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Albania: A New Bankruptcy Bill is Finally Knocking on Our Doors

Albania: A New Bankruptcy Bill is Finally Knocking on Our Doors

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The bankruptcy system has never really worked in Albania, making it practicably impossible for companies to finalize bankruptcy proceedings and be declared officially bankrupt.

The main cause of difficulty is that the country’s bankruptcy law was based entirely on its German counterpart, which turned out to be too complicated in some of the bankruptcy procedures and lacking in others. In addition, the current legal bankruptcy framework mainly focuses on the liquidation procedure without providing involved parties with better options, such as business reorganization or debt restructuring. The current bankruptcy law was adopted in 2002 and has been amended a few times thereafter; however, it is surprising that there have only been a few dozen bankruptcy claims in the last 14 years. 

In an attempt to change this situation, the Albanian Government, with the assistance of the International Finance Corporation of the World Bank Group, has been struggling for the past three years to come up with a new draft bill to put an end to the non-bankruptcy fate of Albanian entities and individuals. The bill is expected to be sent soon to the Parliament for debate and approval, and on the basis of the opposition of different interest groups – including banks – the final wording of the bill is likely to undergo some amendments.

The new bill entails a wider group of subjects, including natural persons, legal entities (public or private commercial companies and non-profit organizations), and local government units. This last group may only be subject to reorganization procedures following permission granted by the Supreme State Audit. The bill also focuses on debt restructuring for insolvent debtors by aiming at rescuing their businesses and reshaping their financial and organizational structures. Restructuring of insolvent businesses is expected to reduce negative effects on the national economy. 

The role and position of the National Bankruptcy Agency are key, not only as regards the organization and licensing of the bankruptcy administrators and supervisors’ activity, but also with respect to the supervision of particular cases involving abuse and fraud in bankruptcy, where the prosecutor will have an active role during court procedures. In order to avoid the risk of lack of funds to cover the costs of bankruptcy procedures, a special public fund will be available to the National Bankruptcy Agency to cover all necessary expenses. At the end of the procedures, a percentage of available assets to be distributed will be paid to the Agency. It is highly likely that in the very first years of activity, the special public fund shall be exclusively supported by the state. 

The arrangement of specific bankruptcy court sections within the commercial section of each court shall help solve one of the main problems under the previous regime: courts that have often misinterpreted law, dragging cases on for several years without achieving satisfactory results for either of the parties involved. The judges to be appointed in the new bankruptcy court sections will be trained and gain the necessary experience to enforce the provisions of the new law. The new court terms are expected to be shorter and explicitly defined as leaving little room for procedural delays. 

The new bill introduces “cross-border bankruptcy” as an entirely new concept based on the UNCITRAL model, sending a strong signal of credibility to foreign investors. Such provisions introduce, inter alia, a collaboration with foreign courts on bankruptcy matters, the recognition of foreign court rulings on related companies based in different jurisdictions, and the exchange of information and data on an eventual debtor’s assets identified in different countries. 

Additionally, a new order of preference in the distribution of assets is provided for which is not in line with the provisions of the Civil Code. The drafters of the bill state that the new provisions reflect the best international practices and current market reality. However, there is a risk that the discrepancies between provisions of the two bodies of law might result in significant debate and conflicting interpretations among the debtor, its creditors, the court, and the bankruptcy administrator.

The new bill is a long-awaited instrument that will benefit the Albanian market, rendering bankruptcy a positive and sustainable option for enterprises. Thus, it is expected that many small and medium enterprises will opt to reorganize in a way that supports the national economy but also finally liquidates all those old insolvent ghost companies.

By Besnik Duraj, Partner, Drakopoulos Law Firm

This Article was originally published in Issue 3.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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