Published on and written by Cyril Jarnias
Company liquidation in Bulgaria is a complex process that requires a thorough understanding of the specific legal aspects in this country. In Bulgaria, companies can choose between voluntary liquidation or compulsory liquidation, each generating distinct legal obligations for owners and creditors. Knowing the key steps, such as appointing a liquidator, notifying creditors, and distributing assets, is essential to avoid legal and financial complications. Additionally, compliance with local requirements, such as those provided by the Bulgarian Commercial Code, plays a crucial role in protecting the interests of all stakeholders. This article explores the different facets of these legal obligations, providing an essential guide for those navigating the often murky waters of company liquidation in Bulgaria.
Understanding Company Liquidation in Bulgaria
Company Liquidation in Bulgaria: A Regulated Process
In Bulgaria, company liquidation is a legal procedure aimed at terminating the existence of a commercial company. Its main objective is to realize the company’s assets, settle its debts, and distribute any remaining balance among shareholders. This process falls within the Bulgarian legal framework and must follow specific steps.
Key Steps in the Liquidation Process
The process begins with a decision by shareholders or the board of directors to dissolve the company. Once this decision is made, the company enters a liquidation phase that includes several steps:
1. Appointment of a liquidator 2. Inventory of assets and liabilities 3. Collection of receivables 4. Sale of assets 5. Settlement of debts 6. Distribution of liquidation surplus (if any)
Preliminary Legal Obligations
Before starting liquidation, the company must fulfill certain legal obligations:
- Publication of a liquidation notice in the Commercial Register
- Notification to known creditors
- Informing employees
These steps aim to ensure transparency in the process and protect stakeholder interests.
The Crucial Role of the Liquidator
The liquidator, appointed by shareholders or the court, plays a central role in the process. Their responsibilities include managing ongoing affairs, realizing assets, settling debts, and preparing financial reports. They must act in the interest of the company and its creditors.
Tax Implications of Liquidation
Company liquidation in Bulgaria has significant tax consequences. The company must settle all its tax obligations, including corporate tax, VAT, and social security contributions. A closing tax balance must be prepared and submitted to the competent authorities.
Protection of Creditors and Employees
Bulgarian law pays particular attention to the rights of creditors and employees during liquidation. Creditors have a six-month period to submit their claims. Employees enjoy special protection, particularly regarding severance pay and payment of outstanding wages.
Legal Deadlines to Respect
The liquidation process is subject to strict deadlines:
– 6 months for creditors to submit claims – 1 year for liquidation completion (extendable up to 3 years maximum) – 30 days to submit the final balance after completion
Failure to meet these deadlines may result in legal penalties.
Bulgarian Regulatory Framework
Company liquidation in Bulgaria is primarily governed by the Bulgarian Commercial Code. Other relevant laws include the Commercial Register Act and the Insolvency Act. These texts define the procedures to follow and the obligations of the parties involved.
Special Cases of Liquidation
Certain situations may modify the standard liquidation procedure:
– Simplified liquidation for small businesses – Compulsory liquidation ordered by the court – Liquidation of companies in regulated sectors (banks, insurance)
These special cases may require additional steps or involve other regulatory authorities.
Available Legal Remedies
Stakeholders affected by liquidation have legal remedies available. Creditors can challenge asset distribution in court. Shareholders can also contest the liquidator’s decisions. In case of fraud or mismanagement, criminal proceedings may be initiated.
Good to know:
Company liquidation in Bulgaria is a legal process aimed at closing a company and redistributing its assets after settling its obligations. The process begins with a decision by shareholders or the board of directors, followed by the appointment of a liquidation administrator, responsible for managing the closure of operations and satisfying creditors and employees, who have rights protected by law. Before liquidation, Bulgarian law requires the publication of notices and communication with creditors to ensure transparency. Legal deadlines to respect vary, but non-compliance may result in penalties. From a tax perspective, it is crucial to consider the implications, as tax debts must be settled as a priority. The Bulgarian legislative framework, particularly the Commercial Code, regulates this process and provides for exceptions such as simplified liquidation for debt-free companies. In case of disputes, concerned parties have legal remedies to challenge the procedure or decisions made.
Steps in the Judicial Liquidation Procedure
Initiation of Judicial Liquidation Procedure
The judicial liquidation procedure in Bulgaria begins with a formal application to the competent commercial court. This request can be filed by the company’s director, a creditor, or the public prosecutor when the company is in a state of cessation of payments and its situation is deemed irreparably compromised. The court then examines the application and, if it deems the conditions are met, orders the opening of judicial liquidation by a judgment.
Appointment and Role of the Judicial Liquidator
Following the opening judgment, the court appoints a judicial liquidator responsible for carrying out the procedure. This independent professional becomes the legal representative of the company and assumes responsibility for managing its affairs throughout the liquidation period. Their main tasks include:
- Taking over the management of the company
- Terminating employee employment contracts
- Verifying claims
- Selling the company’s assets
- Collecting amounts due to the company
- Paying creditors according to the priority order established by law
Inventory and Asset Valuation
Once appointed, the liquidator conducts a detailed inventory of all company assets and liabilities. This crucial step allows for establishing an accurate balance of the company’s financial situation. The liquidator must identify and evaluate all tangible and intangible assets, including real estate, inventory, equipment, patents, and other intellectual properties.
