23.10.2023

THE LATEST CHANGES IN THE COMMERCIAL LAW IN RELATION TO INSOLVENCY

The exceptional dynamics of commercial turnover nowadays, as well as the multitude of factors of all kinds, which are related to the activity of commercial companies, often confront traders with various difficulties in fulfilling their obligations, especially financial ones. At such times, terms such as bankruptcy and bankruptcy begin to be used freely. This terminology is characteristic of the legislations of other countries, and in Bulgaria the statutory term is bankruptcy. More specifically, we should talk about commercial bankruptcy, which combines on the one hand the legal institution itself, and is also used to denote the legal proceedings for declaring a merchant bankrupt.

In issue No. 66 of 01.08.2023 of the State Gazette, changes to the Commercial Law were promulgated regarding various stages of the bankruptcy procedure. By their nature, the amendments aim at introducing clear rules regarding the rights of creditors and debtors, as well as improving the efficiency of the proceedings themselves. The changes are related to the implementation of the requirements of Directive (EU) 2019/1023 of the European Parliament and of the Council of June 20, 2019 on the frameworks for preventive restructuring, on the forgiveness of obligations and the ban on carrying out an activity, on measures to increase the effectiveness of restructuring, bankruptcy and debt relief proceedings and amending Directive (EU) 2017/1132.

Among the numerous amendments and innovations, the amendment in the scope of the concept of "over-indebtedness" according to Art. 742 of the Commercial Law. Until now, the current norm allowed to justify over-indebtedness if the property was not sufficient to cover the monetary obligations of a trader. With the change made, the norm will apply to all obligations in the future. This means in practice that the inability to fulfill specific other contractual obligations, for example production, delivery or others, will also be able to presuppose the initiation of insolvency proceedings.

Next, the amendment to Art. 613 of the Commercial Law. Until now, the district court of the merchant's seat at the time of the request to open the proceedings was competent to hear the bankruptcy proceedings. The amendment states that the district court at the seat of the trader, registered no later than 6 months before the filing of the application for the opening of bankruptcy proceedings, is competent. Thus, in practice, changes in the headquarters in shorter terms would not have an impact on the jurisdiction of the claims - including in cases of deliberate changes by companies expecting similar proceedings to be initiated against them. On the other hand, the new norm imposes the need for a careful analysis of the circumstances in relation to the registered office of the traders before filing the application for the opening of bankruptcy proceedings, in order to avoid delays in the event of a jurisdictional dispute.

A significant change is also made in the circle of acts of the district courts, which can be appealed according to Art. 613a of the Commercial Law, expressly stating that the decisions of the appellate court are subject to a cassation appeal.

Next, the innovation that a number of acts relevant to bankruptcy proceedings will also be announced in the Commercial Register deserves attention. This amendment is also relevant in connection with the deadlines for appealing the relevant acts, which begin to run from their announcement.

Part of the legislation is already a completely new regulation in connection with the bankruptcy proceedings of natural persons - entrepreneurs. The scope of the new rules includes natural persons exercising an economic activity, a trade or a free profession, as long as their enterprise does not require the conduct of business in a commercial manner in terms of subject matter and volume. In addition to the norms expressly provided for, the regulations regarding bankruptcy proceedings for the sole trader are also intended to be applied subsidiarily for natural persons - entrepreneurs. Along with the general rules for determining insolvency under Art. 608, para. 1 of the Commercial Law, a special hypothesis is also provided for these persons, namely when the person is unable to fulfill a required monetary obligation arising from or relating to a transaction related to his/her business activity, trade or free profession.

The competent court in bankruptcy proceedings is the district court at the place of registration of the entrepreneur, entered no later than 6 months before the moment of filing the application for opening bankruptcy proceedings. In the event that the entrepreneur does not have a place of registration, the law provides for the jurisdiction of the district court of the entrepreneur's permanent address. The creation of a special information system at the Ministry of Justice is also planned, in which the acts of bankruptcy proceedings of an entrepreneur can be entered or announced.

The amendments to the law also provide for the creation of special forms of claims, lists of creditors, the declaration and consent of the receiver, distribution accounts, monthly reports of the receiver and the receiver's diary.

At the same time, a number of changes are being made regarding the stabilization procedure. The purpose of this procedure is to prevent the opening of bankruptcy proceedings by reaching an agreement between the trader and his creditors to restructure the enterprise, which will lead to the continuation of the trader's activities. It is noteworthy that in Art. 764 of the Commercial Law, in contrast to the previous text, a significantly more detailed listing of traders for whom stabilization proceedings are not applied is made. The changes also introduce explicit requirements regarding the content of the stabilization plan.

The above changes are just some of the new developments in bankruptcy proceedings. The new texts are substantial in volume and cover both different aspects of all stages of insolvency proceedings, with respect to which practice is yet to be established. To a large extent, the new texts will contribute to speeding up the various stages of bankruptcy proceedings and their progress under clearer and more efficient rules.