The insolvency proceedings in Bulgaria
The insolvency is seen as kind of a universal compulsory execution and is been regulated by the Commercial Act. The differences between this universal compulsory execution and individual compulsory executions are the following:
The universal compulsory execution
- Is opened on request of one or several creditors, the liquidator, the court or the registry agency;
- The compulsory execution is targeted on the entire assets of the debtor;
- The proceedings are opened with the decision of the court and develop under its supervision.
Conditions for the opening of insolvency proceedings
Since in Bulgaria insolvency proceedings may only be opened against a trader, the insolvency debtor must bear commercial characteristics. The Bulgarian insolvency law does not know personal insolvency as it exists in Germany. Furthermore, the insolvency or an excessive indebtedness of the insolvency debtor must have been ascertained. The excessive indebtedness applies as an insolvency ground only for capital companies (limited liability Companies, joint stock companies, partnerships limited by shares).
According to Article 608 of the Commercial Act, a trader is insolvent if he is not capable to pay his monetary obligations due (deriving from commercial transactions; or regarding public duty to the state and the municipalities related to their commercial activity, or private state obligation) that originate from his business activity. The insolvency is assumed if the insolvency debtor has suspended his payments; and in case he has paid his monetary obligations partly or entirely only to several creditors.
A capital company is indebted if the assets of the company are not sufficient to cover all monetary obligations (Article 742 (1) of the Commercial Act).
The insolvency proceedings may have two alternative goals: a business reconstruction with continuing of the company or satisfaction of the debtors and liquidation of the company.
The following subjects are entitled to apply for the opening of insolvency proceedings:
- The debtor himself – he is obliged to file an application for insolvency within 30 days after the insolvency or the excessive indebtedness has occurred. The application must be filed by the debtor, a representative or his heirs.
- The liquidator;
- Each creditor of sale transactions;
- A member of the managing body of the capital company;
- The registry agency.
The court decides on the opening of insolvency proceedings. The district court at the seat of the insolvency debtor bears the competence according to Article 613 of the Commercial Act. The court has the following competences:
- Resolution on the opening of insolvency proceedings if the statutory conditions are met. In this case, the court may:
- Attest the insolvency/excessive indebtedness;
- Attest the moment when the insolvency/excessive indebtedness has occurred;
- Open the insolvency proceedings.
- The court appoints an insolvency administrator; orders protective measures to protect the assets; determines the first date of the meeting of creditors within one month after the adoption of the decision.
- The dismissal of the application for opening insolvency proceedings if the required conditions have not been fulfilled;
- To issue a court order on the opening of insolvency proceedings together with simultaneous declaration of the company in insolvency if the insolvency estate would be affected by continuing business operations;
- To issue a court order on ceasing the proceedings if the assets are not sufficient to cover the costs of the insolvency proceedings. The proceedings may be continued if the applicant meets the costs in advance.
The court order is effective toward everyone; towards the creditors as well as towards the insolvency debtor. In regards of the debtor, the insolvency resembles a legal incapacitation as from the time of the court order he may only act in agreement with the insolvency administrator. In cases that the situation of the insolvency debtor is extremely hard, it is possible to prohibit actions of any kind.
Regarding the creditors the court order ceases all ongoing court and enforcement proceedings.
Garnishees must pay their obligations to the insolvency administrator.
According to Article 740 of the Commercial Act, out-of-court agreements between the insolvency debtor and the insolvency creditors may be made at any time of the ongoing proceedings. The following conditions must be fulfilled:
- The insolvency debtor and all insolvency creditors must be involved in the agreement;
- The agreement may only be made after the acceptance of the claims by the court;
- Proceedings regarding a declaratory action according to Article 694 (1) of the Commercial Act do not need to be pending.
The insolvency administrator does not participate as a party in the conclusion of the agreement. The agreement is made between the insolvency administrator and the insolvency creditors. With the conclusion of the agreement the insolvency proceedings are terminated. The conclusion of the agreement requires a written form. If the debtor does not meet his contractual obligations and if the claims that have not been paid amount to at least 15 % of the total claim the insolvency creditors are entitled to apply for a renewal of the insolvency proceedings. If the insolvency proceedings are renewed restructuring proceedings are excluded.