Creditor Notification and Claim Processing
The liquidator has the obligation to inform all known creditors of the company about the opening of the liquidation procedure. A notice is published in the Bulgarian commercial register, inviting creditors to declare their claims within a period of six months from this publication. The liquidator then examines each claim to verify its validity and amount.
Realization of Company Assets
Once the inventory is established and claims are verified, the liquidator undertakes the sale of the company’s assets. This step aims to convert the company’s property into cash to repay creditors. The sale can be conducted through private negotiations or public auctions, depending on the nature of the assets and circumstances. The liquidator must strive to obtain the best possible price for each item sold.
Distribution of Sale Proceeds to Creditors
The funds obtained from asset sales are then distributed to creditors according to a strict priority order defined by Bulgarian law. This priority order is generally as follows:
- Wage claims
- Court costs
- Tax and social security debts
- Claims secured by collateral
- Unsecured claims
The liquidator makes payments to creditors in this order, until available funds are exhausted.
Procedure Closure and Company Dissolution
Once all liquidation operations are completed, the liquidator prepares a final report detailing all actions taken and results obtained. This report is submitted to the commercial court for approval. If the court approves the report, it orders the closure of the judicial liquidation procedure.
The final step consists of the official removal of the company from the Bulgarian commercial register, thus marking its definitive dissolution. The liquidator completes the necessary procedures with the register to finalize this removal, thereby ending the legal existence of the company.
Good to know:
Once the liquidation application is filed with the competent court in Bulgaria, it appoints a liquidator to manage the entire process. The liquidator’s primary mission is to establish a detailed inventory of the company’s assets, which must then be notified to creditors for claim evaluation. They proceed with the sale of assets, the proceeds of which are distributed according to a priority order to creditors, while respecting Bulgarian legal obligations. The procedure concludes with the submission of a final report for court validation, before the official dissolution of the company. In Bulgaria, it is important to note that this procedure includes strict compliance with deadlines and documentation requirements to avoid delays or legal complications.
Legal Consequences of Bankruptcy on Creditors
Legal Consequences of Bankruptcy for Creditors in Bulgaria
Bankruptcy declaration in Bulgaria has significant repercussions for creditors. From the opening of the procedure, all individual collection actions are suspended. Creditors must then declare their claims to the trustee within 6 months from the publication of the decision in the Commercial Register.
Claim Prioritization and Satisfaction
Bulgarian legislation establishes a precise hierarchy of claims:
- Claims secured by collateral
- Priority claims (wages, social security contributions, taxes)
- Unsecured claims
Secured creditors benefit from preferential treatment, potentially being paid directly from the proceeds of the sale of encumbered assets. Priority creditors are then satisfied, followed by unsecured creditors pro rata to their claims.
Creditor Restrictions and Obligations
Creditors face certain constraints:
– Prohibition of initiating individual legal proceedings – Obligation to declare their claims within specified deadlines – Participation in creditor meetings for important decisions
Failure to comply with these obligations may result in the creditor’s rights being forfeited.
Impact on Recovery and Legal Remedies
Bankruptcy significantly limits recovery possibilities for unsecured creditors. However, remedies exist:
– Challenging debtor’s acts performed during the suspect period – Liability action against directors in case of management fault – Possibility to request conversion of the procedure to judicial liquidation
Alternatives for Creditors
Faced with a debtor in difficulty, creditors may consider:
– Negotiating a debt restructuring agreement – Assignment of claim to a third party – Granting new financing in exchange for collateral
Example: In a recent case, creditors successfully obtained partial repayment of their claims by accepting a restructuring plan involving debt-to-equity conversion.
Case Study: Construction Company Bankruptcy
During the bankruptcy of a major Bulgarian construction company in 2024, secured creditors were able to recover 80% of their claims through the sale of encumbered assets. Priority creditors were repaid at 60%, while unsecured creditors received only 15% of their claim amounts. This case illustrates the crucial importance of claim ranking in the liquidation procedure.
Good to know:
In Bulgaria, when a company is declared bankrupt, creditors are subject to a strict hierarchy of their claims, dictated by the Bulgarian Commercial Code. First, secured claims, such as mortgages, are satisfied before ordinary claims, followed by priority claims like wage and tax debts. The bankruptcy declaration generally suspends individual collections, requiring creditors to pursue collective avenues to recover their funds. Creditors must also declare their claims within a deadline set by the court to be considered in the liquidation procedure. In case of insufficient assets, unsecured claims may not be fully recovered, often forcing creditors to explore other solutions, such as partial agreements with the debtor. Examples like that of the Bulgarian company K.T.B. demonstrate the importance of these prioritizations, where unsecured creditors received a minimal portion of their claims following the court-ordered liquidation.
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Cyril Jarnias is an independent expert in international wealth management with over 20 years of experience. As an expatriate himself, he is dedicated to helping individuals and business leaders build, protect, and pass on their wealth with complete peace of mind.
On his website, cyriljarnias.com, he shares his expertise on international real estate, offshore company formation, and expatriation.
Thanks to his expertise, he offers sound advice to optimize his clients' wealth management. Cyril Jarnias is also recognized for his appearances in many prestigious media outlets such as BFM Business, les Français de l’étranger, Le Figaro, Les Echos, and Mieux vivre votre argent, where he shares his knowledge and know-how in wealth management.
