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Regulations On Municipal And Regional Guarantees

Original Language Title: Forskrift om kommunale og fylkeskommunale garantier

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Regulations on municipal and regional guarantees

Date FOR 2001-02-02-144

Ministry Ministry of Local Government and Regional Development

Published in 2001 Booklet 2 (Notes)

Commencement 01.03.2001






Short Title
regulat municipal and regional guarantees

Chapter Overview:

Main part

Adopted by Local Government and Regional Development (now Ministry of Local Government and Regional Development) February 2, 2001 pursuant to the Act of 25 September 1992 no. 107 on local and regional authorities (Local Government Act) § 51 no. 3.
amendments: Amended by regulation 26 June 2008 no. 1002.

§ 1. Scope These regulations apply when local and regional authorities set bail or other financial guarantee business operated by others than the local authority itself.

§ 2. Simpel bail / surety When a local authority provides a guarantee for a third person's financial commitment, the municipality / county commit by simply bail or surety.

§ 3. Accrual accounting Decision on guarantees and warranty agreement / declaration of will always specify duration of the guarantee. At guarantees related to investments shall duration of the guarantee shall not exceed the investment object lifetime.
By guarantees expenditure shall guarantee period be as short as possible.
Guarantees for employees' loans, in addition to the restrictions in subsections limited to employment duration.
The warranty period can not extend beyond two years from the due date of the claim against the principal debtor. It can not be guarantees with a duration of 40 years.

§ 4. Maximum Amount Decision on guarantees and warranty agreement / declaration of will always set the maximum liability warranty covers.

§ 5. Guarantees for small amounts Guarantees where the maximum liability is lower or equal to NOK 500,000 do not need state approval.

§ 6. Warranty for past debts by conversion to a general partnership Local authorities can guarantee the debt they previously had direct responsibility for, when business that the local authority has previously run even secreted in a company limited by guarantee, and debt simultaneously transferred to the company. The same applies where the business which has been run by an inter-municipal company with unlimited partners liability transferred to a company with limited liability.
Warranties referred to in the first paragraph must be approved by a state authority in the normal way.

§ 7.Commencement regulations apply from 1 March 2001. As of the same date Regulation of 9 February 1993 no. 4046 on municipal and regional guarantees.

To § 1 Scope

Provision specifies scope of the regulations. These regulations have the same scope as the law itself. The term "bail" is meant the usual third party guarantees, which the municipality / county warrants someone else's liability. The term "other financial guarantee" is intended to include the so-called independent guarantees, ie the guarantees are not tied to another claim. This includes that a promise to such a sports team to cover any deficit at a sports event must be approved by the ministry although this warranty does not give the Sport Club creditors have the right to require the municipality. General promises to pay out a certain sum of money will not be a guarantee. The peculiarity of the guarantees is that the promise of payment of money is conditional on a future event that it beforehand is unclear whether will occur.
It is further stated that only guarantees for businesses run by persons other than the municipality / county covered. This regulation does not guarantee that the municipality / county emits its own performance - the so-called own warranties. Such guarantees are municipality / county free to provide, regardless of the Local Government Act § 51 and regulations thereto.

To § 2 Simpel bail / surety

Provision applies only third party guarantees (bail).

To § 3 Accrual accounting

First paragraph, first sentence requires that decisions about guarantees and guarantee agreement / declaration of shall specify duration of the guarantee. The second sentence requires that if the guarantee applies investments can guarantee period shall not exceed the investment object lifetime.

