Angel Ganev and Simeon Simeonov of Djingov Gouginski Kyutchukov & Velichkov assess the bankruptcy and insolvency regime in Bulgaria


1.1 What reorganisation and insolvency processes are available for debtors in your jurisdiction?

Insolvency under Bulgarian law is available only as a court-administered procedure which can be initiated with respect to a company which is either insolvent or over-indebted (balance-sheet insolvency). The primary goal of insolvency proceedings, at least theoretically, is providing an opportunity for recovering of the debtor's entity and continuation of its activity. In most cases, however, insolvency results in liquidation of the insolvent company. Insolvency triggers and tests in Bulgaria are well defined by the settled case-law. Only the court has the power to determine (with the help of accounting experts) whether a debtor is insolvent and whether to open insolvency proceedings. There are no other formal reorganisation processes for arrangements with creditors outside of the bankruptcy proceedings.

Accordingly, any potential debt restructuring agreement with one or some of the creditors is not binding on the other creditors so long as they have not entered into it. The agreements between the debtor and one or more of its creditors are subject to the general legal requirements for validity provided for by the respective law. Since entering into an individual settlement agreement with the debtor is done on an entirely voluntary basis, it does not have (unless specifically stipulated) any of the typical effects of expedited debt restructuring proceedings and does not preclude other creditors from pursuing the debtor. Moreover, there is no legal means for the debtor to unilaterally apply for protection and obtain a moratorium when insolvency is imminent but has not yet occurred.

1.2 Is a stay on creditor enforcement action available?

A stay on a creditor's enforcement action is available only upon initiation of insolvency proceedings. As a result of the respective court decision opening insolvency, any forcible execution proceedings against the debtor are stayed automatically and the execution creditors are required to submit their claims anew before the trustee. If the claims are accepted by the latter, the forcible execution is terminated. Execution actions taken under the execution proceedings are unenforceable against creditors of the insolvency estate. Only if the forcible execution has been effected against secured assets, the court of insolvency may permit continuation of execution and repayment of the secured debt from the proceeds.

1.3 How could the reorganisation and/or insolvency processes available in your jurisdiction be used to implement a reorganisation plan?

The reorganisation of a debtor's enterprise is set out as one of the main goals of the insolvency process and could only be a part of it. The earliest opportunity for a plan to be proposed is together with the application requiring commencement of insolvency proceedings. However, in practice, this possibility should be deemed theoretical at this early stage of the insolvency proceedings. Practically, the first point at which the entitled persons may propose a reorganisation plan is within the one-month period as of registration of the court ruling approving the first list of the accepted claims.

The reorganisation plan can be proposed and prepared by the debtor, the trustee, creditors who hold at least one-third of the claims, shareholders who hold at least one-third of the capital of the corporate debtor, and 20% of the debtor's employees. The reorganisation plan can, among other things, provide for the rescheduling of obligations, partial or full discount of certain obligations of the debtor, the reorganisation of the debtor or the conversion of debt into equity.

In order to become effective, the plan has to be approved by the creditors' meeting and then finally confirmed by the court. The plan is considered approved only if it has received the affirmative vote of the majority of all accepted claims and, if it provides for the discharge of claims, of at least one class subject to such discharge. Once endorsed by the court, the reorganisation plan becomes binding and enforceable with respect to the debtor and all of its creditors, including the dissenting creditors.

1.4 How can a creditor or a class of creditors be crammed-down?

The creditor claims that occurred before the date of the ruling instituting the insolvency proceedings and with respect to which the reorganisation plan has a mandatory effect, are transformed in accordance with the provisions of the plan. As the plan may provide for deferral or rescheduling of payments, reduction or discharge of obligations in part or in full, the respective creditors would be crammed-down if the reorganisation plan was adopted and became effective.

1.5 Is there a process for facilitating the sale of a distressed debtor's assets or business?

If a company is close to or technically insolvent/over-indebted, but no insolvency proceedings have been opened, the sale of the debtor's assets would be a matter of private negotiations between the debtor and its creditor(s). On the other hand, if insolvency has been commenced, the sale of assets would be conducted under the rules of the insolvency proceedings. In such a case, facilitation is possible only upon the creditor's consent, expressed in the reorganisation plan or an out-of-court settlement agreement, concluded during the pending insolvency proceedings.

