April 9, 2020

The economic conditions in the various business sectors in Bulgaria have always gone through peaks and downturns. Today, when the world is overwhelmed by the Covid-19 pandemic, business is facing even more ambiguity about its existence.

There are many businesses that have already been significantly affected by the current situation and that are even considering to terminate their operations altogether. Most often, termination occurs when a company is unable to meet its obligations. The solution to this unpleasant situation is to find “fresh funds” that can flow into the company’s operations. Or, alas, to proceed to insolvency proceedings.

The insolvency proceedings (bankruptcy) are intended to ensure fair satisfaction of the creditors’ claims and the opportunity for recovery of the debtor’s enterprise. The procedure takes into account the interests of the creditors, the debtor’s company and its employees.

The insolvency proceedings of a company can be defined as a last resort for collecting debts that a company has towards third parties, whether natural or legal persons, and very often towards the State (National Revenue Agency and other state bodies).

Legal grounds for initiating insolvency proceedings

The insolvency proceedings are regulated in detail in Part IV of the Commercial Act.

The grounds for initiating proceedings are that the company is insolvent or over-indebted.

The Bulgarian legislator has clearly and accurately defined the concept of “insolvency” by declaring that a company is insolvent when it is unable to fulfill its  obligations:

1. pecuniary obligation arising from or relating to a commercial transaction, including its validity, performance, non-performance, termination, invalidation, or the consequences of termination and, or

2. public obligation to the State and the municipalities related to its business activity, or

3. obligation on a private state claim, or

4. obligation to pay wages to at least one third of the employees, which has not been fulfilled for more than two months.

In addition, the Bulgarian legislator also introduced several presumptions for insolvency of a company:

– If, prior to filing the application for insolvency proceedings, the company has not submitted its annual financial statements for the last three years to the Commercial Register;

– Where the debtor company has suspended payments or paid in whole or in part only to certain creditors;

– If enforcement proceedings have been instituted against the debtor company and the obligation remains wholly or partly unpaid within 6 months of receipt of the invitation or the notice of voluntary execution.

It is irrelevant what the amount of its debt may be in order to be able to claim  insolvency proceedings for a company. It is important that there is a pecuniary obligation that has not been paid  because it is objectively impossible for the company to pay it.

If the debtor company has funds in its accounts, but refuses to pay the debt for whatever reason, then the creditor should claim their rights in another way through the means provided for by the Bulgarian legislation.

The second grounds for initiating insolvency proceedings are that the company does not have sufficient assets to cover its obligations. This is called “over-indebtedness”.

In order to assess the existence of these legal grounds, a full assessment of the assets of the company, which includes not only the availability on its bank accounts but also the availability of property (movable and immovable), should be made. When the assets of the company are less than the value of the liabilities to creditors, then this second ground is assumed to be existing.

 Initiation of insolvency proceedings

Insolvency proceedings are initiated and brought before relevant district court at the registered office of the debtor company.

The initiation of the proceedings shall be made by an  application filed by the debtor, respectively by the liquidator or by the creditor of the debtor in a commercial transaction, by the National Revenue Agency for a public debt obligation to the State or municipalities, related to the debtor’s commercial activity or a private government debt obligation. Initiation may also be requested by the Executive Agency “General Labor Inspectorate” in case of due and unpaid wage obligations for more than two months to at least one third of the employees of the debtor company.

Most often, in practice, insolvency proceedings are initiated at the request of the debtor  themselves, at the request of creditors or at the request of the National Revenue Agency. The Bulgarian legislator has provided an obligation for the debtor to request the institution of proceedings within 30 days from the occurrence of one of the two grounds – insolvency or over-indebtedness.

The application for insolvency proceedings filed with the court by the debtor company is subject to announcement at the Commercial Register on the file of the company itself.

The idea behind this announcement is for the company’s creditors to know about the actions taken and to be able to organize the protection of their rights and legitimate interests.

