Restructuring of Companies Prior to Insolvency

Recently, the Council of Ministers introduced a draft amendment to the Commerce Act (the "Amendment") for discussion in the Bulgarian Parliament. Amongst other proposed changes, the Amendment introduces a procedure for the restructuring of companies, prior entering into an insolvency procedure.

The Amendment provides a new chapter, titled "Proceedings for stabilization of merchants", which is similar to the bankruptcy reorganisation schemes in the UK and the US. The purpose of restructuring procedure is to allow companies to avoid insolvency, especially in cases where there is a risk for the company to be unable to repay its debts.

The Amendment exhaustively lists the scenarios when the restructuring procedure is applicable and the types of entities that may make use of it. Of note, companies, which have unreasonably provided shareholder loans, will have no access to such reorganisation. Likewise, banks and insurance companies are also excluded since they are under special provisions of the recently adopted Recovery and Resolution of Credit Institutions and Investment Intermediaries Act and the new Insurance Code.

Further, the Amendment (i) explains the proceedings involved in such restructuring; (ii) identifies the oversight competent courts; and (iii) specifies the rights and obligations of the parties concerned. It also clearly states the steps for such restructuring and the rules for preparing the company's restructuring plan.