Stabilisation and restructuring law in Bulgaria

According to a decision of the Bulgarian Parliament dated 13 March 2020, a state of emergency was declared for the period 13 March – 13 April 2020 with the possibility of further extension. 

The National Assembly adopted on the 23 March 2020 the measures during the State of Emergency Act. 

One of the key short-term provisions of the Act concerns the regime for utilisation of unutilised funds under EU cohesion programmes as an emergency fund for the fight against COVID-19. This was granted by the EU Commission as an immediate stopgap measure.

On 19 March 2020 the Bulgarian National Bank (BNB) issued a press release announcing a set of measures in relation to COVID-19 pandemic. The BNB applied a package of measures aiming to mitigate the negative effects resulting from restrictions in relation to the COVID-19 for citizens and companies. The goal is to simultaneously preserve the stability of the banking system and strengthen its flexibility. 

The three main pillars of the decision are the following:

• full capitalisation of the retained earnings in the banking system (effect of appx. EUR 800m)
• reduction of the anticyclical buffer: The Governing council of BNB, taking into consideration such a radical shift in the environment in comparison to the assessment a year ago and with regard to the dynamic environment both domestically and internationally decided that the level of the countercyclical buffer applicable to credit risk exposures in the Republic of Bulgaria shall remain 0.5% as compared to the targeted 1,5 %  increase by year end (effect of appx. EUR 350m).
• increase of the liquidity in the system by reduction to foreign exposures of banks i.e. the reduction of foreign deposits and investments in non-Bulgarian government bonds of Bulgarian banks. The measure is aimed at foreign owned local banks (which hold at least 60% of the assets in the Bulgarian banking system) and has as an end result the depositing of appx. EUR 3,5bn with the BNB.

Further, the Bulgarian Development Bank (the “BDB”), the Bulgarian state-owned development bank, will receive an equity increase of around EUR 250m equity from the Bulgarian Ministry of Economy, as its main shareholder, in the upcoming days.

The new equity will be used by the BDB for two products:

• portfolio guarantees to banks;
• equity investment in companies; 

The terms and conditions of the programme are still not public and subject to fine tuning that should be clarified in the upcoming weeks.

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The current measures are not subject to notification with the EU.

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The effect of the opening of the stabilisation procedure is that a merchant is restricted in its operations either partially (i.e. they could be carried under the supervision of the trusted party) or fully, when the merchant is divested of its rights to manage and dispose of its assets. The opening of the proceedings also imposes a ban over the merchant to repay debts that occurred prior to the date of the application and have not been paid on the maturity date, except for public payments .

The stabilization procedure under Bulgarian law foresees the adoption of court approved stabilisation plan.

The stabilisation plan should provide for at least 50% repayment of liabilities for all creditors and may not provide for extension of repayment terms by more than three years. The plan may propose selling of separate assets, of the going concern, parts of it, or debt to equity conversions.

No insolvency/stabilisation applications are available during the state of emergency. Nevertheless, the terms under all substantive law provisions are applicable which is important in the context of hardening periods, insolvency set-off and other substantive provisions of the Bulgarian insolvency laws.

No changes for now. Only the insolvency “holiday” described  under the previous question.

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