In Kosovo, there has been a diverse blooming of local and international companies. In the daily transactions of these companies, financial institutions continue to act as a catalyst that affects industries’ development. However, as opposed to these companies, financial institutions in Kosovo are regulated exclusively by the Law on Banks and the Law on Insurances. One important aspect of these laws is the procedures for the establishment, recovery, and liquidation of financial institutions in Kosovo, where an active role is foreseen for the Central Bank of the Republic of Kosovo (CBK) as a regulatory body in issuing guidelines and also approvals in cases of restructuring and voluntary dissolution of the financial institutions.
Leaving the establishment of financial institutions aside, in this article, we will focus solely on insolvencies and restructurings in the financial sector in Kosovo, including banks and other financial institutions, and the role of the CBK as a regulatory institution in supervising and, on some occasions, even taking charge of these procedures. One of the reasons for honing in on this matter relies on the specific steps that the Law on Banks and the Law on Insurances require to be taken on a case-by-case basis. Another relies on the authority and powers of the CBK to have full control in leading these procedures.
Any unregulated company in Kosovo that enters the procedure for voluntary dissolution does so upon passing a resolution for winding up and submitting a request to the Commercial Court of Kosovo, which then will appoint an official receiver. Moreover, other companies in Kosovo go through non-voluntary (forced) liquidation only when they’re found to be insolvent by this court. Financial institutions in Kosovo, on the other hand, as regulated companies, go through restructuring and voluntary liquidation only upon approval from the CBK. The law requires that financial institutions in Kosovo should first submit the plan for recovery or voluntary liquidation to the CBK, which then grants approval along with all the guidelines that must be followed during those procedures.
In the applicable laws on financial institutions, three types of procedures are recognized for these institutions to undergo. In two of them, financial institutions are taken under the control of the CBK through an appointed administrator or official receiver. In the third one, financial institutions have to strictly follow the guidelines provided by the CBK and its regulations.
The two occasions where the CBK takes direct charge of the financial institution are when the license for such an institution is withdrawn and the institution is sent into forced liquidation, and also when the CBK considers the necessity of rehabilitation or recovery of the financial institution, so it appoints a temporary administrator to take such measures. During rehabilitation or recovery procedures of the financial institution, the temporary administrator can also propose restructuring plans in order to achieve the rehabilitation or recovery of such institution. The difference between the first two occasions and the third one is that, on the third occasion, the financial institution chooses to declare voluntary liquidation and, throughout that process, it is not taken under the full control of the CBK but just has to follow the CBK guidelines and regulations.
However, insolvency is not the sole criterion for the financial institution to go under these procedures. Even if a financial institution is solvent, the CBK can still withdraw the license of such an institution or send it to a temporary administrator for the mere reason of not being in compliance with the law and CBK regulations. This can also occur in cases when the financial institution is not complying with the CBK guidelines and regulations while going through approved voluntary liquidation.
That said, in the daily practice of our law firm, we recognize the need for the Law on Banks and the Law on Insurances to be amended by providing a certain degree of involvement of the shareholders of the financial institutions in the procedures of forced liquidation. Such amendments might include the rights of the shareholders to access the relevant information from the appointed receiver in the forced liquidation and eventually to oppose the requests of creditors throughout the liquidation procedure that the Law on Bankruptcy gives to the shareholders of a company.
By Mentor Hajdaraj, Partner, and Art Sylaj, Legal Associate, RPHS Law
This article was originally published in Issue 10.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.