Multinational Enterprise Liability in Insolvency Proceedings


Varadinov & Co Javor Varadinov, Managing Partner; Yanislava Chankova–Docheva, Attorney-at-law; Zoya Zlatkova, Attorney-at-law

A  Domestic Family of Companies

Bulgarian law explicitly admits the existence of commercial groups as a legal phenomenon and regulates their existence. The legislation applicable to such groups is not a systematic and comprehensive one, nevertheless the law provides some special rules for these cases. The legal status of companies under Bulgarian law is set out mainly in the Commercial Act (CA). Companies’ regulation and commercial groups have special domestic legal acts too, such as the Public Offering of Securities Act,theBanking Act,the Insurance Code, accounting laws, the Protection of Competition Act, etc. The CAprovides for two types of commercial groups: consortium and holding.

A ‘consortium’ is a contractual grouping of merchants for carrying out specified activities. It may be organised as a partnership under civil law or as a commercial company.The respective rules for partnerships under the civil law or for the company, in the form of which a consortium has been organized, should be applied (Article 275 and 276 CA). Consortiums can be created either as a personal partnership – general or limited or as a capital company – a joint-stock company, a partnership, limited by shares, or as a limited liability company.

A ‘holding’is not a contractual association of merchants, but a vertical grouping of companies that keep their legal independence, for whose establishment is not necessary to have an agreement between the participants. In order to have a holding it is necessary that a holding companybe created, which is the top company of a pyramid containing a subsidiaryor several subsidiaries.The CAensures that the holding company is created as a joint-stock company, a partnership limited by shares or a limited liability company, i.e. as a capital company, that pursues a specific goal – to participate in other companies through the acquisition and ownership of shares and stakes, or to participate only in their management. At least 25 per cent of the capital of the holding company must be paid directly to the subsidiary. The holding company may conduct its own production or commercial activity or not (Article 277 CA).

A mandatory element in the creation of a holding is the subsidiary.The law defines itas a company, in which the holding company owns or controls directly or indirectly at least 25 per cent of the shares of that company or participates in its management, having the right to determine, directly or indirectly, half of the members of its board. 

1. If insolvency proceedings must be commenced for the family of companies, does your law permit a joint proceedings, i.e. a single court file, a single judge, a single list of creditors, single notice list, or must the case for each member of the family proceed separately with no practical acknowledgment of the related proceedings?

With regards to the above, the consortium is subject to the rules regarding partnership under civil law (article 357 of the Law on Obligations and Contracts) or the rules of the respective company (article 56–285 CA) in which the consortium is registered. If the consortium has been established as a partnership under the civil law, the consortium is not a legal entity and therefore in case of insolvency of one of the merchants involved in the contract, insolvency proceedings should be opened for each of them. In case the consortium is created as a kind of company under the CA and accordingly is personified, and insolvency proceedings are initiated, there are not any specific provisions from the general principles, since there is one company, for which the relevant provisions of the CA shall be applied.

The subsidiaries are separate and independent legal entitiesin relation to the holding company, upheld by Bulgarian legal doctrine and court practice (Decision No 41/1993 under the company file No 214/1992–V–Supreme Court; Ruling No 399/1994–V–Supreme Court; Decision No  19/1995–V–Supreme Court). The subsidiary is economically subordinate to the holding company as the latter holds at least 25 per cent of the subsidiary’s shares or has the power to determine its management. The CA endorses the understanding of the classical corporate doctrine – the principle of legal severalty of liability and risk allocation of the self-dependant legal entities. Hence the holding company and the subsidiaries are legally separated, self-dependant and personified legal units. In its capacity of an independent legal company, the subsidiary concludes contracts, respectively holds rights and assumes obligations, adopts execution of its debtors, etc. When obligations arise from contracts with subsidiaries, the creditors may not engage either joint or subsidiary liability of the holding company. This is true also for the reverse situation – the subsidiary can not be responsible for the obligations assumed by the holding company.

