Legal System, Specialized Courts, Judicial Independence, Judgments of Foreign Courts
The Albania legal system is based on the continental judicial system. The Albanian Constitution provides for the separation of legislative, executive, and judicial branches; thus supporting the independence of the judiciary. The Civil Procedure Code enacted in 1996 governs civil procedure in Albania. The civil court system consists of District Courts, Appellate Courts, and the Supreme Court. The district courts are organized in specialized sections according to the subject of the claim: civil disputes; family disputes; and commercial disputes.
The administrative courts of first instance, the Administrative Court of Appeal, and the Administrative College of the High Court now adjudicate administrative disputes. Administrative courts aim to enable expeditious adjudication of administrative cases. The Constitutional Court reviews whether laws or subsidiary legislation comply with the Constitution and in limited cases protects and enforces the constitutional rights of citizens and legal entities.
Parties may appeal the judgment of the first instance courts within 15 days, while Appellate Court judgments must be appealed to the Supreme Court within 30 days. A lawsuit against an administrative action is submitted to the administrative court within 45 days from notification and the law stipulates short procedural timeframes enabling faster adjudication of administrative disputes.
Albania does not have a specific commercial code, but defines commercial legislation through a series of commercial laws. Relevant laws include: Foreign Investment Law; Commercial Companies Law; Bankruptcy Law; Environmental Law; Corporate and Municipal Bonds; Transport Law; Maritime Code; Secured Transactions Law; Employment Law; Taxation Procedures Law; Banking Law; Insurance and Reinsurance Law; Concessions Law; Mining Law; Energy Law; Water Resources Law; Waste Management Law; Excise Law; Oil and Gas Law; Gambling Law; Telecommunications Law; Value Added Law; Sports Law; etc.
Corruption is rampant in the Albanian judicial system and U.S. investors are advised to include binding international arbitration clauses in any agreements with Albanian counterparts. The government typically respects decisions from international arbitration courts, but, as reported above, recently ignored an injunction from such a court in a high-profile investment dispute. Albania is a signatory of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and normally foreign arbitration awards may be enforced in local courts.
Although Albania maintains adequate bankruptcy legislation, actual bankruptcies are rare in practice. Corrupt and inefficient bankruptcy courts make it difficult for companies to either reorganize or discharge debts through bankruptcy.
The Bankruptcy Law governs the reorganization or liquidation of insolvent businesses. It sets out non-discriminatory and mandatory rules for the repayment of the obligations by a debtor in a bankruptcy procedure. The law establishes statutory time limits for insolvency procedures, professional qualifications for insolvency administrators, and an Agency of Insolvency Supervision to regulate the profession of insolvency administrators.
A bankruptcy procedure can be initiated by debtors, creditors, or, tax authorities. Debtors and creditors can file for either liquidation or reorganization. Tax authorities can request a bankruptcy procedure when the subject reports losses of three years in a row. Bankruptcy proceedings also may be invoked when the debtor is unable to pay the obligations at maturity date or will be unable to pay them in the near future.
According to the provisions of the Bankruptcy Law, the initiation of the bankruptcy proceeding would suspend the enforcement of the claims of all the creditors against the debtor subject to bankruptcy. Creditors of all categories should submit their claims to the bankruptcy administrator in order to be treated under the bankruptcy proceeding. The Bankruptcy Law provides specific treatment for different categories, dividing them into: secured creditors; unsecured creditors; and unsecured creditors of lower ranking (i.e. those whose claims would be paid after all the secured and unsecured creditors are satisfied). The claims of the secured creditors will be satisfied by the assets of the debtor, which secure such claims under security agreements. The claims of the unsecured creditors will be paid out of bankruptcy estate excluding the assets used for payment of the secured creditors, following the priority ranking described under the Albanian Civil Code.
Pursuant to the provisions of the Bankruptcy Law, the creditors have the right to establish a creditors committee and the creditors’ assembly. The creditors’ committee is appointed by the Commercial Section Courts, before the first meeting of the creditors’ assembly. The creditors’ committee represents the secured creditors, the unsecured creditors with the larger claims, and creditors with the small claims. The committee has the right: (a) to support and supervise the activities of the insolvency administrator; (b) to request and receive information about the insolvency proceedings; c) to inspect the books and records; and d) to order an examination of the revenues and cash balances.
In the event that the creditors and administrator agree that reorganizing the company is the best option, the administrator of the bankruptcy prepares a reorganization plan and submits it to the court for authorizing implementation.
According to the insolvency procedures, only creditors whose rights are affected by the proposed reorganization plan enjoy the right of vote and the dissenting creditors in reorganization receive at least as much as what they would obtain in a liquidation. Creditors are divided into classes for the purposes of voting on the reorganization plan and each class votes separately and creditors of the same class are treated equally.
