Bulgarian Restructuring Tools and Their Use in Practice
July 2025
Bulgarian law provides several restructuring tools for companies facing financial distress and struggling to meet their financial obligations. The appropriateness of each tool depends primarily on whether the financial difficulties are temporary or permanent:
For temporary cash flow shortages, companies can often recover through timely interventions such as refinancing, debt restructuring, or asset sales.
For permanent financial deterioration, formal insolvency proceedings may represent the only legally viable option.
Between informal restructuring and formal insolvency, Bulgarian law provides a court-supervised restructuring route through the stabilization procedure. This mechanism is designed for debtors that are not yet insolvent but face an imminent threat of insolvency. The procedure gives such debtors an opportunity to reach an agreement with their creditors for a restructuring of the business that would help avert insolvency.
Bulgaria currently lacks hybrid restructuring mechanisms that combine out-of-court restructuring with formal insolvency processes (such as pre-packaged insolvency sales). Two mechanisms have similarities to pre-packed sales:
- The sale of a business as a going concern within a recovery plan during insolvency proceedings (not pre-arranged and subject to court oversight).
- Out-of-court settlement agreements during the insolvency proceedings between the debtor and all creditors whose receivables have been accepted in the insolvency proceedings. In such case, if the settlement agreement complies with the law, the court will terminate the insolvency proceedings. The settlement agreement should be concluded after the initiation of the insolvency proceedings and remains subject to court review for compliance with the law.
Bulgaria currently lacks hybrid restructuring mechanisms that combine out-of-court restructuring with formal insolvency processes (such as pre-packaged insolvency sales). Two mechanisms have similarities to pre-packed sales:
- The sale of a business as a going concern within a recovery plan during insolvency proceedings (not pre-arranged and subject to court oversight).
- Out-of-court settlement agreements during the insolvency proceedings between the debtor and all creditors whose receivables have been accepted in the insolvency proceedings. In such case, if the settlement agreement complies with the law, the court will terminate the insolvency proceedings. The settlement agreement should be concluded after the initiation of the insolvency proceedings and remains subject to court review for compliance with the law.
Trends
Trends
No official statistics are available to assess trends in the prevalence of out-of-court restructurings in Bulgaria. The lack of public information arises mainly from the confidential nature of the informal restructurings as debtors naturally avoid disclosing that they suffer financial difficulties.
Generally, Bulgaria’s stabilization procedure is rarely used by debtors facing imminent insolvency, largely due to complex administrative hurdles. As a result, applications are often filed too late, typically after the debtor has become over-indebted. Between 2017 and 2022, only 12 stabilization cases were initiated, and none concluded with a confirmed stabilization plan.
Insolvency proceedings, however, are increasing; in the second quarter of 2024, Bulgaria recorded 1,005 companies entering insolvency proceedings, marking a 2.1% increase compared to the same period in 2023.
No official statistics are available to assess trends in the prevalence of out-of-court restructurings in Bulgaria. The lack of public information arises mainly from the confidential nature of the informal restructurings as debtors naturally avoid disclosing that they suffer financial difficulties.
Generally, Bulgaria’s stabilization procedure is rarely used by debtors facing imminent insolvency, largely due to complex administrative hurdles. As a result, applications are often filed too late, typically after the debtor has become over-indebted. Between 2017 and 2022, only 12 stabilization cases were initiated, and none concluded with a confirmed stabilization plan.
Insolvency proceedings, however, are increasing; in the second quarter of 2024, Bulgaria recorded 1,005 companies entering insolvency proceedings, marking a 2.1% increase compared to the same period in 2023.
Out-of-Court Restructurings
In Bulgaria, out-of-court restructurings offer a practical alternative to formal insolvency proceedings, allowing financially distressed companies to negotiate directly with their creditors without involving the courts. These negotiations typically aim to reorganize debts through modified payment terms, refinancing, or other adjustments to restore financial stability. While not formally regulated, this approach suits companies with viable operations facing short-term financial challenges.
