrency Revolving Borrowing Base Facilities Agreement dated 19 December 2013 entered into by among others O.W. Bunker and Trading AS, Denmark. The Credit Agreement is secured by an English Law Omnibus Security Agreement, where among others Bergen Bunkers AS shall have granted security over its supply receivables by an assignment of all receivables.
The trustee of the bankruptcy estate has disputed the claim and has instituted legal proceedings.
The Oslo City Court has recently decided (24 February 2016) that Norwegian law shall apply assessing the matter in question and that Oslo City Court is the correct legal venue. These basic and partly procedural questions alone may still take several months to finally clarify if the parties choose to appeal both to the Court of Appeal and thereafter to the Norwegian Supreme Court.
Looking ahead. Strategic steps available?The last and final judgment in the test case Res Cogitans in UK is expected to be delivered by the English Supreme Court maybe already in May 2016. However, thereafter each case has to be considered on its individual merits which may give reason for several new court disputes. As is looks today based on previous judgments the contracting party (i.e. OW Bunker and Bergen Bunkers) may end up as the winning party versus the position of the physical supplier.
In the dispute between the bankruptcy estate Bergen Bunkers and ING Bank in Norway no judgments have been delivered so far. It may take years before the final judgment is delivered.
Realizing the fact that it still will take some time before all the issues in question are clarified parties involved may discuss and agree on preliminary solutions to minimize the consequences based in common interests. Our advice in this relation will always be considered on individual basis.
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Writer:Bjørn Åge Hamre,
Bergen office
Early action crucial for a sucessful restructuringThe last years of recession in large parts of the shipping market, and the latest year’s recession in the offshore market, have challenged many companies and their Board of Directors. Early action is crucial for finding optimal solutions. Unfortunately, in many cases the problems are addressed too late and the opportunities for solutions are limited.
In an early stage of financial problems there will most likely be a wide range of possible solutions. The debtor will also generally be in a stronger position in negotiations with creditors and contract parties. There will be time to implement structural changes in the organization and benefit from them to prevent financial problems caused by recession.
At a late stage with financial problems the time available limits the possibilities to implement structural changes and to find unified solutions with creditors and contractual parties. It will be too late to take action few days before salary is due or loan repayment is due. Bankruptcy or voluntary liquidation may then be the only solution. The
most relevant legal framework in negotiations will be the Norwegian Companies Act, especially the rules of company capital (chapter 3) and rules of credit and guarantee (Sections 8-7 – 8-11), the Creditors Security Act especially rules of annulment (chapter 5), the Mortgages and Pledges Act and the Bankruptcy Act.
Over the last years the shipping and restructuring department in Simonsen Vogt Wiig has noticed an increased demand for advising debtors and creditors dealing with financial difficulties. SVW has one of the largest Shipping and offshore departments in Norway as well as one of the largest insolvency departments in Norway
Both departments are highly rated in international rankings of Law firms (legal 500 and Chambers).Wide experience within shipping and insolvency creates a strong team for finding solutions addressed to companies in the shipping an offshore market.
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The proposed amendments of the Norwegian Limited Liability Companies Act (the “LLCA”) and the Public Limited Liability Companies Act (the “PLCA”) are further described and reviewed in a consultation paper which was published by the Ministry on 2 February 2016 with a 5 April 2016 deadline to give opinions and comments based on the proposed amendments.
The current legal regime Pursuant to the current Sec. 8-10 (1) of the LLCA and the PLCA, the main rule is that LLCs may only provide financing of a purchase of the shares (or a right to the shares) of the company or its parent company (i.a. by granting credit to or providing security) for the benefit of the acquiring entity within the funds that the company may use for distribution
Proposed liberalization of the strict Norwegian financial assistance regime is likely to increase the room for leveraged buyoutsIn a new consultation paper (“Høringsnotat”), the Norwegian Ministry of Trade, Industry and Fisheries (the “Ministry”) suggests a simplification of the rules in the LLCA Sec. 8-10 governing to which extent Norwegian limited liability companies may finance another party’s purchase of the company’s shares by way of granting loans or providing security for the acquisition. The main change is removal of the requirement that the loan or security is within the company’s distributable dividends when the purchaser is a Norwegian LLC or a PLC.
