Legal Reform in Armenia

Over the last decade, Armenia's authorities have made considerable efforts to upgrade the commercial, tax and financial legislation in order to improve the business environment. Measures to reduce unnecessary regulation and burdensome tax inspections on companies are under way. However, significant gaps in the legal and regulatory framework remain. In addition, as is often the case in early transition countries, implementation of the law by courts and officials remains an issue.

The company law framework was reformed in 2001. Most recently in 2010 a corporate governance code has been prepared with the assistance of the EBRD.

The law of secured transactions has been improved in relation to immovable assets with the introduction of an effective registration system (yet to be digitised), but requires improvement in the area of movable assets. Insolvency law has been modified with improvements in certain areas (e.g. commencement of insolvency proceedings, treatment of creditors, reorganisation and liquidation proceedings), but remains weak in other areas (e.g. financing of reorganisation or avoidance of pre-insolvency transactions).

Despite the recent introduction of a Law on Electronic Communications, key aspects of best practice in the sector appears largely absent, particularly in such areas as number portability, local loop unbundling or wholesale broadband.

The EBRD is currently working with the Armenian authorities to assist in resolving some of these issues. In the energy sector the effective implementation of efficiency measures requires a review of the legal and institutional environment. The Armenian government has sought EBRD’s assistance on this issue in relation to the housing sector. PPPs and concessions are not specifically regulated. The absence of a clear legal and regulatory framework is an obstacle to the funding of projects. Finally, whereas Armenia has adopted a law on procurement in 2010, its effective implementation will require further efforts to increase capacity among procurement officials.

Access to Finance

The development of SMEs and micro-enterprises would benefit from a strong regime for secured transactions. The regime put in place by the 1998 Civil Code (as amended) does allow for the creation of non-possessory pledges of movables, but despite recent amendments to the Civil Code the limitations on taking security over certain types of assets, inadequate registration systems and inefficient enforcement of creditors’ rights restrict access to credit. Tackling these issues is a priority to help develop the SME sector in the country.

Securing creditors’ rights over immovable property, which is also regulated by the Civil Code, represents the better side of the secured transactions coin in Armenia. A relatively robust registry has been introduced under the State Committee of the Real Property Cadastre, unifying cadastre and property registration systems. This has helped reduce problems of conflicting data typically encountered in countries with a dual registration system. Nevertheless, general improvement of the enforcement procedures and introduction of a publicly accessible electronic registry are needed in order to strengthen creditors’ rights. A new Law on Covered Mortgage Bonds was adopted in 2008 but the global economic downturn had negative impact on the development of the secondary mortgage market. 

In 2014 the EBRD conducted an assessment on secured transactions which examined the availability of collateralising different types of assets regardless of the underlying legal instruments used to achieve the establishment of secured creditor’s rights. In addition to the classic security interests (pledges and mortgages the assessment also covered usual types of quasi security, such as sale and lease back transactions. The assessment also covered related issues such as enforcement and syndicated lending. The links below take you to the assessment results for Armenia.



Capital Markets

The Armenian securities markets legal framework is contained in the Republic of Armenia Law on Securities Market of 11 October 2007 ( The market regulator in Armenia is the Central Bank of Armenia. Regarding stock exchanges - ARMEX is the only stock exchange operating in Armenia. Clearing and settlement of securities is performed by the Central Depository.

Capital market activities are rather low and there are almost no corporate issuance and listing. In this respect high ambitions of Armenia’s government need to be noted, i.e. adoption of law on Covered Mortgage Bonds of 26.05.2008 and law on Asset Securitisation and Asset Backed Securities of 26.05.2008; however, there has been no issuance of financial instruments provided in the aforementioned legislation. In addition it must be underlined that the banking sector faces numerous challenges, such as insufficient capital and limited banking services.

Armenia is part of the EBRD LC2 Initiative aiming at the development of local currency and capital markets, and as such EBRD is taking a number of actions to encourage local currency lending, i.e. Armenia is eligible to participate in the ETC Programme providing local currency loans to private sector borrowers in ETCs.

