§ 63. What happens in bankruptcy
If the seller (selger) or the buyer (kjøper) is placed under insolvency proceedings (bankruptcy, debt negotiation), the rules in Chapter 7 of the Creditors Recovery Act apply, and the Sale of Goods Act does not apply on its own. This is a separate world with its own rules. They decide which claims have priority, who gets what, and whether the bankruptcy estate (bo) can step into the agreement.
Machine-translated from Norwegian. The Norwegian text is the one that applies. Read the original in Norwegian.Norsk English العربية Polski Українська
The text of the law (unofficial translation)
If one of the parties comes under insolvency proceedings, the provisions in Chapter 7 of the Creditors Recovery Act apply.
What does this mean?
When someone goes bankrupt (konkurs), the situation changes completely. It is no longer just a deal between two parties. Now there is a bankruptcy estate, an estate administrator, and creditors fighting over money. Norwegian law has a separate set of rules for this: the Creditors Recovery Act.
When the Sale of Goods Act says that "the provisions in Chapter 7 of the Creditors Recovery Act apply", it means that:
- The estate decides: If the seller goes bankrupt after receiving payment but before delivery (levering), the estate administrator can decide whether the estate will step into the agreement and deliver, or refuse. The same applies if the buyer goes bankrupt.
- Priority of claims: If you are a buyer and have made an advance payment to a seller who goes bankrupt, you must file a claim against the estate, and you are normally far back in the queue. You rarely get everything back.
- Right of stoppage: As a seller, you have some options to stop goods on their way to a buyer who has gone bankrupt (see § 61).
- Seller's security right: If you have taken a seller's security right (salgspant), you are in a much stronger position than an ordinary creditor. You can often take the goods back.
In practice this means that in a bankruptcy you will almost always need help from a lawyer or a good knowledge of the Creditors Recovery Act. The Sale of Goods Act only gives you a starting point. If you are buying a home from a developer who goes bankrupt, the guarantee (garanti) in the Housing Construction Act (bustadoppføringslova) applies.
Examples
Marius has paid NOK 80,000 in advance for a custom kitchen. Three weeks later the carpenter goes bankrupt without having started the work. Marius must file a claim against the estate under the Creditors Recovery Act. As an ordinary creditor, he will probably get little, often less than 10 % of the claim. Most of the advance payment is lost. Lesson: be careful with large advance payments to unreliable sellers. Consider using escrow solutions or splitting up the payment.
Eva has sold goods for NOK 320,000 on invoice (faktura). The buyer runs into trouble and files for bankruptcy before paying. Eva has already delivered and must now file a claim. If she had taken a seller's security right, she could have taken the goods back. Without one, she is at the back of the queue. This is one reason why a seller's security right is so common in business-to-business trade.
Common mistakes
- As a buyer: making large advance payments without security
- As a seller: giving credit (kreditt) without a seller's security right
- Believing the Sale of Goods Act resolves bankruptcy situations. It does not.
- Waiting too long to file a claim against the estate
What should you do?
If there are signs that the other party is insolvent:
- Use § 61 (suspend performance) and § 62 (cancel in advance) quickly
- Contact a lawyer
- File a claim against the estate as soon as bankruptcy proceedings have been opened
To prevent problems:
- A seller's security right when selling on credit
- Smaller advance payments, or escrow
- Check the other party's credit status before large transactions