Insolvent contractual counterparties under Norwegian law: rights and practical options
When a customer, supplier or other contractual counterparty experiences serious financial difficulties, the consequences can extend well beyond an unpaid invoice. Deliveries may stop, outstanding claims may become difficult to recover and contractual rights may change if the counterparty enters restructuring proceedings or bankruptcy.
The greatest room for action will often exist before bankruptcy occurs. It is therefore important to understand the contractual position, the actual credit exposure and the measures that can still be taken while the counterparty continues to operate.
1. Before bankruptcy
Financial difficulties do not in themselves give a party an unrestricted right to terminate an agreement or change its terms.
The rights available will depend on the contract, applicable Norwegian law and the seriousness of the counterparty's financial position.
Assess the actual exposure
The first question should be what is actually at risk if the counterparty can no longer perform.
Relevant issues may include:
- outstanding receivables
- future deliveries or other performance still due from your side
- advance payments already made
- available guarantees or security
- ownership or security rights in particular assetsthe operational importance of the contractual relationship.
Where the counterparty is a critical supplier, the consequences of non-performance may be considerably greater than the amount of any direct monetary claim.
It may therefore be necessary to consider alternative suppliers or other measures to reduce operational dependence before the position becomes critical.
Can performance be withheld?
If it becomes apparent that the counterparty lacks the means to perform its obligations under a reciprocal contract when due, Norwegian insolvency law may in certain circumstances allow the other party to withhold its own performance.
Where goods or other performance have already been dispatched, it may also be possible to prevent delivery until adequate security for the counter-performance is provided.
The contract and general principles concerning anticipatory breach may provide additional grounds for suspending further performance.
A decision to stop deliveries should nevertheless be made carefully. An unjustified suspension may itself constitute a breach of contract.
Reduce further credit exposure
Where a counterparty's financial position deteriorates, it may be appropriate to limit additional unsecured exposure.
Possible measures can include:
- shorter payment periods
- advance payment
- payment on delivery or other running settlement arrangements
- renegotiated commercial terms
- guarantees or other security
- involvement of shareholders, lenders or other stakeholders with an interest in preserving the business.
Whether such measures are legally and commercially available will depend on the existing contract and the circumstances.
Review security and legal perfection
Where rights depend on having obtained protection against the counterparty's creditors, it should be checked that the necessary legal steps have actually been completed.
This may be relevant for:
- mortgages and other security interests
- seller's security interests or retention-of-title arrangements
- ownership rights
- rights to particular assets
- shares and other financial assets.
Security granted late in a financial crisis can also be vulnerable to avoidance if the counterparty subsequently enters bankruptcy, particularly where new security is provided for existing debt.
It is therefore generally preferable to have appropriate security and perfection arrangements in place when the contractual relationship or financing is established rather than attempting to create them once insolvency risk has become acute.
Should the counterparty be supported?
In some cases, helping an important counterparty continue its operations may be commercially preferable to allowing it to fail.
The alternative may be business interruption, an expensive change of supplier or a significantly larger loss.
Possible solutions can include revised payment terms, new orders, advance payments, additional financing or a broader restructuring.
Any such arrangement should be structured with the resulting credit exposure, available security and the consequences of a possible later bankruptcy in mind.
The key commercial question is whether the measures improve the counterparty's prospects of remaining viable or merely increase the creditor's exposure.
2. Reconstruction is not the same as bankruptcy
A company experiencing serious financial difficulties may enter formal reconstruction proceedings with the aim of avoiding bankruptcy.
Under the current Norwegian reconstruction regime, the opening of reconstruction proceedings does not in itself terminate the debtor's contracts. As a starting point, existing agreements continue.
A contractual provision giving the counterparty an extended right to terminate solely because of the debtor's insolvency cannot necessarily be relied on during the proceedings.
Depending on the circumstances, however, the counterparty may be entitled to withhold its own performance, require performance or security, or terminate if the debtor fails to perform or provide the required security.
New permanent Norwegian reconstruction rules were adopted in June 2026 but have not yet entered into force. Until they do, the current temporary reconstruction regime remains applicable.
