Insolvency proceedings are carried out under Part IV of the Commercial Law. Insolvency proceedings are to provide equitable relief of creditors and the possibility of rehabilitation of the debtor's company, taking into account the interests of the creditors, the indebted person and their employees.
Insolvency proceedings shall be opened to a merchant who is insolvent or a company (limited liability company, joint-stock company or company limited by shares), which is over-indebted. Over-indebted is a company whose capital is not enough to cover its cash obligations.
Insolvent is a merchant who is unable to perform their:
- pecuniary obligation arising out of or relating to a commercial transaction, including its validity, performance, breach, termination, destruction and deterioration or the consequences of its termination, or
- public law obligation to the state and municipalities related to their trading activities, or
- obligation on private state receivables.
Insolvency is presumed when the merchant has stopped payments. Insolvency can occur even if the debtor has paid or is unable to pay partially or entirely the claims of individual creditors.
Insolvency proceedings shall be opened for:
- a merchant (physical or legal person) that is insolvent or over-indebted;
- a person who conceals business through an insolvent;
- an unlimited liability partner, as proceedings shall be started simultaneously with the bankruptcy proceedings for the company;
- a deceased or deleted in the Commercial Register sole proprietor, if they were insolvent before death or before the cancellation;
- a deceased or deleted in the Commercial Register unlimited liability partner;
- an insolvent company in liquidation.
Insolvency proceedings shall be opened at the insolvency court on the grounds of a written request by the debtor, the liquidator respectively, or a creditor of the debtor in a commercial transaction. Insolvency proceedings shall be opened at the request of the National Revenue Agency for a public legal duty to the state or municipalities related to the business of the debtor or an obligation on private state receivables.
Insolvency court is the district court of the merchant's head office at the time of filing the application for opening of insolvency proceedings.
A debtor who becomes insolvent or over-indebted is required within 30 days to request the opening of insolvency proceedings.
The debtor, liquidator respectively, shall enclose to the application:
- a copy of the latest audited annual financial report and balance sheet at the date of application, if the law requires the merchant to draw such;
- inventory and evaluation of assets and liabilities at the date of application;
- a list of the creditors, indicating the addresses, the type, size and security of their claims;
- an inventory of personal assets and community property – for the sole trader and the unlimited liability partner;
- in case the application is filed by a creditor of the debtor, written evidence shall be submitted and the remaining evidence of the insolvency of the debtor shall be stated. Evidence under Art. 78, Par. 2 of the Tax-Insurance Proceedings Code (Art. 628, Par. 2 and 3 of the Commercial Law).
- To the application can also be applied:
- a company recovery plan;
- a proposal for the appointment of an interim assignee if insolvency proceedings are to be started.
The court shall start the proceedings on the day of filing the application and the case shall be scheduled to be addressed the latest within three months of its formation. Insolvency proceedings are considered open at the date of the court decision.
With the opening of insolvency proceedings, the debtor continues to operate under the supervision of the assignee. They may enter into new transactions only with the prior consent of the assignee and according to the measures laid down by the decision to open the insolvency proceedings. The court may deny the debtor's right to manage and dispose of their property and to grant this right to the assignee, where it finds that by their actions the debtor jeopardizes the interests of the creditors. In bankruptcy proceedings, the debtor, its authorities if they are a legal person respectively, can make all procedural steps that are not expressly granted to the trustee in person or by an authorized person.
Within 14 days of the opening of the insolvency proceedings, the debtor is obliged to provide the court and the assignee with:
- all necessary information relating to the activities of the company and their property;
- list of payments in cash or by bank transfer in excess of BGN 1,200 that have been performed within 6 months prior to the date of insolvency;
- list of payments made by the debtor to a related parties for a period of one year prior to the date of insolvency;
- notarized statement of the individual belongings, property rights and claims, and the names and addresses of debtors.
The debtor provides the court or the assignee with information concerning the condition of their property and business at the date of the request, and any related documents. Information and documents shall be submitted within 7 days of their written request.
If the debtor fails to fulfil their obligation under Par. 1, the court shall impose on the guilty person a fine ranging from BGN 500 to BGN 1,000, and under Par. 2 the court shall impose on the guilty person a fine ranging from BGN 1,000 to BGN 5,000.