Multinational Enterprise Liability in Insolvency Proceedings
BULGARIA*
Varadinov & Co Javor Varadinov, Managing Partner; Yanislava
Chankova–Docheva, Attorney-at-law; Zoya Zlatkova, Attorney-at-law
A DOMESTIC FAMILY OF COMPANIES
Bulgarian law explicitly admits the existence of commercial groups as a
legal phenomenon and regulates their existence. The legislation applicable to
such groups is not a systematic and comprehensive one, nevertheless the law
provides some special rules for these cases. The legal status of companies under
Bulgarian law is set out mainly in the Commercial Act (CA). Companies’
regulation and commercial groups have special domestic legal acts too, such as
the Public Offering of Securities Act, the Banking Act, the Insurance Code,
accounting laws, the Protection of Competition Act, etc. The CA provides for two
types of commercial groups: consortium and holding.
A ‘consortium’ is a contractual grouping of merchants for carrying out
specified activities. It may be organised as a partnership under civil law or as a
commercial company. The respective rules for partnerships under the civil law or
for the company, in the form of which a consortium has been organized, should
be applied (Article 275 and 276 CA). Consortiums can be created either as a
personal partnership – general or limited or as a capital company – a joint-stock
company, a partnership, limited by shares, or as a limited liability company.
A ‘holding’ is not a contractual association of merchants, but a vertical
grouping of companies that keep their legal independence, for whose
establishment is not necessary to have an agreement between the participants. In
order to have a holding it is necessary that a holding company be created, which
is the top company of a pyramid containing a subsidiary or several subsidiaries.
The CA ensures that the holding company is created as a joint-stock company, a
partnership limited by shares or a limited liability company, i.e. as a capital
company, that pursues a specific goal – to participate in other companies through
the acquisition and ownership of shares and stakes, or to participate only in their
management. At least 25 per cent of the capital of the holding company must be
paid directly to the subsidiary. The holding company may conduct its own
production or commercial activity or not (Article 277 CA).
A mandatory element in the creation of a holding is the subsidiary. The
law defines it as a company, in which the holding company owns or controls
Published in The European Lawyer Reference, Multinational Enterprise
Liability in Insolvency Proceedings, Jurisdictional comparisons, Second edition 2010,
General Editor J. William Boone
*
1
directly or indirectly at least 25 per cent of the shares of that company or
participates in its management, having the right to determine, directly or
indirectly, half of the members of its board.
1. If insolvency proceedings must be commenced for the family of
companies, does your law permit a joint proceedings, i.e. a single court file, a
single judge, a single list of creditors, single notice list, or must the case for each
member of the family proceed separately with no practical acknowledgment of
the related proceedings?
With regards to the above, the consortium is subject to the rules regarding
partnership under civil law (article 357 of the Law on Obligations and Contracts)
or the rules of the respective company (article 56–285 CA) in which the
consortium is registered. If the consortium has been established as a partnership
under the civil law, the consortium is not a legal entity and therefore in case of
insolvency of one of the merchants involved in the contract, insolvency
proceedings should be opened for each of them. In case the consortium is created
as a kind of company under the CA and accordingly is personified, and
insolvency proceedings are initiated, there are not any specific provisions from
the general principles, since there is one company, for which the relevant
provisions of the CA shall be applied.
The subsidiaries are separate and independent legal entities in relation to
the holding company, upheld by Bulgarian legal doctrine and court practice
(Decision No 41/1993 under the company file No 214/1992–V–Supreme Court;
Ruling No 399/1994–V–Supreme Court; Decision No 19/1995–V–Supreme
Court). The subsidiary is economically subordinate to the holding company as
the latter holds at least 25 per cent of the subsidiary’s shares or has the power to
determine its management. The CA endorses the understanding of the classical
corporate doctrine – the principle of legal severalty of liability and risk allocation
of the self-dependant legal entities. Hence the holding company and the
subsidiaries are legally separated, self-dependant and personified legal units. In
its capacity of an independent legal company, the subsidiary concludes contracts,
respectively holds rights and assumes obligations, adopts execution of its debtors,
etc. When obligations arise from contracts with subsidiaries, the creditors may
not engage either joint or subsidiary liability of the holding company. This is true
also for the reverse situation – the subsidiary can not be responsible for the
obligations assumed by the holding company.