1.6 What are the duties of directors of a company in financial difficulty?

In Bulgaria, directors of an insolvent company are obliged to file for the opening of insolvency proceedings within 30 days of insolvency occurring. Failure to comply with this 30-day deadline can result in personal liability for the respective representative towards the company's creditors for damages caused by the delay, and even criminal liability including a fine or imprisonment. In addition, directors of a limited liability company and joint stock company are obliged to convene a general meeting of its shareholders immediately if the company has suffered losses that exceed a quarter of the registered capital of the company. Failure to do so can result in personal liability to the company for any damages caused and the shareholders can initiate legal proceedings against the director.

1.7 How can any of a debtor's transactions be challenged on insolvency?

Bulgarian law provides that certain transactions made after the date of the court decision for the opening of the bankruptcy proceedings in breach of the relevant requirements of the bankruptcy proceedings are considered null and void vis-a-vis the creditors. These transactions include performance of an obligation which arose before the date of the court decision for the opening of insolvency proceedings, the establishment of real security over assets forming part of the bankruptcy estate or deals with such assets. Further, any creditor may file a claim for setting aside detrimental transactions, based on the general rules of civil law, provided that he/she had the capacity of a creditor at the date of execution of the transaction.

1.8 What priority claims are there and is protection available for post-petition credit?

Provided that the operations/transactions carried out by the debtor are executed before the commencement of the insolvency proceedings, they would be in principle valid. However, their validity may be challenged and ultimately voided if the operations/transactions fell within certain specific categories defined in the Law on Commerce and had been carried out after the date of the initial insolvency/over-indebtedness declared by the court.

Those categories would include: payment of undue monetary obligations, irrespective of the type of payment, made during the one-year period before the filing of the petition for the initiation of insolvency proceedings; a mortgage or pledge established by the debtor after the occurrence of the secured obligation and effected during the one-year period before the filing of the petition for the initiation of insolvency proceedings; and, payment of due and payable monetary obligations, irrespective of the type of payment, carried out during the six-month period before the filing of the petition for the initiation of insolvency proceedings.

As an important exception, payments annulled by the debtor in the one-year period before the filing of a petition for the initiation of insolvency proceedings could not be claimed if the payment had been effected by the debtor within the ordinary course of business and simultaneously against equivalent consideration, or the creditor had provided equivalent consideration after the payment. As regards the establishment of security in the form of a mortgage or a pledge, this security could not be annulled if the mortgage or pledge had been established simultaneously with the secured transaction, to substitute other security, or to secure a loan granted for the acquiring of the assets, subject to the security. There are also certain gratuitous operations/transactions which may be set aside by the court, where the value received is considerably less than the value of the right or asset disposed, or where the other party is a related party to the debtor. Claims for the voidance of the transactions mentioned above can be brought either by the trustee or any creditor of the bankruptcy estate, if the trustee failed to act within one year as of the opening of the bankruptcy proceedings.

1.9 Is there a different regime for credit institutions and investment firms?

Bulgarian law provides for specific rules when insolvency concerns banks, insurance and social security companies. These rules may concern the way the insolvency is initiated, the powers of the trustee, the administration of the proceedings, the debtor's reorganisation, legal consequences, and so on. For instance, besides illiquidity and over-indebtedness, legal persons may enter into insolvency procedures if they lose their licence. Insolvency proceedings against banks can only be initiated by the Bulgarian National Bank, while insolvency proceedings against insurance companies and social insurance companies can be initiated by the Financial Supervision Commission, only after their licence has been revoked.


