Contributed by Deloitte Legal.
1.1. What domestic pieces of legislation and international instruments apply to restructuring and insolvency matters in your jurisdiction?
The main piece of legislation governing insolvency and restructuring procedures in the Republic of Albania is Law no. 110/2016, dated 27.10.2016 “On Bankruptcy” (Bankruptcy Law). The implementation of the law is supported by secondary legislation in the form of Decisions of the Council of Ministers, such as:
- DCoM No. 543, dated 19.09.2018 “On the approval of the Code of Ethics for bankruptcy administrators”
- DCoM No. 733, dated 13.11.2019 “On the approval of the national standards for the administration of the bankruptcy estate”
- DCoM No. 705, dated 09.09.2020, “On the criteria for determining the remuneration of the temporary bankruptcy administrator, the rules for the remuneration of the bankruptcy administrator as well as the criteria for calculation of the custodian remuneration”
- DCoM No. 65, dated 03.02.2021, approving the Regulation “On accelerated out-of-court reorganization agreements”
- DCoM No. 542, dated 19.09.2018 “On the organization and operation of the National Bankruptcy Agency”, etc.
1.2. Do you have a well-established legal regime governing restructuring and insolvency, or do you have rather frequent legislative changes in the area?
The legislation governing bankruptcy and reorganization has been amended frequently. There is a substantial caseload with the Albanian courts that remains yet unaddressed. The last change of the law in 2016 aims to deal with the situation and improve the bankruptcy or reorganization processes in the future without imposing an extra burden on courts.
1.3. Are there any special regimes applying to specific sectors?
The Bankruptcy Law does not apply in general to entities operating in the banking and financial sectors such as banks, pension funds, investment funds, insurance companies, and other institutions holding deposits from the public. The sectoral law regulates the bankruptcy procedure for these entities. There is an exception though, namely non-banking financial institutions. The exception is related to the fact that these institutions do not collect and hold any deposits, and as such the legislator has included non-banking financial intuitions in the list of entities obliged to abide by the Bankruptcy Law.
The Bankruptcy Law will apply to all other entities even the ones exercising their activity in strategic sectors, as long a specific law does not provide otherwise.
1.4. Were any changes to restructuring or insolvency laws adopted in response to the COVID-19 pandemic? If so, what were they?
In response to COVID-19, the Council of Ministers approved the Normative Act No. 13, dated February 2, 2020, On specific measures to be taken for the enforcement, mediation, and bankruptcy activities during the epidemic state caused by COVID-19. Based on this act, the bailiff, mediator, and bankruptcy administrator services as well as all the deadlines for performing related procedural actions were suspended until the termination of the epidemic state. The courts’ activity and bailiff, mediators, or bankruptcy administrators’ services restarted on May 27, 2020.
1.5. Are there any proposed or upcoming changes to the restructuring insolvency regime in your country?
To the best of our knowledge, there are no discussions for changes in bankruptcy legislation. However, considering the opening of the negotiations between Albania and the EU, it is logical to expect significant changes in Albanian legislation, including bankruptcy legislation.
1.6. Has your country adopted or is your country considering the adoption of the UNCITRAL Model Law on Enterprise Group Insolvency?
The UNCITRAL Model Law on Enterprise Group Insolvency is not adopted in Albania and, for the time being, there has not been any announcement on any consideration for this adoption yet.
2.1. Is there an insolvency test that triggers certain obligations for directors or officers of the debtor company? If so, what is the test and what are the consequences for failure to meet these obligations?
In the case of legal entities, any member of the decision-making body/ies is obliged to file for bankruptcy within 60 days from the day of becoming aware, or should have become aware, of the state of insolvency.
As defined in the Bankruptcy Law, the state of insolvency will be considered the state where the debtor is unable to pay its obligations in time and/or the financial situation when the total value of the obligations of the debtor exceeds the total value of its assets.
Failure to file the request for bankruptcy in due time results in personal liability for the compensation of damages caused to creditors, and sanctions that may be imposed by the bankruptcy court for the prohibition of the directors/managers or the debtor to exercise any management duty for a period of one to five years, depending on the scale of the breach.
2.2. What types of insolvency procedures are established by law in your jurisdiction?
The Bankruptcy Law provides for two main procedures:
(i) a reorganization of the activity of the debtor’s business concluded between the debtor and its majority creditors, voting in groups according to their rights and financial interests.
