When a company cannot pay: a director’s duties in Bulgarian insolvency

Iva Petkova, attorney · Updated 24 September 2026 · 8 min

When a Bulgarian company is legally unable to pay or over-indebted, what its director must do within the 30-day deadline under the Commerce Act, the personal and criminal exposure for delay, and when stabilisation proceedings are an alternative.

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When a company becomes unable to pay or over-indebted, the Commerce Act requires its management to apply for insolvency proceedings within 30 days, and missing the deadline can lead to personal and criminal liability. The first task is therefore to establish whether the company is in temporary difficulty, faces an imminent risk of insolvency, or is already unable to pay or over-indebted.

The two tests: inability to pay and over-indebtedness

Inability to pay is a liquidity test: the company cannot meet a due monetary obligation under a commercial transaction, a public obligation connected with its business, a private state claim, or wages owed to at least a third of its staff for over two months (Art. 608(1) of the Commerce Act). It is presumed where the company has stopped payments, including by paying only selected creditors, where it has not filed its annual financial statements for publication for the last three years, or where, in enforcement proceedings, a petitioning creditor’s claim established by a final act has remained wholly or partly unpaid six months after the invitation to pay voluntarily (Art. 608(2)–(4)). The company then has to prove otherwise.

Over-indebtedness is a balance-sheet test: the assets are not sufficient to cover the liabilities (Art. 742(1)). It is a separate ground only for limited liability companies, including single-member ones, joint-stock companies and partnerships limited by shares (Art. 607a(2)), and can exist while the company still pays on time with new borrowing. The court dismisses the petition if the difficulties are temporary or the assets cover the debts without endangering creditors (Art. 631), so the whole financial position is assessed.

The 30-day deadline and the petition

A debtor that becomes unable to pay or over-indebted must apply for insolvency proceedings within 30 days (Art. 626(1)). For a company, the management body or legal representative, or the liquidator, files the petition, and an agent needs a specific power of attorney (Art. 626(2) and (4)). In the case of over-indebtedness, any member of the management body may also file (Art. 742(2)).

Before filing, the National Revenue Agency (NRA) must be notified, and proof of the notice is a condition for the case to be opened (Art. 78 of the Tax and Social Security Procedure Code, TSSPC). The petition is accompanied by (Art. 628(1)):

• the latest annual financial statements certified by a registered auditor, with the auditor’s report, and a balance sheet as at the date of the petition, where the law requires them
• an inventory and valuation of assets and liabilities as at the same date
• lists of creditors and debtors, with addresses and the type, amount, maturity and security of each claim

The petition also states the date on which the inability to pay or over-indebtedness began (Art. 628(4)). The competent court is the regional court for the registered seat, in Sofia the Sofia City Court (Art. 613), which hears a debtor’s petition within 20 days (Art. 629(1)). No court fee is paid on filing (Art. 24(2) of the Tariff of State Fees under the Civil Procedure Code).

A petition may also be filed by a creditor under a commercial transaction, by the NRA for public obligations connected with the business and for private state claims, and by the General Labour Inspectorate Executive Agency in the case of overdue wages described above (Art. 625). If a creditor has already filed, the company may still file its own petition until the close of the evidentiary stage at first instance, and the court hears both together (Art. 629(3)).

The director’s liability for delay

The persons who should have filed are personally, jointly and severally liable to creditors for the damage caused by the delay (Art. 627). A creditor must prove the damage and its link to the delay.

Under the Criminal Code, those who manage and represent a commercial company and fail to apply for insolvency proceedings within 30 days of the suspension of payments face up to three years’ imprisonment or a fine of up to BGN 5,000 (Art. 227b(1) and (2)). The amount has not been redenominated, so under Articles 11–13 of the Act on the Introduction of the Euro in the Republic of Bulgaria it applies as EUR 2,556.46.

A director who in bad faith has paid out a hidden distribution of profit or a dividend, or has disposed of assets free of charge or well below market value, is also liable for the company’s unpaid taxes and social security contributions up to the reduction in its assets (Art. 19(2) and (4) TSSPC).

Stabilisation: when the risk has not yet materialised

Stabilisation proceedings are available only to a company that is not yet unable to pay but, in view of its maturities over the next 12 months, faces an imminent risk of becoming so and can continue trading (Art. 762(1) and (2) of the Commerce Act). They are not available if the annual financial statements for the last three years have not been filed for publication, if stabilisation was opened in the last three years, or if over one fifth of the liabilities are owed to related parties or to persons who acquired claims from them in the last three years (Art. 762(3)). The company applies with a proposed plan and proof that the NRA has been notified (Art. 769(3); Art. 77a TSSPC).

Once the proceedings are opened, enforcement is stayed, except for employees’ claims (Art. 780), no insolvency case can be brought, and the 30-day deadline under Article 626 starts to run only when stabilisation ends (Art. 780a). The plan may spread payments over up to three years and, where it writes off part of the debts, must give each creditor that is not a related party at least 50 per cent of its claim (Art. 770(3) and (5)). Reducing, deferring or rescheduling public debts requires the prior consent of the Minister of Finance, who has two months to decide (Art. 189(1) TSSPC), and the proceedings are terminated if no plan is confirmed within four months of opening (Art. 796(1)(2) of the Commerce Act).

After opening: the trustee, the onset date and avoidance actions

In the decision opening the proceedings, the court fixes the date on which the inability to pay or over-indebtedness began and appoints an interim trustee (Art. 630(1)). The company continues trading under the trustee’s supervision and may enter into new transactions only with the trustee’s prior consent (Art. 635(1)), and once it is declared insolvent, the powers of its corporate bodies end (Art. 711(1)(3)).

Within 14 days of the opening, the company must give the court and the trustee information on its business and assets, a list of payments above EUR 613.55 (BGN 1,200 in the statute) made in the six months before the onset date, a list of payments to related parties in the year before it, and a notarised declaration of its assets and debtors (Art. 640).

The onset date also matters for avoidance actions: payments, set-offs and security given after that date, within the statutory periods before the petition, may be declared ineffective against the creditors (Arts 645(4) and 646(2)). Gratuitous transactions with related parties can be challenged if made up to three years before the petition; other gratuitous transactions, transactions at a significant undervalue (but not earlier than the onset date) and prejudicial transactions with related parties can be challenged if made up to two years before it (Art. 647(1)). The actions are brought by the trustee or, if the trustee fails to act, by a creditor, within two years of the opening (Art. 649).

Practical steps and documenting decisions

At the first signs of difficulty, management can work through the following steps:

1. a schedule of liabilities by maturity and a cash-flow forecast for the next 12 months
2. a comparison of the realistic value of the assets with all liabilities
3. a check that the annual financial statements have been filed and whether enforcement proceedings are pending
4. written minutes of a management meeting recording the date, the figures, the options considered, the decision and each director’s position, copied to the shareholders
5. no payments to selected creditors only, no disposals outside the ordinary course of business and no new security until a decision is taken
6. notice to the NRA and, within the 30 days, an insolvency petition or, if the company is not yet unable to pay, an application for stabilisation

The minutes and schedules show when management learnt of the difficulties and what it did, and are the main evidence if it is later disputed whether the deadline was met. The analysis should not delay the petition, however, because the 30 days run from the onset of the inability to pay or over-indebtedness.

Petkova & Minkov Law Firm works on insolvency and stabilisation proceedings in Bulgarian, English, Russian and German, from its office next to the Palace of Justice in Sofia.

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