Bankruptcy: Bulgaria - Law and Proceedings

The Bankruptcy proceedings in Bulgaria are established in the Commercial Act. This law covers all commercial entities but not state-owned enterprises or public monopolies.

Insolvency of insurance companies is governed by the 2005 Insurance Code. Bank failures - by the 2002 Bank Insolvency Act and the 2006 Credit Institutions Act.

There is no personal insolvency in Bulgaria similar to the one existing in the UK or Germany. The term bankruptcy covers only companies unable to pay their debts as they fall due or with liabilities exceeding their assets.

This article will look into the bankruptcy proceedings as established under Bulgarian insolvency law. For further information and assistance with opening of insolvency proceedings, do not hesitate to contact our law firm.

When are bankruptcy proceedings initiated?

Under Bulgarian law a debtor is determined insolvent by the bankruptcy court. Bankruptcy proceedings are opened on two grounds:

• Insolvency of the debtor - when the debtor has suspended all payments
• Over indebtedness of the debtor - when the debtor is able to pay only the claims of certain creditors. The reason is that due to financial difficulty the debtor’s assets are insufficient to cover short-term obligations. This is an option only for capital companies, i.e. Joint Stock Companies or Private LLCs (EOOD).

Who can initiate a bankruptcy procedure?

Pursuant to part IV of the Commercial Act, bankruptcy proceedings can be initiated by:

• The debtor - debtors are required to file for bankruptcy within 30 days of becoming insolvent or over-indebted.
• The creditors - this includes public authorities, such as the National Revenue Agency, in case of public liabilities due (e.g. taxes).

The proceedings can be initiated by a law firm through power of attorney. Debtors or creditors who need assistance may contact our legal experts here.

Bankruptcy proceedings

The bankruptcy proceedings in Bulgaria go through a number of stages:

1. Debtor submits a written application for bankruptcy with the competent insolvency court.

This is published in the Commercial Register. From this point on, all creditors and contractual partners have access to the information regarding the Bankruptcy proceedings.

Alternatively, a creditor may initiate the bankruptcy proceedings in court. In this case, the claim is heard in the presence of both the creditor and the debtor.

2. The court determines insolvency and appoints an interim trustee (insolvency administrator)

From this point on, the trustee:

- represents and manages the company;

- takes inventory of the assets and property of the company - the insolvency estate, and creates a special balance sheet;

- identifies and convenes all creditors;

- develops a recovery plan.

3. Creditors declare to the trustee all debts owed to them by the debtor. They have to do this within 1 month from the start of the bankruptcy proceedings.

4. The trustee compiles a list of debts within 7 days. The list is published in the Commercial Register.

5. The trustee proposes a rehabilitation plan within 1 month from the publication of the list in the Commercial Register.

6. The Court endorses the recovery plan (within 7 days) after the creditor’s approval. Creditors have 45 days to convene and discuss the plan.

7. The Court appoints a supervising body to oversee the implementation of the recovery plan.

Note that if the debtor does not fulfil their obligations under this rehabilitation plan, the court may renew the bankruptcy procedure.

Once the court declares the debtor bankrupt, all property included in the bankruptcy estate is redeemed. The court order is enforced immediately. The debtor no longer has rights over their assets and company.

All property and assets are distributed among the creditors according to the respective category of creditors. This process is supervised by the court.

The corporate lawyers at "Danailova, Todorov and Partners" can assist both creditors and debtors with bankruptcy proceedings in Bulgaria. For more information and legal advice on insolvency and other legal matters, feel free to contact our law firm.