Bankruptcy proceedings

The purpose of insolvency proceedings is to ensure the fair satisfaction of creditors and the possibility of reorganising the debtor’s business, considering the interests of creditors, the debtor and its employees.

What are the grounds for opening insolvency proceedings?

Proceedings are initiated for a trader who is insolvent or in over-indebtedness, the latter only applies to capital companies - LLCs, JSCs, CDAs.

An insolvent trader is a trader who is unable to meet a demand:

a monetary obligation arising out of or relating to a commercial transaction, including its validity, performance, non-performance, termination, avoidance and rescission, or the consequences of its termination, or
a public law obligation towards the state and municipalities related to its commercial activity, or
a private public debt, or
an obligation to pay wages to at least one third of the employees which has not been fulfilled for more than two months.

How does one judge whether a trader is insolvent?

According to the Commercial Law, it is presumed that the trader is unable to fulfil an obligation of the above when:

• prior to the filing of the application for the opening of the insolvency proceedings, the trader has not filed its annual financial statements for the last 3 years with the Commercial Register;
• the debtor has stopped payments or has only paid all or part of certain creditors;
• enforcement proceedings have been initiated against the trader and the debt has remained wholly or partially unpaid within 6 months after receipt of the summons or the notice of voluntary performance.

Over-indebtedness occurs when a trader's assets are insufficient to cover his liabilities - liabilities exceed assets. In practice, it is common for insolvency and over-indebtedness to occur at the same time, but not necessarily.

Beginning of proceeding

Proceedings are commenced by the debtor or a creditor applying to the court. An application may also be filed by the NRA in the case of an obligation to the state or municipalities or a private public claim, and by the "General Labour Inspectorate" in the case of wage obligations to at least one third of the employees due and unpaid for more than two months.

An important clarification is that a debtor who has become insolvent or over-indebted is obliged to request the opening of insolvency proceedings. A trader who becomes insolvent and does not declare this to the court within 30 days is punishable by imprisonment for up to 3 years or a fine of up to BGN 5 thousand. The manager and the procurator are also criminally liable.

Once the petition has been filed and insolvency or over-indebtedness has been established, the court decides to open insolvency proceedings.

Where the debtor's assets are insufficient to cover the initial costs, the court shall fix an amount to be advanced by the persons concerned. If the relevant costs are not paid, the proceedings shall be stayed and the debtor shall be declared bankrupt. The proceedings may be resumed within one year if it is proved that the initial costs can be met.

Submission of claims

The creditors shall submit their claims within one month from the entry of the decision to open the proceedings in the Commercial Register by applying in a form. A claim which is lodged after the time-limit, but not later than two months from its expiry, shall also be entered in the list of claims lodged.

If the proceedings are stayed within that one-month period and no creditor has asserted its claims, that one-month period shall cease to run until resumed.

14 days after the expiry of this period, the appointed insolvency administrator draws up lists of accepted and unaccepted claims, giving creditors 7 days to contest an accepted or unaccepted claim.

Strengthening the company

The recovery plan aims at the resumption of the trader's activity and the repayment of debts. It may include deferral or rescheduling of payments, forgiveness of debts, reorganisation of the company, etc.

The reorganisation plan may be proposed at the latest two months after the time of publication in the commercial register of the court's order approving the list of accepted claims. Several plans may be proposed. If no reorganisation plan is proposed within the two-month period, the court shall issue a decision declaring the company insolvent and ordering the realisation of the company's assets.

Redemption of property

With the bankruptcy decision, the court orders the termination of the trader's activity, general attachment and seizure of property, terminates or limits the powers of the debtor's bodies and deprives the debtor of the right to manage and dispose of its property. It shall then order the commencement of the realisation of the property included in the bankruptcy estate and its distribution.

On the proposal of the insolvency administrator, in accordance with a decision of the meeting of creditors, the bankruptcy court shall authorise the distribution of the assets from the bankruptcy estate.

The creditors are satisfied in a special order from the distribution of the assets obtained from the sale, according to which the so-called "preferential creditors" are satisfied before all others.

Closure of insolvency proceedings

Insolvency proceedings are terminated when the debts are paid or the bankruptcy estate is exhausted.

Unasserted and unsatisfied claims in the proceedings shall be extinguished.

KGK Law Firm provides advisory services concerning insolvency, creditors' rights and recovery in the course of insolvency proceedings. Our lawyers can assist you in all phases of the proceedings, whether you are a debtor, creditor or other affected party.