- The payment behaviour of domestic companies takes on average over 30 days from invoicing (differences among sectors) but usually does not exceed 40 days. Roughly 25% of invoices are not paid in line with the payment terms. However, the vast majority of them are still successfully collected. The collection market in Bulgaria is quite developed and many companies are offering collection services.
- Legal collection holds some specifics but in general there are no big differences from other EU countries. However it suffers from lengthy proceedings and is related to significant costs. The focus should be placed on amicable collection with the help of collection companies if needed (work on a success fee basis as a standard).
- Insolvency seems to be the less effective method for collection. It is not rare that insolvency proceedings end with no proceeds for creditors, namely unsecured ones. It complies with EU standards but it is lengthy (over 3 years on average).
Collecting in Bulgaria
Availability of financial information
Another public register with the Bulgarian Registry Agency – The Property Register contains information on the immovable property owned by companies and natural persons.
Additionally, information on potential pending execution lawsuits against any debtor may be acquired though any private bailiff.
Main corporate structures
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;
- Joint stock company;
- Limited stock partnership – а company formed pursuant to a contract, whereby for the contributions of the limited partners are issued stocks.
- Non-profit legal entities.
Disputes between the parties may be resolved by either the competent Bulgarian state court or by arbitration court, if both parties agreed to address their claims to a certain arbitration court. Proceedings before arbitration courts are single instance lawsuits, while court proceedings take place before 3 court instance or 2 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.
Days Sales Outstanding (DSO)
The parties to a commercial transaction may agree that a monetary obligation shall be fulfilled within a maximum of 60 days. By way of exception, a longer time limit may be agreed where required by the nature of the goods or services or another important reason and provided that this extension is not grossly unfair to the to the creditor or inconsistent with good morals.
Where the parties to a commercial transaction did not agree on a fixed time limit, the monetary obligation shall be fulfilled within 14 days from the receipt of an invoice or a payment reminder.
Late payment interest
Debt collection costs
All expenses in an execution lawsuit are born by the debtor, although some of them should be paid in advance by the creditor and the refunded back when amounts are being collected from the debtor.
Unless agreed otherwise, the creditor is also entitled to a 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 should be proven.
The parties may also resort to mediation as a means of extrajudicial dispute resolution technique.
However, neither party is obliged to engage into 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 initiation of regular claim proceedings;
- Evidence securing proceedings - court proceedings aimed at securing evidence prior to initiation of regular claim proceedings;
- Warrant proceedings – special proceedings aimed at quick resolution of certain and undisputed claims.
- Insolvency proceedings;
- Stabilization proceedings.
Additionally, private and state bailiffs carry out execution proceedings.
Arbitrations courts conduct only claim proceedings
Initiation of certain type of warrant procedures also requires that specific documents (for instance notarized) are submitted.
Some obligations however extinguish upon the expiration of a three-year limitation period (such are claims for damages and liquidated damages resulting from non-performance of contracts; rent payments, interest, penalties and other periodic payments).
The limitation 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 being 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 shall be extinguished, regardless of its interruption, except when the obligation is deferred or rescheduled.
Lodging an appeal
Enforcing court decisions
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
How long could legal action take?
Different court proceedings extend in different 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 – 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 -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.
How much could this cost?
In warrant procedures the amounts of the court fee are 2% of the amount of the claim.
Private and state bailiffs also charge fixed and proportional fees based on the amounts they actually collector based on the price of the asset being sold.
Alternatives to legal action
Alternative Dispute Resolution methods (ADR)
Mediation is another option for extrajudicial dispute resolution.
Parties may also agree that a court in a foreign country shall be competent to resolve their disputes.
Enforcing foreign awards
Recognition and enforcement of state court decision of foreign courts is 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.
Restructuring the debt
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
Winding up proceedings initiate when a company terminates its activity. A liquidator is appointed (usually the manager of the company) who 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 his 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 opening of the insolvency proceedings. The assets of the debtor are being 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.
The amounts collected as a result of the sale of the assets of the insolvent debtor are being distributed in the following order:
- First in order of satisfaction are the claims secured by a pledge or mortgage, or distrain or injunction registered with the Bulgarian special pledge register - from the amounts received through sales of such mortgaged assets/assets over which were imposed distrains/injunctions registered with the Bulgarian special pledge register
- claims, due of which the right of lien is exercised - from the value of the property subject to lien;
- bankruptcy costs;
- claims arising from employment relations, which have emerged before the date of the decision for institution of bankruptcy proceedings;
- alimony claims;
- 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 opening of insolvency proceedings;
- claims arising after the date of the decision for opening of insolvency proceedings and not paid on maturity;
- the remaining unsecured claims arising before date of the decision for opening of insolvency proceedings
Cancellation of suspect transactions (clawback)
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 opening of the insolvency proceedings and not in compliance with the procedure established thereby. Such are:
1. performance of an obligation that arose prior to the date of the decision for opening of the insolvency proceedings;
2. establishing a pledge or a mortgage over rights or objects included in the insolvency estate;
3. 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 opening of insolvency proceedings. Such actions are:
1. performance of a monetary obligation prior to its maturity;
2. establishing of a mortgage or a pledge to secure receivables from the debtor, which were previously unsecured;
3. 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 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 he 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.
How long could insolvency proceedings take?
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.