Bulgaria's Supreme Court Of Cassation Issues Interpretative Judgement Strengthening The Equal Treatment Of Creditors And Expediting Insolvency Proceedings

February 2019 - On 3 December 2018, Bulgaria's Supreme Court of Cassation (“SCC”) issued Interpretative Judgment No 1 (the “Judgement”) on interpretative proceedings No 1/2017 of the General Assembly of the Panel of Commerce. The Judgement provides guidance to certain issues concerning insolvency proceedings that in the past have been adjudicated differently by the courts. In particular, courts have reached different interpretations of certain provisions of Bulgarian law directly relating to the participation of creditors in insolvency proceedings and the satisfaction of their claims. The Judgment provides increased clarity and guarantees to a large extent the equal treatment of all creditors participating in insolvency proceedings. Another positive impact of the Judgement is its attempt to provide a more timely resolution of disputes stemming from claims against a debtor that have been raised in the course of insolvency proceedings.

We analyse below some of the more important issues resolved by the SCC's Judgment.

Proceeds from the sale of mortgaged or pledged assets may not be used to cover preliminary expenses relating to the opening of insolvency proceedings or other expenses incurred in the course of the insolvency when such proceeds are not sufficient for the full satisfaction of the creditors secured by a mortgage or a pledge.

Mandatory provisions of the Bulgarian Commercial Act regulate the terms under which the claims of creditors in insolvency proceedings are satisfied. In the absence of a specific provision providing for the preferred satisfaction of creditors who have paid expenses in advance or for the remuneration of the insolvency administrator, such claims qualify as third-tier (after the claims secured by a pledge or mortgage and the claims in relation to which retention rights are exercised). Claims for expenses may not be satisfied with proceeds from the realisation of the collateral (mortgage or pledge) established in favour of a creditor, if such realisation is insufficient to cover the secured claim. The Judgment ensures that the claims of creditors secured by a mortgage or pledge in all cases will be satisfied before any other claims, including those relating to expenses incurred to open insolvency proceedings.

Creditors may use all evidence to prove their claims in the course of proceedings to challenge the list of accepted claims (Art. 692 of the Commercial Act).

In order to identify the persons whose claims will be...

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