Apart from strengthening the banking sector, i.e. developing interbank lending and money markets, no other action related to a development of local capital markets is considered, given the immaturity of the market. In financial sector in Armenia, the Bank is committed to strengthen financial intermediation; this include encouraging consolidation in the banking sector, through financing the best local banks. Moreover, the Bank offers local currency loans to private sector borrowers in ETCs, which includes also Armenia. Currently the Armenian Central Bank, together with the government and in cooperation with the Central Securities Depository of Spain, has committed to implement the so called ‘the second column for capital market development’. This, in particular, relates to a planned pension fund reform (making rules for investment in pension fund more flexible and assets more diversified) and integration of the Armenian Stock Exchange with NASDAQ OMX. At present, it seems that the main priority for Armenia is to focus on the basics, i.e. strengthening money markets (including interbank market) and better government debt management and only in a longer term focus on more complex financial instruments, like ABS, if there will be, at all, a rational for such instruments to be originated and issued in Armenia and by Armenian financial institutions. EBRD is of the opinion that there are short and long term opportunities for capital markets development in Armenia; however, before providing legal framework for more complex financial instruments, like ABS, the government of Armenia should focus first on the basics of financial markets, this being money markets and government debt management and related government bond issuance; moreover, EBRD welcomes the current pension fund reform, which may attract more institutional investors to the country; finally, EBRD encourages private sector companies in Armenia to apply for EBRDs local currency loans under the ETC Programme.


Corporate Governance

The primary governing legislation for the corporate sector consists of the Civil Code, enacted in 1998, the Law on Joint-Stock Companies, enacted in 2001, the Law on Limited Liability Companies, enacted in 2001, and the Law on State Registration of Legal Entities, enacted in 2001, all as amended.

On 30 December, 2010, the Government approved a new Corporate Governance Code, prepared with the assistance of the EBRD. The code includes a reporting template, where companies are required to declare their compliance with the code’s recommendations or explain the reasons for non-compliance. On 23 June, 2011, the Government adopted Decree No 881 detailing the list of state owned enterprises that are required to report on the basis of the code. According to this Decree, the Code will apply to 416 state owned enterprises.

The 2007 EBRD assessment on corporate governance showed Armenia being in “Medium Compliance” with the OECD Principles of Corporate Governance. Among the major shortcomings revealed by the assessment, it is worth noting the lack of exclusive shareholders’ authority on increases of capital, the lack of specific provisions granting shareholders the right to ask questions and obtain answers at the general shareholders meeting, the lack of provisions regulating cross-shareholdings lack of transparency and weak disclosure – especially on related party transactions and other key corporate governance issues - and unclear board responsibilities. In recent years there have been a number of major reforms on corporate governance in Armenia, which have improved the framework. However, weak implementation and enforcement remain the major weaknesses for an affective corporate governance system.

Having adopted a corporate governance code is not an end in itself, but the start of a process that should lead to better disclosure and transparency. It is now important that Armenian authorities commit the necessary time and resources in order to ensure proper implementation of the code so to establish an active dialogue with companies and provide guidance on how to improve the companies’ practices. This effort should contribute to enhance ownership disclosure, shareholders rights and quality of information; to better monitor self-dealing and related party transactions; and to strengthen the oversight role of boards.


Development and Implementation of a Corporate Governance Code

The EBRD is assisting the Ministry of Trade and Economic Development of the Republic of Armenia in developing a Corporate Governance Code applicable to state-owned companies, listed companies, and banks.

The reason for opting for a Code is its flexibility: on one hand, authorities can easily monitor companies' compliance with the rules. Further, under the so-called the "comply-or-explain" mechanism, companies that deem preferable to set aside specific provisions can do so by explicitly stating their reasons. Such tool is proven to be an incentive for companies to move towards better governance practices at their own pace, without having to revolutionise their internal structures and procedures.

The drafting is based on a gap analysis so that the code’s recommendations are specifically targeting those issues that are not regulated by law. The draft code was developed by a working group chaired by the Minister of Economy and made of representatives of various stakeholders.

On December 30, 2010, the Government approved the final draft of the code. Specific templates allowing companies to report on their compliance with the code are currently being prepared.

The project will be sponsored by the ETC Multi-donor Fund (contributors to the multi-donor fund are Canada, Finland, Ireland, Japan, Luxembourg, Netherlands, Norway, Spain, Sweden, Switzerland, Taipei China and the UK).



Debt Restructuring and Bankruptcy

Armenia adopted a new bankruptcy law in December 2006, the “New Insolvency Law” (hereinafter “the Law”). The Law is composed of 13 chapters and 107 articles. In addition to the Law, other legislation contains rules that are more general in nature. For example, the Civil Code of the Republic of Armenia includes articles related to when a citizen or a legal entity can generally be declared bankrupt.