Each of the companies within the group forms its own property and meets its obligations to the limits of that property. As far as the holding group has no separate legal personality, we can not speak for group’s capital or group’s property. The CA does not provide anything specific about the groups and the liability of companies involved in them, from the general rules for individual companies. The formation of its own capital for each of the individual companies is a prerequisite for severalty of liability and risk allocation. Therefore if there are legal grounds for the initiation of an insolvency procedure, either for the holding company or for any of the subsidiaries, the insolvency proceedings should be opened for each particular company.

However, in addition to the general rules for the commercial groups, the CA provides some specific regulations that should be noted: 

  • In case the holding company is declared bankrupt, which is grounds for its termination, it will trigger the termination of the companies in which the holding company is a general partner (general partnership, limited partnership and partnership limited by shares – Art. 93, p. 4 and 5, Art. 99, para. 2, Art. 259, para. 2 CA),and the sole limited liability companies, in which the holding company is a sole shareholder(Art. 157, para. 2, in connection to the art. 154, para. 1, p. 4 CA). However this is not a specific consequence of the group interconnection between the holding company and the subsidiary, but it follows the general rules of the company law.
  • Note the text of the article 610 CA: in concurrence with the institution of the bankruptcy proceedings for the company, a bankruptcy proceeding shall be deemed instituted as well for its unlimited partner.In case the holding company is  the unlimited partner in a subsidiary company, when the insolvency procedure starts for a subsidiary, it should be considered as having started for the parent company too. Once again, this is not a specific rule considering commercial groups, but a general one, implemented by company law. 
  • As a general principle the holding company is not liable for the duties and responsibilities of its subsidiaries. Nevertheless, there are some exceptions. When the subsidiary company is established in the form of general partnership, limited partnership or partnership limited by shares and the holding company is an unlimited partner – then the parent company is financially liable for the obligations of the subsidiary. This is not a special rule, but a consequence of the general principle of the unlimited liability of general partnerships adopted by law, despite the legal recognition of their independence.
  • Notwithstanding the general principal of commercial law regarding separation of the property and the respective liability of the companies within a commercial group, there are some cases in which the holding company takes on a responsibility for the subsidiary’s obligations towards creditors. There are different legal instruments to achieve this effect, such as entering into debt, becoming a guarantor, assuming real securities, accepting a bill of exchange, etc. The liability described arises from the contract between the parties involved and does not represent a specific rule regarding the relationship between the holding company and the subsidiary.

a) What if the members of the family are organized under, or operate in, different locations within your country? Can a company from a distant location in your country commence its bankruptcy proceedings where its affiliate is located, if the affiliate has already commenced its bankruptcy proceedings?

The seat is a legal individualised characteristic of a merchant. It represents the place where the merchant’s registered office is located. The merchant’s address is the address of its registered office (article 12, paragraph 1 CA).In a holding each of the participating companies has its own seat and registered office. The holding as a group of self-dependant legal entities has neither a seat of its own nor a trade name.The seat of each of the participating companies in the commercial group – the holding company and subsidiaries, is essential to determine its ‘nationality’ and the applicable law.

The CA envisages that the court of insolvency is the district court where the merchant is domiciled at the moment of submission of the petition for institution of the insolvency proceedings.Companies included in the commercial group may have a seat and a registered office in different locations. There is no possibility to initiate a bankruptcy for the parent company at the seat of the insolvent subsidiary. This follows the general rule of legal severalty of liability and of risk allocation of the separate companies within the economic union, which keep their legal independence.

b). To the extent your country has different types of insolvency proceedings (such as Chapter 11 reorganization and Chapter 7 liquidation on the U.S.), do the members of the corporate family all have to proceed under the same type of proceedings?  

The CAprovides for a single insolvency procedure. On the other hand the above should be respected with regard to the principle of legal independence and severalty of liability of the companies within the commercial group, which leads separate insolvency proceedings to be initiated. 

The law regulates thetransformation through joinder, merger, splitting and separation of a company or a change of the legal form and liquidationof companies, but all these are separate legal procedures from the insolvency procedure. The CA provides for exhaustively the prerequisites for starting the insolvency proceedings and they are different from the necessary grounds to initiate procedures for transformation and liquidation. The law (Article 261a CA) envisages that a company which is in an insolvency procedure can be transformed if the rescue plan provides for continued operation of the company. 