A counterparty dealing with a company in reconstruction should therefore distinguish carefully between formal reconstruction and bankruptcy. The legal consequences for existing contracts are different.
3. What happens to the contract in bankruptcy?
If the counterparty enters bankruptcy, the bankruptcy estate will as a general rule have the right to assume the debtor's reciprocal contracts.
The other contractual party may require the estate to state without undue delay whether it intends to exercise that right.
A contractual provision giving a broader right to terminate merely because the debtor is insolvent cannot automatically be enforced against the bankruptcy estate.
The nature of the particular contract or special statutory provisions may nevertheless lead to a different result.
If the bankruptcy estate assumes the contract
If the estate enters into the contract, it generally becomes entitled and obliged under its existing terms.
Claims arising as a consequence of the estate's assumption will normally rank as estate claims rather than ordinary unsecured bankruptcy claims. This gives them a substantially stronger position in the bankruptcy.
Subject to the statutory conditions, the contractual counterparty may also require the estate to perform the corresponding part of the agreement or provide security before the counterparty continues its own performance.
Special rules apply where a contract has been partly performed or involves continuing obligations.
If the bankruptcy estate does not assume the contract
If the estate does not enter into the agreement, or fails to provide required performance or security, the contractual counterparty will generally be entitled to terminate the contract for breach.
A claim for financial loss arising from the debtor's non-performance will normally constitute an ordinary unsecured claim in the bankruptcy estate.
The practical difference between claims against the debtor arising before bankruptcy and claims resulting from the bankruptcy estate's own assumption of a contract can therefore be substantial.
Goods and other performance already delivered
The fact that goods or other assets have not been paid for does not necessarily mean that the supplier can recover them after bankruptcy.
Whether delivered assets can be reclaimed will depend on matters such as ownership, retention-of-title or other security arrangements and whether any required legal protection against creditors has been established.
By contrast, if performance is delivered to the bankruptcy estate after bankruptcy has opened, the estate must as a starting point return it if it does not assume the contract.
Special rules for particular contracts
Certain types of contracts are subject to specific insolvency rules.
Examples include leases of commercial real estate and employment contracts.
The particular contract type should therefore always be considered before deciding whether the agreement can be suspended, terminated or continued following a bankruptcy.
4. Set-off
Set-off can be particularly valuable where the bankrupt counterparty both owes money to you and has a monetary claim against you.
Norwegian insolvency law provides a relatively broad right to use claims against the debtor as a set-off against claims forming part of the bankruptcy estate.
The rules nevertheless contain important limitations.
For example, restrictions may apply where:
- the claim against the debtor was recently acquired from a third party; or
- the creditor incurred a debt to the debtor in circumstances indicating that the purpose was to create a set-off position.
Whether set-off is available should therefore be assessed before payment is made to the bankruptcy estate.
Early action usually provides the greatest flexibility
The most important dividing line is often not the formal date of bankruptcy, but the point at which the counterparty's financial difficulties become apparent and the point at which meaningful options have disappeared.
Where an important customer, supplier or other contractual counterparty experiences financial difficulties, the contract, security position, credit exposure and consequences of a possible interruption to the relationship should be assessed at an early stage.
Measures that can be implemented while the business is still operating may be considerably more effective than claims first pursued after bankruptcy has opened.
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Originally published 16 August 2026. Last updated 16 August 2026.
How LexOslo can assist
LexOslo advises banks, other creditors and Norwegian and international businesses on defaults, security, restructuring and bankruptcy under Norwegian law.
Where a contractual counterparty experiences financial difficulties, we can assist with reviewing the contractual and security position, assessing credit exposure and available options, negotiating with the counterparty and protecting the client's interests in a restructuring or bankruptcy.
We also assist in dealings with bankruptcy estates and with questions concerning assumption of contracts, security interests, set-off and avoidance.
For international clients and foreign law firms, we can advise on the Norwegian-law aspects of distressed contractual relationships, restructurings and insolvency proceedings involving Norwegian counterparties.
Contact LexOslo:
☏ +47 22 75 25 00
✉ lexoslo@lexoslo.no
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