The new Insolvency Law is considered an improvement from the previous regime. The principal areas that have benefited from new provisions are (1) the commencement of insolvency proceedings, (2) the treatment of creditors, (3) reorganisation proceedings, and (4) terminal proceedings (liquidation). More specifically, the Law includes changes that could make reorganisation of a distressed company more efficient and potentially maximise the recovery rate for creditors. The Law also introduces time limits for reorganisations, and gives creditors a greater say in the reorganisation process by allowing only creditors with approved claims (and not the debtor’s owners) to vote on a plan.

However, the law remains weak regarding the provision that provides material information to creditors, and also lacks a requirement for an independent analysis of a reorganisation plan that is being proposed to creditors. Furthermore, there is no provision that would facilitate the financing of a proposed reorganisation.

Other areas that would greatly benefit from further reform include the provisions dealing with the assets of the estate and the avoidance of pre-bankruptcy transactions. In many respects these are vague and create uncertainty. Additionally, the provisions that enable Armenia to deal with cross-border insolvency matters are also inadequate.

Lastly, the provisions relating to insolvency office holders in Armenia are inadequate particularly with regards to basic qualifications to act as an office holder. There are no provisions for licensing of office holders. Moreover, the profession lacks a professional work standards or code of ethics.


Dispute Resolution

The Armenian court system is regulated by the Judicial Code adopted in 2007 and substantially amended in 2009. The Code provides for a three-tiered courts system, comprising courts of first instance, courts of appeal and the Court of Cassation. First instance courts are of general jurisdiction, whereas the appellate courts have criminal and civil divisions, the latter hearing appeals also in commercial matters. The Court of Cassation is the highest court, except for constitutional matters.

Before the latest amendments to the Judicial Code, commercial disputes were heard by the Economic Court, which had jurisdiction over business-related cases for both natural and legal persons. The 2009 amendments eliminated the Economic Court. It was considered that having separate specialised courts for commercial matters contributed to inefficiencies in the court system and was not warranted in view of the country’s small size. The abolition of the Economic Courts was a measure taken in the context of a large-scale judicial reform project that has been underway in Armenia for several years, supported by the World Bank. The project focuses on providing the country’s judicial system with the administration, facilities and capacity needed to raise the effectiveness and transparency of the judiciary.

Progress has been made. For example, the European Commission's recent progress reports on implementation of the European Neighbourhood Policy point to improvement in the transparency in the court system. However, the same reports note that the independence of the judiciary remains a serious concern. This is further clarified by the EBRD – World Bank Business Environment and Enterprise Performance Survey (BEEPS), which indicate that only 33% of business respondents considered the courts to be fair and impartial. Other priorities for reform in the justice sector include reform of the prosecutor's office and proper implementation of adopted legislation in all areas, including in relation to commercial law. This objective would be furthered by strengthening judicial training arrangements in relation to commercial law and practice.

Electronic Communications

The electronic communications sector in Armenia is largely governed by the Law on Electronic Communications, 2005, as supplemented by implementing regulations.

While Armenia is moving progressively toward sector best practice, the legislative/regulatory framework necessary to implement the key aspects of such practice appears largely absent, particularly in critical areas such as number portability, local loop unbundling (LLU) or wholesale broadband. Infrastructure sharing is rare, though the regulator (Public Services Regulatory Commission – PSRC) has recently moved to prepare a regulation on duct sharing. On the positive side, PSRC appears to be an independent and professionally functioning institution, although it does not always seem to use its powers robustly enough to push competition, particularly against the incumbent fixed-line operator (Armentel). Fixed broadband would appear to be limited by poor fixed network penetration and resistance by Armentel to LLU. Balancing the slow growth in fixed broadband, however, is healthy growth in mobile broadband: Armenia appears to have progressive policy with respect to radio frequency spectrum, with 3G services flourishing and amongst the highest rates in the region.

While electronic communications is an important contributor to the Armenian economy, it is the sector’s role as an engine of growth and development across all sectors of the economy, together with its impact on societal issues that makes the implementation of proven best practice critical as a means of attracting crucial private investment. The effective implementation of such standards will provide better opportunities for EBRD investment both in the sector and more broadly across the economy.