Writer:Amund Fougner Bugge, Oslo office
Writer:Ståle Skutle Arneson, Oslo office
Writer:Christian Ditlev-Simonsen, Oslo office
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of dividends, cf. the LLCA Sec. 8-1. This entails that the access to using the target company as a tool in the financing of a share acquisition is very limited. Exemptions may be granted by the Ministry pursuant to Sec. 8-10 (5) – either generally by way of a regulation (“forskrift”) or on a relatively strict case-by-case basis. Currently one general exemption is in place, pertaining to real property SPV companies and employee share incentive programs, respectively. As for individual exemptions, around 20 applications have been made annually, many of them related to whether the case was within the SPV exemption. Proposed changes Pursuant to the consultation letter, the main proposed amendments are:
- To remove the current distributable dividends limitation in the LLCA Sec. 8-10 in cases where the purchaser of the shares is either an LLC or a PLC, provided however that the (strict) procedural rules in Sec. 8-10 (2) – (4) are still adhered to.
- To repeal the regulation pertaining exemptions from Sec. 8-10 (1) for SPV real property companies.
- To repeal the power of the Ministry to grant exemptions on a case-by-case basis, cf. the LLCA Sec. 8-10 (5).
– To make certain additional minor adjustments and clarifications to Sec. 8-7 and 8-10 of the LLCA and the PLCA, respectively, to further clarify the scope of the provisions.
The background for the proposed changes Up until 2013, the regime was even more rigorous than the current regime and the rules then in force effectively banned (with the said exemptions) any transactions which involved using the target company as a means to financing an acquisition of shares.
After a minor reform of the LLCA and the PLCA in 2013, an option was introduced for the target company (including also PLCs) to provide financing of a third party’s purchase of the target’s shares - provided that the amount it contributed is within the range of its distributable funds and “adequate” security for the amount is posted.
However, the current Norwegian legislation – even after the exemption was introduced in 2013 – is stricter than comparable standards in other EEA states, as well as what is set forth in EC Company Law Directives. Further, few companies have utilized this option.
The current distributable dividends requirement is mainly in place to safeguard the target company’s restricted equity. However, there are a number of rules and restrictions already in place to serve the same purpose, such as the rules pertaining to having a sound equity and the board of directors’ duty to act once this is not the case (the LLCA Sec. 3-4 and 3-5 respectively), the rules governing transactions between related parties (the LLCA Sec. 3-8, Sec. 3-9) and the rules relating to dividend resolutions and distributions from the company (LLCA Sec. 8-1 and 3-6 respectively) which to a great extent will continue to limit the actually harmful dispositions.
Main consequences of the amendments Provided that the proposed amendments are ultimately introduced into law, the option to acquire shares of Norwegian LLCs by having the target company provide financing of the purchase will no longer be limited by the company’s distributable funds. This only applies where the purchaser is either an LLC or a PLC. The requirement will, therefore, still be in force in transactions where the purchaser is i.a. a foreign company, a private person (Norwegian or foreign) or a trust.
Also, such financing will still be subject to the strict procedural rules set forth in Sec. 8-10 (2) – (4), according to which (i) the company’s board of directors must carry out a credit appraisal of the party which shall receive the financing, (ii) the compamy’s board of directors must prepare a statement describing i.a. the rationale for and the terms of the financing, the price that the purchaser shall pay for the shares as well as the prevailing terms of the transaction and the company’s interest in the disposition financing the purchase, and (iii) the board’s proposal must be presented to the
general meeting which must support it by a 2/3 majority. We expect that the fact that these rather rigorous and time consuming procedures are kept in place, will limit the effect of the proposed liberalization.
As mentioned, the target company’s financing a third party’s purchase of the target’s shares will still be subject to the limitations in the LLCA and PLCA relating to the sound equity requirement, as well the rules on related party transactions as well as general procedural rules.