Each of the companies within the group forms its own property and meets
its obligations to the limits of that property. As far as the holding group has no
separate legal personality, we can not speak for group's capital or group’s
property. The CA does not provide anything specific about the groups and the
liability of companies involved in them, from the general rules for individual
companies. The formation of its own capital for each of the individual companies
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is a prerequisite for severalty of liability and risk allocation. Therefore if there are
legal grounds for the initiation of an insolvency procedure, either for the holding
company or for any of the subsidiaries, the insolvency proceedings should be
opened for each particular company.
However, in addition to the general rules for the commercial groups, the
CA provides some specific regulations that should be noted:
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In case the holding company is declared bankrupt, which is
grounds for its termination, it will trigger the termination of the
companies in which the holding company is a general partner
(general partnership, limited partnership and partnership limited
by shares – Art. 93, p. 4 and 5, Art. 99, para. 2, Art. 259, para. 2 CA),
and the sole limited liability companies, in which the holding
company is a sole shareholder (Art. 157, para. 2, in connection to
the art. 154, para. 1, p. 4 CA). However this is not a specific
consequence of the group interconnection between the holding
company and the subsidiary, but it follows the general rules of the
company law.
Note the text of the article 610 CA: in concurrence with the
institution of the bankruptcy proceedings for the company, a
bankruptcy proceeding shall be deemed instituted as well for its
unlimited partner. In case the holding company is the unlimited
partner in a subsidiary company, when the insolvency procedure
starts for a subsidiary, it should be considered as having started for
the parent company too. Once again, this is not a specific rule
considering commercial groups, but a general one, implemented by
company law.
As a general principle the holding company is not liable for the
duties and responsibilities of its subsidiaries. Nevertheless, there
are some exceptions. When the subsidiary company is established
in the form of general partnership, limited partnership or
partnership limited by shares and the holding company is an
unlimited partner – then the parent company is financially liable
for the obligations of the subsidiary. This is not a special rule, but a
consequence of the general principle of the unlimited liability of
general partnerships adopted by law, despite the legal recognition
of their independence.
Notwithstanding the general principal of commercial law
regarding separation of the property and the respective liability of
the companies within a commercial group, there are some cases in
which the holding company takes on a responsibility for the
subsidiary’s obligations towards creditors. There are different legal
instruments to achieve this effect, such as entering into debt,
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becoming a guarantor, assuming real securities, accepting a bill of
exchange, etc. The liability described arises from the contract
between the parties involved and does not represent a specific rule
regarding the relationship between the holding company and the
subsidiary.
a) What if the members of the family are organized under, or operate in,
different locations within your country? Can a company from a distant location
in your country commence its bankruptcy proceedings where its affiliate is
located, if the affiliate has already commenced its bankruptcy proceedings?
The seat is a legal individualised characteristic of a merchant. It represents
the place where the merchant’s registered office is located. The merchant's
address is the address of its registered office (article 12, paragraph 1 CA). In a
holding each of the participating companies has its own seat and registered office.
The holding as a group of self-dependant legal entities has neither a seat of its
own nor a trade name. The seat of each of the participating companies in the
commercial group – the holding company and subsidiaries, is essential to
determine its ‘nationality’ and the applicable law.
The CA envisages that the court of insolvency is the district court where
the merchant is domiciled at the moment of submission of the petition for
institution of the insolvency proceedings. Companies included in the commercial
group may have a seat and a registered office in different locations. There is no
possibility to initiate a bankruptcy for the parent company at the seat of the
insolvent subsidiary. This follows the general rule of legal severalty of liability
and of risk allocation of the separate companies within the economic union,
which keep their legal independence.
b). To the extent your country has different types of insolvency
proceedings (such as Chapter 11 reorganization and Chapter 7 liquidation on the
U.S.), do the members of the corporate family all have to proceed under the same
type of proceedings?
The CA provides for a single insolvency procedure. On the other hand the
above should be respected with regard to the principle of legal independence
and severalty of liability of the companies within the commercial group, which
leads separate insolvency proceedings to be initiated.
