23-04-2013

Bankruptcy Law, Corporate Recovery And Insolvency

Authors

  • Ardjana Shehi, Attorney at Law,
    Partner at KALO & ASSOCIATES Attorneys at Law

What is the basic legal framework for the bankruptcy in Albania?

Albanian Bankruptcy Law no.8901 dated 23 May 2002, as amended (Bankruptcy Law) is the main law ruling the insolvency/bankruptcy in Albania. This law aims to establish non-discriminatory and mandatory rules for the repayment of obligations by debtors in a bankruptcy procedure and to ensure an adequate, reliable and effective mechanism for the reorganization or liquidation of a company that is facing financial difficulties. The Bankruptcy Law directly intervenes not only in the procedural rights of creditors towards an insolvent debtor, but also in the material contractual and property rights of the persons who have legal relations with the insolvent debtor before the bankruptcy procedure starts and/or after it has started. This is not the only law that contains the provisions which are enforceable with regard to bankruptcy. This Bankruptcy Law could be enforced in taking into account other related legal provisions, which are widely applied and provided for especially in the Civil Code, Code of Civil Procedure, law “On the Securing Charges”, law “On Commercial Companies”, and in other relevant specific laws. The existing Bankruptcy Law has been in effect since October 1, 2002 and it repealed the previous law “On the Bankruptcy Procedures” No. 8017 dated 25.10.1995.

What are the main elements of the Bankruptcy Law?

According to the Bankruptcy Law, the bankruptcy procedure is a court procedure. The commercial sections of district courts (first instance courts in Albanian Judiciary) have the duty to act in the capacity of a Bankruptcy Court (BC). In addition, the law specifies the range of persons who can file a bankruptcy petition. The debtor, the creditors and the tax office are permitted to make a claim. The law also provides for the preliminary procedure which starts with the filing of the request with the court and ends with the decision for the opening of a bankruptcy procedure. After the decision for the opening of bankruptcy procedure has been taken, the bankruptcy procedure starts. The court appoints the administrator who should duly and properly perform, during the whole procedure until it is concluded, the duties as stated in the law. The law does not provide clear specific criteria for the appointment of administrators of bankruptcy. However, the law provides that the administrator should have a background in economics, including lawyers and notary public. Notwithstanding the above, the Regulation“On the determination of the procedures detailed rules and the time-terms of the organization of the licensing of the Bankruptcy Administrators exam” as approved by the Order of the Minister of Justice no. 4217/2, dated 25.06.2012 provides for the specific criteria in order to be licensed as a Bankruptcy Administrator.

It is important to state that under the existing Bankruptcy Law in Albania, any decision of the BC is an Executive Title. The special appeal, in no case, shall suspend the execution of the decision of the Bankruptcy Court. The law covers cross-border bankruptcy. The Albanian court can open a bankruptcy procedure for the companies that have a registered branch or residency in Albania or own an asset in Albania. The Albanian court can open the bankruptcy procedure for the Albanian debtor(s) under the request of a foreign creditor(s). The bankruptcy procedure is the same as that for any other bankruptcy procedure started by any Albanian debtor(s) or creditor(s). It is important to mention that Albanian Bankruptcy Law provides for the Ancillary Proceedings to the main proceeding. The law provides that apart from the debtor and the creditors, the administrator or other appointed representative of the debtor’s assets in the foreign bankruptcy proceedings shall have the right to file a petition to open such ancillary proceeding. The priority of creditors is regulated by several articles of the law. The law provides that the court procedure shall not begin if there is insufficient money to cover the remaining court procedure expenses. Then, the law provides that priority in the claims is as provided by article 605 of Albanian Civil Code. In order to meet the court’s, creditor’s and debtor’s expectations, the law classifies and includes as bankruptcy estate the debtor(s) property, the rights on the date of the initiation of the bankruptcy proceeding and the assets that the debtor acquires during the bankruptcy proceedings. The law does not expressly provide for the bankruptcy consequences. The Bankruptcy Law provides only for the distribution of the bankruptcy estate and for the rights of the bankruptcy creditors after the termination of bankruptcy procedure.

Which are conditions for initiation of bankruptcy proceedings?