There is a connection between the termination of a company, its liquidation and the insolvency procedure, and it is in order of consistency. The law provides thatone of the legal grounds for termination of a company is it being declared bankrupt (Article 252, paragraph 1, 3 CA). The general rule is that after the termination of a company it should be liquidated (Article 266, paragraph 1 CA). However, from the date of the decision for opening insolvency proceedings the liquidation procedure of a company in liquidation shall be stopped(Article 272a CA). The proceedings for liquidation shall be terminated on the date of enactment of the decision under Article 630 CA, by which the company is declared bankrupt.

2. Does your law permit, or prohibit, a single administrator/trustee/receiver to administer the assets and the liabilities of the entire corporate family?

In accordance with the separate insolvency proceedings for each company within a commercial group, the court will appoint a receiver in bankruptcy for each of the proceedings. Thelaw provides for the rights and obligations of this professional, the rules for his appointment and removal, accountability, standard care regarding performing his duties, remuneration, etc. The powers of the receiver in bankruptcy may be exercised by several persons. In such cases, decisions shall be taken by consensus and actions shall be undertaken jointly, unless the Meeting of creditors, in case of dispute between the persons who exercise the authority of the receiver in bankruptcy, or the court decides otherwise. In case the powers of the receiver are exercised by several persons, they shall have joint liability.

(a) If the law permits it, is there a hearing for the court to determine whether the administration by a single party is appropriate? Are secured and unsecured creditors or other parties in interest allowed to object or be heard at such hearing?

Together with the application to start proceedings in bankruptcy, the debtor or a creditor (depending who files the application) is entitled to designate a person who meets the legal requirements for a receiver.If the court finds the application well grounded and pronounced with a decision under Article 630 CA, and if the proposed person meets the legal conditions, the court shall appoint him as a temporary receiver in bankruptcy. The temporary receiver shall carry out his powers until a permanent one shall be appointed by the court after his election on the first meeting of creditors. 

The first meeting of creditors shall be conducted on a date chosen by the court. It should be attended by creditors included in a list prepared by the receiver and those in extracts from the commercial books of the debtor. The CAallows for an order of the receipts of the creditors and grants a priority to the secured creditors. The participation of the creditors, secured and unsecured, in the first meeting shall be personal or by proxy with an explicit letter of attorney in writing. 

After claims are accepted, voting rights at the meeting of creditors are granted only to creditors with accepted claims. Whether the claim of a creditor is secured or not is relevant for order according to which the claim should be paid by the bankruptcy estate, but has no connection to the voting in the meeting of creditors.

(b) What about joint representation by other professionals, such as law firms or accounting or auditing firms?

Insofar as legally independent companies within a commercial group have separate insolvency proceedings, the court should appoint one receiver for each procedure. Accordingly, there is not a general representation of companies by a lawyer or other professionals, audit firms, etc., since there is no general procedure.

(c) If the law does not permit a single administrator/trustee/receiver, are there provisions allowing the different administrators to coordinate with each other so that values of assets may be maximized?

The receivers of each separate bankruptcy proceeding do not coordinate their activities as the procedures are legally separated. However, in practice, it is possible for the separate insolvency procedures of two or more companies which have economic interdependence within a commercial group to have the same receiver appointed. He will have an overview of the development of the two or more formally separated procedures on the status of the property, which is included in the bankruptcy.

3. Does your law encourage or discourage overlapping boards or management teams for separate members of a corporate family?

As stated above, individual companies keep their legal autonomy within the commercial group. Respectively, the principle of severalty of liability and risk allocation of each legal entity have to be considered.

a) If the directors of a parent company are not directors of the subsidiary, but they manage the affairs of the subsidiary anyway, do your country’s laws render such people ‘de facto’ or ‘shadow’ directors of the subsidiary? What are the resulting consequences? 

The self-determining legal personalities of the companies in the holding leads to formation of independent corporate bodies of each legal person. Both holding company and subsidiary companies form a separate management structure depending on their legal form. The CAdoes not envisage the creation of managing authorities of the holding group, since it has no legal personality.