The insolvency framework allows for the continuation of contracts supplying essential goods and services to the debtor; the rejection by the debtor of overly burdensome contracts; the avoidance of preferential or undervalued transactions; and the possibility of the debtor obtaining credit after commencement of insolvency proceedings. No priority is assigned to post-commencement creditors.
The creditor has the right to object to decisions accepting or rejecting creditors' claims, and they should approve the sale of substantial assets of the debtor. The creditor does not have the right to request information from the insolvency representative and the law does not require approval by the creditor for the selection of appointment of the insolvency representative.
According to the law on bankruptcy, foreign creditors have the same rights as domestic creditors with respect to the commencement of, and participation in, a bankruptcy proceeding. The claim is valued as of the date the insolvency proceeding is opened. Claims expressed in foreign currency are converted into Albanian currency according to the official exchange value applicable to the place of payment at the time of the opening of the proceeding.
The Albanian Criminal Code provides for several criminal offences in bankruptcy such as: (i) the bankruptcy provoked intentionally; (ii) concealment of bankruptcy status; (iii) concealment of assets after bankruptcy; and (iv) failure to comply with the obligations arising under bankruptcy proceeding.
According to the 2015 Doing Business Report of the World Bank, Albania ranks 42 out of 189 countries in the insolvency index. A reference analysis of the ‘resolving insolvency’ can be found at: http://www.doingbusiness.org/data/exploreeconomies/albania/resolving-insolvency/.
The number of bankruptcy requests in Albania is growing with 88 new requests for bankruptcy filed during 2015, with the majority requested by the Taxation Department.
In the past ten years, there have been four major investment disputes between the Albanian government and U.S. companies, three of which led to international arbitration. Despite a stated desire to attract and support foreign investors, U.S. investors in disputes with the Albanian government report a lack of productive dialogue and a reluctance to settle the disputes until they either are escalated to the level of international arbitration or the international community exerts pressure on the government to resolve the issue. U.S. investors in Albania are encouraged to include strong binding arbitration clauses in any agreements with Albanian counterparts.
ICSID Convention and New York Convention
Under the Albanian Constitution, ratified international agreements prevail over domestic legislation. Albania is a member state to the International Centre for the Settlement of Investment Disputes (ICSID Convention). It also is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). Albania has ratified the 1927 Convention and the European Convention on Arbitration (Geneva Convention).
In order for an arbitration award to be locally recognized, the claimant must enforce the award before the Court of Appeals. The procedure for the recognition of a foreign arbitral award typically last around one month and either party may appeal the Court’s decision to the Supreme Court. The appeal must be filed within 30 days from the date of decision or notification of the other party (if absent).
The possibility of bringing an action before the local court in order to avoid arbitration proceedings is remote. According to explicit provisions in the Albanian Code of Civil Procedure, if a party brings actions before local courts despite the parties’ agreement to arbitrate, the court would, upon motion of the other party, dismiss the case without entertaining the merits of the case. The decision of the court to dismiss the case can be appealed to the Supreme Court, which has 30 days to consider the appeal.
An alternative to dispute settlement via the courts is private arbitration or mediation. Parties can engage in arbitration when they have agreed to such a provision in the original agreement, when there is a separate arbitration agreement, or by mutual agreement at any time when the dispute arises. Legislation distinguishes arbitration of international disputes from arbitration of domestic disputes in that the parties involved in an international dispute may agree to settle through either a domestic or foreign arbitration tribunal. Mediation also is applicable in resolving all civil, commercial, and family disputes and is regulated by the law “On Dispute Resolution through Mediation.” Arbitral awards are final and enforceable and can be appealed only in cases foreseen in the Code of Civil Procedure. Mediation is final and enforceable in the same way.
There are no consolidated institutions for dispute resolution through arbitration and arbiters are appointed ad hoc in compliance with the provisions of the Code of Civil Procedure. While for the mediation process, the law provides for the establishment of the National Chamber of Mediators and Chambers of Mediators as institutions to perform mediation. Mediators are licensed and registered at the Mediators Register at the Ministry of Justice, which maintains a list of mediators from which the parties can choose.
The provisions with respect to arbitration procedures and the recognition and enforcement of the foreign awards are stipulated in the Albanian Code of Civil Procedure. Albania does not have a separate law on arbitration. Although the arbitration chapter of the Code of Civil procedure stipulates only the rules for domestic arbitration, the country is signatory of the 1958 New York Convention and as such, is legally obligated to recognize the validity of the written arbitration agreements and arbitral awards in a contracting state.
Duration of Dispute Resolution – Local Courts
The Albanian Code of Civil Procedure requires the courts to reach a judgment within a reasonable amount of time, but it does not provide for a specific deadline when referring to commercial disputes. Reaching a final judgment in a commercial litigation may take several years if all the stages of the process are exhausted.
An appeal against a court decision that recognizes a foreign arbitral award does not automatically suspend the effects of the enforcement.