Bulgaria collection profile

All Bulgarian merchants (companies and natural persons – merchants who have their registered office and address of management in Bulgaria) are obliged by law to provide the Bulgarian Registry Agency with their annual financial reports. These reports are announced in the Commercial Register and Register of non-profit legal entities, which is a public register.

Another public register with the Bulgarian Registry Agency – The Property Register – contains information on the immovable property owned by companies and natural persons. Remote access to property registry documents: anyone can perform electronic searches after registering and paying a state fee in advance. Access is registered.

Additionally, information on potential pending execution lawsuits against any debtor may be obtained through any private bailiff.

Bulgarian law recognizes the following types of companies:

• General partnership (unlimited liability): а company formed by two or more persons for the purpose of effecting commercial transactions under a common trade name where the partners are liable jointly
• Limited partnership: a company formed by means of a contract between two or more persons for carrying out commercial activities under a common trade name, whereby for the partnership's obligations one or more of the partners shall be liable jointly and their liability shall be unlimited, and the remaining partners' liability shall not exceed the amount of the agreed upon contribution.
• Limited liability company (LLC): A common form of business entity where the liability of the shareholders is limited to their contributions.
• Joint stock company: A company whose capital is divided into shares, and the liability of shareholders is limited to their shareholding.
• Limited stock partnership: а company formed pursuant to a contract, whereby stocks are issued for the contributions of the limited partners.
• Non-profit legal entities: Organizations formed for purposes other than generating profit, such as charitable, educational, or cultural activities.

Bulgarian law provides that both parties to a contract may reach any agreement and it shall be valid as long as such an agreement does not violate mandatory norms in which case the latter shall apply. There are explicit provisions governing most of the types of contracts that parties may enter into.

Disputes between the parties may be resolved by either the competent Bulgarian state court or by an arbitration court, if both parties agree to address their claims to a certain arbitration court. Proceedings before arbitration courts are single-instance lawsuits, while court proceedings take place before three court instances or two court instances (when the amount in dispute is low).

Both state court and arbitration courts in Bulgaria apply strict and well-established procedural rules.
Enforcement of final court decisions and arbitration awards is carried out by state or private bailiffs who also follow explicit normatively established procedures in execution lawsuits.

The costs incurred by a creditor in the court proceedings initiated with respect to a debt collection claim are awarded to that creditor proportionally to the recognized part of the claim. All expenses in an execution lawsuit are borne by the debtor, although some of them must be paid in advance by the creditor and are refunded when amounts are collected from the debtor.

Unless agreed otherwise, the creditor is also entitled to compensation of EUR 40 for the costs incurred in extrajudicial attempts at debt collection. Higher amounts of costs incurred by the creditor in the process of debt collection may be subject to additional claim but must be proven.

Ownership protection clauses are valid in contracts for the sale of movable property under an instalment agreement. In such cases, the seller may retain the ownership of the sold property until they receive the last instalment, but the risk passes to the buyer from the moment of delivery.

Сash payments and bank transfers are acceptable. Cash payments are limited up to BGN 10,000 (around EUR 5,000).

Parties may negotiate and reach an agreement that shall be valid unless it violates explicit normative provisions regulating the specific matter.

The parties may also resort to mediation as a means of extrajudicial dispute resolution. However, neither party is obliged to engage in any extrajudicial negotiations prior to submitting its claim before a state or arbitration court.

Bulgarian courts recognize the following types of proceedings:

·         Claim proceedings: ordinary lawsuits with public hearings, witness and court experts’ interrogations.

·         Claim security proceedings: fast court proceedings (in which the debtor does not participate), aimed at blocking a debtor’s property prior to the initiation of regular claim proceedings.

·         Evidence securing proceedings: court proceedings aimed at securing evidence prior to the initiation of regular claim proceedings.

·         Warrant proceedings: special proceedings aimed at the quick resolution of certain and undisputed claims.

·         Insolvency proceedings.

·         Stabilization proceedings: Proceedings aimed at financially stabilizing a company in distress (see. Below “debtors who are not yet insolvent but are in danger of becoming such, may resort to stabilization procedure before a Bulgarian court as a result of which a stabilization plan restructuring the debt may be adopted and approved by the court”).

Additionally, private and state bailiffs carry out execution proceedings.

Arbitrations courts conduct only claim proceedings

Any claim must be supported by evidence, which, in most cases, consists of documents. The initiation of certain type of warrant procedures also requires that specific documents (for instance notarized) be submitted.