The managing body of a capital company makes the firm’s management, in accordance with the statutory act, aware of the company’s purpose. The holding company manages its own shares in other companies (subsidiaries) and indirectly manages the subsidiaries. In case the holding company has the power to determine or monitor the management of the subsidiary, the theory speaks of ‘a shadow management’ or ‘a shadow director.’ But these cases are not explicitly and legally defined so there are not any direct specific legal consequences.

The holding company manages its shares/stakes in the other companies in different ways – through the exercise of voting rights in the respective governing bodies of the subsidiaries, or through direct intervention by giving guidance to the governing bodies of the dependent companies. Direct impact can be ensured by belonging to the governing bodies of the subsidiary. For example, in cases where the subsidiary was entered in the trade register as a joint stock company, the holding company would be directly involved in the composition of the Management Board or the Board of Directors as an entity because of the general prescription of article 234, para. 1 CA.

The CA does not envisage anything special with regard to the representation of the companies within a commercial group. Each company in the group is represented by its own managing bodies depending on the legal form of the particular company. According to the general rule, the holding company does not have any powers of representation, both for the whole group or for the separate company, because of the independence and separate legal personality of each participant within the group. However, it is possible to have common representation on a contractual basis; for example, it is the usual situation for the holding company to act as a sales representative of the companies of the entire commercial group.

b) Do the duties or responsibilities of officers or directors of a family of companies change when the companies become insolvent? What if only one of the companies is insolvent?

Upon institution of bankruptcy proceedings the debtor continues his activities under the supervision of the receiver. He may conclude new transactions with the preliminary approval of the receiver, and in compliance with the security measures, determined by the judgment (under Article 630 CA) for institution of bankruptcy proceedings. The court may deprive the debtor of the right to administrate and dispose of his assets and to concede this right to the receiver, should it establish that the debtor jeopardises the interests of creditors. 

As a general rule, the receiver represents the insolvent company and pursues a specific goal – to find and convert the bankrupt estate into cash. 

4. Are the rules regarding members of the corporate family transferring assets among one another (such as by way of loans, capitalization, other transactions) different when the members are insolvent? 

The CA admits intra-group lending and deposit granting.Thus the law indirectly qualifies the commercial group as one economic whole (Article 280 CA). The lawenvisages that a holding company may extend loans only to companies in which it participates directly or which it controls. The amount of the extended loans must not exceed ten times the capital stock of the holding company. The amount of the deposits of subsidiary companies and enterprises in a holding company may not exceed three times the amount of the capital stock.

Rules on lending and deposit granting within a holding group constitute an exception from the regulations of the Banking Act concerning the competence to conduct banking operations. The same deals (in case they are negotiated under non-market conditions) are expressly excluded from the scope of the limitations under Article 114, para 1 of the Public Offering of Securities Act, because of the specific function of the holding company.    

In the case of instituted insolvency proceedings regarding companies involved in a commercial group, the rules for transferring assets are changed. The law provides court-imposed interim measures on the debtor’s possessions and the merchant may enter into new deals only with the prior consent of the receiver. Moreover, in certain cases, the court may deprive the debtor of the right to administrate and dispose of his assets and to concede this right to the receiver, should it establish that by his actions the debtor jeopardises the interests of creditors. Therefore, when insolvency procedures are instituted the freedom to transfer assets between companies within the commercial group is restricted and in certain cases it is even forbidden.

5. How does your law treat claims of one member of a corporate family against other members of the corporate family?

As has been pointed out above, the individual companies within the group of companies keep their individual legal personality, self-formation of property, and they meet their obligations to creditors separately.

a) Are such claims invalid or unenforceable?

The law does not prohibit filing claims from one company against another in the commercial group. Such claims are admissible and will be examined by a competent court-of-law.

b) If not, are such claims on equal footing with those of third party creditors, or are they subordinated, or is there other treatment required or permitted under your law?

Such claims shall be examined by the court on an equal basis to the claims, filed by any third party.  

6. Does your law allow for the pooling of assets and liabilities of some or all members of the corporate family, so that a creditor of one member becomes, in essence, a creditor of all members? This is sometimes referred to as ‘substantive consolidation’.