(ii) settling the debtor’s obligations through the liquidation of the debtor’s business and assets.
2.3. Who has the right to initiate insolvency proceedings?
The bankruptcy proceeding is initiated with the written request of the debtor or the creditor/s and is afterward approved by a decision of the bankruptcy court.
2.4. What are the consequences of commencing insolvency proceedings, in particular?
2.4.1. Does management continue to operate the business and/or is the debtor subject to supervision?
The bankruptcy procedures initiate upon the acceptance from the court of the request of the debtor or the creditors.
In the preliminary bankruptcy procedures, the period between the acceptance of the bankruptcy filing by the bankruptcy court and the opening of the bankruptcy proceedings, the bankruptcy court may appoint either a temporary bankruptcy administrator or a temporary supervisory administrator.
The temporary bankruptcy administrator assumes the role of the managing body/ies of the debtor and manages the daily activity of the debtor, guaranteeing the safety of the debtor’s assets, etc.
If a supervisory administrator is appointed, they will function as the supervisor of the actions performed by the managing body/ies of the debtor, that remain in active duty but under supervision.
When the bankruptcy initiation is accepted, and the court appoints the bankruptcy administrator the management rights and duties will be entirely vested to the bankruptcy administrator. The debtor’s management bodies shall have no say in the management of the estate or of the activity.
2.4.2. Does a moratorium or stay apply and if so, can it have an extraterritorial effect?
The Bankruptcy Law provides that, once the bankruptcy procedure has started, no further claims may be filed against the debtor and all such claims should be raised in accordance with the rights of the creditors as per the provisions of the Bankruptcy Law.
In addition, following the commencement of the bankruptcy proceeding, no new obligatory enforcement procedures may be imposed on the debtor, while the already initiated enforcement procedures should be suspended.
Regarding extraterritoriality, the bankruptcy administrator is authorized to act outside the state of Albania, on behalf of a procedure, according to the Albanian bankruptcy law, only as permitted by the applicable foreign law
The decisions of Albanian courts extend their effects within the territory of the country unless duly recognized by the courts of the country of interest.
2.4.3. How does it impact the existing contracts (e.g., is the counter-party free to terminate them, can the debtor’s pre-insolvency transactions be challenged)?
In principle, the opening of bankruptcy proceedings does not affect contracts already in force that will continue to be valid and effective. The bankruptcy administrator or the debtor, under the supervision of the supervisory administrator, may terminate the contracts if this termination benefits the bankruptcy proceeding. The counterparty may not terminate the contracts but is entitled to a claim as a creditor in the bankruptcy procedure.
In addition, the Bankruptcy Law provides special provisions for the following contracts:
a) Lease agreements cannot be terminated upon the opening of bankruptcy proceedings, neither for failure to pay the lease price prior to the opening of the bankruptcy proceeding nor for the deterioration of the financial situation of the debtor.
b) Order contracts affecting the bankruptcy estate shall be terminated upon the opening of the bankruptcy proceeding unless the termination will cause damages to the bankruptcy estate. In these cases, the bankruptcy administrator will instruct the contracting party accordingly and such party will be included as a creditor in the procedure.
c) Public contracts, as a rule, are not terminated due to the initiation of bankruptcy proceedings; however, the public administration may terminate the contract when there exists an objective reason to believe that the fulfillment of the contract will be at risk.
d) Employment contracts are not immediately terminated upon the initiation of the procedure. The bankruptcy administrator may decide to terminate these contracts following strictly the procedure defined in the Labour Law.
Article 79 of the Bankruptcy Law provides for the right of the bankruptcy administrator/supervisory administrator/creditor to oppose any transaction performed by the debtor within a period of two years, prior to the opening of the bankruptcy proceeding, if such transactions have damaged the debtor’s estate or have provided an unjustified preference to certain creditors.
2.5. Which steps do insolvency proceedings normally include and what are the roles of the courts and other key stakeholders (such as debtor, directors of the debtor, shareholders of the debtor, secured creditors, unsecured creditors, etc.)?
The first step is the filing of the bankruptcy request with the court either by the debtor or the creditor. When filed by the debtor the request is accompanied by an extensive list of documents reflecting all the bankruptcy estate and obligations, including the list of creditors. On the other hand, the creditor should only file the request and the proof of outstanding debt.
