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Bulgarian bankruptcy / insolvency proceedings are regulated by Bulgarian Commercial Act. The first thing one should bear in mind is that bankruptcy and insolvency in Bulgaria are synonyms and mean absolutely one and the same thing from legal point of view.
There are two legal grounds for opening bankruptcy proceedings in Bulgaria – insolvency or over-indebtedness (the second rule applies only to limited liability companies, stock corporations or companies limited by shares). According to Bulgarian Commercial Act insolvent shall be deemed merchants who are unable to meet outstanding capital obligation under a commercial transaction or public duty to the state and the municipalities related to the merchant’s commercial activities, or private state obligation. The insolvency shall be assumed when the debtor has stopped his payments. Insolvency may be present also when the debtor has paid or is in position to pay partially or in full only the claims of individual creditors. An interesting detail is that bankruptcy proceedings shall be deemed automatically opened as well as for any unlimited partner in an insolvent company in Bulgaria. Bankruptcy proceedings can also be opened for deceased or even deregistered merchant – physical person if before his death or deregistration from Bulgarian Commercial Register he has been insolvent.
Bankruptcy proceedings in Bulgaria get opened when the debtor files for bankruptcy with the respective Bulgarian court. Other parties who are also authorized to file for insolvency are: liquidator of the company (if a liquidation procedure has been initiated), any creditor of the debtor under a commercial transaction, as well as the National Revenue Agency for public obligations to the state or any municipality.
In most cases there are no state or court fees due at the moment of the initiation of the insolvency proceedings in Bulgaria. No preliminary state fees are collected in case the debtor files for bankruptcy. Such fees are collected out of the bankruptcy estate at the time of the distribution of the assets.
In the general case when insolvency or respectively over-indebtedness is found by the court, the judge in his ruling shall officially declare insolvency or over-indebtedness and determine the initial date thereof, open the bankruptcy proceedings, appoint a provisional receiver, allow injunctions or other security measures and finally appoint a date for the first meeting of creditors, not later than one month following the issuance of his judgment (decision, ruling). But this is not the only option. The court could also reject the bankruptcy petition in case the debtor’s financial difficulties are only temporary or if he has enough assets to meet the obligations, protecting the creditors’ interests. Or even more – when the request of a creditor for opening bankruptcy proceedings is rejected the debtor shall be entitled to receiving compensations if the creditor has acted deliberately or by gross negligence.
One of the most important questions is regarding the assets which are included in the bankruptcy estate. These are: property rights of the debtor towards and after the date of the judgment for opening of bankruptcy proceedings, as well as half of all chattels (movable properties), rights on chattels and capital deposits of debtors – sole entrepreneurs or unlimited partners – that have been acquired during their marriage under common martial regime.
Once bankruptcy proceedings get initiated, there are some very short terms (usually 1 month) in which all claims against the company gone bankrupt (insolvent) must be filed – otherwise these claims could NOT be made later and all amounts are irrevocably lost (even if there is a writ of execution issued by court). The creditors are NOT notified about the bankruptcy proceedings and have to keep a close watch on them alone – a job typically undertaken by Bulgarian insolvency and bankruptcy attorneys on behalf of their clients.
Upon opening of bankruptcy proceedings the debtor continues to carry out his commercial activities under the supervision of the receiver in bankruptcy and he can conclude new transactions only by preliminary approval of the receiver in bankruptcy, and in compliance with the measures, determined in the court’s ruling. From this moment on all court or arbitration civil or commercial proceedings, as well as execution proceedings based on a writ of execution and handled by a bailiff, against the debtor get automatically stopped.
The main objectives in the remaining part of Bulgarian bankruptcy proceedings are aimed towards effective investigation and discovery of assets of the debtor, conversion of the assets into cash and the final distribution between all creditors which is a typical job for experienced Bulgarian bankruptcy / insolvency lawyers.