Insolvency Law at Albania
Insolvency Law in Albania is primarily governed by the Law on Insolvency No. 85/2015 (commonly referred to as the Insolvency Law), which aims to regulate the procedures for dealing with insolvency in both corporate and individual cases. The law is designed to ensure the fair treatment of creditors and the rehabilitation of debtors, when possible, by offering a structured legal framework for liquidation or reorganization.
1. Key Legal Framework
Insolvency Law (Law No. 85/2015): This is the primary piece of legislation governing the insolvency process for both natural persons and legal entities in Albania.
Civil Code of Albania: Provides supplementary provisions on contracts, obligations, and property that may be relevant during insolvency.
Criminal Code of Albania: Some provisions of the criminal code may apply to fraudulent bankruptcy or other related offenses.
2. Objectives of Insolvency Law in Albania
Protection of Creditors: Ensures that creditors have an equitable chance of recovering debts while preventing the debtor from engaging in fraudulent actions.
Debtor Rehabilitation: Where possible, the law aims to allow the debtor to reorganize and continue business operations, benefiting both the debtor and creditors.
Asset Distribution: The law provides a clear structure for the distribution of the debtor’s assets to creditors in accordance with the priority of claims.
3. Types of Insolvency Procedures in Albania
There are two main procedures under Albanian insolvency law:
✅ Reorganization (Restructuring)
Objective: This procedure allows an insolvent company or individual to continue their operations by restructuring their debt and operations, usually under the supervision of a court-appointed administrator.
Initiation: It can be initiated by the debtor (if financially distressed but not fully insolvent), creditors, or by the court.
Procedure:
A reorganization plan is prepared, which outlines how the debtor plans to restructure its debts and operations to recover from insolvency.
The plan must be approved by the majority of creditors and the court.
This option is available primarily for businesses that have a reasonable chance of recovery.
✅ Liquidation (Winding Up)
Objective: If reorganization is not feasible, the debtor may undergo liquidation. This process involves selling off the debtor’s assets to pay creditors in a prescribed order.
Initiation: This can be initiated by the debtor or creditors when the debtor is unable to meet its obligations.
Procedure:
A liquidator is appointed to sell the assets and distribute the proceeds.
The distribution follows a hierarchy where secured creditors are paid first, followed by unsecured creditors, and any remaining funds go to the debtor’s shareholders, if applicable.
The court oversees the liquidation process to ensure it follows legal procedures.
4. Key Principles of Insolvency Law in Albania
✅ Insolvency Test
The law applies when a debtor is unable to pay their debts as they fall due, which is referred to as "insolvency."
✅ Priority of Claims
Claims are generally prioritized as follows:
Secured creditors (those with collateral).
Unsecured creditors, including employees' unpaid wages, social contributions, and taxes.
Shareholders or owners (if any funds remain after the creditors have been paid).
✅ Asset-Freezing and Protection Measures
Once insolvency proceedings begin, asset freezing may occur to prevent the debtor from dissipating assets.
✅ Role of the Court
Insolvency proceedings in Albania are generally supervised by the court, which ensures that both the debtor’s and creditors’ rights are respected throughout the process.
5. Insolvency Procedures and Participants
Insolvency Administrator: A court-appointed administrator manages the insolvency procedure. The administrator has broad powers to manage the debtor's affairs, either during reorganization or liquidation.
Creditors: Creditors play an essential role in approving or rejecting plans of reorganization and can vote on the repayment terms. Unsecured creditors may face challenges in recovering their claims if assets are insufficient.
Debtor: The debtor (whether an individual or a company) is required to disclose all assets and liabilities and cooperate with the insolvency administrator.
6. Debtor’s Rights and Obligations
Stay of Proceedings: Once insolvency proceedings are initiated, a stay of execution can be imposed, meaning that creditors are prohibited from taking individual legal actions against the debtor. This gives the debtor some breathing space to reorganize.
Disclosure Obligations: The debtor must provide full disclosure of all assets, liabilities, and ongoing financial transactions.
7. Fraudulent Bankruptcy and Legal Consequences
Fraudulent Actions: If the debtor engages in fraudulent actions, such as concealing assets or preferentially paying certain creditors over others, the court may annul those actions and impose penalties.
Penalties: Individuals who commit bankruptcy fraud or hinder the process can face criminal charges, including imprisonment.
8. Special Provisions for Natural Persons (Individual Insolvency)
Under Law No. 85/2015, natural persons (individuals) who are unable to pay their debts may also be subject to insolvency procedures. The process is similar to corporate insolvency but may involve different timelines and procedures.
Personal Rehabilitation: Individuals may be allowed to continue business operations and pay off their debts over time under a personal rehabilitation plan, subject to court approval.
9. Reforms and Developments
Modernization: The Albanian insolvency law was reformed in 2015 to align with international standards and EU directives, especially concerning debtor rehabilitation and transparency in asset distribution.
EU Alignment: The law continues to evolve in order to align with the European Union’s standards on bankruptcy and insolvency procedures, particularly concerning cross-border insolvencies.
10. Challenges and Considerations
Effectiveness of Creditors’ Rights: Creditors in Albania may face challenges in recovering debts due to the complexities of the insolvency process and the availability of assets.
Judicial Efficiency: While Albania’s insolvency framework is robust, the efficiency of court processes can be a concern, leading to delays and increased costs.
Awareness: Companies and individuals may not always be fully aware of their rights and obligations under the law, leading to potential misuse of insolvency procedures.
Conclusion
The Insolvency Law of Albania provides a comprehensive framework for dealing with insolvency, with the goal of offering debtors an opportunity to reorganize while ensuring fair treatment of creditors. The law allows for both reorganization and liquidation and aims to balance the interests of creditors and the broader economy. However, challenges such as judicial efficiency, awareness of rights, and enforcement of creditor claims remain key issues.
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