Bulgarian law is consistent with respect to the statutory enactment principle, that the separate legal entities within a group of companies keep their legal personality. Thus, each company – the subsidiary as well as the holding company – is liable.Each legal entity included in the commercial group is liable only to the creditors. The principle of the CA is thatthe creditors who are contracted to a specific entity can not receive payment by another legal person, although included in the group – neither the subsidiary company nor the holding company.

However, Bulgarian law provides for certain legal consequences of the linkage between companies in a commercial group. These rules are designed primarily to protect creditors, considering that although the self-dependant legal entities are liable separately for the amount of the assets of each company, they have economic interdependence and this should be considered.

For example, company law provides fordisclosure of links with other companies or holdings respectively, and the acquisition of a share of the capital of the other company for the members of the managing bodies of a joint stock company. A person nominated as a member of the board of directors, has to inform the general meeting of the shareholders and the supervisory board, about participation as an unlimited liable partner, about the possession of more than 25 per cent of the capital of another company, as well as about participation in the management of other companies or his commitment as a procurator, manager or member of a board (article 237, paragraph 3 CA).This is not a typical rule with regard to commercial groups, but rather refers to the so-called ‘rules of good corporate practice’. The same information should be announced in the annual report of the company. These disclosure obligations are advised because of a potential risk of conflict of interest. 

Accounting rules also require disclosure of such information. The Bulgarian Accounting Act reproduces the criteria of Directive 83/349/EEC, which is perceived as the basis for defining economic groups in all EU countries. The Accounting Act also enforced the International Financial Reporting Standards, adopted by the EU Commission. In relation to economic groups there is also the International Accounting Standard No. 27 – Consolidated Financial Statements and Accounting for Investments in the subsidiary, the International Accounting Standard No. 24 – Related Parties Disclosures, the International Accounting Standard No. 22 Accounting for business combinations – all these documents provide an obligation regarding the circumstances described to be noted in the accounting reports.

The CA envisages a case where the group is treated ‘quasi’ as a whole – in the case of acquisition of own shares, which the law comprehensively regulates in order to keep the capital of a company and consequently protect the creditors. These rules meet the minimum standards for the regulation of the capital of the joint stock companies, provided for in Directive 77/91/EECand in Directive 92/101/EEC. Thus, in order to protect the interests of the creditors in applying the rules to acquire its own shares, the law treats like its own the shares of a controlled company(article 187e, paragraph 1 , item 2 CA).

The next issue, provided by the law in order the creditors to be protected in case of interdependence between companies within a commercial group, is the hypothesis of the article 647, item 7 CA. This is the potential to challenge deals of a dependent company under the dissolving claim procedure in pending bankruptcy proceedings. On this basis deals concluded by the insolvent company within 2 years before the opening of insolvency proceedings could be attacked, if they are detrimental for the creditors. Counterparty to these transactions should have been a general partner, partner or shareholder with a significant (over 20 per cent) share in the capital, a member of the governing body or person who controls the debtor. The law considers in such cases non-market conditions for the transactions and gives priority to the creditors of the insolvent debtor to the interests of persons connected with the insolvent debtor, including the controlling company. The rule is the only special regulation for the creditors in a situation of group commitment of the debtor.

a) If so, is such pooling automatic or does it require a factual showing and court involvement? If not, is there any guidance or requirements with respect to which creditors among the competing entities get paid?

Each of the companies in the group keeps its own property and is liable to the capital before its own creditors. The law does not give a legal personality to the group – it can not enter into deals, hold rights and assume obligations – it is not responsible for liabilities of the holding company or the subsidiaries to their creditors.

b) What proceedings (motion, request, trial, etc.) are required for the court to order the pooling of assets and liabilities? 

            It has to be stressed that the Bulgarian Law on Protection of Competition sets forth specific rules regarding the hypothesis of a concentration of enterprises. А concentration shall arise where there is a change of control on a lasting basis, which results from:

  • the merger or takeover of two or more independent undertakings; or
  • the acquisition, by one or more persons already controlling at least one undertaking, whether by purchase of securities, shares or assets, by contract or by any other means, of direct or indirect control of the whole or parts of other undertakings. 

