Insolvency procedure of a Bulgarian company
The subject of this article is to explain the insolvency procedure of a Bulgarian company.
The Insolvency procedure in Bulgaria is generally governed by the Commercial Act. The procedure is initiated when a debtor is unable to cover his obligations to his creditors. By opening the insolvency procedure, the creditors collect their receivables by avoiding the inconvenience of keeping multiple enforcement actions and is also a guarantee that the debtor will not, by its actions, damage the future insolvency mass. In Art. 601 par. 1 of the Commerce Act is explicitly stated that “the insolvency proceedings are aimed at ensuring fair satisfaction of the creditors and the possibility of restitution of the debtor undertaking”, par. 2 notes that the interests of both the creditors and the debtor and its employees are taken into account.
Often owners and managers are confused when a liquidation or an insolvency procedure should apply. The main differences between liquidation and insolvency are connected with the protection of the interest and the ability to satisfy the creditors. In general, the liquidation does not protect the interests of the creditors in such multilateral way. And there is a reason for this – in the liquidation procedure, the company HAS ALWAYS ENOUGH security and capacity to satisfy the creditors. It is always the opposite in the insolvency procedure.
If you want to learn more about the liquidation procedure and decide which one you really need to apply, you may check our article about liquidation procedure in Bulgaria here.
But how the proceedings start?
A request for a legal person to be declared bankrupt may be submitted by certain persons specified in the Commercial Law. These are:
– The debtor himself – he is obliged to file an application for insolvency within 30 days after the insolvency or the excessive indebtedness has occurred.
– The liquidator;
– Each creditor of sale transactions;
– A member of the managing body of the capital company;
– National Revenue Agency for public receivables of the state and municipalities related to the debtor’s commercial activity and private state receivables.
The court decides on the opening of insolvency proceedings. The district court at the seat of the insolvency debtor bears the competence according to Article 613 of the Commercial Act. The court has the following competencies:
- Resolution on the opening of insolvency proceedings if the statutory conditions are met. In this case, the court may:
- Attest the insolvency/excessive indebtedness;
- Attest the moment when the insolvency/excessive indebtedness has occurred;
- Open the insolvency proceedings.
- The court appoints a bankruptcy receiver; orders protective measures to protect the assets; determines the first date of the meeting of creditors within one month after the adoption of the decision.
- The dismissal of the application for opening insolvency proceedings if the required conditions have not been fulfilled;
- To issue a court order on the opening of insolvency proceedings together with a simultaneous declaration of the company in insolvency if the insolvency estate would be affected by continuing business operations;
- To issue a court order on ceasing the proceedings if the assets are not sufficient to cover the costs of the insolvency proceedings. The proceedings may be continued if the applicant meets the costs in advance.
The court order is effective toward everyone – towards the creditors as well as towards the insolvency debtor.
Regarding the creditors, the court order ceases all ongoing court and enforcement proceedings. Few exceptions apply as the cases connected with labor salaries.
Our Commercial Act regulates an out-of-court agreement between the insolvency debtor and the insolvency creditors. As well as a procedure with aims to strengthen the company and continue its activity.
Cross-border insolvency cases are solved according to the EU Council Regulation for insolvency, only in those cases in which the debtor has an establishment on the territory of Bulgaria that is in his possession.
Company owners in Bulgaria as well as the creditors of an insolvent debtor are advised to go through the insolvency process with assistance from a team of lawyers in Bulgaria.
Our lawyers can fully assist you with professional advises, along with the preparation of the required documents for the initiation of the insolvency process, the appointment of a bankruptcy receiver, satisfying the creditors and the erasure of the company from the Commercial Register.
For any questions and more information about company insolvency procedure in Bulgaria, please do not hesitate to contact us.
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