I. What Is Insolvency under Bulgarian Law?
Bulgarian commercial law recognises two distinct grounds for opening insolvency proceedings, both set out in the Commercial Act. The first is insolvency (несъстоятелност) in the strict sense: the inability of the trader to meet a due and payable monetary commercial obligation. This is a cash-flow test — the question is not whether the company has assets exceeding its liabilities in aggregate, but whether it is unable to pay its debts as they fall due. A company that has substantial non-liquid assets but cannot service its current payment obligations is insolvent in this sense even if its balance sheet shows a positive net worth.
The second ground, applicable only to capital companies (OOD (Ltd.), EOOD (Sole Ltd.), AD (JSc.), EAD (Sole JSc.)), is over-indebtedness (свръхзадълженост): a situation in which the company's total liabilities exceed the value of its assets, regardless of its current liquidity. A company that can still service its current obligations but whose aggregate liabilities exceed its assets is over-indebted and is required to file for insolvency on this ground even if it is not presently unable to pay its debts.
II. The Manager's Filing Obligation
The manager of a Bulgarian commercial company is under a statutory obligation to file a petition for the opening of insolvency proceedings within thirty days of the date on which insolvency or over-indebtedness arises. This is not a discretionary decision — it is a legal obligation, and failure to file within the thirty-day period exposes the manager to personal liability for the increase in the insolvency deficit caused by the delay.
The personal liability of the late-filing manager is set out in Article 742(2) of the Commercial Act: the manager is jointly and severally liable with the insolvent company for the increase in the company's net deficit (the difference between liabilities and assets) that occurred between the date on which the filing obligation arose and the date on which the petition was actually filed. This liability is unlimited in amount and is enforced by the insolvency trustee on behalf of the creditors. In practice, the courts have applied this provision to impose substantial personal liability on managers who delayed filing in circumstances where the company continued to incur new obligations after the onset of insolvency.
III. The Petition and the Opening Decision
The insolvency petition is filed with the competent regional court — the court of the registered seat of the debtor company. The petition may be filed by the debtor itself (the company acting through its manager), by any creditor with a monetary commercial claim against the company, or — in limited circumstances — by the prosecution authority. The petition must state the grounds for insolvency, identify the company's principal assets and liabilities, and propose a date of insolvency.
The court conducts a preliminary examination of the petition, may appoint a provisional trustee and impose interim protective measures, and — if satisfied that the grounds for insolvency are established — issues an opening decision. The opening decision sets the date of insolvency (which may be earlier than the date of filing), appoints the insolvency trustee, suspends all individual enforcement actions against the company's assets, and declares the company's membership in any ongoing legal proceedings to be suspended pending the trustee's assumption of control.
IV. The Date of Insolvency and Suspect Periods
The date of insolvency determined by the court is not merely a formality — it has direct legal consequences for the validity of transactions entered into by the company around that date. Transactions concluded after the date of insolvency are generally unenforceable against the insolvency estate. Transactions concluded within defined suspect periods before the date of insolvency — ranging from one year for gratuitous disposals to two years for transactions with related parties — may be challenged by the insolvency trustee as preferential or fraudulent under Articles 645–647 of the Commercial Act.
The avoidance action mechanism gives the trustee a powerful tool for recovering assets that were disposed of in the period preceding the company's formal insolvency. Creditors and managers of financially distressed companies should be aware that asset transfers, unusual payments, and transactions at below-market prices made in the months before a potential insolvency filing may be unwound by the trustee, with the transferred assets or their value returned to the insolvency estate.
V. Creditor Claims and Distribution
Creditors of the insolvent company must file their claims with the insolvency court within one month of the publication of the opening decision in the Commercial Register. Claims filed after this deadline may be admitted in subsequent verification rounds but at a reduced priority. The insolvency trustee verifies each claim against the company's books and prepares a list of accepted claims, subject to challenge by any creditor or the debtor.
The distribution of the realised estate proceeds follows the statutory priority order: costs of proceedings, unpaid employee wages (up to six months), public claims of the state and municipalities, and then unsecured commercial creditors. Secured creditors are satisfied separately from the proceeds of the assets over which their security was constituted. In most Bulgarian insolvency proceedings, the available assets are insufficient to satisfy more than the priority claims, and unsecured commercial creditors recover little or nothing.
VI. Rehabilitation Plan
Where the insolvent company's business has ongoing viability, a rehabilitation plan may offer a better outcome for creditors than liquidation. A plan may be proposed by the debtor, any creditor, or the insolvency trustee within one month of the final approval of the creditor claims list. The plan must set out how creditors' claims will be satisfied — whether by rescheduling, partial write-down, debt-to-equity conversion, or a going-concern sale — and must be approved by the creditors' meeting by a qualified majority. A confirmed plan binds all creditors, including dissenters, and — if successfully implemented — results in the closure of the insolvency proceedings and the company's resumption of normal operations.
VII. Voluntary Liquidation vs. Insolvency: The Critical Distinction
Managers of financially distressed companies sometimes consider initiating a voluntary liquidation as an alternative to filing for insolvency, in the mistaken belief that liquidation is a less stigmatising or less complex procedure. This approach is legally dangerous. A voluntary liquidation initiated in circumstances of insolvency — that is, where the company's assets are insufficient to cover its liabilities — may be challenged by creditors as an improper evasion of the insolvency procedure, and the liquidator who proceeds with a distribution knowing the company is insolvent is personally liable to the unpaid creditors for the value of the distributed assets. Where insolvency grounds exist, insolvency proceedings are the mandatory procedure, and voluntary liquidation is not a legally permissible alternative.