Before starting the procedure, the bankruptcy court can order as a temporary measure a temporary bankruptcy administrator or a supervisory administrator.
In cases where the bankruptcy estate is not enough to cover the costs of the bankruptcy procedure, the bankruptcy court decides on the termination of the procedure due to lack of assets, thus this is an important milestone for the entire process.
After examination of the request in case of approval the bankruptcy court on the decision for the initiation of the Bankruptcy procedures, among others, provides for:
- the appointment of the bankruptcy administrator or supervisory administrator,
- the publication of the decision for the initiation of the bankruptcy procedures in the Commercial Register and the Official Gazette,
- the request for each person/entity that has claims against the debtor to submit the claims within 45 days from the publication of the decision with the Commercial Register, and
- appointment of the creditors’ committee from the known creditors of the debtor.
Upon the initiation of the bankruptcy procedures the bankruptcy/supervisory administrator prepares a detailed inventory of the bankruptcy estate and an accurate list of creditors showing the amounts due and the classification of the creditors. Such an inventory is submitted to the court, creditors, committee of creditors, debtor, and the representative of the employees. All parties are entitled to make comments on the report. Based on the evaluation of the financial situation of the debtor, the court decides between the reorganization or liquidation of the assets of the debtor.
The creditors’ committee has an important role as it is responsible for the supervision of the activity of the bankruptcy administrator and, in cases of reorganization, approves the reorganization plan.
Once bankruptcy proceedings are opened, the debtor loses entirely the right to manage the bankruptcy estate or may manage only under supervision and the administrators take respective control over the bankruptcy estate. The debtor is obliged to cooperate with the administrator and the court, specifically in terms of duties of disclosure and cooperation in order to assist the administrator with the fulfillment of its duties.
The creditors’ claims are submitted to the administrator that is in charge of preparing an accurate inventory of claims. The list is submitted to the court within the time limits set by law.
As intermediary steps, there may be contestations, refusals, and delayed claims that are subject to the court’s decision. Discharge of the obligation is made in the ranking mentioned in Section 2.6.
The next step is the finalization of the bankruptcy procedures as explained in Section 2.7.
2.6. In insolvency proceedings, do specific stakeholders’ claims enjoy priority (e.g., employees, pension liabilities)? Can the claims of any class of creditor be subordinated (e.g., equitable subordination)?
Bankruptcy Law expressly provides the ranking of claims as below:
- Secured claims up to the value of the property serving as collateral.
- Claims from preferred creditors (i.e., employee claims for dismissal, work and health matters, alimony, tax obligations, etc.).
- Unsecured creditors’ claims.
- Final creditors (i.e., interest on late payments, fines and administrative sanctions, payment to related parties with the debtor, etc.).
- Shareholders’ claims.
The Bankruptcy Law dictates that the above priority must be respected. Prior the liquidating the claims in the above ranking, the expenses of the bankruptcy procedure or the so-called creditors of the bankruptcy procedures have priority and must be paid. Here are included court fees and remuneration of the administrator, experts, or similar costs.
2.7. What is a timeline for insolvency proceedings and how are they finalized?
After the final distribution has been completed, the bankruptcy court orders the finalization of the bankruptcy procedure. The full payment to all bankruptcy creditors at any stage of the procedure is a cause for the finalization of the procedure. The decision of the court and the reasons for the finalization are officially announced.
From court practice in Albania, at least a period of two years should be expected for the finalization of bankruptcy procedures. In the last few years, the Albanian judicial system is undergoing reform in terms of the evaluation of judges and reorganization of courts. This reform has contributed to the further extension of court procedures overall, including bankruptcy procedures.
In the case of legal entities, when all creditors are fully settled, the distribution of full of assets after the liquidation leads to the dissolution of the legal entity. In this case, the administrator of the bankruptcy sends the decision of the bankruptcy court to the relevant registers, in order to erase the debtor from these registers.
2.8. Are there any liabilities that survive the insolvency proceedings?
When the debtor is an entity, any creditor may file a request to reopen the bankruptcy procedures if at any time from the termination of the bankruptcy procedures (i) are discovered new assets of the debtor (ii) new claims arise in relation to avoidance actions (iii) are identified responsibilities of the governing bodies.