One consequence of repealing the Ministry’s general exemption right (on a case-by-case basis) in the LLCA Sec. 8-10 (5) is that LLCs may not apply for an exemption in cases where the purchaser is not an LLC or PLC, but for instance a private person or a trust. In such cases, the distributable funds limitation will prevail without any option to apply for an exemption. According to the Ministry, there have been few cases where a non-LLC has applied for an exemption. The Ministry further suggests that non-LLC purchasers may use other options instead; for instance by establishing a holding company prior to the purchase, or to purchase assets of the target company instead of the shares, and then charge the assets as security for a loan to finance the purchase. We expect a lot of feedback in the coming months to the consultation paper, and especially on the removal of the possibility of a case by case exemption.
1. IntroductionBoard members of Norwegian Limited Liability Companies may be liable for losses suffered by the company, its shareholders or others caused by their negligence. In Norway, this has become more than a theoretical threat. The number of court cases has more than doubled to around 20 to 25 cases a year in the last five to six years.
Most court cases are brought up by the company’s bankruptcy estate. The claim for liability is often linked to dispositions made (or not made) by the board shortly before the bankruptcy.
The issue is complex and the limited aim of this article is to provide certain key points any board member should be aware of when the company is in a difficult financial situation.
2. Some general points According to the Norwegian Private and Public Limited
Liability Companies Act (the “Companies Act”) the board has the main responsibility to oversee, manage and organize the operations of the company. An important aspect of this is that the board must be informed of the company’s financial situation. If the company’s situation worsens, the board must take actions to rectify the situation, hereunder comply with the Companies Act’s general and specific requirements.
Liability for a board member is an individual liability. This means that some board members with a specific expertise, e.g a lawyer or a financial expert, can be found liable in a critical situation where they should have reacted, based on their expertise, while other board members may not be held liable. Further, the individual liability also entails that if a board member is of the opinion that the decisions of the majority of the board is not in compliance with the Companies Act and may lead to liability, it is important to register a clear dissent in the board minutes.
Norwegian Limited Liability Companies – Overview of the responsibilities of the board in challenging times
Writer:Christian Ditlev-Simonsen, Oslo office
Writer:Jimmy Fredrik Norberg, Oslo office
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We will discuss the two most common reasons for liability: (i) a breach of the equity requirements under the Companies Act, and (ii) the failure to seek voluntary liquidation when the situation worsens and the company operates on the creditors account.
In a critical financial situation, the board will be required to be actively involved and keep itself appraised of the situation as it develops. The board should communicate with the management and hold frequent board meetings. A passive board in a critical situation can in itself be grounds for liability.
3. Equity requirements of the Company Firstly, the company’s equity and liquidity must at all times be “sound” (Norwegian: “forsvarlig”) based on the specific risk and scope of the company’s activity. A capital intensive and volatile business (like shipping) will require more equity and liquidity than a steady and predictable business.
Secondly, if the equity is deemed by the board to be less than half of the registered share capital this will also be a breach of the Company’s Act’s requirements.
In both cases where the company’s equity capital is lower than recommended, the board has an obligation to act. Note that it is the market value of the equity and not the booked value that is decisive when measuring the capital requirements under the Companies Act.
The obligation to act implies in principle that the board shall summon a shareholders’ meeting and suggest measures to correct the situation. If no solutions can be found, the board will often be required to seek voluntary liquidation of the company, see item 4.3 below.
Members of the board may be subject to liability to prosecution under the Norwegian Criminal Act Section 284 if the company does not apply to the courts for a voluntary debt restructuring (Norwegian: “gjeldsforhandling”) or file a petition for bankruptcy if the company is insolvent (Norwegian: “insolvent”), and
(a) failure to do so entails that a disposition or disbursement cannot be annulled, and this considerably impairs the creditors’ prospects of obtaining payment, or
(b) the company’s business enterprise is clearly running at a loss and the board must realize that the company will not be able to give the creditors payment in full within a reasonable time.
The term “insolvent” has its origin in the Norwegian Bankruptcy Act and consists of two conditions, which both have to be fulfilled for insolvency to be established. Firstly, the company has to be illiquid, i.e. unable to satisfy its debt as it falls due unless this condition is temporary. Secondly,
the company has to be insufficient, i.e. its debt exceeds his assets.