An ambitious national broadband plan that the government had been developing with the aid of World Bank appears to have stalled. This plan needs to be resurrected and implemented (on an open access basis and in a manner which least distorts the competitive market) if the high demand, especially in the rural areas, is to be met. Also on the reform side, EBRD’s Legal Transition Team is currently working with PSRC to implement a number of the practical regulatory initiatives aimed at moving Armenia further towards effective implementation of best practice and facilitating investment in high-capacity broadband infrastructure of the sort foreseen in the abovementioned national broadband plan.

In the short to medium term, immediate resurrection and implementation of the governments national broadband plan (appropriately re-tuned to ensure open access and minimal market distortion), is recommended, as is the swift implementation of the competitive safeguards that will underpin investment in broadband infrastructure. In the broader medium terms, an institutional and policy approach to electronic communications and wider information communication technology area which is more attuned to the developing trends of technology and regulatory convergence evidenced in more developed markets is also recommended.

Communications Regularory Development Project:

This programme comprises a comprehensive customised training programme covering all key aspects of regulation, with the goal of meeting the specific needs for development of regulatory staff skills for Armenia’s Public Services Regulatory Commission. Launch of the Armenia programme took place at a public event in Yerevan in early October 2010. This project was funded by the Government of Finland.

Energy Regulation

The residential sector in Armenia is one of the largest energy end-users in Armenia – using about 44% of electricity and 37% of heat from the country’s total final consumption (IEA statistics, 2008). This figure, higher than most of the other transition countries, calls for urgent measures by the government to reduce the energy spend in the urban housing sector.

The majority of Armenia’s housing stock, especially in urban areas, consists of pre-fabricated multi-storey apartment buildings that are generally of poor construction, badly insulated and maintained and as a result provide a low level of energy efficiency and living comfort. Mostly based on the Russian GOST and SNIP standards, current construction standards and practices for residential buildings are behind the corresponding European and international standards and not effectively applied in the refurbishment of old and construction of new buildings.

EBRD’s sector research (Armenia Market Demand Study conducted in September 2008 and LTT assessment of sector legislation) concludes that there is a significant potential for investment in energy efficiency measures in the residential sector provided the necessary regulatory changes are in place. Once introduced, the energy savings measures will also contribute to an increase of thermal comfort of the residents. However, shortcomings in the regulatory environment constitute a barrier to viable financing of energy efficiency in the building sector, and particularly the residential sub-sector. To facilitate potential private financing of energy efficiency opportunities, the government has sought LTT’s help in examining the legal and institutional environment for urban housing stock to identify the gaps between the Armenian energy efficiency in buildings regulation and the international best practices. Based on the findings and recommendations of this project, LTT could assist the Armenian government in developing the necessary legal and regulatory framework that would unlock the energy efficiency project potential. There is no legislation on energy efficiency of buildings.

As reflected in its strategy for the energy sector in Armenia, the EBRD is interested in promoting energy efficiency and renewable energy production, thereby reducing energy intensity and diversifying supply sources in the country. An insufficient legal and regulatory framework for energy efficiency, however, has proven to be a significant barrier to energy efficiency investments in the residential sector. Furthermore, deficiencies in the housing legislation discourage borrowing by housing associations while lending to individuals remains unattractive to the commercial banks. During the forthcoming project, LTT will work directly with the relevant governmental institutions in Armenia in order to improve the policy, legal and regulatory framework for residential energy efficiency and thus facilitate the Bank’s and private sector’s investments in energy efficiency in Armenia.

Introducing improvements in the legal, regulatory and operational environment may result in a significant increase in energy efficiency and use of renewable energy in Armenia and thus, boost sector development.

EBRD’s study will assess the overall legal, institutional and operational framework of urban housing stock in Armenia, making recommendations to enhance the framework. The project is phase one of a larger programme to implement the necessary legal and institutional changes, which would provide a comparative gap analysis with the best practice from other selected central and eastern European countries as well as identify opportunities for financing refurbishment of multi-storey housing stock, together with making recommendations on how a support programme could be structured. The findings from this phase one study would be used during assisting the Ministry in drafting primary and secondary legislation on energy performance of buildings, reviewing technical standards and improving the housing legislation.

The Armenian Ministry of Urban Development (the “Ministry”) requested technical assistance with the development and enhancement of the legal and regulatory framework supporting energy efficiency in the building sector and assistance with identifying and addressing other sector deficiencies. LTT would recommend that the Ministry show a continued support for the project and that it accept and endorse report conclusions and legal reform recommendations.