An application for initiation of bankruptcy proceedings filed by a creditor shall be considered by the court in a closed-door session, summoning the debtor and the applicant, not later than 14 days after filing the application. The court shall initiate the case on the day the application is filed and announce the case for decision no later than three months after its initiation.

When certifies insolvency, respectively, over-indebtedness, the court by its decision declares insolvency, respectively over-indebtedness, and determines the starting date thereof. By  that decision, the court institutes insolvency proceedings, appoints a temporary insolvency administrator (trusted assignee), allows security by way of attachment, foreclosure or other precautionary measures, and determines the date of the first meeting of creditors no later than one month after the ruling is rendered.

If the debtor’s available assets are not sufficient to cover the initial insolvency expenses, the court shall determine the amount to be paid by the persons under Article 625 of Commerce Act or by another creditor to initiate insolvency proceedings.

If neither the debtor, nor any of their creditors prepays the initial insolvency costs set by the court, the court orders the termination of the activity and declares the debtor bankrupt, and then suspends the proceedings.

The suspension of the proceedings shall be for a period of up to one year from the entry of the decision in the Commercial Register. Upon payment of costs, the proceeding shall be resumed and continued with the subsequent actions provided for by law. However, if the costs determined by the court are not paid, the court orders the termination of the insolvency proceedings and the termination of the company.

Submission of the claims of creditors

Creditors should file their claims with the insolvency court in writing within one month of entering in the Commercial Register the decision to initiate insolvency proceedings. In their application for the claim, the creditor should state the basis and amount of the claim, privileges and security, court address and provide written evidence to prove the existence of the claim against the debtor company.

The Bulgarian legislator has provided an opportunity for creditors who have failed to meet the time period under Article 685 of the Commercial Act (one-month period), to file their claims at a later stage, but not later than two months after the expiry of the initial one-month period.

After the expiry of this period, claims that have arisen up to the date of institution of the bankruptcy proceedings cannot be brought.

On the basis of the applications received from creditors, the temporary trustee, appointed by the court, shall draw up several lists – a list of accepted claims, filed within the period set forth in Article 685 of the Commercial Act, list of unaccepted claims, filed within the period set forth in Article 685 of Commercial Act, a list of accepted claims, filed within the deadline for additional filing under Article 688 of Commercial Act and a list of unaccepted claims, filed within the deadline for additional filing under Article 688 of Commercial Act.

Contestation of accepted and unaccepted claims. Establishment of a claim

The lists of accepted and unaccepted claims, drawn up by the temporary trustee, are announced at the Commercial Register in the file of the debtor company. Within 7 days of their announcement, any creditor or even the debtor may file their objections on the lists of accepted and rejected claims.

The objections are filed with the court with a copy to the temporary assignee, who must submit a statement on each of these objections. The court schedules an open hearing on any objection (maybe even within one day) to which the debtor, the assignee and the creditors are summoned.

Within 14 days of the hearing, the court should give a ruling rejecting or accepting the objections received. If there are any objections, the court shall make changes to the lists prepared by the receiver. The court’s decision to approve the lists is not subject to appeal.

If any of the creditors is not satisfied with the court’s ruling, they may file a declaratory claim for the existence or non-existence of their claim under Article 694 of the Commercial Act.

The filing of the claim shall take place within 14 days from the date of the ruling of the court’s order approving the lists at the Commercial Register.

It should be noted that in the proceedings for the consideration of the objections before the bankruptcy court, and in the case for establishing a declaratory claim under Article 694 of Commercial Act, parties are entitled to present the full scope of evidence (to request expert opinion, to present new documents, etc.).

Depending on the outcome of the proceedings initiated under Article 694 of the Commercial Act, changes may be made to the lists of creditors: for example, to include new creditors (if their claims are upheld) or to exclude creditors’ claims (if successful establishing actions are carried out against the existence of their claims).

