Vol 2 (2005) - Issue 3

Article preview

"Claw Back’" Rules in Insolvency Procedures under Bulgarian Law

General overview of bankruptcy proceedings under Bulgarian law

Bankruptcy under the Commerce Act

General bankruptcy procedures in Bulgaria are regulated by the Commerce Act (the ‘CA’). The relevant legal provisions were adopted as a part of the CA in
1994 after nearly 50 years during which insolvency was a concept unknown to Bulgarian law. Not surprisingly bankruptcy regulations have been subject to numerous changes subsequently, in an attempt to find the right balance between the interests of creditors and debtors and to create an adequate legal framework for a concept of particular importance for any market economy.
The general bankruptcy procedure under the Bulgarian CA is a two-phase process comprising (i) a rehabilitation phase and (ii) a liquidation (sale of assets) phase which shall apply provided that the efforts for preservation of the business fail.
The general rules shall apply to each case where no special bankruptcy rules are provided for. Where special public interest may be affected by the insolvency, Bulgarian law has provided for a more protective and strict regulatory regime. Details of some of the most important special insolvency regimes are set out below.
The opening of the bankruptcy proceeding is preconditioned by the finding of the court that the debtor has either become insolvent (a case of non-payment of a valid and established debt) or over-indebted (a situation where the short-term assets of the debtor are not sufficient to cover its debts). Following the court’s assessment of the facts which give grounds for the opening of the bankruptcy case, a judgment for opening of the proceeding is issued by the bankruptcy court. With this first judgment the court: (i) determines that the debtor is insolvent or over-indebted; (ii) pronounces the opening of the insolvency proceedings; (iii) determines the initial date of the insolvency; (iv) appoints a provisional receiver, and (v) imposes other security measures on the property of the debtor with the purpose of preserving the insolvency estate. After the above judgment is made, the creditors of the insolvent debtor are allowed to adopt a rehabilitation plan for getting the debtor out of the insolvency situation. If such a plan is adopted, the bankruptcy procedures are closed. If no rehabilitation plan is adopted or after being adopted the debtor does not comply with it, the court issues a decision for declaring the debtor bankrupt and the second stage of the insolvency procedures is initiated, consisting of a process of sale of all assets of the debtor, partial satisfaction of creditors and termination of the legal entity of the debtor.
The rehabilitation phase of the bankruptcy proceedings under the CA is generally intended to secure both the continuation of the business of the company and the fair satisfaction of the creditors. The CA, however, provides that if the continuation of the business of the insolvent debtor would damage the bankruptcy estate the court may declare the debtor bankrupt and terminate the debtor’s activity simultaneously with the court judgment for opening of the proceedings. In all other cases after the opening of the bankruptcy proceedings and within one month following publication in the State Gazette of the court ruling for approval of the creditors’ claims, the rehabilitation plan may be proposed by the persons entitled thereof.