Guarantees and collateral for acquisition financings in Albania

Guarantees and collateral

Are there restrictions on the provision of related company guarantees? Are there any limitations on the ability of foreign-registered related companies to provide guarantees?

In general, companies may freely provide guarantees for themselves or to third parties as long as the underlying asset is the company’s own property and the guarantee is granted in accordance with any eventual restriction and procedure imposed by the statute of the company. However, subject to the Companies Act (see question 15), a company may not dispose of more than 5 per cent of its assets in any matter whatsoever, unless the decision is endorsed by the general assembly.

Furthermore, should the company request a loan from second tier banks, the decision shall be taken in accordance with the provision of the statute of the company; that is, either by the administrators or by request of the general assembly, depending on the characteristics of such transaction.

Second tier banks in Albania will consider granting a loan to Albanian registered companies that are part of a controlling group. In a controlling group, the parent company, which exercises a controlling influence over its subsidiary, may be held responsible for the subsidiary’s creditors. The parent company must provide guarantees to the subsidiary’s creditors, upon request of the creditor, only if the obligation is due and payable (ie, the creditor incurred damage by the subsidiary). This liability of the parent company is applicable, albeit the parent company and the subsidiary are registered in different countries.

No restrictions apply in granting downstream guarantees, either from foreign registered companies or domestic ones, but it runs counter to the spirit of Albanian company law to grant upstream and cross-stream guarantees, and therefore the respective law provisions must be considered restrictive in this regard.

With respect to applicable taxes and fees, these depend on the procedures provided by law to complete certain types of guarantees. Hence, for mortgages, the mortgage agreement shall be both notarised and registered with the Immovable Property Registry. The notarisation fee varies from 2,000 lekë (€16) to 15,000 lekë (€120), depending on the amount of guaranteed repayment. Securing charges are completed upon registration of the securing charge agreement at the Securing Charge Register, in which case the registration fee depends on the term of the guarantee and may be up to 4,000 lekë (€32).

Are there specific restrictions on the target’s provision of guarantees or collateral or financial assistance in an acquisition of its shares? What steps may be taken to permit such actions?

The Albanian Companies Act merely states that an acquisition of its own shares by a joint stock company is prohibited, but if so made, the company shall annul or resell such shares to third parties within one year. In all cases, however, a controlling company may not buy shares of its parent company. The Companies Act is silent in respect of any kind of financial assistance or support given by a company to a third party for the acquisition of its own shares. Therefore, it could be construed that no restrictions exist in this respect.

What kinds of security are available? Are floating and fixed charges permitted? Can a blanket lien be granted on all assets of a company? What are the typical exceptions to an all-assets grant?

Securities can be taken either over immovable properties (such as land) or over movable property (account receivables, financial instruments, inventories, receivables, machinery and equipment and any other movable items).

The following is a non-exhaustive list of the most common type of security interests that may be granted over assets and their perfection procedure.

Mortgage

The mortgage is used over present or future immovable assets and present or future fixtures related thereto, as well as real rights over immovable property. It is established upon a mortgage agreement made in writing in the form of a notary deed, and is perfected upon registration of the mortgage agreement with the immovable properties registry kept by the local Immovable Property Registry.

Securing charges

Securing charges are non-possessory securities and are used only over movable assets, such as account receivables, financial instruments, inventories, receivables machinery and equipment, and cash collateral over bank deposits, for securing either a present or a future debt. A securing charge agreement is an executive title and in case of default, the asset may be executed under accelerated procedures. If the security is created to guarantee a financial transaction where a financial institution and a legal person are party thereto, or to secure such a third party obligation, the guarantee is treated as a financial collateral and specific rules governing this particular type of guarantee are stipulated under the Law on Payment Systems. The securing charge is created by a written agreement and perfected through registration with the Securing Charges Registry.

Pledges

The pledge is a possessory security and is only used over movable assets or debtor’s rights for securing either a present or a future debt. Classical pledges are not publicly registered.

Financial collateral

Financial collateral agreements may secure all types of obligations, including present or future, actual, contingent or prospective obligations, owed by the borrower to the lender or his or her appointed agent. At least one of the parties in the financial collateral agreement shall be the Republic of Albania, the Bank of Albania, a foreign central bank, a local bank or financial institution, a foreign bank or financial institution or entity similar to a bank or financial institution, a settlement agent, an operator or another local or international public authority.

Additionally, security over shares is permitted under Albanian law and may be acquired by means of a pledge over shares agreement which is perfected upon its registration with the company shares’ ledger, register of securing charges and publication in the Company Share Register.

Security over movable properties is created through securing charges and registration of the same in the Securing Charges Registry. Fixed charges are most common under Albanian law, as the guarantor gives security over specific assets such as land, machineries or shares. As to floating charges, no floating charge can be created over all immovable properties at once because each property shall be identified under strict property identification numbers and mapping, and registered with the public registry, whether a present or future asset. However, floating charges can be created as security over movable assets of a company as long as a generic yet detailed description of the assets intended to fall under the guarantee is given to the Securing Charges Registry. In this case, the security is created over such movable items up to the guaranteed amount of obligation.