Conditions for the initiation of bankruptcy proceedings as provided by Bankruptcy Law include the present insolvency, the status when the debtor is overloaded with debts, and the future insolvency. So, one debtor can de facto become bankrupt when at least one of the above conditions is met. The Bankruptcy Law provides that those that can become bankrupt are the physical person (unregistered physical persons and small entrepreneurs), legal person (companies, etc) and simple partnerships (simple company established under a contractual joint-venture). Having taken due consideration of other relevant pieces of existing Albanian legislation, it could be said that other legal persons that can become bankrupt are the banks and other financial institutions, insurance companies and state-owned enterprises. But, the bankruptcy of these entities is regulated by the relevant special laws and not by the Bankruptcy Law. This law expressly provides that a bankruptcy procedure may not be opened for the assets owned by the state or one of its agencies, sectors defined as strategic, the units of local government and their agencies.

Is Corporate Rescue recognised by Bankruptcy Law?

The Bankruptcy Law provides that the debtor has some alternatives to bankruptcy which may be agreed upon during insolvency. The alternatives provided by this law are: (i) sale of the debtor; (ii) corporate rescue; and (iii) liquidation of the debtor due to bankruptcy. Thus, Albanian Bankruptcy Law recognizes also the principle of corporate rescue. Generally, the law does not make any clear differentiation between personal bankruptcy and corporate bankruptcy. However, one of the differences is related to efforts to rescue the debtor as the law does not expressly provide for the rescue of the debtor who is an individual. The mechanism for implementing the principle of corporate rescue is the Reorganization Plan (‘RP’) approved by the Creditors’ Assembly, agreed by the debtor and approved by a court judgment of the Bankruptcy Court and filed with the Court Registry. There is no RP available and the Bankruptcy Law merely provides about the elements (some of them mandatory) to be included in the RP. The law provides that it is the Bankruptcy Administrator, Creditors’ Assembly or Creditors’ Committee, and the Bankruptcy Court that supervise the implementation of the RP. There is no specific time limit for the filing of RP. The law merely provides that the RP could be attached to the petition for the opening of the bankruptcy court proceedings. In addition, the Bankruptcy Law provides that RP must be filed before the final Creditors’ Meeting which approves the final distribution list. Certainly, the Bankruptcy Law provides for the necessary quorum/majority for the approval of RP. This law does not have specific provisions related to the process for “cramming down”creditors who do not approve the RP. However, the law provides that RP cannot be approved by the Bankruptcy Court in the cases that this RP is objected from the majority of the bankruptcy creditors. In addition, this law provides that the creditors and the debtor, according to the Code of Civil Procedure, may initiate a special appeal related to the court decision for the approval of RP. The Bankruptcy Court appoints a Bankruptcy Administrator whose work as stated above is supervised by such court. However, the creditors influence on whether the management will remain in charge of the debtor company during reorganization or not and the law provides that RP ought to state whether the debtor will remain in control of the company or not. The law does not specifically provide for the length of RP. However, insofar as RP is important for purposes of payment of the creditors, the provisions related to termination of RP gives the lead to understand the maximum timeline the creditors ought to be paid during the implementation of the RP. The Bankruptcy Court decides on the termination of the supervision of the implementation of the RP when the creditors’claims are satisfied or their fulfilment is secured or three years from the conclusion of the bankruptcy procedure (i.e. in this case the start of the implementation of the RP) and if there has been no new petition filed with the court for initiating a new bankruptcy procedure.

What are some challenges related to RP?