The law regulates the transformation through joinder, merger, splitting
and separation of a company or a change of the legal form and liquidation of
companies, but all these are separate legal procedures from the insolvency
procedure. The CA provides for exhaustively the prerequisites for starting the
insolvency proceedings and they are different from the necessary grounds to
initiate procedures for transformation and liquidation. The law (Article 261a CA)
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envisages that a company which is in an insolvency procedure can be
transformed if the rescue plan provides for continued operation of the company.
There is a connection between the termination of a company, its
liquidation and the insolvency procedure, and it is in order of consistency. The
law provides that one of the legal grounds for termination of a company is it
being declared bankrupt (Article 252, paragraph 1, 3 CA). The general rule is that
after the termination of a company it should be liquidated (Article 266,
paragraph 1 CA). However, from the date of the decision for opening insolvency
proceedings the liquidation procedure of a company in liquidation shall be
stopped (Article 272a CA). The proceedings for liquidation shall be terminated
on the date of enactment of the decision under Article 630 CA, by which the
company is declared bankrupt.
2.
Does
your
law
permit,
or
prohibit,
a
single
administrator/trustee/receiver to administer the assets and the liabilities of the
entire corporate family?
In accordance with the separate insolvency proceedings for each company
within a commercial group, the court will appoint a receiver in bankruptcy for
each of the proceedings. The law provides for the rights and obligations of this
professional, the rules for his appointment and removal, accountability, standard
care regarding performing his duties, remuneration, etc. The powers of the
receiver in bankruptcy may be exercised by several persons. In such cases,
decisions shall be taken by consensus and actions shall be undertaken jointly,
unless the Meeting of creditors, in case of dispute between the persons who
exercise the authority of the receiver in bankruptcy, or the court decides
otherwise. In case the powers of the receiver are exercised by several persons,
they shall have joint liability.
(a) If the law permits it, is there a hearing for the court to determine
whether the administration by a single party is appropriate? Are secured and
unsecured creditors or other parties in interest allowed to object or be heard at
such hearing?
Together with the application to start proceedings in bankruptcy, the
debtor or a creditor (depending who files the application) is entitled to designate
a person who meets the legal requirements for a receiver. If the court finds the
application well grounded and pronounced with a decision under Article 630 CA,
and if the proposed person meets the legal conditions, the court shall appoint
him as a temporary receiver in bankruptcy. The temporary receiver shall carry
out his powers until a permanent one shall be appointed by the court after his
election on the first meeting of creditors.
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The first meeting of creditors shall be conducted on a date chosen by the
court. It should be attended by creditors included in a list prepared by the
receiver and those in extracts from the commercial books of the debtor. The CA
allows for an order of the receipts of the creditors and grants a priority to the
secured creditors. The participation of the creditors, secured and unsecured, in
the first meeting shall be personal or by proxy with an explicit letter of attorney
in writing.
After claims are accepted, voting rights at the meeting of creditors are
granted only to creditors with accepted claims. Whether the claim of a creditor is
secured or not is relevant for order according to which the claim should be paid
by the bankruptcy estate, but has no connection to the voting in the meeting of
creditors.
(b) What about joint representation by other professionals, such as law
firms or accounting or auditing firms?
Insofar as legally independent companies within a commercial group
have separate insolvency proceedings, the court should appoint one receiver for
each procedure. Accordingly, there is not a general representation of companies
by a lawyer or other professionals, audit firms, etc., since there is no general
procedure.
(c) If the law does not permit a single administrator/trustee/receiver, are
there provisions allowing the different administrators to coordinate with each
other so that values of assets may be maximized?
The receivers of each separate bankruptcy proceeding do not coordinate
their activities as the procedures are legally separated. However, in practice, it is
possible for the separate insolvency procedures of two or more companies which
have economic interdependence within a commercial group to have the same
receiver appointed. He will have an overview of the development of the two or
more formally separated procedures on the status of the property, which is
included in the bankruptcy.
3. Does your law encourage or discourage overlapping boards or
management teams for separate members of a corporate family?
As stated above, individual companies keep their legal autonomy within
the commercial group. Respectively, the principle of severalty of liability and risk
allocation of each legal entity have to be considered.
a) If the directors of a parent company are not directors of the subsidiary,
but they manage the affairs of the subsidiary anyway, do your country’s laws
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render such people ‘de facto’ or ‘shadow’ directors of the subsidiary? What are
the resulting consequences?