3.1. IlliquidityIf the company is unable to satisfy its obligations when due, it is illiquid. However, there is no insolvency if the illiquidity is only temporary. In other words, a more permanent or long-term illiquidity is required to classify for insolvency.
The size of the company’s debt and the prospects of future income and influx of capital will be central in this respect. The management must keep a close eye on the development and ensure that the company’s board receives all relevant information.
3.2. InsufficiencyWhen the company’s assets and total income do not cover all of the company’s obligations, the company is insufficient. The basis for assessing insufficiency is the company’s accounting balance. However, the balance sheet only forms a starting point. It is the actual market value that is deciding. An important issue will be a (realistic) assessment of how much a sale of assets will yield, with the supplement of possible income in the relevant period.
Another aspect is how easy it will be to sell the asset (liquidity). The value shall not be assessed on basis of how much an immediate sale would yield. The purpose of the Norwegian Bankruptcy Act Section 61 second sentence indicates that the value of the assets shall be assessed under the assumption that it is possible to find a buyer within a reasonable period of time.
3.3. Temporary illiquidityThe Norwegian Bankruptcy Act Section 61 is aimed at long-term or permanent illiquidity. If the company is illiquid and insufficient, it is, however, not insolvent if the lacking ability to fulfil its obligations when due (the illiquidity) “(it) is presumed to be temporary”. Consequently, the board must have a justified and reasonable opinion that the illiquidity situation can be recovered. The basis for the board’s appraisal must be adapted by the management and will typically be an updated cash budget and market forecast.
The company must be able to show and document that it has made a reasonably careful assessment of the situation
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In a critical financial situation, the board will be required to be actively involved and keep itself appraised of the situation as it develops.
and that it has worked on concrete actions to improve the cash/equity situation of the company. This could i.e. be (i) obtaining a loan and (ii) improve the equity situation by issuing a private placement and/or structural changes to secure a going concern.
If the company takes such steps, it will have certain latitude or period to correct the situation. Legal theory suggests that this “grace period” will last from a couple of weeks and up to 3 months.
The better the chances are that the company will improve its liquidity; the longer the grace period will be (within the bounds described above). Therefore, if the board has acted according to these principles, and bankruptcy is the end result, the board will still be free of responsibility if it can prove that the company was kept alive because there was a realistic basis for supposing that the illiquidity was temporary and that they have been working on concrete actions to improve the liquidity to the benefit of the creditors.
In such a situation, it is important to ensure that all documentation, especially the minutes of board and the agenda papers reflect and describe the board’s efforts, considerations and actions.
4. The Boards Evaluation
4.1 The Board’s conclusion: SolvencyAn assessment that the company is solvent must be based on clear facts. A general optimism by the board members is not sufficient. A sound assessment will typically be based on updated and correct figures in addition to a reasoned opinion that the measures taken or planed are likely to soon contribute to the recovery of the liquidity.
If the board concludes that the company is solvent and does not risk insolvency, the day-to-day management will be in focus. The company is free to make commercial priorities, including payment of debt, both new and old. However, if the situation is unclear, as it often is in complex and changing situations, the board must be very careful in
increasing the company’s debt. The board will normally not be liable for debt incurred before the company became insolvent, but the opposite is true for new debt.
If the company later goes bankrupt and the assessment of the board is found to be unfounded and incorrect, payment made after the company became insolvent could be reversed by the bankruptcy estate. The company’s transactions could also fall under the Norwegian Criminal Code’s provisions regarding fraudulent and unequal treatment of creditors. A possible, but not very common result is criminal liability for the board members due to an omission to file a petition for bankruptcy.
4.2 The board`s conclusion: Risk of non-temporary insolvencyIf the conclusion is that there is a substantial risk for non-temporary insolvency, the board and the company will have less room to manoeuvre. In that case, it is the creditors’ position, and not that of the shareholders, that should be in focus.
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courts for a voluntary debt restructuring. In the last case, the court must decide whether to accept the application as soon as possible and no later than three working days after the application was submitted. The court shall not approve the application if it is fairly clear that no voluntary debt restructuring agreement will be agreed, for example due to a hopeless financial situation. A refusal to open debt negotiations will make the likelihood of an immediate normal bankruptcy very high.
