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19 January 2022

Bulgaria: Will there be a surge in insolvency/restructuring work in the aftermath of the pandemic?

So far, the Bulgarian economy has encountered various COVID-19-related effects, but a surge in insolvencies is not yet one of them. Although the Bulgarian state was slow in implementing measures to help companies affected by the pandemic – which measures turned out to be insufficient – there has been no visible increase in bankruptcy proceedings since 2020.

It is worth noting that due to the many flaws in the Bulgarian insolvency procedure, creditors usually prefer to find other mechanisms to collect their debts. It is also possible that a surge in insolvencies will only appear several years after the start of the pandemic. For example, the effects of the 2008 financial crisis were mostly felt in the period between 2012-2014, when insolvency proceedings increased two to three-fold compared to previous years.

The 2020 voluntary bank loans moratorium

The 2020 voluntary bank loans moratorium (prepared by the Association of Bulgarian Banks and approved by the Bulgarian National Bank), also resulted in a slowdown in bankruptcy cases. It introduced a mechanism to postpone payments of principal and/or interest for a maximum period of nine months. The deadline for borrowers to take advantage of the mechanism was 31 March 2021, so the last portion of loans postponed under the moratorium should have become payable after 31 December 2021.

Low interest rates

The continuing policy of the central banks to keep interest rates low is another major factor keeping insolvencies at bay as interest rates under Bulgarian bank loans are currently at a record low. Therefore, in contrast to the 2008 financial crisis, when interest rates in Bulgaria increased sharply resulting in loan repayment instalments that were exceedingly burdensome, there is no such effect now.


If nevertheless we see a surge in restructurings in view of the continuing global presence of COVID-19, reform of the pre-insolvency restructuring legislation in Bulgaria would be highly relevant and necessary. Bulgaria is expected to transpose the EU Restructuring Directive (EC) 2019/1023 soon (the deadline expired in July 2021). It is hoped that this will address the major drawback of the current pre-insolvency restructuring procedure that is practically impossible to commence. Currently, courts regularly hold that there is no 'threat of over-indebtedness' (as a prerequisite for restructuring), but rather an actual over-indebtedness requiring the opening of insolvency proceedings. Introducing more flexible criteria to ensure commencement of the restructuring procedures may alleviate pressure on insolvency courts and allow borrowers a last chance to recover.

authors: Dimitar Vlaevsky and Tsvetan Krumov


Attorney at Law