The self-determining legal personalities of the companies in the holding
leads to formation of independent corporate bodies of each legal person. Both
holding company and subsidiary companies form a separate management
structure depending on their legal form. The CA does not envisage the creation
of managing authorities of the holding group, since it has no legal personality.
The managing body of a capital company makes the firm’s management,
in accordance with the statutory act, aware of the company’s purpose. The
holding company manages its own shares in other companies (subsidiaries) and
indirectly manages the subsidiaries. In case the holding company has the power
to determine or monitor the management of the subsidiary, the theory speaks of
‘a shadow management’ or ‘a shadow director.’ But these cases are not explicitly
and legally defined so there are not any direct specific legal consequences.
The holding company manages its shares/stakes in the other companies
in different ways – through the exercise of voting rights in the respective
governing bodies of the subsidiaries, or through direct intervention by giving
guidance to the governing bodies of the dependent companies. Direct impact can
be ensured by belonging to the governing bodies of the subsidiary. For example,
in cases where the subsidiary was entered in the trade register as a joint stock
company, the holding company would be directly involved in the composition of
the Management Board or the Board of Directors as an entity because of the
general prescription of article 234, para. 1 CA.
The CA does not envisage anything special with regard to the
representation of the companies within a commercial group. Each company in
the group is represented by its own managing bodies depending on the legal
form of the particular company. According to the general rule, the holding
company does not have any powers of representation, both for the whole group
or for the separate company, because of the independence and separate legal
personality of each participant within the group. However, it is possible to have
common representation on a contractual basis; for example, it is the usual
situation for the holding company to act as a sales representative of the
companies of the entire commercial group.
b) Do the duties or responsibilities of officers or directors of a family of
companies change when the companies become insolvent? What if only one of
the companies is insolvent?
Upon institution of bankruptcy proceedings the debtor continues his
activities under the supervision of the receiver. He may conclude new
transactions with the preliminary approval of the receiver, and in compliance
with the security measures, determined by the judgment (under Article 630 CA)
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for institution of bankruptcy proceedings. The court may deprive the debtor of
the right to administrate and dispose of his assets and to concede this right to the
receiver, should it establish that the debtor jeopardises the interests of creditors.
As a general rule, the receiver represents the insolvent company and pursues a
specific goal – to find and convert the bankrupt estate into cash.
4. Are the rules regarding members of the corporate family transferring
assets among one another (such as by way of loans, capitalization, other
transactions) different when the members are insolvent?
The CA admits intra-group lending and deposit granting. Thus the law
indirectly qualifies the commercial group as one economic whole (Article 280
CA). The law envisages that a holding company may extend loans only to
companies in which it participates directly or which it controls. The amount of
the extended loans must not exceed ten times the capital stock of the holding
company. The amount of the deposits of subsidiary companies and enterprises in
a holding company may not exceed three times the amount of the capital stock.
Rules on lending and deposit granting within a holding group constitute
an exception from the regulations of the Banking Act concerning the competence
to conduct banking operations. The same deals (in case they are negotiated under
non-market conditions) are expressly excluded from the scope of the limitations
under Article 114, para 1 of the Public Offering of Securities Act, because of the
specific function of the holding company.
In the case of instituted insolvency proceedings regarding companies
involved in a commercial group, the rules for transferring assets are changed.
The law provides court-imposed interim measures on the debtor’s possessions
and the merchant may enter into new deals only with the prior consent of the
receiver. Moreover, in certain cases, the court may deprive the debtor of the right
to administrate and dispose of his assets and to concede this right to the receiver,
should it establish that by his actions the debtor jeopardises the interests of
creditors. Therefore, when insolvency procedures are instituted the freedom to
transfer assets between companies within the commercial group is restricted and
in certain cases it is even forbidden.
5. How does your law treat claims of one member of a corporate family
against other members of the corporate family?
As has been pointed out above, the individual companies within the
group of companies keep their individual legal personality, self-formation of
property, and they meet their obligations to creditors separately.
a) Are such claims invalid or unenforceable?
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The law does not prohibit filing claims from one company against another
in the commercial group. Such claims are admissible and will be examined by a
competent court-of-law.
b) If not, are such claims on equal footing with those of third party
creditors, or are they subordinated, or is there other treatment required or
permitted under your law?
