Entrepreneurs may be able to avoid bankruptcy by anticipating difficulties - if they keep a close eye on the financial situation of their business.
The Bulgarian Trade Act (TZ) lays down what companies need do in such cases. A business is deemed bankrupt if it is late in paying its arrears, or if the owner of a business is only able to pay off part of the company's debts.
Bankruptcy proceedings are defined in a separate law for banks and insurance companies:
There are special rules on bankruptcy for private supplementary pension insurance companies in Chapter 38 of the Social Security Code (KSO).
The Guaranteeing Payments to Employees upon Employer Bankruptcy Act (ZGVRSNR) stipulates what employees can do in such situations.
When launching bankruptcy proceedings against a bank, the court:
- declares the bank insolvent and sets the date of insolvency;
- launches bank bankruptcy proceedings;
- declares the bank insolvent and ceases its business activities;
- suspends the bank's authorities;
- issues a general foreclosure and distrait on the bank's assets;
- strips the bank of its right to dispose of its assets in bankruptcy;
- orders the commencement of proceedings to sell off the assets in bankruptcy, and to distribute their proceeds.
At the request of the administrator or the bankruptcy fund, the court may authorise legal measures on the bank to secure its existing assets.
The proceeds from the sale of any assets are distributed among the bank's creditors when there are sufficient cash funds from this sale.
Bankruptcy proceedings are instituted when the Bulgarian National Bank, as the central bank, has revoked the bank's operating licence. The launch of bank bankruptcy proceedings may be requested from the court only by the Bulgarian Central Bank.
On the day, or the following day at the latest, that the copy of the decision to launch bankruptcy proceedings arrives, the Bank Deposit Guarantee Fund shall appoint an administrator for the bank.
Dealing with bankruptcy
The aim of bankruptcy proceedings is to ensure that the bank's account holders and other creditors are justly satisfied as soon as possible.
In bankruptcy proceedings for banks, there are no creditors' meetings and no recovery plans are proposed.
Entrepreneurs having experienced bankruptcy should not lose confidence in their ability to embark on a new business.
Bankruptcy procedures; step-by-step guide
You must submit a request for bankruptcy to the local court of justice where the company is based. No upfront fee is payable; it is deducted from the bankruptcy notice that lists all your assets at the time they are distributed.
Before declaring bankruptcy, the court may appoint a administrator. Administrators are selected from a Ministry of Justice list. When bankruptcy has been declared, your company will continue to operate, but new transactions may only be made with the administrator's permission.
A form is submitted to the local tax office to obtain a certificate in accordance with the Tax and Social Security Procedural Code (DOPK).
You may offer to repay your creditors at any time after bankruptcy proceedings have been launched. All agreements shall enter into force seven days after being entered into the Commercial Register.
If your business ceases trading, you must inform the National Revenue Agency. There are no limits regarding the length of time required to wind down a company. If the company ceases trading and has no legal successor, the pay documentation shall be handed over to the National Social Security Institute.
Bankruptcy proceedings are terminated by a court decision when:
- all debts have been paid off, or
- the assets in bankruptcy have been used up.
Bank transformation may only be done with the written permission of the Bulgarian National Bank.
If the Bulgarian National Bank suspends a bank's licence for any of the reasons listed below, the Bank Deposit Guarantee Fund shall appoint liquidators:
- if the bank fails to start permitted operations within 12 months of issue of the licence;
- if any infringements under Article 103(1) have been committed;
- if the bank had submitted false information when applying for the licence;
- if the bank has not carried out business activities for more than 6 months;
- if the bank infringes the terms and conditions of its licence;
- if the bank does not have sufficient capital, or it is believed that it will not be able to satisfy its creditors, including if the bank does not provide security for the assets it holds.