Although Albanian law recognises the concept of future collateral, no blanket lien can be given on all assets of a company. Each type of security is subject to different provisions governing the creation and perfection of security over such underlying assets.

Are there specific bodies of law governing the perfection of certain types of collateral? What kinds of notification or other steps must be taken to perfect a security interest against collateral?

The creation of security interest over almost all assets and rights held by project companies is permitted by law. Securities granted over immovable properties and pledges are regulated by the Civil Code.

Securities over movable property are governed by Law No. 8537, dated 18 October 1999, on securing charges. The security agreement must contain a description of the collateral in accordance with the definitions provided by the law, which may not necessarily be an itemised description of the asset.

The cash deposit or the financial instrument may be used as security, subject to a financial collateral agreement. However, the capital market (stock exchange) is not operational in Albania and hence the applicability and implementation of financial collateral agreements is very limited.

With respect to notification procedures, registration with the securing charges registry is completed within 48 hours of the application date. Registration of the share pledge agreement with the Commercial Registry is required within the same period. Registration with the Immovable Property Registry is generally completed within 15 days.

Once a security interest is perfected, are there renewal procedures to keep the lien valid and recorded?

Once the security is created and perfected, there is usually no need to renew the security in the respective registers except for certain situations arising after the perfection of the security and especially the specific expiration of perfection terms set out in the law. For instance, a mortgage can be granted for a period of 20 years starting from the date of its registration. The mortgage ceases if not renewed prior to the expiry of the 20 years term.

A securing charge may be registered up to 25 years or for an undefined period, as indicated in the registration notice. Furthermore, subject to the securing charges law, a chargee who has registered a securing charge and has disposed of a part or the entire ownership of the collateral may amend the part of registration affected by the transferred collateral through registering an amendment notice describing the name of the transferee and transferred collateral.

Are there ‘works council’ or other similar consents required to approve the provision of guarantees or security by a company?

Employees of a company that has more than 50 employees may set up an employee council for a maximum term of five years. The main right of the employee council is to be updated and informed about the activities and performance of the company, and there is no obligation in place for the companies to obtain from or consult with the employee council on issues related to provision of guarantees or security whatsoever.

Can security be granted to an agent for the benefit of all lenders or must collateral be granted to lenders individually and then amendments executed upon any assignment?

As a general rule, security interest is granted to lenders individually, meaning that each creditor must be the beneficiary of the security interest. As an exception to the general rule, the concept of an agent or trustee has been recently introduced through the Law on Payment Systems, which concerns financial collateral only. From a practical point of view, appointment of the agent is performed by including the latter in the financial collateral agreement. The security agent or trustee is appointed to act on behalf of one lender. The law is silent regarding the appointment of the security agent by more than one lender. The agent is vested with the power to act if an enforcement event arises, by immediately proceeding with the enforcement of the financial collateral.

What protection is typically afforded to creditors before collateral can be released? Are there ways to structure around such protection?

In principle, collateral is effective until it is released or extinguished, or upon payment of debt and consequent removal of the pertaining inscription from the respective register or upon a final court decision ordering the removal. The secured collateral is released upon issuance by the creditor of a specific unilateral deed of inscription release to the register or waiver from the security.

Some typical rights of the creditors are:

• effective possession over an asset and other real rights associated with it, with some exceptions, such as assets encumbered with a mortgage;
• granting of consent to the sale of a collateral or substitution of a debtor; and
• obtaining information from the respective collateral registers etc.

Describe the fraudulent transfer laws in your jurisdiction.

From the civil law perspective, transactions made with fraudulent purposes, or any action deliberately taken by the debtor to diminish his or her property to undermine a creditor’s legal interests if a deceptive action of a party has led the other party to faulty action, are declared null and void. If the fraudulent action is committed by a third party, the defrauded party may demand the invalidation of legal transaction only when, at the time of its commission, the other party was aware or should have been aware of the deceptive action. A declaration of nullity of the deceptive action shall be decided by the court.

When the legal transaction is declared null and void on grounds of law violations by means of fraudulent actions, anything that the parties have taken from or given to each other is transferred to the state. When one of the parties acted in good faith, the court may decide to return the given property to the party in good faith. If this is not objectively possible, the party in good faith is entitled to a consideration equal to the value of the given property.

From a criminal law perspective, the fraudulent action that has led to the possession of the property through lies or abuse of trust is punishable by a fine or up to five years of imprisonment. Additionally, fraud on presented documents that led to obtaining loans through fictitious registration in property registration offices of objects which do not exist, or which are overestimated, or which belong to someone else’s property, committed with the intent of not paying back the loan, is punishable by a fine or up to seven years of imprisonment.