Pre-pack insolvency sale in Bulgaria with a view of the proposed new directive harmonising certain aspects of insolvency law


The pre-pack insolvency sale is not currently regulated under Bulgarian law.

The Bulgarian law currently regulates the implementation of a recovery plan as a stage of opened insolvency proceedings, such recovery plan may provide for the sale of the business as a going concern, or the sale of a business as a going concern prior to opening insolvency proceedings. The recovery plan is described in more detail below.

The Bulgarian law also regulates the stabilisation procedure, which may be opened in respect of a business that is not insolvent but is in immediate danger of insolvency and has the possibility to continue its activity. These rules transpose the provisions of the Directive on restructuring and insolvency (Directive (EU) 2019/1023 of the European Parliament and the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132), which provide for preventive restructuring measures for avoiding insolvency, thereby protecting jobs and maintaining business activity.

The recovery (rehabilitation) plan as a stage of insolvency proceedings

The recovery plan may provide for the sale of the entire enterprise (the floating pool of all assets, liabilities and factual relations) of the insolvent company as a going concern, or for the sale of a separate part of such enterprise (the part must be a standalone business in itself). The recovery plans must provide also the method and conditions of sale, the identity of the buyer; it may provide for conversion of any debt into equity, novation of obligations, etc.

The following steps will apply for proposal and implementation of the recovery plan:

  • A recovery plan can be proposed no later than two months after the announcement in the commercial register of the court's decision to approve the list of accepted creditors' claims.
  • The insolvent company, the receiver, the creditors who own at least 1/3 of the secured or unsecured claims are entitled to propose a recovery plan; the partners, respectively the shareholders, who own at least 1/3 of the share capital of the company; each general partner or twenty percent (20%) of the total number of employees of the company.
  • When the recovery plan envisages the sale of the entire enterprise as a going concern or a specific part thereof, a draft sale and purchase agreement signed by the buyer is attached to the plan. A market valuation of the property that is the subject of the relevant transaction must be attached to the recovery plan.
  • The recovery plan may provide for the appointment of a supervisory authority to exercise control over the debtor's activities for the duration of the recovery plan or for a shorter period.
  • The plan is adopted by the creditors meeting.
  • The plan is approved by the insolvency court. With the resolution approving the plan, the court terminates the insolvency proceedings and appoints the supervisory authority proposed in the plan or elected by the creditors meeting.
  • The deadline for concluding a contract for the sale of the entire enterprise, or a separate part thereof, in accordance with the approved recovery plan is two months from the entry into force of the court's resolution approving the plan.
  • If a contract is not concluded within the two-month period under the preceding bullet point in accordance with the draft attached to the approved recovery plan, each of the parties may, within an additional one-month period, request the insolvency court to declare the contract concluded based on the draft attached to the recovery plan. If neither party requests that the contract be declared concluded and if a request is made by a creditor, the insolvency court resumes the insolvency proceedings and declares the debtor bankrupt.

One of the primary objectives of the insolvency proceedings, together with the objective to provide fair satisfaction to all creditors, is stated to be the possibility to recover the insolvent business. The sale of such business as a going concern is probably the most adequate approach towards such objective. However, in practice the highly regulated recovery plan process rarely resulted in a sale of the entire enterprise of an insolvent company. Therefore, the pre-pack insolvency sale could fill in an important niche in the insolvency process in Bulgaria.

Expected development of the legislation after the transposition of the proposed directive

The new EU directive harmonising certain aspects of insolvency law a proposal of which was published by the European Commission on 7 December 2022 could have a positive impact on the insolvency process by providing a faster, efficient, transparent and predictable way to sell the enterprise as a going concern in the context of insolvency proceedings, allowing the preservation of business and jobs, while ensuring the satisfaction of the claims of the creditors, without undue delay.

Unlike the existing methods of selling the commercial enterprise in or out of the insolvency procedure as described above, the new procedure will consist of 2 stages, where the first stage (the preparation phase) would develop outside the insolvency procedure, but with a view to its beginning, and the second one (the liquidation phase) - within the insolvency proceedings, the final effect of which will be to preserve business and jobs, and at the same time to satisfy creditors' claims more quickly than the standard insolvency procedure which requires the sale of the individual assets belonging to the insolvency estate.