Insolvency of commercial companies
Insolvency proceedings are initiated in the event of insolvency or over-indebtedness of a trader. A trader is deemed insolvent, if they are unable to fulfil a due monetary obligation arising from a commercial transaction or a public law obligation to the state and municipalities related to commercial activity or an obligation under a private state receivable. An over-indebted company is a company whose assets are insufficient to cover its monetary obligations.
Insolvency is presumed when the trader has stopped payments. Insolvency may also occur when the company is able to pay in part or in full only the claims of individual creditors.
The purpose of the procedure is to enable the debtor’s business to be reorganised in such a way as to continue its activities. In the event that this proves impossible, the insolvency proceedings are intended to ensure fair satisfaction of the debtor’s creditors.
Insolvency proceedings are initiated upon a written application submitted to the insolvency court by the debtor, respectively by the liquidator or by a creditor of the debtor in a commercial transaction, as well as by the National Revenue Agency for a public debt to the state or municipalities related to the commercial activity of the debtor or a debt under a private state receivable.
The insolvency court is the district court at the seat of the trader at the time of the application for the establishment of insolvency proceedings.
Insolvency proceedings shall take into account the interests of the creditors, the debtor and their workers. When insolvency is established, the debtor continues to operate under the supervision of the insolvency administrator. The insolvency administrator may enter into new transactions only with the prior consent of the insolvency administrator and in accordance with the measures ordered by the decision to establish insolvency proceedings. The court may deprive the debtor of the right to manage and dispose of the property and grant this right to the insolvency administrator when it finds that the debtor’s actions jeopardize the interests of the creditors. In insolvency proceedings, the debtor, respectively their authorities, in the case of a legal entity, may carry out in person or through a person authorized by them all procedural actions not explicitly provided to the insolvency administrator. From the moment of the registration of the decision to establish insolvency proceedings, the enforcement of an obligation towards a debtor is assumed by the insolvency administrator.
Within 14 days of the establishment of insolvency proceedings, the debtor is obliged to provide the court and the insolvency administrator with the following:
- The necessary information in connection with the activity of the enterprise and its property;
- A list of payments in cash or by bank transfer, which exceed BGN 1200 made within 6 months before the start date of the insolvency;
- A list of the payments made by the debtor to persons related to him for a period of one year before the start date of the insolvency;
- A notarized declaration, stating the individual possessions, property rights and receivables, the names and addresses of its debtors.
The debtor provides the court or the insolvency administrator with information pertaining to the state of their property and commercial activity at the date of the request, as well as all related documents.
Creditors submit their claims in writing to the insolvency court within one month of recording in the Commercial Register of the decision to establish insolvency proceedings. The creditor indicates the basis and amount of the claim, the privileges and guarantees, the court address and provide written evidence.
In the event that the business of the trader cannot be restructured, the court issues a decision declaring the debtor insolvent. By issuing an insolvency resolution, the court:
- Declares the debtor bankrupt and decrees termination of the activity of the enterprise;
- Decrees a general seizure and distraint of the debtor’s property;
- Terminates the powers of the authorities of the debtor – in the case of a legal entity;
- Deprives the debtor of the right to manage and dispose of the property included in the bankrupt estate;
- Decrees the commencement of the sale of the property included in the bankruptcy estate and the distribution of sold realised property.
When the real estate and movable property are sold in their entirety or in separate parts, the material and other property rights from the bankruptcy estate are converted into money insofar as this is necessary to pay the debtor’s debts. The sale of property and property rights from the bankruptcy estate is carried out by the insolvency administrator after permission of the court.
When distributing sold property, the receivables shall be paid in the following order:
- Receivables secured by a pledge or mortgage, or distraint or foreclosure, entered under the Special Pledges Act – from the amount received when the security was implemented;
- Receivables due to the right of retention – from the value of the detained property;
- Insolvency costs;
- Receivables arising from employment relationships arising before the date of the decision to open insolvency proceedings;
- Financial support due by law from the debtor to third parties;
- Public law receivables of the state and municipalities, such as taxes, duties, fees, compulsory social security contributions and others, incurred prior to the date of the decision to open insolvency proceedings;
- Receivables arising after the date of the decision to open insolvency proceedings and unpaid at maturity;
- The remaining unsecured receivables incurred before the date of the decision to open insolvency proceedings.
After distribution of the merchant’s property, its deletion from the Commercial Register follows.
„ARTIS LEGAL” provides procedural representation and legal protection in insolvency proceedings of commercial companies.