This process may start regardless of the erasure and removal of the debtor from the registers of commercial companies. The company will have to be reactivated with the sole purpose of restarting the proceedings.
If the debtor is a natural person, they can request to be discharged from the remaining obligations to bankruptcy creditors. Discharge from remaining obligations is initiated through a written request of the debtor, to the bankruptcy court at any time during the liquidation proceedings. This request can be submitted together with the request for the initiation of the bankruptcy procedure and implies at the same time the request for the liquidation of the debtor’s assets.
The Bankruptcy Law provides for a few cases when such discharge is not granted. However, even if granted, it does not apply to:
- loans granted to the debtor to pay the expenses of the bankruptcy procedure,
- obligations that arose as a result of fraud, false testimony, or other actions in bad faith or incorrect actions, committed intentionally by the debtor,
- obligations related to the financial support of children,
- fines and administrative sanctions,
- student loans,
- obligations arising from actions that have caused injury or death of a person,
- obligations that remain non-dischargeable from the previous bankruptcy procedure,
- obligations related to properties transferred to persons related to the debtor.
Thus, the above obligations shall survive the proceedings.
3.1. What formal and informal restructuring proceedings are available in your country?
In cases when a reorganization is possible, the Bankruptcy Law provides for two options of reorganization: (i) a reorganization proceeding; and (ii) a fast-track reorganization proceeding.
The fast-track reorganization is less formal and is based on an agreement reached among the debtor and creditors outside of the court and approved by the bankruptcy court.
3.2. What are the entry requirements to restructuring and how are restructuring plans approved and implemented?
The basic requirement for deciding on the reorganization or the liquidation of the debtor is the financial situation during the initiation of the bankruptcy proceeding. In relation to the approval of the restructuring plans, see Section 3.6.
3.3. Who has the right to initiate formal restructuring proceedings?
Reorganization may be initiated after the initiation of bankruptcy procedures. The Bankruptcy Law provides that the bankruptcy court and the creditors may decide on the reorganization of the debtor if the financial situation shows potential for the sustainability of the activity as a result of the implementation of the plan, as well as the possibility of its effective implementation.
3.4. What are the consequences of commencing restructuring proceedings, in particular?
3.4.1. Does management continue to operate the business and/or whether the debtor is subject to supervision?
See Section 2.4.1.
3.4.2. Does a moratorium or stay apply, and, if so, what is its scope?
See Section 2.4.2.
3.4.3. How do restructuring proceedings affect existing contracts?
See Section 2.4.3. In addition, the reorganization plan also addresses the modalities the activity of the entity will continue and how contracts will be managed.
3.4.4. How are existing contracts treated in restructuring and insolvency processes?
In principle, the opening of bankruptcy proceedings does not affect contracts already in force, which shall continue to be valid and effective. The bankruptcy administrator or the debtor, under the supervision of the supervisory administrator, may terminate the contracts if this decision benefits the bankruptcy proceeding.
3.5. Can third-party liabilities be released through restructuring proceedings?
Only the participants in the restructuring proceeding may be released from liabilities.
3.6. Which steps do restructuring proceedings normally include and what are the roles of the courts and other key stakeholders (such as debtor, directors of the debtor, shareholders of the debtor, secured creditors, unsecured creditors, etc.)?
(i) Reorganization procedure
In case reorganization is decided, a plan for reorganization must be filed with the bankruptcy court by:
- the bankruptcy or supervisory administrator,
- creditors with claims representing 20% or more of the total amount of claims, or
- the debtor together with the request for opening the bankruptcy proceeding or at a later stage.
The plan should contain actions to restructure the business, a general overview of the activity of the debtor and the circumstances causing difficulties, a list of applicable measures for the implementation of the plan, data on the financial means and assets to be used, a description of the proceedings of selling assets and debt-for-equity swaps, etc.
The reorganization plan is approved with the vote in favor of the creditors (present or represented) holding the majority of claims. The law provides also certain specific voting thresholds for approvals when different treatment of creditors within the same class is foreseen or when measures extend beyond five years.
Upon approval, the reorganization plan is binding to all creditors, even those who have dissented or were absent from the meeting.