The creation of a joint venture performing on a lasting basis all the functions of an autonomous economic entity also constitutes a concentration within the meaning of the said law. The Law on Protection of Competition defines the meaning of ‘control’. The control shall be constituted by rights, contracts or any other means which, either separately or in combination and having regard to the considerations of fact or law involved, confer the possibility of exercising decisive influence on an undertaking, in particular by acquiring

  • ownership or the right to use the entirety or part of the assets of the undertaking;
  • rights, including on the basis of a contract, which provide a possibility for decisive influence on the composition, voting or decisions of the managing bodies of the undertaking.

The law envisages that the concentrations shall be subject to mandatory prior notification to the Commission on Protection of Competition where the turnover of all participating undertakings within the territory of the country in the preceding year exceeds BGN 25 millionand if other financial requirements are met.

The Commission shall authorise a concentration provided that it does not lead to the creation or strengthening of a dominant position, as a result of which effective competition in the relevant market would be significantly impeded.

c) Does your country’s law contemplate any partial pooling of assets and liabilities? If so, under what conditions? For example, does it matter that the creditor relied on the creditworthiness of one particular member of the family? Does the court weigh the overall benefit to creditors of one family member (which has few assets) against the detriment to creditors of another family member (which has more assets)?   

Creditors of one company can not expect to be paid from the assets of another company within the commercial group, if they are presenting a more reliable and creditworthy company to their bad debtor. Thus the above described concentration of enterprises is not legally defined as an instrument the creditors to obtain monetary satisfaction, but a form of capital unification and common business strategies.

d) If the pooling of assets and liabilities is called for, are there any protections for certain types of creditors, such as creditors with a lien or other security interest in particular assets?

Once a concentration is granted by the Commission on protection of competition, the rights of the debtor’s creditors in each of the participating enterprises shall be protected – the creditors shall be paid by the new company which will be created due to the concentration. The secured creditors shall be paid before the unsecured and there are not any specific regulations, but the general rulings shall be applied.  

7. How are secured creditors treated with respect to a family of companies? For instance, if a creditor has a security interest in the assets of one member of the family, and a guarantee from another member of the family, are both such claims valid in insolvency proceedings of the entire family or are they collapsed into one claim?

As stated above, the creditors shall be paid within the separate insolvency procedure by their particular debtor. In the course of the distribution of the converted into cash assets the claims are paid up in the following order (article 722 CA):

  • Claims secured by a pledge or mortgage, or distraint or injunction registered under the procedure of the Law of Special Pledges– from the received sum from the realisation of the security;
  • Claims with regards to which the right to possessory lien is exercised – out of the value of the possessed property;
  • Bankruptcy costs;
  • Claims deriving from employment contractual relations, which have occurred before the date of the judgment for institution of bankruptcy proceedings;
  • Support owed by the debtor to third persons by operation of law;
  • Public claims of the state and the municipalities such as taxes, customs, duties, fees, mandatory insurance installments and similar, occurred by the date of the judgment for institution of bankruptcy proceedings;
  • Claims which have occurred after the date of the judgment for institution of bankruptcy proceedings and have not been paid at maturity, deriving from the continuing the activities of the debtor;
  • The rest unsecured claims occurred before the date of the judgment for institution of bankruptcy proceedings;
  • The claims under article 616, paragraph 2 CA: 
    • Statutory or contract interest on unsecured claim, outstanding after the date of bankruptcy petition;
    • Credit appropriated to the debtor by partner or stockholder;
    • Voluntary transaction;
    • The expenses of the creditors regarding their participation in the bankruptcy proceedings.

The law provides a special rule for satisfaction of a secured creditor and  a possessory lien creditor (article 724 CA). In case the selling price of a pledged or mortgaged chattel does not completely meet the claim along with the interest accumulated, the creditor shall participate for the balance in the distribution along with the creditors with unsecured claims. In case the selling price of a pledged or mortgaged chattel exceeds the secured claim with the interest accumulated, the balance shall be included in the bankruptcy estate. The same shall also be applied to satisfy the claim of a creditor with a possessory lien.