2.1 Can reorganisation or insolvency proceedings be opened in respect of a foreign debtor?

Cross-border insolvency cases concerning debtors from EU member states are regulated by Council Regulation (EC) number 1346/2000 of May 29 2000 on insolvency proceedings (Regulation 1346/2000). In accordance with article 3, paragraph 2 of Regulation 1346/2000, Bulgarian courts of law have jurisdiction to open insolvency proceedings against a debtor, where the centre of a debtor's main interests (COMI) is situated within the territory of another member state, only if he/she possesses an establishment within the territory of Bulgaria. The effects of those proceedings are restricted solely to the assets of the debtor situated in the territory of Bulgaria. The secondary proceedings could only be winding-up proceedings.

2.2 Can recognition and assistance be given to foreign insolvency or reorganisation proceedings?

Assistance for foreign insolvency proceedings opened in another member state is also available under Regulation 1346/2000. As regards debtors domiciled outside the EU, recognition and assistance could be given only in the case of a rendered foreign judgment under the general rules for recognition and enforcement of foreign judgments, governed by the Private International Law Code and by a number of bilateral treaties to which Bulgaria is a party. In general, such judgments are subject to recognition in Bulgaria before their enforcement is declared. However, under no circumstances may a foreign judgment be reviewed as to its substance.


3.1 What other major stakeholders (such as governmental or regulatory institutions) could have a material impact on the outcome of the reorganisation?

In principle, the interests of the treasury (generally represented by the national revenue agency and the minister of finance) are strictly guaranteed in Bulgaria in all kinds of foreclosure proceedings, including insolvency. In terms of reorganisation, while the reorganisation plan has a mandatory effect and creditors' claims are transformed in accordance with the provisions of the plan, the transformation of public liabilities is subject to special limitations. Only the obligations for payment of interest (and not the principal) may be deferred, rescheduled or reduced on the condition that the debtor pays the principal within a certain deadline, determined by the finance minister. In addition, the transformation of any public liabilities into shares of the debtor's capital is explicitly prohibited. The advance written consent of the minister of finance is a condition precedent for the validity of any public liabilities' transformation, as it is for the admissibility of the reorganisation plan itself.


4.1 Outline any bankruptcy and reorganisation trends specific to your jurisdiction

In the aftermath of the economic crisis, one thing has become clear over the last year – almost all sectors may and do face insolvency. Even the so-called too big to fail companies from the private sector, as well as companies from the public sector, traditionally regarded as critical infrastructure are at risk of insolvency exposure. A noticeable case involves Corporate Commercial Bank (the third-largest Bulgarian bank in terms of net profit and the largest in terms of deposit growth until June 2014), where the authors represent a subsidiary of the State General Reserve of the Sultanate of Oman, holding a major share of the bank's capital. Corporate Commercial Bank was declared bankrupt in November 2014 after scandalous actions of the Bulgarian government and revocation of its banking licence by the Bulgarian National Bank.

In terms of legislation, important amendments of the Insolvency Law took place in Bulgaria concerning avoidance actions and insolvency claw-back rules. As a result, the legal regime for avoidance actions was finally brought in line with the other EU jurisdictions in terms of hardening periods, voidability, pre-conditions, and so on.

  First published by our sister publication IFLR magazine. Take your free trial today.

Angel Ganev
Djingov Gouginski Kyutchukov & Velichkov

About the author
Angel Ganev heads the bankruptcy and insolvency and the litigation and arbitration practice group and combines his in-depth legal knowledge and long-term experience as a commercial lawyer. He is a member of INSOL Europe and an arbitrator with the Vienna International Arbitral Centre (VIAC).

He is recognised as a leading lawyer by both clients and partners. He advises key international and domestic corporations in relation to various commercial litigation disputes and arbitration proceedings. He advised on one of the most complex cross-border bankruptcy and insolvency cases.

Simeon Simeonov
Djingov Gouginski Kyutchukov & Velichkov

About the author
Simeon Simeonov has substantial experience in all aspects of bankruptcy proceedings, mainly focusing on representation of both creditors and debtors in filing-for-bankruptcy proceedings. His practice includes advising and representing major international clients in a number of avoidance claim proceedings and regulatory matters concerning the comparative analysis of avoidance claims in the EU. He has played an important role in the representation of a number of foreign trustees and bankruptcy administrators in avoidance claims proceedings successfully conducted in Bulgaria.