Insolvency Law at Andorra
Andorra's insolvency framework is governed by a combination of national legislation and specific regulations tailored to the banking sector. The primary legislation includes the Insolvency Decree of 1969, the Banking Recovery Act of 2021, and various financial and civil laws that collectively define the procedures for dealing with insolvency, creditor priorities, and liquidation processes. (Andorra - Investment Fund Recovery, Comparisons | Global Practice Guides | Chambers and Partners)
⚖️ Key Legal Instruments
1. Insolvency Decree of 1969
The Decret en relació a la cessació de pagaments i fallides (Insolvency Decree) establishes the statutory regime for judicial insolvency and bankruptcy proceedings in Andorra. It outlines the procedures for both voluntary and involuntary insolvency, the roles of insolvency administrators, and the rights and obligations of creditors and debtors. Notably, the Decree mandates that a debtor unable to meet its payment obligations must initiate insolvency proceedings within eight business days. Failure to do so can result in personal liability for the company's directors if they are found to have acted in bad faith. (Comparisons | Global Practice Guides | Chambers and Partners, Insolvency 2022 - Andorra | Global Practice Guides | Chambers and Partners)
2. Banking Recovery Act of 2021
The Llei 7/2021, del 29 d’abril, de recuperació i de resolució d’entitats bancàries i d’empreses d’inversió (Banking Recovery Act) aligns Andorra's banking resolution framework with European Union standards, specifically Directive 2014/59/EU. It empowers the Andorran Banking Resolution Agency (AREB) to intervene in failing banks to ensure financial stability. Resolution tools include asset separation, establishment of bridge institutions, and bail-in mechanisms. Importantly, secured creditors are excluded from bail-in measures, and covered deposits are protected under the Andorran Deposit Guarantee Fund (ADGF), which insures deposits up to €100,000 per depositor per institution. (Comparisons | Global Practice Guides | Chambers and Partners, Banking & Finance 2023 - Andorra | Global Practice Guides | Chambers and Partners, Comparisons | Global Practice Guides | Chambers and Partners, Andorra - Investment Fund Recovery)
3. Civil Procedure Code and Financial Act
The Llei 22/2021, del 17 de setembre, del Codi de procediment civil (Civil Procedure Code) amends procedural provisions in the Insolvency Decree to align with modern judicial processes. The Llei 8/2013, del 9 de maig (Financial Act) governs the organizational requirements and operating conditions of financial entities, investor protection, market abuse, and financial securities agreements. These laws collectively ensure that insolvency proceedings are conducted transparently and fairly, with due regard for the rights of all parties involved. (Comparisons | Global Practice Guides | Chambers and Partners)
🧾 Insolvency Procedures
1. Judicial Settlement vs. Bankruptcy
Insolvency proceedings in Andorra can result in either a judicial settlement (arranjament judicial) or bankruptcy (fallida). A judicial settlement allows the debtor to retain management of assets under the supervision of an insolvency administrator, aiming for a reorganization or restructuring of debts. Bankruptcy, on the other hand, involves the liquidation of assets to satisfy creditors' claims. The choice between these options depends on the debtor's financial situation and the feasibility of restructuring. (Insolvency 2022 - Andorra | Global Practice Guides | Chambers and Partners)
2. Creditor Hierarchy and Claw-Back Provisions
Creditors in Andorra are classified into categories based on the nature of their claims:
Secured Creditors: Those with special privileges over specific assets (e.g., mortgages or pledges) have priority in claims. (Andorra Banking Law - Bank Liquidation)
Preferential Creditors: Include employees' wage claims and certain tax obligations.
Unsecured Creditors: General creditors without specific claims on assets.
The Insolvency Decree includes claw-back provisions allowing the court to annul transactions detrimental to the insolvency estate if they occurred within 24 months prior to the insolvency declaration. This includes transactions where obligations disproportionately favor the counterparty or where prepayments of non-matured debts were made. (Comparisons | Global Practice Guides | Chambers and Partners)
3. Role of the Insolvency Administrator
The insolvency administrator is appointed by the court and is responsible for managing the debtor's estate during proceedings. Duties include assessing the financial situation, formulating a liquidation plan, and distributing proceeds to creditors. Transparency and clear communication with stakeholders are essential throughout the process. (Understanding Liquidation and Insolvency Procedures in Andorra)
🌐 Cross-Border Considerations
Andorra is not a member of the European Union, and its courts have not entered into protocols with foreign jurisdictions to coordinate insolvency proceedings. Consequently, cross-border insolvency cases may present challenges, as Andorran courts are not bound by EU Regulation 2015/848 on insolvency proceedings. Foreign judgments may be recognized and enforced in Andorra, but this requires a separate legal process. (Comparisons | Global Practice Guides | Chambers and Partners)
📝 Recent Developments
The Andorran government has recognized the need to modernize its insolvency laws to align with international standards and address the complexities of global trade. A new bill is expected to be introduced to update the current regulations, balancing debtor protection, creditor rights, and public policy considerations. This reform aims to enhance the efficiency and effectiveness of insolvency proceedings in Andorra. (Comparisons | Global Practice Guides | Chambers and Partners)
RELATED Blog
0 comments