Contesting insolvency according to Bulgarian insolvency law

To not place the insolvency creditors at a disadvantage, the insolvency administrator’s task is to secure and to increase the insolvency estate. Therefore, he is entitled to contest all legal actions of the insolvency debtor that may be disadvantageous for the creditors. The contestable legal actions and transactions are listed in the Articles 646 ff. of the Commercial Act. These measures aim to equate the insolvency creditors so that their claims can be satisfied with the termination of the insolvency proceedings according to the legal order.

The law makes up a period of suspicion that precedes the opening of the insolvency proceedings. This period of suspicion is based on the legal presumption that during this period the insolvency of the trader could have been noticed way earlier and thus several legal transactions have been concluded intentionally. It is mainly about the so called shifting transactions that affect the insolvency estate and consequently the interest of the creditor(s) as well.

According to Article 646 of the Commercial Act, the following transactions are deemed to be void: hedge transactions, gratuitous transfer transactions, transactions regarding insolvency estate objects and transactions in which the performance by the insolvency debtor is smaller than the counter-performance. In case that these transactions have been concluded before or after the insolvency proceedings have been opened they are deemed to be ineffective ex nunc against the insolvency creditors.

Article 647 of the Commercial Act prescribes contestability of actions and legal transactions of the insolvency debtor that affect the insolvency estate. The following legal actions may be contested:

1. A gratuitous legal transaction in favour of a person associated with the insolvency debtor that has been concluded in the past three years before the insolvency proceedings have been opened. Usual donations are not to be contested on this ground;
2. A gratuitous legal transaction in favour of a third party that has been concluded in the past two years before the insolvency proceedings have been opened;
3. A legal transaction for payment in which there is a gross disproportion between the performance of the insolvency debtor and the counter-performance and that has been concluded in the past 2 years before the insolvency proceedings have been opened;
4. The repayment of liabilities by transfer of ownership made in the past two months before the insolvency occurred. This transfer of ownership is only contestable if the value of the insolvency estate is increased by its re-transfer.
5. Mortgages, pledges or other securities that have been created within the past year before the insolvency proceedings have been opened in favour of previously unsecured receivables.
6. Mortgages, pledges or other securities that have been created within the past 2 years before the insolvency proceedings have been opened in favour of previously unsecured receivables of a partner or shareholder;
7. A legal transaction concluded with an associated person that has been concluded in the past two years before the insolvency proceedings have been opened and that puts the creditors at a disadvantage.

The consequence of the contestability of these legal transactions is the rescinded transaction of what has been performed. Basis of the claim is Article 648 of the Commercial Act. The period of time regarding actions of contestation is one year and starts with the opening of the insolvency proceedings. The action must be brought in by the insolvency administrator and in case of inactivity from his part by each insolvency creditor.