A chance for companies to avoid insolvency proceedings
Stabilization proceedings are instituted for a trader who finds that the threat of insolvency is imminent on looking at payment deadlines over the next six months. By giving the affected business a chance to reach agreement with creditors, the newly enacted provisions are meant to prevent insolvencies.
Stabilization proceedings are voluntary and can only be triggered by the business under threat of insolvency. Companies found by the court to have conducted transactions in bad faith or that are obviously unable to continue business cannot benefit from the new rules.
A key participant in stabilization proceedings is the trustee. A trustee is appointed by the court and must be a lawyer acting as an insolvency administrator. Trustees’ powers include: filing reports on the company’s property and business activity; exercising control over business activities during stabilization proceedings; assisting with negotiations.
A stabilization plan is adopted in an open court hearing. Creditors, the trader affected and the trustee take part. Creditors vote by classes. The plan must also be reaffirmed by the court. Procedural deadlines are tight: If no plan is adopted within four months, stabilization proceedings will be dismissed.
The new rules establish some essential guarantees for creditors such as:
- a stabilization plan has no binding effect on non-participating creditors;
- a majority of over ¾ of all accepted claims is required;
- secured creditors keep their collateral;
- a ban on waiving debts amounting to over 50 % of a single creditor’s claim;
- a 3-year ban on rescheduling debts.
Throughout stabilization proceedings and as long as the debtor complies with the plan, coercive enforcement previously instituted by creditors is suspended. However, enforcement cannot be terminated: In case of default under the plan, coercive enforcement proceedings will be resumed. Any default under the plan empowers a creditor who has participated in the stabilization proceedings to immediately obtain a writ of execution for their claim. That creditor no longer need first bring the matter to court and will benefit from a retroactive suspension of any debt-transforming effects under the plan.
Only time will tell whether significant interest will be shown in stabilization proceedings in Bulgaria. So far, no relevant entries appear in the commercial register.
Source: Commerce Act, Civil Procedure Code