landlord Assumed The purpose of this article is to provide an introduction to what a contracting party can expect when the company with which they had an agreement goes bankrupt.

In connection with bankruptcy estates, we often encounter either unilateral or mutual unfulfilled contracts. These agreements may normally cover the purchase of an item or service, as well as ongoing services such as the delivery of goods. The agreement may also consist of items other than monetary claims.

A recurring issue is that the bankrupt company has a lease agreement for office and/or warehouse premises that has not been terminated prior to the commencement of bankruptcy proceedings.

Rights and obligations

The rights and obligations of the parties are mainly set out in Chapter 7 of the Coverage Act. The provisions in this chapter basically regulate most types of agreements, including, for example, the leasing of business premises, purchase agreements, etc.

The bankruptcy estate has the opportunity to step in as a contractual partner in place of the debtor (the bankrupt company). This means that the bankruptcy estate and the contracting party are bound by the terms and conditions set out in the agreement. The agreement can, of course, be renegotiated to the benefit of both parties, but as a general rule, the agreement continues as it was originally entered into. This means that the parties may also be held liable for damages if the terms of the agreement are breached.

Upon request from the contracting party, the trustee shall notify whether or not the estate will assume the company's ongoing obligations.

The trustee shall always send the property owner/landlord a letter from the bankruptcy estate, notifying them of whether or not the lease agreement will be entered into, in accordance with the provisions of Section 7-10 of the Recovery Act.

It is important to note that the estate has the right to enter into an agreement – not an obligation; only the estate can decide whether the agreement should be fulfilled. The contracting party cannot demand that the estate become a party to the agreement. It is the estate's privilege to choose which contracts are worth continuing.

If the premises are crucial for continuing operations, a trustee may consider entering into the contract for a shorter period. Such a solution could ultimately result in more funds for the estate.

The contracting party has been notified of non-entry into the agreement – what does that mean?

Based on the example of a lease agreement with a landlord above, the trustee notifies the landlord of non-entry. Provided that the trustee sends the notification within the statutory deadline of
(4 weeks from the opening of bankruptcy proceedings), the landlord/lessor will have to accept that the estate will not enter into the lease agreement.

If the estate does not enter into the contract, the landlord must report their rent claim to the estate. The claim will not be covered if there are no funds in the estate.

Other contracting parties who suffer losses due to the bankruptcy must also file their claims with the estate if they are to have any chance of receiving compensation.                                                                                                                                                                                                                                                                                                                                                                                                                                                              However, some estates are closed with a distribution pursuant to Section 128 of the Bankruptcy Act. Creditors will then receive a dividend (a percentage) of their total claim. The coverage is calculated proportionally, so that everyone receives the same percentage of coverage. However, the claims are divided into different classes of claims, depending on the statutory priority of the claim. The claims with the highest priority are covered first. If there is full coverage for all claims within a priority, the claims in the next priority will receive coverage as far as funds allow. The order of priority is roughly as follows: mass claims (costs of estate administration, etc.), 1st priority (employees' salary and vacation pay claims), 2nd priority (tax and duty claims), unprioritized claims (suppliers, landlords, etc.), and subordinated claims (interest, etc.).

If you have any questions about what happens to contracts when a company goes bankrupt, please contact us.

We are five lawyers who are regularly appointed by Oslo District Court as trustees in bankruptcy estates, and we also have several lawyers with specialist expertise in insolvency.