Restructuring and Bankruptcy

A company may generally be restructured by merger (e.g. take-over), demerger (e.g. spin off) or change of its legal form. It is important to note from the outset that all assets and rights, obligations and liabilities, as well as legal relationships, are transferred from the transferring company to the receiving or newly established company by way of universal succession.

The Bulgarian Commerce Act allows a company to be transformed into another type of company by changing its legal form, or by take-over, merger, split into several companies, spinning off and spinning off of a sole-owner company.


the entire property of one or more companies (transforming companies) is transferred to one existing company (receiving company), which then becomes their legal successor. Transforming companies will then be terminated without liquidation.


the entire property of two or more companies (transforming companies) is transferred over to one newly established company, which then becomes their legal successor. Transforming companies will be terminated without liquidation.

Split of a company into several companies;

the entire property of one company (transforming company) is transferred to two or more companies, which then become its legal successors for the respective part. The transforming company will be terminated without liquidation.

Spinning off;

only part of property of one company (transforming company) is transferred to one or more companies, which then become its legal successor for that part of the property. The transforming company will not be terminated.

Spin-off of a sole-owner company;

only part of property of one company (transforming company) is transferred to one or more solely owner limited liability companies or solely owner joint-stock companies (newly established companies), whereby the transforming company then become the sole owner of their capital.

In all forms of transformation, the transforming, receiving and newly established companies (the companies involved in the transformation) may differ in type, unless the Commerce Act provides otherwise. There is a possibility for companies in liquidation or insolvencies to be restructured under specific conditions and when specific requirements are met. When a company is undergoing restructuring, the partners or shareholders in this company will become partners or shareholders in one or more of the newly established and/or receiving companies. Interest stakes or shares acquired after the transformation must be equivalent to the fair price of interest stakes or shares held prior to the transformation in the transforming company. Members of managing bodies of the transforming and receiving companies are liable to the partners and shareholders in the company for any damages resulting from a failure to fulfill their duties in preparing and effecting the transformation.

Restructuring by Take-Over, Merger, Splitting, Spinning Off;

Before taking a decision for restructuring of a company, the receiving and/or transforming companies involved in such restructuring enter into a transformation agreement. The transformation agreement may be concluded also after the decision has been taken. In such a case, the transforming and receiving companies prepare a draft agreement to which all rules concerning the transformation agreement apply. In cases of splitting by establishment, spinning off by establishment and spinning off of a sole-owner company, no agreement needs to be concluded. However, the transforming company is obliged to prepare a transformation plan. There are some formalities for the transformation agreement, the draft agreement and the transformation plan: they must be in a written form, signed by the respective persons and these signatures must be certified by a notary. Where the agreement is not approved under the decision to transform any one of the participating companies, it will be terminated. No liability for damages can be claimed in such a case. Besides, the governing body of each of the transforming and receiving companies prepares a written report for the transformation. For personal companies, the report will be drawn up by the partners with management rights. The transformation agreement or plan and the report of the governing body must be submitted for registration in the Commercial Register.

Restructuring by Change of Legal Form;

A company (transforming company) may be restructured by change of the legal form, thus converting into a company of another type (newly established company). The newly established company will become the legal successor of the transforming company, which will be terminated without liquidation. In case of a change of the legal form, the governing body or the partners with management rights in a personal company draft a transformation plan in writing, sign it and their signatures are notary certified. The change of the legal form is a subject to registration in the Commercial Register not earlier than 14 days from the date of the filing. Change of the legal form takes effect as from the registration in the commercial register.

Transformation by Transfer of Property to the Sole Owner;

The entire property of a sole-owner company (transforming company) may be transferred to the sole owner if he is a natural person and has been registered as a sole proprietor. The transforming company will be terminated without liquidation. The decision to transform must be taken by the sole owner in a written form where the signatures are notary certified. The transfer of property to the single proprietor must be recorded in the Commercial Register both in that single proprietor's file and in the file of the transforming company which is deleted. Thus, the transfer of property to the single proprietor takes effect from the moment of its registration in the Commercial Register, in the file of the transforming company.


The purpose of the bankruptcy proceedings is to provide fair satisfaction of creditors and opportunities for reorganisation of debtor's enterprise. The Commerce Act explicitly sets out that bankruptcy proceedings must take into consideration the interests of the creditors, the debtor and his employees. Grounds for initiating bankruptcy proceedings are:

  • in case of merchants who are insolvent, which means that the merchant is unable to meet a due pecuniary obligation under a commercial transaction, or a public law obligation to the state or municipalities related to its commercial activity. Further, insolvency is presumed where the debtor has failed to perform.

  • over-indebtedness of a limited liability company, a joint-stock company, or a public partnership limited by shares- a company is considered over-indebted if its assets are insufficient to cover its liabilities.