PPP is neither regulated nor clearly recognised or promoted at the policy level; concession is normally referred to a natural resources license and not to public works or services. However, an implied general policy framework for improving the legal environment and promoting private sector participation in public works and services has been identified e.g. in the Poverty Reduction Strategy.

Armenia does not have a general concession law. General laws do not refer to or regulate concessions apart from the general reference in the Law on Foreign Investmentsproviding for concession as one of the forms of foreign investments. Two sector-specific laws regulate concessions, the mining and water sectors. In addition, there is also a reference to concessions in the Law on Railway Transport.

Even though concessions are referred to in the above sector laws the documents in question do not contain any clear modern definition of concessions and are pretty basic with regard to the selection procedures resting on the general principle that concessions are granted based on a competitive tender/auction. A positive feature of the water sector law is that the use of a template concession agreement is optional rather than binding. Government support and financial securities are defined in the general legislation such as the Civil Code and Law on Budgetary System, which recognise and provide for such elements. No clear reference is made to international arbitration for concession arrangements while the use of international arbitration is provided in privatisation contracts.

There have been reports that the Government of the Republic of Armenia contemplates the development of a new PPP/concession law in order to provide for legal framework for PPP projects.

Armenia remains one of the few EBRD countries of operations where there has been no clear PPP policy, legal/regulatory and institutional Concessions framework. When properly designed and implemented, PPP may provide invaluable source of additional private sector funding, capacity and resources to the country’s infrastructure needs.


Public Procurement

Law on Procurement AL-206-N of 28 December 2010 has been adopted in order to harmonise Armenian public procurement regulation with the WTO Agreement for Government Procurement. In addition, public procurement is regulated by a number of government decrees, specifically on conducting procurement procedures electronically (eProcurement), procurement rules for the exterritorial procurement, on framework agreements, and on review and remedies procedures. Following that, Armenia completed GPA negotiations and as of 14 May 2011 become a party to the GPA, which is a major achievement in the EBRD region.

The Armenian public procurement legislation is based on sound principles of the WTO GPA. The law promotes competition and transparency in public procurement and aims to achieve efficiency by utilising a central eProcurement platform enabling conducting all government procurement procedures electronically. The new legislation has also established an independent review and remedies system, which started their work in June 2011.

In the EBRD 2010 assessment, Armenia’s regulatory framework scored medium compliance with international procurement standards (71 percent) and due to adoption of the new laws has since improved. Unfortunately, local procurement practice, while reported to be competitive and focused on achieving good value for money, struggles with the implementation. This is due to high public procurement standards incorporated in the new GPA compliant legislation and local procurement officers require a significant amount of training in order to be capable to implement new laws. As it is today, rules on tenders submission and responsibilities of tenderers may be unclear for local stakeholders, not to mention international tenderers. Also, government institutional capacities could be improved, as the survey revealed low performance of regulatory authority and the public procurement remedies body.

At present there are reform initiatives undertaken by the government, with the EBRD and OECD/SIGMA assistance. Armenia applied for participation in the EBRD UNCITRAL Initiative and in October 2011 a policy workshop was organised, gathering together local stakeholders and policy makers. The workshop helped to clarify national government reform agenda and to structure technical cooperation project in order to support reform efforts. Under this project Armenian public procurement secondary legislation will be reviewed and improved, guidelines for implementing framework agreements and conducting procurements will be drafted and a regulatory and procurement capacity building initiatives will take place.

The new Armenian public procurement laws are modern and reasonably responsive to market challenges, yet not all transparency safeguards recommended by international standards have been adopted in local legislation. In key policy areas, such as public procurement planning and public contract management significant gaps were identified and should be addressed. Recent amendments to the law and brand new institutional framework result in distinctly lower quality of local public procurement practice than expected from the GPA member.

  • Public Procurement Sector Assessment 2010

Legal reform projects and Outreach in Armenia

  • The Government of the Republic of Armenia, the EBRD and the UNCITRAL hosted a policy dialogue workshop in Yerevan on Enhancing Public Procurement Legislation in Armenia.
    Public Procurement Policy Workshop in Yerevan
  • Progress report on Procurement project in Armenia –
    Development of electronic procurement system in the Republic of Armenia”.

Law in transition