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Insolvency proceedings explained

Insolvency proceedings in Albania are regulated by Law 8901 On Insolvency dated May 23 2002, which entered into force on October 1 2002. The Insolvency Law applies to all forms of companies organized under Albanian law. Special regimes apply to insurance companies and financial institutions.

The new Insolvency Law was inspired by Germany's legal provisions on insolvency and deals with a series of issues faced in the earlier legislation. The new concepts it introduces have given it an overall pro-creditor character.

The quality of the new Insolvency Law is high according to standards set by an EBRD Report. However, insolvency proceedings have found little application in Albania so it is difficult to assess the implementation of these provisions in court.

Commencing insolvency proceedings/stays of other actions

The commercial section of the First Grade Court where the debtor has its legal seat or, if the debtor has neither a legal seat nor residence in Albania, where the debtor maintains a branch or has property, has jurisdiction over insolvency proceedings.

An insolvency proceeding can be opened with respect to the assets of any legal or natural person or simple partnership, provided there are grounds to do so. The grounds for opening an insolvency proceeding include the debtor's illiquidity (that is, the debtor is unable to pay debts at maturity), the debtor's over-indebtedness (that is, the value of the debtor's assets does not cover its obligations) and, if the debtor makes the request to open the proceedings, imminent illiquidity (that is, it will probably be unable to make payments on the maturity date).

After the petition is filed and until a decision has been issued regarding opening insolvency proceedings, the court can appoint a temporary insolvency administrator to supervise the assets. In this case, the debtor loses its rights to administer or dispose of the assets. In some circumstances, the court may order self-administration of the estate by the debtor (see below).

If the reason for opening the insolvency proceeding is sustained and the debtor's assets are estimated to be enough to pay the costs of the insolvency proceedings, the court will issue a decision initiating insolvency proceedings and will appoint a permanent insolvency administrator.

The decision to open the insolvency proceedings will suspend any pending legal proceedings against the debtor's assets and stay any executions. All claims in favour of the debtor and the insolvent estate will be continued and represented by the insolvency administrator.

Assets and the insolvent estate

The insolvency estate includes all the debtor's present and future property, with the exception of the portion of the debtor's property and income that the debtor and its dependents need to cover living expenses. Any person with property rights over assets included in the insolvency estate may ask for a separation of that property from the estate.

The insolvency administrator may challenge any actions or omissions that affect the right to distributions from the insolvency estate. The transactions could be challenged if they grant security or privileged rights to a creditor, are detrimental to the creditors, are intentionally harmful, or represent the debtor's gratuities and cash transactions.

Persons related to the debtor are presumed to be aware of the debtor's inability to pay and of the detrimental effects on insolvency creditors.

Set-offs are primarily governed by the Civil Code and are possible in cases involving mutual claims that are due and payable. Provided that a set-off situation existed based on the law or an agreement that was in place before the insolvency proceedings opened, the respective creditor is entitled to declare its set-off after opening. A set-off is excluded if an insolvency creditor: (i) becomes a debtor of the insolvency estate after the insolvency proceedings open; (ii) acquires the claim from another creditor after the insolvency proceedings open; (iii) acquires the right of set-off pursuant to a voidable transaction; or (iv) holds a claim that must be satisfied from the debtor's unrestricted assets.


After court approval the willing debtor may be assigned to administer and dispose of the insolvency estate. If a creditor requested the insolvency proceedings, their approval is needed.

The debtor's actions and activities will be supervised by, and will require the approval of, an independent expert (the supervisor) appointed by the creditors and approved by the court. Even actions by the debtor that are decided by the creditors' committee require the supervisor's consent. However, the creditors' committee or creditors' meeting must approve certain material actions by the debtor (for example, the sale of its activity or enterprise; the sale of all of its assets, shares or participations; entering into lease agreements that affect the insolvency estate; filing or refusing to file claims; or refusing to negotiate claims outside the judiciary).

Likewise, the creditors' meeting, any secured or insolvency creditor, or the debtor itself, may ask the court to annul the debtor's administration if it finds such a request justified and reasonable.

Reorganization plan

Insolvency proceedings could result in a reorganization plan, which is an agreement intended to fulfil the claims of creditors and/or reorganize, rescue, liquidate, or preserve the activity of the insolvent company, or offer an alternative to liquidation, when possible.

The plan may be proposed by the debtor or by the insolvency administrator, but no later than at the final meeting of creditors. The creditors' meeting may also assign the insolvency administrator with the task of preparing a reorganization plan that reflects the comments of all interested parties.

The plan must set out the measures undertaken after insolvency proceedings begin and the effects they will have. It must also address the satisfaction of claims, without affecting the rights of secured creditors (whose satisfaction would not be part of the insolvency proceedings, unless otherwise provided by the plan). The plan must satisfy creditors' claims as provided by the Insolvency Law (that is, secured creditors, if their rights are affected by the plan, followed by insolvency creditors, and then subordinated creditors).

The plan needs court approval, which will not be granted if it was not initiated by the persons authorized to do so (the debtor and the insolvency administrator), if there is little chance that the creditors will approve it, or if it is opposed by the majority of secured creditors, among other things.

In the meantime, any distribution or disposal of insolvency assets that adversely affects the reorganization plan may be suspended by the court if so requested by the debtor or the insolvency administrator, and in a later stage can be reinitiated at the request of the insolvency administrator with the approval of the creditors' committee or meeting.

The plan and its schedules should be kept with the insolvency court and may be freely reviewed by the interested parties. The creditors meeting should discuss the plan and voting rights of creditors on the date fixed by the court. At the conclusion of the meeting, the court bailiff will list all the creditors with voting rights. This date is also made public and some interested parties are individually notified.

The creditors with voting rights are invited to vote on the plan and each group of creditors votes separately. In each group, the consent of the majority of creditors with voting rights and the creditors representing more than half of the claims' value is needed for the plan to be approved. The Insolvency Law makes it difficult for creditors to block a fair plan. The plan also requires the debtor's consent and must be finally approved in a court decision, which can be appealed. If the plan is subject to conditions, it cannot be approved until those conditions are fulfilled.

The plan's implementation is directly supervised by the insolvency administrator and certain actions by the debtor might require the insolvency administrator's approval, as agreed to in the plan, but the creditors' committee and the court will also continue to have an active role and may ask to be kept informed by the insolvency administrator of the plan's present or future implementation.

During the period of supervision, the debtor can continue to obtain new loans, subject to the approval of the insolvency administrator, up to the value that its assets permit satisfaction of all insolvency and new creditors. The new creditors will rank higher than other creditors of the insolvency estate, if the plan so provides. Creditors' whose rights arise from contracts entered into during the supervisory period will have priority over other creditors, even if new insolvency proceedings are initiated during the supervisory period.

The supervisory period is terminated by a court decision. The decision is made public if the supervision is no longer needed because the claims are satisfied or secured, or if no other insolvency proceedings petition has been filed three years after the insolvency proceeding closed.

Effect of closure

After closure of the insolvency proceedings, the company will no longer exist as a legal entity and will be removed from the commercial registry.

Directors' liability

The obligation to file a petition in insolvency is the responsibility of the board of directors of a legal entity, and every member of the board is obliged to file a petition in insolvency no later than 21 days from the verification of the illiquidity situation. Violation of this obligation will render members of the board liable for indemnifying the creditors against all losses.

A company's officers can also face criminal liability if they have intentionally brought about the insolvency of the company, hidden the insolvency estate and entered into commercial activities, and hidden the company's assets during insolvency proceedings, among other things.

Denis Selimi

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