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Albania: Insolvency and Restructuring

Albania: Insolvency and Restructuring

Issue 10.12
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Albania underwent a substantial overhaul in its approach to insolvency and restructuring proceedings with the enactment of Law No. 110/2016 “On Bankruptcy” in 2017. This legislative stride replaced a prior law that had been in effect since 2002, often leading to disputes and difficulties in uniform enforcement.

The new law, designed to align with international best practices, represented a pivotal moment in bolstering the country’s economic landscape. Its primary aim was to establish coherent guidelines for debt restructuring, meticulously defining the roles of debtors, creditors, and the judiciary throughout the various stages of the process. By precisely outlining the powers and responsibilities of court-appointed bankruptcy administrators, the law aimed to ensure the efficiency and effectiveness of insolvency procedures. However, owing to its recent introduction, a comprehensive assessment of its impact is yet to materialize, pending further judicial practice and academic scrutiny.

Under this legislation, only the debtor or any creditor possesses the right to initiate judicial proceedings, contingent upon providing evidence of the debtor’s insolvency – either an inability to meet existing obligations or imminent insolvency in the near future. Additionally, the law imposes personal liability on the management of the debtor if insolvency proceedings are not commenced within 60 days after insolvency becomes foreseeable, thereby fortifying creditor interests.

The destiny of the debtor’s assets, both preceding and during bankruptcy proceedings, hinges upon the court’s evaluation of the particular situation. The court might opt to appoint a temporary administrator who either assumes possession of the assets or oversees the debtor’s activities without altering asset possession.

Formal insolvency proceedings are set in motion once the court confirms the debtor’s insolvency status and initiates proceedings. At this juncture, the process may unfold toward either debtor restructuring or liquidation. However, both avenues necessitate that the debtor’s assets cover the proceedings’ costs and the expenses of the court-appointed administrator.

Regarding restructuring, the law offers two distinct options. The regular restructuring procedure entails crafting a comprehensive restructuring plan submitted to the court, contingent upon obtaining majority creditor approval based on claim size and priority ranking. Conversely, the expedited reorganization procedure allows the debtor and qualifying creditors (holding at least 30% of total claims) to negotiate a restructuring agreement before court involvement, although final court examination and certification of the agreement remain obligatory.

While restructuring remains the preferred choice over liquidation, the latter becomes inevitable if restructuring efforts prove unfeasible. In forced liquidation, creditors are classified into five classes, with each higher class enjoying absolute priority over the lower ones. Although the norms predominantly favor creditors, they also strive to balance interests among the involved parties. Creditors are mandated to file claims within a stipulated deadline – late filings diminish entitlements and, in extreme cases, might render claims untreated if submitted too late (a year or more after proceedings commence).

Overall, the prevailing legal framework governing restructuring and insolvency empowers courts with a central role, allowing creditors to safeguard their interests through organized participation in various phases, thus preventing unnecessary delays and rigorously managing assets throughout the process.

The Albanian insolvency law of 2016 stands as a monumental leap in modernizing the country’s insolvency framework, with its aspirations to stimulate economic growth, protect creditors’ rights, and facilitate the recovery of financially distressed entities. Its impact and effectiveness in addressing insolvency issues are destined to continue evolving through ongoing refinements and practical applications in the foreseeable future.

By Anisa Rrumbullaku, Partner, CR Partners in cooperation with Karanovic Partners

This article was originally published in Issue 10.12 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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