If the court grants the opening of a debt restructuring, this will be made public, and the court will appoint a debt restructuring committee, normally consisting of a lawyer as its chairman and a couple of appointees from the creditors and possibly the employees. The committee will run the debt restructuring but its decisions (simple majority) may be overturned by the court based on certain criteria. The debt restructuring committee shall inform all known creditors to list and document their claims within three weeks.
The normal operations of the company will continue, but under the supervision of the debt restructuring committee, and with certain restrictions, e.g. in relation to new mortgages and debts. The secured creditors may as a general rule not enforce their rights for the first 6 months after the debt restructuring has been opened. However, the committee shall make a plan on how to secure their rights. Based on the information gathered, the committee shall propose a solution that often assumes that the company shall live on after the debt restructuring has been completed. The proposal may consist of the following proposals (or a combination of them):
a) Extension of payment obligation (moratorium)b) Percentage reduction of the debtc) Partial or complete sale of assets in consideration for
the settlement of debt not covered by the saled) The voluntary debt restructuring must be approved
unanimously by all creditors to be approved
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The board’s actions or transactions must not aggravate the creditors’ situation. The company’s transactions are normally legitimate if made in the interest of the creditors. If the board’s opinion is that the best outcome for the creditors is that the company continue as a going concern, the company may cover required new costs for continued operations (typically purchase of goods and services necessary for securing the operation and to create income).
An important principle is that all creditors for older debt are entitled to equal treatment. However, in certain situations it can be justifiable to single out and cover older debt. This assumes that the board has concluded that there is commercially justifiable basis for a going concern (temporary illiquidity), and that all creditors will profit from a going concern. If the settlement of this debt is critical for the business to continue, it may be justifiable. Such assessments are often associated with high risks, and the board should seek external legal advice prior to such decisions and also document the reasoning behind the decision in the minutes.
It is also important to keep the creditors informed. Important decisions must be made after having consulted with the major creditors. Typically, the company should inform its creditors of its cash problems and explain why it will carry on the activity and stipulate a time-frame for payment.
The board will often have a dilemma: if they give full disclosure about its financial problems, the creditors may refuse extended credit and take action that could lead to a stop of the company’s operations. The result of this information could therefore be self-defeating and result in the company being unable to carry on its activity. On the other hand the board may be liable to the creditors due to insufficient information, if it subsequently proved impossible to find a solution and the creditors suffer losses.
It is always important that the company gains confidence with the creditors. Such confidence is created through openness and a conscious and thoroughly considered strategy for information. The board must in any case avoid incurring new debt for the company without giving sufficient information to the new creditor.
Again, we underline the importance that the board consecutively thoroughly substantiates all decisions and meetings. Board meetings must be convened often and all assessments and considerations should be recorded – this is especially important if the meeting is held as telephone conference, where the minutes are typically shorter and less illuminating compared to a physical meeting.
4.3 Debt Restructuring / InsolvencyIf the board is of the opinion that the company is insolvent and that the illiquidity is not temporary, the board will normally be required to file a voluntary petition for bankruptcy. An alternative is the possibility to apply the
Simonsen Vogt Wiig Corporate and M&ASimonsen Vogt Wiig’s Corporate and M&A division has the competence, resources, experience and drive to deliver first class, effective and commercially-oriented assistance, and we have advised several clients on issues relating to potential liability of board members, often in restructuring scenarios. Our experience shows that such assistance is often necessary in difficult and legally complex situations for which many boards are unprepared.
Since late 2012 Norwegian oil and gas industry has through its organisations Norsk Olje og Gass (“NOROG”) and Norsk Industri negotiated with the object to establish a range of industry recommended standard contracts for offshore construction projects. The overall driver is to improve the efficiency in the negotiations and contracting for offshore project procurement on the Norwegian continental shelf.
Five sets of standard contract templatesThe conclusion of the two first templates for offshore modifications projects which were finalized in June 2015, formed the basis for the three next standard contract templates which were completed during the end of 2015. The new current standard contracts are:
1. “Norwegian Total Contract 2015.” This contract template is for EPC(I) delivery of major
components (new-builds).
