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31 March 2020

Bulgaria: Insolvency during the state of emergency and creditor protection

Bulgaria has been in a state of emergency since 13 March due to the COVID-19 outbreak. On 23 March the Parliament voted on a special State of Emergency Act (COVID-19 Act) which suspended all court, arbitration and enforcement terms and proceedings during the state of emergency, currently in force until 13 April.

Surprisingly, even before the COVID-19 Act was approved, on 15 March the Supreme Judicial Council announced the suspension of almost all court proceedings, including the filing of new civil and commercial claims. Thus, the work of the judicial system in Bulgaria has been almost fully suspended, except for some minor criminal and family law cases.

Besides the temporary suspension of pending insolvency proceedings, the measures introduced by the COVID-19 Act and the Supreme Judicial Council also mean that courts will not review and open new proceedings of this kind until 13 April at the earliest. The COVID-19 Act also prolongs by one month after the expiration of the state of emergency the term in which a company's management is obliged to file for insolvency if the company is bankrupt. If the managing directors do not file the application with the court within the statutory period, they risk facing criminal charges and civil liability towards the company's creditors.

In addition, the newly adopted COVID-19 Act surprisingly allows for the suspension of all payments falling due during the emergency period. Under the COVID-19 Act, in case of a delay in payment, the legal remedies available to the creditor, such as statutory interest, penalties, termination of the contract or enforcement, will not apply during the state of emergency. This means that creditors (e.g. banks, leasing companies, landlords, etc.) will not be able to charge default interest on unpaid debts and initiate execution procedure or other legal actions against debtors as long as the state of emergency is in place.

Creditors' interests are clearly in great danger during the state of emergency in Bulgaria as a consequence of these stipulations and the absence of a working judicial system. Therefore, it is strongly recommended that creditors immediately take all steps left at their disposal, even if limited, to protect their rights. One option is to secure their receivables by all means possible, e.g. parent or personal guarantees, or increase the value of the existing ones. Another option would be to request the court to grant preliminary protective measures against the debtor's property. This procedure is basically the only court procedure still not suspended by the state of emergency measures.


Attorney at Law