The bankruptcy system has never really worked in Albania and it has been practicably impossible for companies to finalize bankruptcy proceedings and be declared officially bankrupt.The main reason of such difficulties was the existence of a bankruptcy law, purely written or translated from the respective German one, the implementation of which turned out to be too complicated in some of the bankruptcy procedures and lacking in provisions in other ones. The current legal framework on bankruptcy mainly focuses on the liquidation procedure without providing the involved parties with a better option, 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 are only a few dozen bankruptcy claims in the last 14 years.

In an attempt to overturn such situation, the Government, with the assistance of IFC, has been struggling for the past three years to come up with a new draft bill which should 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 groups of interest, such as banks, the final wording of the bill is likely to undergo someamendments.

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

The role and position attributed to the National Bankruptcy Agency is treated as a key one, not only as regards the organization and licensing of the bankruptcy administrators and supervisors’activity, but also with respect to the supervision ofparticular cases against abuse and fraud in bankruptcy. In such latter case, the prosecutor shall have an active role during the court procedures. In order to avoid the risk of lack of funds to cover the costs of bankruptcy procedures, a special public fund shall be available to the National Bankruptcy Agency and cover the necessary expenses. At the end of the procedure, a percentage of available assets to be distributed shall be paid to the Agency.It is highly likely that at 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 avoid one of the main issues caused bycourts thathave often misinterpreted law,dragging cases for several years without achieving satisfactory results for either of the involved parties.The new judges to be appointed in such sections shall be trained and shall gain the relevant experience in enforcing the new law provisions. The new court terms are expected to be shorter and explicitly defined leaving little room to procedural delays.

The new bill introduces the “cross border bankruptcy” as an entirely new concept based on the UNCITRAL model sending a strong credibility signal to foreign investors aiming at a more solid and regulated marked in terms of bankruptcy. Such provisions introduce, inter alia,the collaboration between foreign courts on bankruptcy matters, the recognition of foreign court ruling on related companies based in different jurisdictions and the exchange of information and data on 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 the current market reality. However, there is a risk that the discrepancies between the two bodies of law provisions might lead into endless debates and interpretations between the debtor, its creditors, the court and the bankruptcy administrator.

The new bill is a long-awaited instrument that will enable the Albanian market to benefit from it, rendering bankruptcy a positive and sustainable option for enterprises.Thus, it is expected that many small and medium enterprises shall opt for their reorganization supporting national economy, but also that all those old insolvent ghost companies shall be finally liquidated.

Besnik Duraj

Partner Albania