В. International Family of Companies

1. If one or more of the corporate family is incorporated under or governed by the laws of another country, does that change your answers to any of the questions set forth above?

In case a commercial group participates in a company, incorporated or governed by the laws of another country, the above said on the general principle of keeping the independence of each company within the group and separation of the property and thus the severalty of liability and risk allocation remains the same. 

2. If insolvency/ restructuring proceedings are instituted for corporate family members in different countries: 

(a) Do the courts attempt to exercise jurisdiction over the assets of the company filing domestically no matter where the assets are located (for example, overseas), or do they limit their jurisdiction to only those assets located in your country?

The receiver in bankruptcy, appointed by the court, shall examine debtor’s assets within the territory of the country. Jurisdiction of the Bulgarian court extends generally within the country, but it should be considered also the specific provisions of the new Bulgarian Civil Procedure Code (CPC), in force from 1 March, 2008 (see Section E below regarding the possibility for collection of evidence in civil and commercial proceedings) and also some special regulations of the CA. 

The CA allows for subsidiary bankruptcy proceedings to be instituted. At the request of a debtor, the receiver can be appointed by a foreign court or a creditor, and the Bulgarian court can institute subsidiary bankruptcy proceedings concerning a merchant who has been declared bankrupt by a foreign court, provided he has substantial property within the territory of Republic of Bulgaria. A creditor who has received partial payment under the main proceedings can participate in the distribution of assets under the subsidiary proceedings provided the portion he would get is bigger than the respective portion to be received by the other creditors under the subsidiary proceedings. 

The CA regulates the special powers of a receiver appointed by a foreign court of law(article 758 CA).He has the powers envisaged in the state where the bankruptcy proceedings are initiated, provided they do not contradict public order rules of the Republic of Bulgaria.

Referring to the applicable law for the insolvency proceedings in which Member States of the EU are involved, the Council Regulation (EC) No. 1346/2000 on Insolvency Proceedings should be considered. The act enables the main insolvency proceedings to be opened in the Member State where the debtor has the centre of his main interests. These proceedings have universal scope and aim at encompassing all the debtor’s assets. To protect the diversity of interests, the Regulation permits secondary proceedingsto be opened to run in parallel with the main proceedings. Secondary proceedings may be opened in the Member State where the debtor has an establishment.The effects of secondary proceedings are limited to the assets located in that State. 

The Regulationprovides for special rulings regarding international jurisdiction. The courts of the Member State, within the territory of which the centre of a debtor’s main interests is situated, have jurisdiction to open insolvency proceedings. In case of a company or legal person, the place of the registered office shall be presumed to be the centre of its main interests in the absence of proof to the contrary. Where the centre of a debtor’s main interests is situated within the territory of a Member State, the courts of another Member State shall have jurisdiction to open insolvency proceedings against that debtor only if he possesses an establishment within the territory of that other Member State. The effects of those proceedings shall be restricted to the assets of the debtor, situated in the territory of the latter Member State. The law applicable to insolvency proceedings and their effects shall be that of the Member State, within the territory of which such proceedings are opened. 

(b) Would your courts enforce a court order from a foreign country that attempted to exercise jurisdiction over assets located in your country but owned by the company that is subject to the foreign insolvency proceedings? 

With respect to the rules of recognition and admission to enforcement of judgments and judicial acts of a foreign court the general regulations of the Code on International Private Lawshall be applicable (art. 117–124). The special rules of the CA(article 757) regarding insolvency proceedings and the special rules of the CPC with respect to the action of the EU law should be considered too (article 619–624 CPC). 

The CAenvisages that on conditions of reciprocity the Republic of Bulgaria shall honour foreign court judgments that declare bankruptcy, provided it is passed by an authority of the state where the debtor’s domicile is.