(ii) Fast-track reorganization
The Bankruptcy Law provides that the debtor and the creditor/s may enter into an agreement drafted out of court that must be approved by the bankruptcy court.
This simplified option aims to provide the debtor with the possibility to overcome an inevitable situation of insolvency through an agreement with the creditors. The agreement may be executed when the parties can objectively foresee that the debtor will not be able to discharge its obligations in time for a period of six months.
Upon execution of the agreement, the debtor is eligible to file a request with the bankruptcy court for the approval of a fast-track reorganization proceeding.
The request for a fast-track reorganization proceeding should include:
a) a report of the debtor containing the causes of insolvency, financial statements for the last three years, a list of movable and immovable properties, cash flow and sources of income, a list of debtors and creditors, and a list of all legal proceedings in which the debtor is a party,
b) the proposal for reorganization plan, and
c) a notarial declaration evidencing the support of the creditor/creditors, representing 30% or more of the total amount of the claims registered in the debtor’s account.
The request is examined by the bankruptcy court, in order to decide whether to open or refuse the fast-track reorganization proceeding and the appointment of a supervisory administrator.
The opening of the fast-track reorganization proceeding does not affect the right of the debtor to manage/dispose of the bankruptcy estate unless such actions are considered extraordinary, and as such, are subject to the approval of the supervisory administrator.
The difference between the two reorganization proceedings is that fast-track reorganization proceedings are initiated by the debtor who has obtained the approval of the creditors on the matter.
3.7. How are restructuring proceedings normally finalized?
Notwithstanding the law has been in force for several years, there is no consolidated practice as regards reorganizations and liquidation procedures. There are only a few court decisions and they mostly regulate liquidation procedures. It appears that the consolidation of the procedures and truthful estimation of timelines for the completion of these procedures will take a few more years.
4. Cross-border restructuring and insolvency
4.1. Do domestic courts in your country recognize foreign insolvency or restructuring proceedings over a local debtor?
Based on the Bankruptcy Law’s provisions, Albanian courts will have exclusive jurisdiction toward local debtors as long as Albania is considered their main interest center, meaning the main place where they conduct and manage their business activities and such place is known to third parties.
Foreign proceedings are taken into consideration through the recognition of a foreign decision affecting the bankruptcy estate of a debtor in Albania.
4.2. What are the preconditions for recognizing foreign decisions?
The recognition of foreign procedures and cooperation with foreign courts and other competent authorities is the competence of the Albanian bankruptcy courts. The foreign decision may be recognized by the bankruptcy court in Albania as long as it does not contradict the jurisdiction of the Albanian courts.
4.3. Do domestic courts cooperate with their counterparts in other jurisdictions and if so, what does such recognition depend on (such as the COMI of the debtor, the governing law of the debt to be compromised, etc.)?
The Bankruptcy Law provides for the duty of cooperation and support from Albanian courts with foreign courts and representatives during the application for recognition and after the recognition of a foreign court decision and/or during parallel procedures of bankruptcy.
Forms of cooperation may consist of (i) exchanges of information, (ii) the coordination for the supervision or administration of the assets of the debtor, (iii) the coordination of parallel procedures over the same debtor, etc.
Support during the application for recognition may consist of interim measures such as the suspension of execution procedures over the assets of the debtor or placing under administration the estate of the debtor.
Cooperation and support after the recognition of the foreign decision procedures may involve (i) the extension in time of the measures taken during the application for recognition of the foreign decision, (ii) the suspension of disposal rights over all or part of the assets of the debtor, (iii) the interruption of execution procedures over the assets of the debtor and any other measure which is deemed necessary case by case.
4.4. How are foreign creditors treated in restructuring and insolvency proceedings in your jurisdiction?
The Bankruptcy Law defines equal rights for the local and foreign creditors in a bankruptcy proceeding in Albania.
5.1. Overall, do you have a more creditor-friendly or debtor-friendly restructuring and insolvency regime in your jurisdiction?
The Bankruptcy Law contains creditor-friendly tools, such as a debtors’ civil liability for a late bankruptcy filing, initiation of bankruptcy proceedings upon request of the creditor, the right of creditors to vote on a material decision during bankruptcy proceedings, etc.
The frequent changes in bankruptcy legislation have negatively impacted the consolidation of court practices and the experience of courts so far is not substantial to really assess the regime positioning in practice.