That Northvolt entered the chapter 11 process meant that Northvolt Ett in Skellefteå and Northvolt Labs in Västerås could continue operations and work on increasing production to meet commitments to their customers.
In November last year, Northvolt filed what are called "first-day motions" with the court in Houston.
This allowed the company to continue meeting its obligations to employees, critical suppliers, and customers, as well as continue paying taxes, insurance, and public services. Entering this process enabled Northvolt Ett in Skellefteå and Northvolt Labs in Västerås to maintain operations and focus on increasing production to fulfill customer commitments.
Chapter 11, a component of U.S. bankruptcy law, shares similarities with Sweden's corporate restructuring system. The primary objective is to ensure the company's survival rather than its liquidation. During this process, the company's management retains operational control, a status known as "debtor in possession." However, certain restrictions are imposed on management's decision-making authority.
– It's called debtor in possession (DIP), and it means the company retains control over operations, but there is a trustee to ensure everything is done correctly, explains Marie Karlsson Tuula, professor of civil law at Linnaeus University.
According to Professor Tuula, a significant drawback of chapter 11 is its inherent expense, time-consuming nature, and administrative complexity.
– This is especially so when there are many creditors, since a sufficient number need to agree, says Professor Tuula.
She argues that a chapter 11 procedure would likely prevent Northvolt from paying bonuses to key personnel, a highly debated issue recently.
– No, I can't imagine that, because the basis of the restructuring is equal treatment of creditors. It means that everyone should be treated equally, full stop, says Professor Tuula.
Debts incurred by the company prior to filing for Chapter 11 are considered non-priority.
– These creditors essentially receive nothing. Or, they may receive a certain percentage if an agreement is reached. However, it's undoubtedly preferable to be involved in a restructuring rather than a bankruptcy, as bankruptcy typically results in zero recovery. In Northvolt's case, the situation appears bleak given their current financial position, explains Professor Tuula.
"Superpriority" creditors, a concept also recognised in Sweden, always receive payment, including entities such as banks and financiers.
She emphasizes that Sweden has implemented a similar restructuring process since 2022.
– It's part of the EU's insolvency directive, with chapter 11 serving as a model. However, I find it difficult to envision how Northvolt could implement this in Sweden. We lack the specialised judicial expertise that exists in the U.S. There are dedicated professionals who handle these matters, says Professor Tuula.
Matti Kataja, head of communications at Northvolt, also acknowledges that the chapter 11 process is more established than the Swedish restructuring process.
According to him:
– The process provides a higher degree of certainty regarding its functioning in larger and more complex cases like this one.
"If Northvolt cannot fulfill the restructuring plan, then the restructuring cannot continue, and they may be forced to apply for conversion to bankruptcy," explains Marie Karlsson Tuula.
– Many companies, including those headquartered outside the U.S., have successfully restructured through chapter 11. Moreover, the jurisdiction of U.S. courts extends further than that of Swedish courts, which is particularly advantageous for a global company like Northvolt with extensive U.S. connections, says Kataja.
The chapter 11 process also provides Northvolt with an avenue to secure new financing.
– For instance, the protections afforded by chapter 11 have instilled confidence in our lenders and customers, enabling us to already access approximately $245 million in additional financing. These mechanisms create a framework for the company to maximize value for all stakeholders, says Kataja.
On December 20, a "Second Day Hearing" was conducted, where the company progressed the case, including obtaining final approval for the motions that received preliminary approval shortly after submission.
– We can now expect further court hearings concerning other legal filings from Northvolt and other parties in January and beyond, says Kataja.
As a consensus emerges regarding the path forward, Northvolt will submit a formal "reorganization plan" to the court for implementation.
– The plan will outline payments to our creditors, the execution of an agreement with our financial stakeholders, and a forward-looking financial structure. Upon receiving the necessary approvals of the plan from our creditors and the court, we can implement it and emerge as a reorganized company, says Kataja.
Houston, Texas, where Northvolt's future will be decided. Archive photo.
The length of time this process may take is still highly unclear.
– It can, in some cases, take several years, says Professor Tuula.
Northvolt's management team is now fully focused on daily operations. To help with the restructuring, the company has engaged a range of experts, including Teneo as financial advisors. Legal representation includes Kirkland & Ellis LLP, Haynes & Boone LLP, and Mannheimer Swartling AB. They have also hired Houlihan Lokey to manage the marketing process.
– This is a typical structure for a large chapter 11 case, says Kataja.
He states that Northvolt remains optimistic about the prospects of succeeding with their chapter 11 process.
– We are now engaging with both strategic and financial investors, as well as existing lenders, shareholders, and customers, while seeking proposals for new capital investments, says Kataja.
What happens if the money runs out before the process is completed?
– If Northvolt cannot meet the restructuring plan, then the restructuring cannot continue, and they may be forced to apply for conversion to bankruptcy, explains Professor Tuula.
She notes that Northvolt could be requested to go bankrupt in Sweden while this process is ongoing in the US.
– Yes, there’s nothing preventing that; anyone in Sweden can apply for it. The process only has legal effect in the US, not elsewhere, concludes Professor Tuula.