The Code on International Private Law provides for the general grounds in order for a judgment or judicial acts of a foreign court to be recognized and enforced in Bulgaria.These are as follows:

  • The foreign court or an official body was competent to examine the case under Bulgarian regulations, but the ground for the foreign competence with regard to property issues should not solely be the citizenship of the claimant or his registration in the state where the court is located;
  • A copy of the claim was delivered to the defendant; both parties were legally summoned and the general rules of defence under the Bulgarian legislation were not infringed in the proceedings;
  • There should not exist a prior decision pronounced by the Bulgarian court or a pending civil proceedings which began before the foreign one between the same parties on the same ground and for the same dispute;
  • The recognition and enforcement of the foreign judgment should not obstruct the Bulgarian public order.      

The CPC provides for specific procedures of recognition and enforcement of judgment and other judicial acts of a foreign court under action of the Community Law, such as:

  • a procedure for issuing a Certificate of European Enforcement Order for Uncontested Claims(article 619 CPC) under Regulation (EC) No 805/2004 of the European Parliament and of the Council;
  • a procedure for issuing a Certificate on recognition or admission to enforcement of Bulgarian judgment (article 620);
  • rules regarding enforcement without an express proceeding (article 624 CPC);
  • rules regarding enforcement pursuant to the Regulation (EC) No 1896/2006 of the European Parliament and of the Council creating a European order for payment procedure. 

The Council Regulation (EC) No. 1346/2000envisages special rules for recognition of insolvency proceedings within Member States. The general principal is that any judgment opening insolvency proceedings handed down by a court of a Member State, which has jurisdiction pursuant to the sited document, shall be recognized in all the other Member States, from the time that it becomes effective in the State of the opening of proceedings. Recognition of the proceedings in one Member State shall not preclude the opening of the proceedings by a court in another Member State. The latter proceedings shall be secondary insolvency proceedings within the meaning of the Regulation. 

The Council Regulation (EC) No. 1346/2000 also provides for rulings of the effect of recognition. The judgment opening the proceedings shall produce the same effects in any other Member State as under the Regulation of the State of the opening of proceedings. Any restriction of the creditors’ rights, in particular a stay or discharge, shall produce vis-à-vis assets situated within the territory of another Member State only in case the creditors have given their consent.

(c) Has your country adopted any procedures (such as the Model Law on Cross-Border Insolvency) to address the various issues that arise in dealing with cases of cross-border insolvency?

See Section A above with regard to the Council Regulation (EC) No. 1346/2000 on Insolvency Proceedings.

(d) Under what conditions, if any, are your Courts allowed to communicate and coordinate with Courts of a foreign jurisdiction in an effort to coordinate the administration of assets of family members? In this regard, has your jurisdiction adopted or informally utilized the Guidelines Applicable to Court-To-Court Communications in Cross-Border Cases as adopted and promulgated by The American Law Institute and The International Insolvency Institute?  

Since 1 January, 2007 the Republic of Bulgaria is an official member of the EU and implements the Union requirements with respect to court-to-court communication and coordination about civil and commercial matters. In fulfillment of the regulation defined in Article 81 of the TFEU the CPC provides for special rules with this respect.    

The CPC allows the collection of evidence in civil and commercial proceedings, where the parties involved are from the EU Member States, to be carried out under the Council Regulation 1206/2001/EC on Cooperation between the Courts of the Member States (art. 614–618 CPC). In such cases the court may transmit a request to take evidence to the competent authority of the other Member State or may request to take evidence directly. Within the scope of Council Regulation (EC) No 1206/2001, the Bulgarian court or an authorized member may be presented and participate in the taking of evidence by the court of the other Member State. 

Other EU documents, concerning court-to-court communication and coordination with regard to civil and commercial matters, are as follows:

  • Council Regulation (EC) No. 44/2001 on jurisdiction, recognition and execution of judicial acts on civil and commercial cases (last amended with the Council Regulation No. 1496/2002).
  • Council Regulation (EC) No. 1348/2000 on delivering within Member States of court and out-of-court papers regarding civil and commercial cases. This act is revoked since 13 November, 2008 and the new Regulation No. 1393/2007 is applied.
  • Council Decision No. 2001/470 on creating European judicial network regarding civil and commercial cases.
  • Council Directive No. 2003/8 on improvement the access to justice regarding cross-border disputes.    

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