The issue of continuance of the contracts existing at the time of opening of bankruptcy proceedings is an important issue especially during the implementation of a RP. To note is that the law expressly provides only for the possibility for continuance of the lease contracts and of the supply contracts. The Bankruptcy Law provides for the automatic stay on the repossession of all assets except for the ones (i.e. assets) that are subject to the right to separation. In addition, the Bankruptcy Law provides that the Bankruptcy Administrator can obtain new financing and the approval of the Creditors’ Committee (if any) or of the Creditors’ Meeting is indispensable. This law does not have specific provisions about the ranking of this new financing. However, according to the law, the “new financiers” are not prohibited to perfect a security for such new finance, thus, to become secured creditors and the “new financier” will be ranked in the same ranking with the other bankruptcy secured creditors (of course, in the case that the debtor does not succeed with the RP). In addition, please note that the Albanian legislation acknowledges the pari passu principle meaning that each secured creditors is paid pro rata in accordance with the amount of his claim i.e. equally and without preference. One can understand that the efforts to reorganise a debtor according to Albanian Bankruptcy Law is not an easy task. Therefore, the human resources participating in bankruptcy proceedings and especially the Bankruptcy Administrator(s) ought to be well-trained to perform such important duties. The above represents an attempt for a summary of the key issues related to the corporate rescue as provided by the Albanian legislation only as the Albanian practice of bankruptcy proceedings has not recorded yet any case of use of the RP.

Are there provisions related to restructuring outside a formal procedure?

To note is that Bankruptcy Law has no specific provisions for restructuring of the company outside a formal procedure. However, prior to submission of the petition for the opening of the bankruptcy proceedings, the debtor is not prohibited to try to achieve an out-of­court restructuring. In addition, Albanian legislation does not have specific provisions for an expedited restructuring of the debtor by means of a pre-packaged sale.

What does the Bankruptcy Law provides for the Bankruptcy Administrator?

According to the Bankruptcy Law, the Court may appoint the Administrator who should duly and properly perform, during the whole procedure until it is closed, the duties stated in the law. The work of the Bankruptcy Administrator is supervised by the Bankruptcy Court and by the Creditors’ Meeting and the Creditors’ Committee (certainly, if any). With the opening of the bankruptcy proceedings, the debtor is deprived of his rights to dispose and manage the bankruptcy estate unless the court decides otherwise. It is the Bankruptcy Administrator who is appointed to possess and manage the insolvency estate. The original law (i.e. prior to both amendments) did not have extended provisions with regard to Bankruptcy Administrator; the original law did not provide clearly specific criteria for the appointment of a Bankruptcy Administrator, except for the requirement that the Administrator should have a background in economics. Therefore, to be appreciated is the effort to include in the law, through recent amendments, further provisions regarding the qualities and the method of selection of the Bankruptcy Administrator. According to the existing legal provisions, the Bankruptcy Administrator ought to be independent from debtors and the creditors. The creation of the Bankruptcy Supervision Agency was a positive step forward as an institution that will be in charge to train and license the Bankruptcy Administrators. However, this Agency is in the first steps of the graduation of the first administrators who need to be also trained to have knowledge not only with regard to liquidation but also with regard to reorganisation in bankruptcy proceedings. The lack of qualified Bankruptcy Administrators especially in reorganisation is one of the reasons why the Bankruptcy Law is not used to reorganise in the Albanian jurisdiction. Especially in these times of crisis, the use of bankruptcy related legal provisions to reorganise debtors requires from the Albanian authorities to speed up the process to train the first licensed generation of Bankruptcy Administrators who will be able to make possible the ‘fresh start’ of the debtors OR most important to ‘refresh’ the debtor to continue the activity without any important legal interruption. It is understandable that the Bankruptcy Law plays an important role in all of the countries that have a developed economy. Both creditors and debtors consider the bankruptcy law as a legal and significant mechanism to address the breaking up of the debtor-creditor relations. The fact whether it will have the same or similar effects in Albania depends on a variety of factors. The creditors must be informed of the benefits offered by this Law. The judges must have a clear perception of the social policies that are embodied in the legislation and must ask to apply these policies through the development of an informative interpretation and through the enforcement of the approved provisions. The legal community, judges in particular, must have a correct perception of the critical meeting point between the Bankruptcy Law, the laws that are related to the debtor-creditor relationship, etc. The role of the Bankruptcy Administrator must be carried out by trained, capable and competent persons. In addition, the public must have faith in the justice and in the effectiveness of the legal system as regard the enforcement of the Bankruptcy Law in Albania.

GREEK LAW DIGEST REPUBLIC OF ALBANIA MINISTRY OF INTEGRATION Union of Chambers of Commerce and Industry of Albania
Nomiki Bibliothiki ALBANIA INVESTMENT DEVELOPMENT AGENCY Foreign Investors Association of Albania
     

 

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