The Assembly of the Republic of Kosovo approved the new Bankruptcy Law no. 08/L-256 on July 11, 2024, which was published in the Official Gazette on August 6, 2024, and will enter into force 15 days from the date of publication.
The new bankruptcy law represents a significant shift in the legal landscape, addressing longstanding challenges and enhancing the effectiveness of bankruptcy procedures. Below is an expert review highlighting the key updates and their implications, compared to the previous legal framework:
Expansion of Creditor Initiation Rights
One of the most notable changes is the revised requirement for creditors to initiate bankruptcy proceedings. Previously, at least two creditors were needed to file for bankruptcy, which often posed challenges in coordinating multiple parties, resulting in fewer initiated cases. The updated provisions simplify this process by allowing a single creditor to initiate proceedings if the debt exceeds €30,000. This change is expected to significantly increase the number of bankruptcy cases, making it easier for creditors to seek redress and for courts to manage insolvency cases more effectively.
Establishment of the Chamber of Insolvent Administrators
The recent legislation introduces provisions for the establishment of a Chamber of Bankruptcy Administrators, formalizing its status and defining its organizational structure, including reporting procedures and disciplinary measures. This addresses gaps in the previous legal framework, where the absence of a structured body led to inconsistencies and inefficiencies in bankruptcy administration. By implementing this framework, the law aims to enhance clarity, accountability, and efficiency in the handling of bankruptcy cases.
Continuation of Bankruptcy Procedures After Debtor’s Death
A critical update ensures the continuation of bankruptcy procedures in the event of an individual debtor's death. Previously, the law lacked clarity on this matter, leading to uncertainties in the courts. The revised legislation presumes that the rights and obligations of a deceased debtor are inherited by their heirs in accordance with inheritance laws, ensuring the smooth continuation of bankruptcy procedures despite the debtor's death.
Asset Sale Procedures and Maximization of Value
The updated law specifies the rules for asset sales during liquidation, with a strong emphasis on maximizing value. Public auctions, conducted in line with enforcement procedure provisions, are now mandated to ensure transparency and accountability in asset sales. This update is a significant improvement over previous guidelines, which often resulted in lower returns for creditors. The new provisions are designed to enhance the efforts of administrators to achieve higher sale values for assets, providing better returns for creditors.
Harmonization with the Commercial Court Law
The jurisdiction of courts has been aligned with the Law on the Commercial Court, ensuring consistency and coherence in handling bankruptcy cases. In the past, inconsistencies between different legal frameworks often led to confusion and delays. The revised law addresses this by detailing payment procedures for secured creditors and incorporating feedback from World Bank/IFC experts. New rules now allow secured creditors to sell collateral themselves and include compensation mechanisms for delays in asset sales by administrators.
Clarification of Documentation and Administrative Expenses
The updated legal framework clarifies the documentation required to initiate bankruptcy cases, aligning with the Law on Business Organizations. Previously, incomplete documentation often caused delays. Moreover, the new provisions allow debtors to deposit funds into a trust account to cover administrative expenses if the bankruptcy estate is insufficient, addressing issues related to delayed payments to bankruptcy administrators—a common problem under the old system.
Final Report and Fees Regulation
The revised law introduces a requirement for administrators to submit final reports, a provision that was previously absent. This change addresses issues of ambiguity and procedural delays. Additionally, the regulation of administrator fees has been revised, removing specifics from the law itself and enabling regulation through by-laws, aligning with practices in other professions. This allows for greater flexibility and responsiveness to changing circumstances.
Supervision and Disciplinary Measures
The Chamber of Bankruptcy Administrators will be officially established with a mandate derived from the updated legislation, under the supervision of the Ministry of Justice. This move introduces supervision and control mechanisms for bankruptcy practitioners, comparable to those applied to other legal professionals, ensuring uniform standards of accountability and competence. The previous framework lacked such structured oversight, leading to varying standards in the practice of bankruptcy administration.
Conclusion
The recent updates to bankruptcy law represent a comprehensive overhaul aimed at improving the efficiency, transparency, and fairness of bankruptcy proceedings. By addressing previous challenges and incorporating international best practices, these changes are poised to significantly impact the legal landscape, benefiting creditors, debtors, and the judicial system as a whole.
By Vjosa Shkodra and Njomeza Zejnullahu, Managing Partners, Lex Business