All claims are extinguished upon the expiration of a five-year limitation period, unless otherwise provided by the law.
Some obligations, however, are extinguished upon the expiration of a three-year limitation period (such as claims for damages and liquidated damages resulting from non-performance of contracts; rent payments, interest, penalties and other periodic payments).

The limitation period runs from the day the claim becomes due. In certain circumstances the limitation period does not run (for instance while a case is pending) or is interrupted and starts running all over again for its full initial duration (upon admission of the claim by the debtor) or even for a duration longer that its initial one (for instance, when a claim has been recognized with a court decision, its new limitation period is five years)
With the expiration of the ten-year statute of limitations, monetary receivables against natural persons are extinguished, regardless of any interruption, except when the obligation is deferred or rescheduled.

Distraints over movable property and company shares as well as injunctions over immovable property may be imposed as a result of claim security proceedings. Prior to allowing such measures the court may request the applicant to deposit a certain amount into a bank account held by the court.

Most first instance court decisions may be appealed. Certain first instance court decisions may be enforced even though they are not final. Appealing such decisions does not result in the suspension of their enforcement. Most appeal decisions, even though not final, may be enforced.

Court decision may be enforced when they enter into force (when they are final)
There are however some exceptions to this rule:

• Some first instance court decisions are subject to preliminary enforcement by default (alimony, labour remuneration)
• Additionally, a first instance court may allow preliminary enforcement of its decision upon request by the claimant
• Appeal court decisions, are enforceable (even in cases where they are not final)
• Private and state bailiff enforce court decisions
  

Different court proceedings vary in time frames. Also, the time span of identical procedures may not always be the same due to the specifics of the cases, the workloads of the court, etc. Court proceedings take approximately the following time to conclude:

• Claim proceedings: for the first court instance - about 1 to 1.5 years from claim submission; for the appeal instance - about 1 year; and for the cassation court instance - 6 months to 1 year;
• Claim security proceedings: 1 to 7 days of submission of the application;
• Evidence securing proceedings – about a month from submission of the application, depending on the evidence being secured;
• Warrant proceedings – between a week to 2 months from submission of the application;
• The duration of execution lawsuits and Insolvency proceedings depends on the amount of assets the debtor possesses and how attractive those assets are to third parties. It is not a rare occasion that such proceedings take five or more years before all of the assets of the debtor are sold.
  

First instance courts collect fees of 4% of the amount of the claim, while appeal courts and the Supreme cassation court collect 2% of that amount.

In warrant procedures, the amount of the court fee is 2% of the amount of the claim. Private and state bailiffs also charge fixed and proportional fees based on the amounts they actually collect, or based on the price of the asset being sold.  

Bulgarian law provides that disputes may be resolved by either a state court or arbitration agreed upon by the parties.
Mediation is another option for extrajudicial dispute resolution.

Mediation is a voluntary, confidential, and out-of-court process for resolving disputes with the help of a neutral mediator. It is used in:

·         Civil and commercial disputes: contracts, consumer cases, neighbors.

·         Family matters: divorce, parental rights, alimony.

·         Labor disputes: conflicts between employees and employers.

·         Small claims: quick and inexpensive resolution.

·         At the suggestion of the court: especially in family and low-value disputes.

The procedure is initiated by a party, court, or contract, and the mediator is selected from the register of the Ministry of Justice. Meetings are held, which may result in the signing of an agreement. When this agreement is presented to the court and approved, it is considered a valid basis for enforcement.

When competent to resolve a dispute, state and arbitration courts decide on the case based on the law applicable to the relations between the parties (either Bulgarian law or foreign laws). Parties may also agree that a court in a foreign country shall be competent to resolve their disputes.

Enforcing a foreign state court decision or foreign arbitration award in Bulgaria requires that those decisions/awards undergo a procedure of recognition and enforcement before a Bulgarian state court.
Recognition and enforcement of state court decisions of foreign courts are different from the procedure of recognition and enforcement of foreign arbitration awards. In neither procedure however does the state court re-decide the case on its merits.

Initiation of insolvency proceedings does not require engaging in out-of-court negotiations. Additionally, negotiations between the creditor and the debtor are also possible after a claim for the opening of insolvency proceedings has been submitted until a court decision is issued to open the insolvency proceedings.

