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General structuring of financing
Choice of law
What territory’s law typically governs the transaction agreements? Will courts in your jurisdiction recognise a choice of foreign law or a judgment from a foreign jurisdiction?
In principle, as a matter of law the parties are free to choose the law governing their transactions, unless the choice of foreign law is made for the purpose of evading the law. The foreign law must be compatible with the imperative norms of Albanian law and with public policies. For transactions with foreign elements, the parties may choose to regulate their transaction pursuant to foreign law, and in this case the Albanian courts are obliged to recognise such choices. Albanian courts subject to the Civil Procedure Code shall recognise a final judgment of a foreign jurisdiction and render it enforceable in Albania, provided that it is a result of a due process of law, does not constitute res judicata or is not under court review in Albania, and is compatible with the basic principles of Albanian law.
Restrictions on cross-border acquisitions and lending
Does the legal and regulatory regime in your jurisdiction restrict acquisitions by foreign entities? Are there any restrictions on cross-border lending?
In general, acquisitions by foreign entities are not restricted, except for a prohibition imposed on foreign entities and subjects acquiring agricultural land in Albania. Albanian law does not impose any restriction on cross-border lending, but such transactions may be subject to restrictions imposed by sanctions regimes, if any. It is crucial that no foreign lending institution may solicit the Albanian public to take loans or financing unless registered in Albania as per the strict banking regularity regime overseen by the Bank of Albania. Furthermore, cross-border financial leasing is governed by international law. However, Albanian law does not elaborate on the international act applicable for specific cases and Albania has also not yet signed the UNIDROIT Convention on International Financial Leasing (Ottawa 1988).
Types of debt
What are the typical debt components of acquisition financing in your jurisdiction? Does acquisition financing typically include subordinated debt or just senior debt?
The debt components of acquisitions in Albania vary depending on the size and specifics of the transaction and the parties involved. The most common cases of acquisition financing use bank loans - mostly secured term loans or revolving loans. Loans may be secured or unsecured. Secured loans are categorised as first lien loans and grant a prime security interest on the assets of the borrower. Failure of the borrower to repay the loan in due time entitles the lender to execute the collateral. Less common are unitranche facilities, mezzanine facilities, public securities and bridge facilities.
Are there rules requiring certainty of financing for acquisitions of public companies? Have ‘certain funds’ provisions become market practice in other transactions where not required?
Purchasers are required by law to provide proof of finance capabilities as a condition precedent to become part of the competitive procedures and also to make preliminarily payment or provide bank guarantees usually calculated as a percentage of the value of the bid offer. This is a common requirement in tendering and procurement procedures, but it is also widely used in the private sector, where the acquiring company provides certain evidence, representations or undertakings confirming its ability and possibility to enter into the transaction. One such provision is the obligation of the shareholders to pay at least one fourth of the par value of the subscribed share capital when establishing a new joint stock company, or one fourth of the subscribed capital increase in the case of a share capital increase.
Restrictions on use of proceeds
Are there any restrictions on the borrower’s use of proceeds from loans or debt securities?
Most loan agreements contain a non-default clause whereby the parties restrict or specify the purpose for the use of the proceeds by the borrower. The Bank of Albania has further underpinned this practice by requiring second tier banks to specify the scope of the loan and the use of proceeds in several types of loan agreements, such as mortgage and consumer loans. There are no legal restrictions on the use of proceeds resulting from debt securities unless the debt instrument provides otherwise.
What kind of indemnities would customarily be provided by the borrower to lenders in connection with a financing?
Subject to the specific provisions of the agreement, there are various types of indemnities that borrowers may provide to lenders. In relation to the execution of the agreement, borrowers may undertake to pay in case of non-performance, such as failure to pay the instalment in time or repay the credit. The borrower is obliged to pay the full indemnity to the lender, comprising due amounts, accrued interest, penalties, lost profit and any costs the lender has sustained to enforce its rights provided by the agreement.