Recovery of the debtor company. Recovery plan

It is not necessary to continue the insolvency proceedings and terminate the trader’s business activity. Within the proceedings, but no later than one month after the approval of the list of creditors, each participant (debtor or creditors) may propose a recovery plan.

A recovery plan may be proposed, although it is not common in practice, by the assignee or employees of the debtor company.

The main objective of the recovery plan is to enable the company to overcome its difficulties and to restore to a certain extent a normal working regime, which will subsequently seek and pay off debts to creditors. The plan may provide for the postponement or rescheduling of liabilities, debt forgiveness, reorganization of the company.

The recovery plan is presented and discussed at a meeting of creditors who vote on whether or not to accept it. Several recovery plans, submitted by different parties to the proceedings, may be presented for discussion. Once the plan has been voted on, the insolvency court should approve it.

Declaring the debtor company insolvent

If none of the parties to the proceeding submits a recovery plan or the submitted plan is not accepted by the creditors, the court has no choice but to dissolve the company and declare it insolvent.

With the decision on bankruptcy, the court declares the debtor insolvent and orders the winding up of the enterprise.

In the same decision the court decrees a general restraint and attachment on the debtor’s property, terminates the powers of the debtor’s bodies, deprives the debtor of the right to manage and dispose of the property included in the bankruptcy estate, orders the initiation of redeeming, included in the bankruptcy estate, and distribution of the redeemed property.

In the insolvency proceedings, the role of the trustee is particularly important, who should take care of the interests of the debtor company and ensure that the obligations towards the creditors are met. For this purpose, the trustee has a variety of options to fill in the bankruptcy estates (the sum of the debtor’s assets).

The law provides for, through various claims, that the assignee could challenge transactions or claims, respectively obligations, cancel contracts, etc.

Redeeming property

The redemption of the property is carried out through the public sale of the assets and the distribution of the received among the creditors with accepted claims.

The assets of the company are valued as often appraisers are appointed, who make the valuation according to a method determined by the assembly of creditors. Once the valuation is available, the court authorizes the assignee to commence the sale of the property, in accordance with the decision of the creditors’ meeting.

The proceeds from the property sale are subject to distribution among the creditors with accepted claims. The Bulgarian legislator has provided for a certain order of distribution referred to in  Article 722 of the Commercial Act.

The payment of creditors’ claims shall be made in the following order:

1. receivables, secured by pledge or mortgage, or attachment or foreclosure, entered in accordance with the procedure of the Special Pledges Act – from the amount received during the realization of the security;

2. receivables for which the right of retention is exercised – from the value of the retained property;

3. bankruptcy costs;

4. claims arising from employment relationships that arose before the date of the decision to open bankruptcy proceedings;

5. support money, due legally by the debtor to third parties;

6.public law claims of the state and municipalities, such as taxes, duties, fees, compulsory social security contributions, etc., which have arisen up to the date of the decision to open bankruptcy proceedings;

7. claims arising after the date of the decision to open bankruptcy proceedings and unpaid at maturity;

8. other unsecured claims that arose before the date of the decision to initiate bankruptcy proceedings;

Where funds are insufficient to fully satisfy the claims, they shall be distributed among the creditors in the appropriate order in proportion . After the creditors’ claims in one row are satisfied, the trustee goes on to the next. When the bankruptcy estate is exhausted or all creditors’ claims are satisfied, the proceedings are terminated and the debtor company is stricken off the Commercial Register.

What our law office can offer you in case of insolvency

Yossifova, Ivanov & Petrov Law Firm has extensive experience in representing clients during insolvency proceedings.

We can:

– advise you on all matters relating to insolvency proceedings;

– prepare and file an application for initiation of proceedings (no matter if you are a debtor or a creditor);

– represent you throughout the entire procedure: to file your claim, to appeal against bankruptcy court acts, to file declaratory claims, to challenge claims of other creditors.

If necessary, do not hesitate to contact us through the emails and telephones listed in our „Contacts” section.


Financial institution registration in Bulgaria

Financial institution registration in Bulgaria



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