The resolution of norwegian companies in financial distress: an empirical study examining the efficiency of Norwegian restructuring alternatives
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- Master Thesis 
This thesis examines the relative success of the Norwegian bankruptcy legislation with reference to similar mechanisms in Sweden and the U.S. Based on the total population of financially distressed Norwegian companies filing a public petition for a debt settlement proceeding since 1999; only 15% have survived the process as a going concern. As comparable research in Sweden and the U.S. documents firm survival rates of three-quarters, this suggests that the Norwegian legislation does not provide an efficient framework for distressed firms. Further disturbing is it that the formal system is effectively unused with only 28 unique companies filing for a debt settlement in the last 18 years. The alternative to a formal debt settlement is an out-of-court financial restructuring. As the formal system is in general not considered a viable alternative, we analyse a sample of private workouts. Due to the time-consuming process of manually extracting the dataset, restrictions were necessary. Thus, with basis in Norwegian companies listed within the energy sector at Oslo Børs and Oslo Axess, we identified 22 companies that have initiated financial restructurings since 01.01.2015. As of 01.04.2017, 13 of these have completed the restructuring, which constitute the sample for the out-of-court analyses. We find average recovery rates of senior secured creditors of 95.5%, and junior unsecured equal to 67%. Comparable research of Swedish bankruptcy auctions and Chapter 11 solutions indicates average recovery rates of 77% and 80% for secured creditors, whereas junior creditors recover 2% and 29%, respectively. This indicates that from a creditor perspective, out-of-court financial restructurings are at least as efficient as mechanisms in Sweden and the U.S. However, the Norwegian sample indicates deviations from the Absolute Priority Rule, which an auction procedure eliminates. The time-horizon, a proxy of the indirect costs related to the bankruptcy procedure, in Norwegian private workouts are relatively swift with a median of 6 months. Similarly, formal debt settlements in Norway require on median 5 months, while Swedish auctions are considerably faster with an average of 2 months. On the contrary, Chapter 11 solutions are heavily time-consuming with a median of 27 months. Importantly, the results are likely to suffer from a selection bias due to the necessary restrictions. The sample characteristics are strictly defined both in industry and time. Therefore, it is questionable whether the sample properly represent the population of out-of-court financial restructurings. Additionally, the sample characteristics limit the validity of the cross-country comparison as the results may reflect variations in the companies instead of differences in the procedures. Thus, the results must be treated carefully. However, due to the non-existing research on the topic, we argue that the results provide an interesting first examination and discussion of the Norwegian restructuring alternatives in a financial perspective. Overall, the analysis suggests that the Norwegian bankruptcy legislation is inefficient in securing firm survival, and secondly, that the alternative, out-of-court financial restructurings, are surprisingly efficient in securing creditor recovery rates and limiting bankruptcy costs.