The Commerce Act precisely specifies what shall be included in the bankruptcy estate. The bankruptcy estate is used to satisfy all creditors of the debtor for commercial and non-commercial receivables. The court which has jurisdiction over bankruptcy is the district courts where the seat of the merchant was located by the time of filing the motion of institution of bankruptcy proceedings.

No preliminary state fees are collected upon filing the application to institute bankruptcy proceedings by the debtor. Such fees are collected from the bankruptcy estate prior to distribution of the assets.

Bankruptcy Proceedings;

Bankruptcy proceedings may be instituted pursuant to a request in a written form submitted to the competent court by:

  • the debtor

  • the liquidator

  • a creditor of the debtor under a commercial transaction

  • the National Revenue Agency, for a public-law obligation to the State or municipalities related to the commercial activity of the debtor or an obligation under a private state receivable.

In case of over-indebted companies, proceedings may be initiated also by a member of the commercial company's managing body and by the liquidator.

However, there is a strict obligation for a debtor who becomes insolvent or excessively indebted to request within 30 days the institution of bankruptcy proceedings. The application may be submitted by the debtor himself, his heir in case of death, the managing body, respectively liquidator, of a company or a partner with unlimited liability. Should persons fail to observe their obligation for declaration, they are liable jointly and severally before creditors for damages caused by such delay. A petition for institution of bankruptcy proceedings, submitted by a debtor or, respectively, by a liquidator, is examined immediately by the court in camera. The petition must be announced in the Commercial Register as well.

When a court has established insolvency or over-indebtedness, as the case may be, by its ruling it:

  • declares the insolvency or over-indebtedness, depending on the case, and determine the initial date thereof;

  • institutes bankruptcy proceedings;

  • appoints a temporary trustee in bankruptcy;

  • allows for provision of security by means of imposing attachment or other security measures.

  • fixes a date for the first meeting of creditors, not later than one month following the issue of the ruling.

Bankruptcy proceedings are deemed instituted as of the date such decision is taken.

All actions of the debtor, the creditors, the committee of creditors, the meeting of creditors, the trustee in bankruptcy as well as the court acting on the bankruptcy are recorded in a separate book which is public and available at the chancery of the competent court.

Upon institution of bankruptcy proceedings, a debtor may only continue his activities under the supervision of the trustee in bankruptcy. He may conclude new transactions only with the preliminary approval of the trustee in bankruptcy, and in compliance with the measures, determined by the ruling on institution of bankruptcy proceedings. However, the court may deprive the debtor of the right to manage and dispose of his assets and to grant this right to the trustee in bankruptcy, should it establish that by his actions the debtor jeopardises the interests of creditors.

The Commerce Act specifically regulates the protection of the bankruptcy estate as the main purpose of the bankruptcy proceedings is to provide fair satisfaction of creditors, and thus certain actions with the property of the debtor are not permissible by the Commerce Act.

What is of particular importance for creditors is that upon initiation of bankruptcy proceedings, court and arbitration proceedings against the debtor will be generally suspended. The claims of the creditors who had already initiated court proceedings should then be claimed within the bankruptcy proceedings. Creditors must claim their due receivables before the competent court in a written form within one month following publication of the announcement for initiation of the bankruptcy proceeding.

There is also a possibility under Bulgarian law for reorganization plan which may provide for deferral or rescheduling of payments, a remission of the debts in full or in part, a reorganisation of the enterprise, or undertaking other acts or making other transactions. Such plan may be proposed within a specified deadline by:

  • the debtor;

  • the trustee in bankruptcy;

  • the creditors holding at least one-third of the secured claims;

  • the creditors holding at least one-third of the unsecured claims;

  • the partners, the shareholders respectively, who hold at least one-third of the capital of the debtor company;

  • an unlimited liability partner;

  • twenty per cent of the total number of the debtor's employees.

More than one plan may be proposed in the bankruptcy proceedings. The plan approved by the court is mandatory for the debtor and the creditors whose claims have occurred before the date of the ruling to institute bankruptcy proceedings. With the ruling to approve the plan, the court terminates the bankruptcy proceedings and appoints the supervisory body, in cases where this is not envisaged in the reorganization plan for the enterprise.

The court declares the debtor to be bankrupt, in the event that a reorganization plan has not been proposed within the period provided by law or the plan proposed has not been accepted and approved. Such a ruling by the court is effective vis-à-vis all persons. The decision to declare a debtor bankrupt is also recorded in the Commercial Register.

The Commerce Act envisages that if no reorganization plan was approved or out-of-court agreement settled, or insolvency proceedings have been recommenced due to non-compliance with the plan or agreement, the court will declare the debtor bankrupt and order the termination of its activity.

Then, the sale of the debtor’s assets commences and the cash from the assets are distributed. The sale is carried out by the trustee in accordance with the law and a decision of the creditors’ assembly is adopted to this end.

The insolvency proceedings are terminated by a court decision when all liabilities have been paid or the assets of the debtor have been depleted. In the latter case, the court orders the deletion of the company.

For more information about doing business in Bulgaria, see the complete text of our Guide.