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We look at the reforms to the insolvency law of Bulgaria prompted by the coronavirus (COVID-19) pandemic. Written by Angel Ganev, lawyer, partner at Ddjingov Gouginski Kyutchukov & Velichkov law firm (DGKV), member of INSOL Europe.
With a decision dated 13 March 2020 the Bulgarian National Assembly declared a State of Emergency (SE) on the territory of Bulgaria, which was in force (after a prolongation), until 13 May 2020. According to the official announcements of the Bulgarian government, the SE will not be prolonged past this date.
Thus, the legislative response to the coronavirus pandemic in Bulgaria affects only indirectly insolvency proceedings (see below). Most importantly, it does not provide for any prolongation or relief from the obligation of the management of an insolvent company to file for insolvency within 30 days of the date on which the company ceased the payments to its creditors.
Pursuant to the applicable law, the management of a company is obliged to file for insolvency within 30 days as of the date on which the company became insolvent or over-indebted. There is no coherent court practice on the issue as to when exactly the obligation of the directors is triggered—on the date the management acknowledges the existence of over-indebtedness and/or insolvency or the date on which the management was able to establish the insolvency had it acted with the due care.
Failing to file for insolvency results in personal civil liability of the management for damages incurred to the creditors of the respective company due to the delay. Furthermore, the Bulgarian Criminal Code provides that the management faces criminal liability if the company is insolvent (and not over-indebted) and the management failed to file for insolvency within 30-day period of the date on which the company ceased the payments to its creditors.
However, the LMASE contains no guidance as to what happens to these outstanding obligations immediately after the end of the SE. In order to mitigate the potential risk of default, it is highly recommendable that debtors renegotiate explicitly the terms of their loan and leasing agreements with their creditors. The Bulgarian National Bank approved rules to be applied by commercial banks for the granting of private moratoriums for up to six months upon the explicit request by the debtor (to be submitted no later than 22 June 2020). Commercial banks shall agree to amend the repayment schedules of the principal and/or of the interest under the loan agreements, without changing the basic parameters of the provided loans (such as the interest rate). It is left to the commercial banks to determine their own application procedure for the private moratorium, and some banks do require a proof or a declaratory statement that the applicant has been negatively affected by the pandemic.
Besides these legislative measures, the Bulgarian government has been working on the implementation of different financing schemes and mechanisms, available to financially distressed companies in order to help them avoid employment redundancies and becoming insolvent.
The stabilisation procedure is a court administered procedure and applies only in cases where the trader is solvent, but there is an imminent threat that it will become insolvent (ie the debtor is in ‘financial distress’). In legal terms, an ‘imminent threat’ is deemed where the trader, with a view of maturity of its debts for the next six months as from the date of the application for opening stabilisation proceedings, will not be able to repay due payments or is likely to stop payments.
However, contrary to the goal of the EU legislator to provide viable enterprises and entrepreneurs, that are in financial difficulties, with access to effective preventive mechanism, the amendments have been adopted in a very formal manner, repeating to a great extent the onerous regulation of the restructuring mechanism, already provided within the insolvency legal framework.
It is not strange, therefore, that the mechanism adopted has no practical benefits for the period after its adoption. Based on DGKV’s independent review of the most recent case law, no stabilisation procedures have been launched or successfully completed in Bulgaria yet. In the very few cases of attempting to initiate such a procedure, the court refused to initiate it on some of the formal grounds, provided by the regulation.
A tracker of insolvency reforms globally produced by Lexis Nexis in partnership with INSOL Europe is now available: Coronavirus (COVID-19) Tracker of insolvency reforms globally.
We look at various countries worldwide which are expediting reforms to their restructuring and insolvency laws, temporarily suspending onerous insolvency law provisions, increasing limits for statutory demands, suspending enforcement powers and introducing other measures to deal with the coronavirus crisis. As the situation is rapidly evolving with more countries adding new measures daily, you should contact local lawyers in the relevant jurisdiction to check the current measures in force.
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