Such claims shall be examined by the court on an equal basis to the claims,
filed by any third party.
6. Does your law allow for the pooling of assets and liabilities of some or
all members of the corporate family, so that a creditor of one member becomes,
in essence, a creditor of all members? This is sometimes referred to as
‘substantive consolidation’.
Bulgarian law is consistent with respect to the statutory enactment
principle, that the separate legal entities within a group of companies keep their
legal personality. Thus, each company – the subsidiary as well as the holding
company – is liable. Each legal entity included in the commercial group is liable
only to the creditors. The principle of the CA is that the creditors who are
contracted to a specific entity can not receive payment by another legal person,
although included in the group – neither the subsidiary company nor the
holding company.
However, Bulgarian law provides for certain legal consequences of the
linkage between companies in a commercial group. These rules are designed
primarily to protect creditors, considering that although the self-dependant legal
entities are liable separately for the amount of the assets of each company, they
have economic interdependence and this should be considered.
For example, company law provides for disclosure of links with other
companies or holdings respectively, and the acquisition of a share of the capital
of the other company for the members of the managing bodies of a joint stock
company. A person nominated as a member of the board of directors, has to
inform the general meeting of the shareholders and the supervisory board, about
participation as an unlimited liable partner, about the possession of more than 25
per cent of the capital of another company, as well as about participation in the
management of other companies or his commitment as a procurator, manager or
member of a board (article 237, paragraph 3 CA). This is not a typical rule with
regard to commercial groups, but rather refers to the so-called ‘rules of good
corporate practice’. The same information should be announced in the annual
report of the company. These disclosure obligations are advised because of a
potential risk of conflict of interest.
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Accounting rules also require disclosure of such information. The
Bulgarian Accounting Act reproduces the criteria of Directive 83/349/EEC, which
is perceived as the basis for defining economic groups in all EU countries. The
Accounting Act also enforced the International Financial Reporting Standards,
adopted by the EU Commission. In relation to economic groups there is also the
International Accounting Standard No. 27 – Consolidated Financial Statements
and Accounting for Investments in the subsidiary, the International Accounting
Standard No. 24 – Related Parties Disclosures, the International Accounting
Standard No. 22 – Accounting for business combinations – all these documents
provide an obligation regarding the circumstances described to be noted in the
accounting reports.
The CA envisages a case where the group is treated ‘quasi’ as a whole – in
the case of acquisition of own shares, which the law comprehensively regulates
in order to keep the capital of a company and consequently protect the creditors.
These rules meet the minimum standards for the regulation of the capital of the
joint stock companies, provided for in Directive 77/91/EEC and in Directive
92/101/EEC. Thus, in order to protect the interests of the creditors in applying
the rules to acquire its own shares, the law treats like its own the shares of a
controlled company (article 187e, paragraph 1 , item 2 CA).
The next issue, provided by the law in order the creditors to be protected
in case of interdependence between companies within a commercial group, is the
hypothesis of the article 647, item 7 CA. This is the potential to challenge deals of
a dependent company under the dissolving claim procedure in pending
bankruptcy proceedings. On this basis deals concluded by the insolvent
company within 2 years before the opening of insolvency proceedings could be
attacked, if they are detrimental for the creditors. Counterparty to these
transactions should have been a general partner, partner or shareholder with a
significant (over 20 per cent) share in the capital, a member of the governing
body or person who controls the debtor. The law considers in such cases nonmarket conditions for the transactions and gives priority to the creditors of the
insolvent debtor to the interests of persons connected with the insolvent debtor,
including the controlling company. The rule is the only special regulation for the
creditors in a situation of group commitment of the debtor.
a) If so, is such pooling automatic or does it require a factual showing
and court involvement? If not, is there any guidance or requirements with
respect to which creditors among the competing entities get paid?
Each of the companies in the group keeps its own property and is liable to
the capital before its own creditors. The law does not give a legal personality to
the group – it can not enter into deals, hold rights and assume obligations – it is
not responsible for liabilities of the holding company or the subsidiaries to their
creditors.
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b) What proceedings (motion, request, trial, etc.) are required for the court
to order the pooling of assets and liabilities?
It has to be stressed that the Bulgarian Law on Protection of Competition
sets forth specific rules regarding the hypothesis of a concentration of enterprises.