2. “Norwegian Total Contract 2015 Module & Modification (Modifications with separate delivery of module, prefabricated items and offshore permanent works).”
This contract template is for EPC(I) modification projects whereby a new module is part of the work, with a single delivery of the module/contract object, and whereby the offshore work is under contractor’s management.
3. “Norwegian Total Contract 2015 Module & Modification (Modifications with separate delivery of module, prefabricated items and permanent offshore works)”
This contract template is for EPC(I) modification projects whereby a new module is part of the work, with a separate deliveries of module, pre-fabricated items and offshore permanent works, and whereby the offshore work is under company’s management.
4. Norwegian Total Contract 2015 Modification This contract template is for major EPC(I) modifications
of platforms, with no new module included as part of the work.
5. Norwegian Fabrication Contract 2015. This contract template is for major fabrication
assignments.
Main drivers behind the new Norwegian standard contracts for offshore construction projectsWith the new Norwegian standard contracts efforts have been made to build on and strengthen the existing Norwegian contract traditions in this industry, developed since the 1980’s, with Norwegian Fabrication Contract 1987 as the “mother” of these standard contracts. It is a substantial step in this direction when NOROG and Norsk Industry have come to an agreement on a range of model EPC(I) standard contracts jointly recommended for use, by using the latest applicable (2007) versions as the basis.
Furthermore, it has been essential to cater for more flexibility and competition in order to make the standard contracts attractive for use to all participants in an increasingly global supply chain.
Also, a key driver has been to encourage more predictability, efficiency and quality in the project execution.
3 key changes made by the 2015 standard contracts• No standardisation of commercial terms. There is no
longer a specific limitation of liability for defects. The provisions stating the level of liability for delay and total limitation for breach of contract are left open for individual negotiations on a case by case basis. The same applies for the contractor’s exposure for damage incurred prior to delivery and damage to third parties.
Norwegian industry EPC(I) standard contractsIn January 2016 the Norwegian petroleum industry’s work with establishing a range of EPC(I) industry standard contracts for offshore construction projects was finalized. This work has been highly prioritized by the industry organisations and the Norwegian government. The Ministry of Petroleum and Energy recommend and encourage the players in the industry to utilize these standard contracts.
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• Strengthened liability for contractor’s sub-supplies. Contractor has full responsibility for it’s subcontractors, including company frame agreement suppliers transferred to contractor prior to contract award to become subcontracts under the specific project. Exception is made for the event that company intervenes in the sub-supply during the project.
• Improvements to the variation mechanism. Previous requirement to notify without undue delay has generally been replaced by a deadline of within 21 days. The reason is to improve clarity and to avoid late incoming variation order requests. Company shall likewise respond to such within 21 days, and company’s failure to do so will automatically generate a disputed variation order.
A more detailed description of the new elements in the 2015 standard contracts is given in http://svw.no/contentassets/f885aacbd64c4ea0942eafa2bbe4c6ad/svw_maritime-news-6_2015.pdf.
Follow up of the 2015 standard contracts by Norsk IndustriIn order to achieve increased contracting efficiency downwards in the supply chain Norsk Industri has made initiatives to develop a standard back-to-back contract to be utilized against the subcontractor market. This is an important initiative as the main EPC(I) -contractors rarely provide back-to-back terms and conditions to their subcontractor’s.
The initiative is considered vitally important to obtain more increased cost efficient contracting in the entire supply chain.
It is expected that a standard back-to-back contract may be presented by mid 2016.
Writer:Gunnar Espeland,
Stavanger office
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NIS’ flag services restrictions in violation of the EEA Agreement?
It is established case-law that the freedom to provide services, as referred to in Article 36 of the EEA Agreement, requires the abolition of any restriction, even if it applies without distinction to national providers of services and to those of other Member States, which is liable to prohibit, impede or render less attractive the activities of a provider of services established in another Member State where they lawfully provide similar services.
