Debt-to-equity conversion in Norwegian private limited companies (AS): key benefits and practical steps
A debt-to-equity conversion allows a creditor of a Norwegian private limited company (AS) to convert all or part of its claim into shares in the company.
The conversion reduces the company's debt and strengthens its equity position without requiring a corresponding cash payment. It can therefore be useful in refinancings, restructurings, shareholder funding arrangements and other situations where the company's capital structure is being adjusted.
For the creditor, the conversion means exchanging a debt claim for an equity position, with the rights and risks that follow from becoming a shareholder.
Why convert debt into equity?
There may be several reasons to consider a debt-to-equity conversion.
Strengthening the balance sheet
The conversion reduces the company's liabilities and increases its equity.
This may be relevant where the company needs to improve its capital position or establish a more sustainable balance between debt and equity.
Facilitating financing or restructuring
A stronger balance sheet may make it easier to obtain new financing or form part of a broader financial restructuring.
Lenders or shareholders may, for example, agree to convert existing loans before new capital or external financing is provided.
Giving the creditor an equity position
Instead of continuing solely as a creditor, the converting creditor receives shares in the company.
The creditor thereby obtains shareholder rights and participates in any future increase or decrease in the value of the company. At the same time, the creditor gives up the creditor position represented by the converted debt.
The commercial implications should therefore be considered carefully, particularly where the company is experiencing financial difficulties.
How is a debt-to-equity conversion implemented?
The following describes the typical process for a Norwegian private limited company (AS).
1. Identify and document the debt
The company and the creditor must first identify the claim that is to be converted and agree on the proposed conversion.
The claim must be genuine and sufficiently documented. The parties should also agree on how much of the debt is to be converted and the commercial terms on which the creditor will receive shares.
2. The board prepares the capital increase
A debt conversion is normally implemented as a share capital increase.
The board prepares a proposal for the general meeting setting out the capital increase and the terms on which the subscription obligation may be settled by set-off against the creditor's claim.
Because the amount of share capital is stated in the company's articles of association, the capital increase will also require an amendment to the articles.
If the board already holds a valid and registered authorisation from the general meeting to increase the share capital, the process may instead be implemented under that authorisation, subject to its terms.
3. Board report and auditor involvement
Settlement of the subscription amount by set-off is a special subscription term under the Norwegian Companies Act.
The board must arrange for a statutory report describing the transaction and the relevant valuation. The report must be dated and signed by the board and confirmed by an auditor.
The documentation must be made available as part of the basis for the corporate decision.
Auditor involvement is therefore required even if the company would otherwise not be subject to an audit requirement.
4. General meeting approval
Unless the board acts under an existing authority, the general meeting decides the capital increase.
Because the company's articles must be amended, the decision normally requires at least two-thirds of both the votes cast and the share capital represented at the general meeting, subject to any stricter requirements in the articles.
The general meeting may also use the simplified procedure under Section 5-7 of the Companies Act if no shareholder objects to that form of treatment and the other statutory requirements are satisfied.
5. Subscription and set-off
The creditor subscribes for the new shares either in the minutes of the general meeting or, if the subscription takes place later, in a separate subscription document containing the required information.
The subscription amount is then settled by setting it off against the creditor's claim in accordance with the terms approved as part of the capital increase.
The auditor must confirm the settlement by set-off for registration purposes.
6. Registration
The capital increase must be notified to the Norwegian Register of Business Enterprises.
The notification must generally be submitted within three months after expiry of the subscription period. The share contribution must have been fully settled before the capital increase is registered.
The share capital is not legally increased until registration has taken place.
The company's shareholder register must also be updated to reflect the new shareholding.
Key issues to consider
Conversion price and dilution
The parties must determine the number of shares to be issued and the subscription price.
Shares cannot be subscribed below their nominal value. In practice, however, the more commercially important issue will often be the valuation of the company and the resulting ownership percentage obtained by the converting creditor.
A conversion can significantly dilute existing shareholders. The ownership implications and the basis for the agreed valuation should therefore be considered as part of the transaction.
The statutory pre-emption right for existing shareholders under the Companies Act applies specifically to share issues for cash consideration. A directed debt conversion should nevertheless be assessed in light of the company's articles, shareholder arrangements and the general corporate-law requirements applicable to shareholder treatment and corporate decisions.
The claim and the value attributed to the conversion
The debt to be converted and the amount to be applied against the subscription obligation should be clearly documented.
The fact that a claim has a particular nominal amount does not necessarily mean that the same value will be relevant for every legal, accounting or tax purpose, particularly where the company is in financial distress.
The required corporate documentation and auditor confirmation are therefore important parts of the conversion process.
Tax consequences
A debt-to-equity conversion may have tax consequences for both the creditor and the company.
For Norwegian tax purposes, conversion of a claim into shares is generally treated as a realisation of the claim. The value attributed to the shares received may therefore affect the calculation of a gain or loss.
Whether a loss is deductible depends on the circumstances, including the status of the creditor, the relationship between the parties and the applicable rules for losses on receivables.
Tax consequences should therefore be assessed separately as part of the transaction.
Debt conversion as part of a wider restructuring
A debt-to-equity conversion is often only one element of a wider transaction.
It may be combined with new equity funding, refinancing, amendments to existing debt, changes in ownership or other restructuring measures. In such situations, the corporate steps should be coordinated with the financing arrangements and the overall commercial structure.
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Originally published 11 October 2024. Last updated 16 August 2026.
How LexOslo can assist
LexOslo advises Norwegian and international companies, lenders, shareholders and investors on financing, recapitalisations, debt restructurings and corporate transactions under Norwegian law.
In a debt-to-equity conversion, we can assist with structuring the conversion, the necessary corporate resolutions and documentation, coordination with the auditor and registration of the capital increase. We can also assist where the conversion forms part of a wider refinancing, restructuring or investment.
For international clients and foreign law firms, we can act as Norwegian counsel on the Norwegian corporate and finance-law aspects of the transaction.
Contact LexOslo:
☏ +47 22 75 25 00
✉ lexoslo@lexoslo.no
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