А concentration shall arise where there is a change of control on a lasting basis,
which results from:
 the merger or takeover of two or more independent undertakings; or
 the acquisition, by one or more persons already controlling at least one
undertaking, whether by purchase of securities, shares or assets, by
contract or by any other means, of direct or indirect control of the whole
or parts of other undertakings.
The creation of a joint venture performing on a lasting basis all the
functions of an autonomous economic entity also constitutes a concentration
within the meaning of the said law. The Law on Protection of Competition
defines the meaning of ‘control’. The control shall be constituted by rights,
contracts or any other means which, either separately or in combination and
having regard to the considerations of fact or law involved, confer the possibility
of exercising decisive influence on an undertaking, in particular by acquiring
 ownership or the right to use the entirety or part of the assets of the
undertaking;
 rights, including on the basis of a contract, which provide a possibility for
decisive influence on the composition, voting or decisions of the
managing bodies of the undertaking.
The law envisages that the concentrations shall be subject to mandatory
prior notification to the Commission on Protection of Competition where the
turnover of all participating undertakings within the territory of the country in
the preceding year exceeds BGN 25 million and if other financial requirements
are met.
The Commission shall authorise a concentration provided that it does not
lead to the creation or strengthening of a dominant position, as a result of which
effective competition in the relevant market would be significantly impeded.
c) Does your country’s law contemplate any partial pooling of assets and
liabilities? If so, under what conditions? For example, does it matter that the
creditor relied on the creditworthiness of one particular member of the family?
Does the court weigh the overall benefit to creditors of one family member
(which has few assets) against the detriment to creditors of another family
member (which has more assets)?
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Creditors of one company can not expect to be paid from the assets of
another company within the commercial group, if they are presenting a more
reliable and creditworthy company to their bad debtor. Thus the above described
concentration of enterprises is not legally defined as an instrument the creditors
to obtain monetary satisfaction, but a form of capital unification and common
business strategies.
d) If the pooling of assets and liabilities is called for, are there any
protections for certain types of creditors, such as creditors with a lien or other
security interest in particular assets?
Once a concentration is granted by the Commission on protection of
competition, the rights of the debtor’s creditors in each of the participating
enterprises shall be protected – the creditors shall be paid by the new company
which will be created due to the concentration. The secured creditors shall be
paid before the unsecured and there are not any specific regulations, but the
general rulings shall be applied.
7. How are secured creditors treated with respect to a family of
companies? For instance, if a creditor has a security interest in the assets of one
member of the family, and a guarantee from another member of the family, are
both such claims valid in insolvency proceedings of the entire family or are they
collapsed into one claim?
As stated above, the creditors shall be paid within the separate insolvency
procedure by their particular debtor. In the course of the distribution of the
converted into cash assets the claims are paid up in the following order (article
722 CA):
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Claims secured by a pledge or mortgage, or distraint or injunction
registered under the procedure of the Law of Special Pledges – from the
received sum from the realisation of the security;
Claims with regards to which the right to possessory lien is exercised –
out of the value of the possessed property;
Bankruptcy costs;
Claims deriving from employment contractual relations, which have
occurred before the date of the judgment for institution of bankruptcy
proceedings;
Support owed by the debtor to third persons by operation of law;
Public claims of the state and the municipalities such as taxes, customs,
duties, fees, mandatory insurance installments and similar, occurred by
the date of the judgment for institution of bankruptcy proceedings;
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Claims which have occurred after the date of the judgment for institution
of bankruptcy proceedings and have not been paid at maturity, deriving
from the continuing the activities of the debtor;
The rest unsecured claims occurred before the date of the judgment for
institution of bankruptcy proceedings;
The claims under article 616, paragraph 2 CA:
o Statutory or contract interest on unsecured claim, outstanding after
the date of bankruptcy petition;
o Credit appropriated to the debtor by partner or stockholder;
o Voluntary transaction;
o The expenses of the creditors regarding their participation in the
bankruptcy proceedings.
The law provides a special rule for satisfaction of a secured creditor and a
possessory lien creditor (article 724 CA). In case the selling price of a pledged or
mortgaged chattel does not completely meet the claim along with the interest
accumulated, the creditor shall participate for the balance in the distribution
along with the creditors with unsecured claims. In case the selling price of a
pledged or mortgaged chattel exceeds the secured claim with the interest
accumulated, the balance shall be included in the bankruptcy estate. The same
shall also be applied to satisfy the claim of a creditor with a possessory lien.