The second paragraph implies that guarantees relating to expenditure should be as short as possible, but set no firm timetable. In the note to the corresponding provision in the previous regulation states that guarantees operational purposes as a rule should be limited to the particular operation, and there may be reason to start with such a cutoff. This provision is not, however, preclude the granting operational guarantees with longer duration.
The third paragraph lays down a special rule for loans to employees. By law, municipalities / counties freely provide guarantees for employee liabilities - in practice it will be about loans for housing etc. The third paragraph requires that guarantees employees' loans may not apply beyond the individual is employed in the municipality / county. It must be ensured that this is reflected in the guarantee agreement / declaration.
Warranty period must be set so that it gives the creditor to the principal contract reasonable time of collection in case of default. This means that the warranty period should extend slightly beyond the maturity date of the principal claim. Fourth paragraph, first sentence sets up a maximum of 2 years from the main obligation is overdue. The second sentence sets a maximum limit for the duration of the guarantee. It may under no circumstances, be guarantees will apply for more than 40 years, including 2-year deadline in the first sentence. It must be ensured that this is stated in the underwriting agreement / declarations, where there is no other reason is obvious that the guarantee is of shorter duration.

To § 4 Maximum amount

The provision requires that in decisions about guarantees and guarantee agreement / declaration of always be quantified an upper limit for the guarantees municipality / county takes on in each case.

To § 5 Guarantees for small amounts

Local Government Act § 51 no. 3 second sentence provides authority to determine by regulation that guarantees less amounts do not need state approval. The provisions of Regulations § 5 means that certain guarantees maximum liability (cfr. § 4) is lower than or equal to 500,000 kroner do not require state approval. The assessment will be linked to the overall limit set for the guarantee for the appropriate purposes. It is not possible to ask several smaller guarantees for the same purpose and the same principal debtor that each guarantee will fall below the level of 500,000 kroner.

To § 6 Guarantee for previous debts by conversion to a general partnership

Provision is based on § 4 of the former regulations, but something changed.
In some cases it may be appropriate that a municipality / county separates business that has been run by the municipality itself - often in the form of a municipal enterprise (Local Government Act § 11) or a municipal enterprise (Local Government Act Chap. 12) - and transfers it to a company with limited liability, typically a corporation. It may also be relevant to transfer debt that is linked to the activities of the company. The municipality does not free its responsibility for the earlier debt until the creditor may be deemed to have exempt the municipality from liability. In the absence of such agreement, it is believed that the municipality jointly and severally liable with the company for past debts. Provision in § 6 allows the municipality in such cases can set an explicit guarantee for the company's obligation to pay this debt, so that the municipality's direct debt liability is converted to a warranty.
If the municipality here issuing a guarantee, the municipality will have a recourse claim against the company if the municipality should cover all or part of the debt liability is transferred to the company. The municipality should consider whether this recourse claim should be secured by certain assets.
Decisions on such explicit guarantee referred to above will have to be approved by the state authority to be valid, cf.. Government Act § 51 first paragraph.
Where business has been run in the form of an inter-municipal company with unlimited partners liability transferred to a company with limited liability, it may likewise be appropriate to transfer responsibility for the debt to the new company (limited company). If debt as the responsible company had direct responsibility should be transferred to the corporation requires the consent of creditors for the responsible company may be exempt from liability. If the general partnership is dissolved is not participating municipalities through the responsibilities they previously had as participants in the company unless creditors accept this. Inter municipal companies by law on 29 January 1999 no. 6 follows from § 36, which states that the participants after the liquidation of the company have the same responsibilities as before. For liable under the Act 21 June 1985 no. 83 follows the same of § 3-28 third paragraph. The same can be assumed to apply to inter-municipal companies based on the Local Government Act § 27.

In practice ensured gladly creditors by the former participants provide an explicit guarantee declaration from liability for past debts. The provision in § 6 allows local authorities to provide such guarantees in these cases.
Decision / declaration of such explicit guarantee referred to above will have to be approved by the state authority to be valid, cf.. Government Act § 51 first paragraph.
If the participants must cover stock company obligations under their guarantees they will get a recourse claim against the limited company. Municipalities should consider whether it is necessary to ensure this recourse claim by pledged property.
The provisions of these regulations § 1 - § 5 also applies in cases where it made such guarantees in the sense of § 6
provision in § 6 are only permitted to underwrite debt liability municipality had prior to separation / conversion to limited liability company. Any guarantees for other obligations must be assessed under the general rules - regardless of § 6.