The Bulgarian Commerce Act explicitly provides the following grounds for initiation of insolvency in Bulgaria:
The insolvency proceedings in Bulgaria shall be instituted for merchants who are insolvent. In the sense of the Commerce Act, “insolvency” translates as the inability of a merchant (sole trader or company) to execute its payable pecuniary obligation which may derive from a commercial transaction or a public obligation related to its commercial activity or private state claim.
Insolvency proceedings in Bulgaria shall also be instituted in the case of over-indebtedness, which envisages a situation where a company’s assets are not sufficient to cover its pecuniary liabilities. The insolvency shall be presumed if a company precludes its payments. Insolvency may also be present in cases where the debtor has paid up or is in a position to pay up, wholly or in part, only the claims of certain creditors.
Insolvency proceedings before the Court
A. Initiation of the insolvency proceedings
The insolvency proceedings in Bulgaria can be initiated upon a written request to the court by a creditor, the debtor itself or by the liquidator, as well as by the National Revenue Agency, for a public-law obligation to the State or to the municipalities. Moreover, any debtor who becomes insolvent or excessively indebted must file a request with the court within 30 days of becoming insolvent or excessively indebted.
B. Preliminary security measures
Prior to the request to institute insolvency proceedings the court has the power to designate security measures, which purpose is to preserve the debtor’s property. Those measures are listed exhaustively by the law, and they can be invoked either by the court, in its own discretion, or by a creditor.
C. Consequences of the Insolvency Ruling
If insolvency or over indebtedness is found by the Court, the latter declares the date when it occurred, appoints a trustee (liquidator), allows security measures and determines the date of the first creditors’ meeting to be held not later than a month following the ruling’s date.
The ruling has some important consequences. The debtor can conduct its commercial activities only under the supervision of the appointed trustee. The debtor may conclude new transactions with preliminary approval of the trustee and in compliance with the measures, determined by the ruling on institution of insolvency proceedings.
Where it is obvious that further continuance of the debtor’s activity could damage the insolvency estate, the court may, upon request by the debtor, respectively the liquidator, the National Revenue Agency or a creditor, declare the debtor bankrupt and terminate his activity concurrently with the ruling to institute insolvency proceedings.
Complementing the Insolvency Estate
During this stage of the proceedings, the permanent trustee shall prepare an inventory list containing the debtor’s property. Hence, the trustee’s primary responsibility is to undertake all necessary actions, including judicial claims, in order to collect the debtor’s takings and to consolidate its property.
Shares or contributions not paid in or not deposited by limited liability partners, shall be collected by the trustee in insolvency to complement the bankruptcy estate.
The trustee in bankruptcy may terminate any contract to which the debtor is a party, provided it has not been performed wholly or in part.
All trustee’s powers during insolvency proceedings are exhaustively set forth in the Commerce Act.
Recovery plan and out-of-court agreement
Creditors shall claim their receivables before the insolvency court within one month following the filing in the Commercial Registry of the announcement on the start of bankruptcy proceedings. Once the list of creditors’ claims is approved by the court and filed with the Commercial Registry at this point comes up the possibility for a proposal of a recovery plan.
The recovery plan’s objective is the finding of an acceptable compromise for the creditors which will allow the debtor to continue its activities. The plan may provide for a deferral or rescheduling of payments, a reduction of the debts in full or in part, a reorganisation of the enterprise, or undertaking other acts or making other transactions.
The recovery plan could be proposed by the debtor, the liquidator, and the creditors holding at least one-third of the secured and non-secured claims, partners or shareholders holding at least one-third of the debtor’s capital, a partner with unlimited liability or more than 20 percent of the debtor’s employees. The plan shall be subjected to approval to the creditors and subsequently to the court.
Another alternative solution, which is available throughout the insolvency proceedings is the achievement of an out-of-court agreement between the debtors and its creditors.
Either the adoption of the recovery plan or the conclusion of an out-of-court agreement results in the termination of the insolvency proceedings before the court. However, the latter can be reopened in case of non-compliance with the plan or the agreement.
Selling and distributing the debtor’s assets
If the parties in the insolvency proceedings neither approved a recovery plan nor an out-of-court agreement then the court declares the debtor insolvent and orders the termination of its activities. Consequently, the parties initiate a procedure for selling and distributing the debtor’s assets.
The insolvency proceedings are terminated when either the debtor’s liabilities have been paid in full or its assets have been exhausted.