В. INTERNATIONAL FAMILY OF COMPANIES
1. If one or more of the corporate family is incorporated under or governed
by the laws of another country, does that change your answers to any of the
questions set forth above?
In case a commercial group participates in a company, incorporated or
governed by the laws of another country, the above said on the general principle
of keeping the independence of each company within the group and separation
of the property and thus the severalty of liability and risk allocation remains the
same.
2. If insolvency/ restructuring proceedings are instituted for corporate
family members in different countries:
(a) Do the courts attempt to exercise jurisdiction over the assets of the
company filing domestically no matter where the assets are located (for example,
overseas), or do they limit their jurisdiction to only those assets located in your
country?
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The receiver in bankruptcy, appointed by the court, shall examine debtor's
assets within the territory of the country. Jurisdiction of the Bulgarian court
extends generally within the country, but it should be considered also the
specific provisions of the new Bulgarian Civil Procedure Code (CPC), in force
from 1 March, 2008 (see Section E below regarding the possibility for collection of
evidence in civil and commercial proceedings) and also some special regulations
of the CA.
The CA allows for subsidiary bankruptcy proceedings to be instituted. At
the request of a debtor, the receiver can be appointed by a foreign court or a
creditor, and the Bulgarian court can institute subsidiary bankruptcy
proceedings concerning a merchant who has been declared bankrupt by a
foreign court, provided he has substantial property within the territory of
Republic of Bulgaria. A creditor who has received partial payment under the
main proceedings can participate in the distribution of assets under the
subsidiary proceedings provided the portion he would get is bigger than the
respective portion to be received by the other creditors under the subsidiary
proceedings.
The CA regulates the special powers of a receiver appointed by a foreign
court of law (article 758 CA). He has the powers envisaged in the state where the
bankruptcy proceedings are initiated, provided they do not contradict public
order rules of the Republic of Bulgaria.
Referring to the applicable law for the insolvency proceedings in which
Member States of the EU are involved, the Council Regulation (EC) No.
1346/2000 on Insolvency Proceedings should be considered. The act enables the
main insolvency proceedings to be opened in the Member State where the debtor
has the centre of his main interests. These proceedings have universal scope and
aim at encompassing all the debtor's assets. To protect the diversity of interests,
the Regulation permits secondary proceedings to be opened to run in parallel
with the main proceedings. Secondary proceedings may be opened in the
Member State where the debtor has an establishment. The effects of secondary
proceedings are limited to the assets located in that State.
The Regulation provides for special rulings regarding international
jurisdiction. The courts of the Member State, within the territory of which the
centre of a debtor's main interests is situated, have jurisdiction to open
insolvency proceedings. In case of a company or legal person, the place of the
registered office shall be presumed to be the centre of its main interests in the
absence of proof to the contrary. Where the centre of a debtor's main interests is
situated within the territory of a Member State, the courts of another Member
State shall have jurisdiction to open insolvency proceedings against that debtor
only if he possesses an establishment within the territory of that other Member
State. The effects of those proceedings shall be restricted to the assets of the
debtor, situated in the territory of the latter Member State. The law applicable to
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insolvency proceedings and their effects shall be that of the Member State, within
the territory of which such proceedings are opened.
(b) Would your courts enforce a court order from a foreign country that
attempted to exercise jurisdiction over assets located in your country but owned
by the company that is subject to the foreign insolvency proceedings?
With respect to the rules of recognition and admission to enforcement of
judgments and judicial acts of a foreign court the general regulations of the Code
on International Private Law shall be applicable (art. 117–124). The special rules
of the CA (article 757) regarding insolvency proceedings and the special rules of
the CPC with respect to the action of the EU law should be considered too (article
619–624 CPC).
The CA envisages that on conditions of reciprocity the Republic of
Bulgaria shall honour foreign court judgments that declare bankruptcy, provided
it is passed by an authority of the state where the debtor’s domicile is.