Debt restructuring may be achieved either as a result of out-of-court negotiations (prior to the court issuing a decision to open the insolvency proceedings) or through the adoption of a recovery plan, approved by the court (after a decision is issued to open the insolvency proceedings).

Additionally, debtors who are not yet insolvent but are in danger of becoming such, may resort to stabilization procedure before a Bulgarian court as a result of which a stabilization plan restructuring the debt may be adopted and approved by the court.

Winding up proceedings initiate when a company terminates its activity. A liquidator is appointed (usually the manager of the company), who is obliged to complete any pending transactions, to collect debts due, to convert the remaining company's property into cash and satisfy the creditors. However, a winding up procedure may not be initiated by a creditor and the process of assets liquidation and satisfying of creditors in a winding up procedure is not identical to the same processes being carried out in an insolvency procedure.
The Insolvency procedure may be initiated by a creditor and has two phases:
 

• Opening of the insolvency proceedings: when the court establishes that the tangible assets of the debtor are insufficient to cover their short-term monetary obligations under a commercial contract; and
• Pronouncing the debtor insolvent – when the assets of the debtor are insufficient to cover the initial expenses of the insolvency procedure; or if it is obvious that further operation of the debtor would damage the bankruptcy estate, or when no recovery plan was adopted or the debtor violated his obligation under the adopted recovery plan;

Creditors submit their claims against the debtor after the opening of the insolvency proceedings. The assets of the debtor are sold by the receiver in insolvency after the debtor has been pronounced insolvent – first in public tenders and then, if some assets still remain unsold – through direct negotiations with potential buyers.

1. 1.      claims secured by a pledge or mortgage, or distraint or injunction registered with the Bulgarian special pledge register - from the amounts received through sales of such mortgaged assets/assets over which were imposed distraints/injunctions registered with the Bulgarian special pledge register;
2. 2.      claims for which the right of lien is exercised - from the value of the property subject to lien;
3. 3.      bankruptcy costs;
4. 4.      claims arising from employment relations, which arose before the date of the decision for the institution of bankruptcy proceedings;
5. 5.      alimony claims;
6. 6.      public claims of the state and the municipalities such as taxes, customs, duties, fees, mandatory insurance instalments and others, arising before the date of the decision for the opening of insolvency proceedings;
7. 7.      claims arising after the date of the decision for the opening of insolvency proceedings and not paid on maturity;
8. 8.      the remaining unsecured claims arising before the date of the decision for the opening of insolvency proceedings.

• Certain actions of the debtor are considered null and void with respect to the creditors in insolvency, if effected after the date of the decision for the opening of the insolvency proceedings and not in compliance with the procedure established thereby. Such are:
• ·         performance of an obligation that arose prior to the date of the decision for the opening of the insolvency proceedings;
• ·         establishing a pledge or a mortgage over rights or objects included in the insolvency estate;
• ·         transactions with rights or objects included in the insolvency estate.
  
  
• Other activities and transactions carried out by the debtor after the initial date of the insolvency, respectively the over-indebtedness may be declared invalid with respect to the creditors of the bankruptcy, if they were carried out within certain periods (6 months, 1 year or two years) prior to submission of the claim for the opening of insolvency proceedings. Such actions are:
• ·         performance of a monetary obligation prior to its maturity;
• ·         establishing of a mortgage or a pledge to secure receivables from the debtor, which were previously unsecured;
• ·         performance of a due monetary obligation of the debtor.
  
  
• Additionally, some acts and transactions carried out by the debtor may be invalidated with respect to the creditors in insolvency, if carried out within certain time limits (1 year, 2 years or 3 years) prior to submission of the claim for the opening of insolvency proceedings. Such actions/transactions are:
• ·         gratuitous transactions, concluded with a related party to the debtor or any third party;
• ·         a consideration transaction where the debtor provided significantly more than what they received;
• ·         establishing of a pledge or mortgage or granting a personal guarantee to secure a third-party obligation;
• ·         any transaction, which is harmful to the creditors and is concluded with a related party to the debtor.

The duration of the Insolvency proceedings depends on the amount of assets the debtor has and also on their specifics. Often the insolvency proceedings take more than 5 years to conclude.

In the insolvency proceedings a creditor has to provide any and all evidence establishing their rights against the debtor.
The court appoints an expert to establish whether or not the debtor is insolvent. The receiver in insolvency carries out all actions necessary to locate and sell all of the assets of the debtor.