Albania: reorganisation in bankruptcy
Ardjana Shehi
Kalo & Associates
Tirana
Ardjana Shehi (Bio)
Albanian Bankruptcy Law (8901-May 23 2002) (the Law), as amended by Law 9919-May 19 2008, which is an evident adaptation of German legislation, 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 reorganisation or liquidation of a company that is facing financial difficulties.
Corporate rescue as an alternative for the debtor
The Law provides that the debtor has some alternatives to bankruptcy that 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, the Law recognises also the principle of corporate rescue. Generally, the legislation 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.
Reorganisation plan
The mechanism for implementing the principle of corporate rescue is the Reorganisation 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 set RP available and the Law merely provides 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.
It is worth noting that this 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 insolvency proceedings, the debtor is not prohibited to try to achieve an out-of-court restructuring. In addition, Albanian legislation does not have specific provisions for an expedited restructuring of the debtor by means of a pre-packaged sale.
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 Law provides that RP must be filed before the final creditors' meeting which approves the final distribution list.
Certainly, the 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 reorganisation 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.
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. It's worth noting 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, the 'new financier' will be ranked in the same ranking with the other bankruptcy secured creditors (in the case that the debtor does not succeed with the RP). In addition, please note that the Albanian legislation acknowledge 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.