The Code on International Private Law provides for the general grounds in
order for a judgment or judicial acts of a foreign court to be recognized and
enforced in Bulgaria. These are as follows:

The foreign court or an official body was competent to examine the case
under Bulgarian regulations, but the ground for the foreign competence
with regard to property issues should not solely be the citizenship of the
claimant or his registration in the state where the court is located;

A copy of the claim was delivered to the defendant; both parties were
legally summoned and the general rules of defence under the Bulgarian
legislation were not infringed in the proceedings;

There should not exist a prior decision pronounced by the Bulgarian
court or a pending civil proceedings which began before the foreign one
between the same parties on the same ground and for the same dispute;

The recognition and enforcement of the foreign judgment should not
obstruct the Bulgarian public order.
The CPC provides for specific procedures of recognition and enforcement
of judgment and other judicial acts of a foreign court under action of the
Community Law, such as:

a procedure for issuing a Certificate of European Enforcement Order
for Uncontested Claims (article 619 CPC) under Regulation (EC) No
805/2004 of the European Parliament and of the Council;

a procedure for issuing a Certificate on recognition or admission to
enforcement of Bulgarian judgment (article 620);
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
rules regarding enforcement without an express proceeding (article
624 CPC);

rules regarding enforcement pursuant to the Regulation (EC) No
1896/2006 of the European Parliament and of the Council creating a
European order for payment procedure.
The Council Regulation (EC) No. 1346/2000 envisages special rules for
recognition of insolvency proceedings within Member States. The general
principal is that any judgment opening insolvency proceedings handed down
by a court of a Member State, which has jurisdiction pursuant to the sited
document, shall be recognized in all the other Member States, from the time
that it becomes effective in the State of the opening of proceedings. Recognition
of the proceedings in one Member State shall not preclude the opening of the
proceedings by a court in another Member State. The latter proceedings shall
be secondary insolvency proceedings within the meaning of the Regulation.
The Council Regulation (EC) No. 1346/2000 also provides for rulings of
the effect of recognition. The judgment opening the proceedings shall produce
the same effects in any other Member State as under the Regulation of the State
of the opening of proceedings. Any restriction of the creditors' rights, in
particular a stay or discharge, shall produce vis-à-vis assets situated within the
territory of another Member State only in case the creditors have given their
consent.
(c) Has your country adopted any procedures (such as the Model Law on
Cross-Border Insolvency) to address the various issues that arise in dealing with
cases of cross-border insolvency?
See Section A above with regard to the Council Regulation (EC) No.
1346/2000 on Insolvency Proceedings.
(d) Under what conditions, if any, are your Courts allowed to
communicate and coordinate with Courts of a foreign jurisdiction in an effort to
coordinate the administration of assets of family members? In this regard, has
your jurisdiction adopted or informally utilized the Guidelines Applicable to
Court-To-Court Communications in Cross-Border Cases as adopted and
promulgated by The American Law Institute and The International Insolvency
Institute?
Since 1 January, 2007 the Republic of Bulgaria is an official member of the
EU and implements the Union requirements with respect to court-to-court
communication and coordination about civil and commercial matters. In
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fulfillment of the regulation defined in Article 81 of the TFEU the CPC provides
for special rules with this respect.
The CPC allows the collection of evidence in civil and commercial
proceedings, where the parties involved are from the EU Member States, to be
carried out under the Council Regulation 1206/2001/EC on Cooperation
between the Courts of the Member States (art. 614–618 CPC). In such cases the
court may transmit a request to take evidence to the competent authority of the
other Member State or may request to take evidence directly. Within the scope of
Council Regulation (EC) No 1206/2001, the Bulgarian court or an authorized
member may be presented and participate in the taking of evidence by the court
of the other Member State.
Other EU documents, concerning court-to-court communication and
coordination with regard to civil and commercial matters, are as follows:




Council Regulation (EC) No. 44/2001 on jurisdiction, recognition and
execution of judicial acts on civil and commercial cases (last amended
with the Council Regulation No. 1496/2002).
Council Regulation (EC) No. 1348/2000 on delivering within Member
States of court and out-of-court papers regarding civil and commercial
cases. This act is revoked since 13 November, 2008 and the new
Regulation No. 1393/2007 is applied.
Council Decision No. 2001/470 on creating European judicial network
regarding civil and commercial cases.
Council Directive No. 2003/8 on improvement the access to justice
regarding cross-border disputes.
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