On 27 May 2026, the Supreme Court of Norway handed down a unanimous judgment (HR-2026-1181-A) holding the managing director and sole board member of a limited liability company in the construction industry personally liable for damages suffered by a supplier. The judgment provides important practical guidance for board members and senior management of companies operating in the construction and engineering sector.

Background

In June 2022, a construction company in Tromsø entered into a credit agreement for the supply of doors and windows for a residential development, with a total value of approximately NOK 300,000. When the supplier asked whether the financing was in place, the managing director assured the supplier that everything was in order. The goods were delivered as agreed, but the invoice was never paid.

Around the beginning of 2023, the company was declared bankrupt. Claims totalling NOK 17 million were filed in the bankruptcy estate, with no funds available for distribution to creditors. The bankruptcy trustee estimated that the company had been insolvent since 2021 – approximately one year before the order in question was placed.

The supplier brought proceedings against the managing director personally, seeking damages under section 17-1 of the Norwegian Private Limited Liability Companies Act. Both the Court of Appeal and the Supreme Court ordered the managing director to compensate the supplier for its loss of approximately NOK 300,000 and to pay the legal costs for all instances.

Key points from the judgment

The Supreme Court began by emphasising that the limited liability company structure normally entails limited personal liability. Something more is required before a creditor can hold members of a company’s management personally liable.

Building on the principles established in the Ulvesund judgment (HR-2017-2375-A), the Court identified three key considerations that will normally limit management’s personal liability for failing to inform creditors of financial difficulties:

• Management has a certain degree of strategic latitude to attempt to rescue the business without immediately disclosing its financial difficulties.
• As a general rule, personal liability will not arise where management had reasonable grounds for believing that the company was solvent.
• Personal liability should generally not arise where there was a realistic prospect of rescuing the company, provided that management actively and loyally pursued that objective and ceased operations within a reasonable period once those prospects were no longer realistic.

In this case, the Supreme Court found that the managing director had exceeded this margin of discretion. He had failed to file for bankruptcy for almost a year despite the company’s clear insolvency, and there was neither adequate ongoing financial oversight nor any realistic restructuring or rescue plan.

The decisive factor for the Supreme Court, however, was a separate and more direct issue: the managing director had actively provided the supplier with incorrect information concerning the company’s ability to pay. As the Supreme Court observed, refraining from providing incorrect or misleading information lies at the very core of the duty of loyalty in contractual relationships. Where this duty is breached intentionally or negligently, personal liability may readily arise – and the latitude afforded to management in attempting to rescue the company does not alter this.

Practical advice for board members and managing directors

Maintain continuous oversight of the company’s financial position. The board and managing director must maintain an up-to-date understanding of the company’s liquidity and equity position. A failure to maintain adequate financial oversight may itself constitute negligence.

Exercise particular caution when entering into new contracts. When a company is approaching insolvency, management must carefully assess whether it is appropriate to enter into new contracts involving credit. If there is no realistic prospect of the company being able to pay when payment falls due, this must be communicated openly to the counterparty.

Never provide misleading information about the company’s ability to pay. Direct or indirect assurances that financing is “in place” when this is not the case may result in personal liability for damages under section 17-1 of the Norwegian Private Limited Liability Companies Act, irrespective of other circumstances.

Document the basis for decisions. If management concludes that there is a realistic basis for continuing operations despite financial difficulties, the basis for that assessment should be documented and supported by concrete plans.

File for bankruptcy within a reasonable period. If the prospects of rescuing the company prove unrealistic, management must act promptly and cease attempting to continue the business without undue delay.

Particularly relevant to the construction industry – misleading information as an independent and strict basis for liability

The construction and engineering industry is characterised by long supply chains, credit-based purchases and projects involving significant capital commitments. Companies may therefore experience liquidity pressure while projects are still in progress. The judgment is a clear reminder that, although management has a certain degree of latitude in dealing with such situations, this does not permit the provision of incorrect information to creditors.

Looking ahead – apparent authority arising from position and internal misinformation. In larger companies, senior management rarely communicates directly with subcontractors and other contractual counterparties. Instead, project managers, procurement personnel and site managers will typically enter into agreements and provide information by virtue of the authority associated with their positions.

If such employees provide incorrect information about the company’s ability to pay because management has itself given them inaccurate information about the company’s financial position, the basis for liability could, in principle, arise at two levels: first through the misinformation provided internally by management, and subsequently through the employee’s communication of that information to the contractual counterparty.

In light of the judgment, future cases may test whether this combination – authority arising from an employee’s position and internal misinformation from management – can constitute an independent basis for liability under section 17-1 of the Norwegian Private Limited Liability Companies Act.

The consequences of getting this wrong are personal – and may be significant.