In particular, ESA takes the view that Section 4 of the Norwegian NIS Act, which reads “Ships registered in the Norwegian International Ship Register are not permitted to carry cargo or passengers between Norwegian ports or to engage in regular scheduled passenger transport between Norwegian and foreign ports” constitutes a general trade restriction imposed on NIS registered vessels when it comes to carriage of passengers in scheduled routes between Norwegian and foreign ports and between Nordic ports, which is contrary to the principle of freedom to provide maritime transport services.
Moreover, the Authority does not consider that Norway can justify restrictions of the fundamental freedom to provide services in the EEA by establishing different ship registers, one fully liberalised and one only partially liberalised (in the
sense of containing a prohibition to provide services in an area within the EEA). Accordingly, ESA does not prima facie accept The Norwegian Government’s argument that since Norwegian nationals and nationals of any other EEA State are free to choose whether to register their vessels in NOR and NIS, and there is no obligation to register their vessels in the NIS register, Norwegian law fully ensures freedom to provide services. The system of two registers does not address the ESA’s core contentions: That Norway must ensure that the freedom to provide maritime services is available independently of the choice of register (NOR or NIS).
It is now up to the Norwegian Government to provide any clarification on whether the trade limitation serves any overriding reasons in the public interest and is suitable for securing the attainment of the public interest objective which does not go beyond what is necessary in order to attain it. The Norwegian Government must submit its reply to ESA within two months, i.e. within mid-April. The Authority may thereafter, in light of any observations received from the Norwegian Government, issue a so-called reasoned opinion. This is the last procedural step before the case potentially can be brought before the EFTA Court.
The EFTA Surveillance Authority (ESA) issued 9 February a so-called letter of formal notice to the Norwegian Ministry of Trade, Industry and Fisheries alleging that national legislation imposing geographical trade limitations on ships flying the NIS flag constitutes a restriction on the freedom to provide maritime services within the European Economic Area contrary to Article 36 of the EEA Agreement and Regulation 4055/86.
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OsloFilipstad Brygge 1P.O. Box 2043 VikaN-0125 Oslo, Norwaytel.: +47 21 95 55 00
BergenChristies gate 3AP.O. Box 1213 SentrumN-5811 Bergen, Norwaytel.: +47 55 56 82 00
TrondheimBrattørkaia 17BP.O. Box 1280 PirsenteretN-7462 Trondheim, Norwaytel.: +47 73 84 58 00
StavangerHinna Park Jåttåvågveien 7,Bygg BP.O. Box 370N-4067 Stavanger, Norwaytel.: +47 51 82 32 00
TromsøFredrik Langes gate 19-21P.O. Box 929N-9259 Tromsø, Norwaytel.: +47 77 66 42 30
KristiansandMarkensgate 9P.O. Box 437N-4604 Kristiansand, Norwaytel.: +47 38 17 00 80
Singapore1 North Bridge Road#06-26 High Street CentreSingapore 179094 Republic of Singaporetel.: +65 65 33 59 17
We are strengthening our shipping team:
Tricia Tong, Solicitor, England & Wales Singapore
Tricia Tong was a lawyer at the English law firm, Ince & Co for more than 10 years and was made partner shortly before joining Ince’s alliance partner, Incisive Law LLC in 2011, as Ex-ecutive Director. She advises on a range of contentious and non-contentious matters, includ-ing vessel collisions, salvage, charterparties, drafting and reviewing rig and ship building, conversion and construction contracts, and other commercial disputes. Tricia has a wide range of experience in the area of ship sale and purchase, and registration.
Kristoffer Larsen Rognvik, PartnerBergen
Kristoffer Larsen Rognvik previously worked with Wikborg Rein for 10 years. He is educated at the University of Bergen and King’s College in Bergen. Rognvik has wide experi-ence from dispute resolution and litigation in shipping/offshore, and litigates cases on behalf of shipping companies, shipyards, underwriters and suppliers within the oil and gas industry in the ordinary courts of justice and in arbitration cases.
Lars Inge Ørstavik, Partner Bergen
Lars Inge Ørstavik previously worked with Wikborg Rein where he was part of the shipping/offshore and litigation team for 17 years. He has wide experience from dispute resolution and national as well as litigation matters, and assist shipping companies, shipyards and underwriters.
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