In some out-of-court restructurings in Bulgaria, creditors and debtors may agree to swap outstanding debt for operating assets of the company. This arrangement allows the debtor to reduce its financial obligations while enabling creditors to recover value through direct ownership or control of productive assets, such as office buildings, retail parks, commercial centers and hotels. Some swaps can also include non-income-producing assets such as land. Such agreements are typically negotiated on a case-by-case basis and require careful valuation and legal structuring to ensure enforceability.
The typical arrangements entered into by creditors and debtors in out-of-court restructurings in Bulgaria are confidentiality agreements, standstill agreements, and debt restructuring agreements. Where creditors and debtors agree to swap debt for assets, especially if the assets are income producing, the arrangements are typically more complicated as they need to ensure:
(i) the proper allocation of the income between debtor and creditor and
(ii) the simultaneous transfer of debt and assets (considering that the transfer of certain assets such as real estate is subject to formalities, e.g. notarial deed form).
Stabilization Procedure
(Court-Supervised)
Bulgarian law provides a court-supervised stabilization procedure for companies facing imminent insolvency risk but not yet insolvent. Aligned with the EU’s Preventive Restructuring Directive (2019/1023), this mechanism helps debtors who may become unable to meet obligations or risk payment suspension within the next 12 months.
The debtor initiates stabilization procedures by filing a court application outlining the objectives of the restructuring plan, payment terms, and expected creditor recovery levels compared to outcomes upon enforcement on assets. If the plan proposes a partial debt discharge, recovery reductions may not exceed 50%, except for affiliated creditors, who may face deeper write-downs. If the plan involves payment deferrals, the term cannot exceed three years after the proceedings conclude.
Stabilization proceedings formally end with final court approval of the plan.
Restructurings During the
Insolvency Proceedings
When financial distress becomes permanent and irreversible, formal insolvency proceedings must be initiated. These proceedings lead to either liquidation or business continuation through a court-approved recovery plan, with restructuring possible only through the recovery plan.
Insolvency proceedings in Bulgaria can be triggered on two main grounds:
- Insolvency defined as the debtor’s inability to meet payment obligations as they fall due, and
- Over-indebtedness where the debtor’s total assets are insufficient to cover its liabilities.
Insolvency proceedings in Bulgaria may be initiated either by the debtor or by creditors, through an application filed with the district court at the debtor’s registered seat. To prevent delays and improve efficiency, recent legal amendments provide that if the debtor applies within a defined timeframe while a creditor’s application is already pending, the court will review both jointly.
Insolvency proceedings in Bulgaria unfold in four main phases (one of which is optional).
(i) Preliminary Phase
In this initial stage, the court reviews the insolvency application and assesses whether there are grounds to open proceedings. During this phase, the company may generally continue its normal operations. However, to protect the insolvency estate, the court may impose interim measures. These may include seizures, asset freezes, or the appointment of a temporary insolvency administrator tasked with overseeing the company’s operations and ensuring that assets are preserved.
(ii) Opened Insolvency Proceedings Phase
Once the court determines that the debtor is insolvent or over-indebted, it officially opens insolvency proceedings. At this stage, the process can lead to one of two outcomes: liquidation of the debtor or approval of a recovery plan that allows the business to continue operating.
The debtor must cooperate fully with the insolvency administrator and conduct business under the administrator’s supervision. All incoming payments must be handled by the administrator. If the debtor’s actions are found to endanger creditors’ interests, management powers may be fully transferred to the administrator.
(iii) Recovery Phase (Optional)
The recovery phase aims to satisfy creditors through the future earnings of the debtor rather than the liquidation of its assets. This is achieved by some form of restructuring: rescheduling payments, reducing certain obligations, and reorganizing the debtor’s operations to restore viability. The business may be sold as a going concern during this phase.
Parties may propose recovery plans within two months after the court publishes its approval of creditor claims in the Commercial Register. The court reviews plan contents and, if admissible, submits it for creditor vote.
If approved, the court terminates the insolvency proceedings and appoints a creditor oversight body to monitor the plan’s implementation. Should the debtor fail to comply with the approved plan, a group of creditors holding at least 15% of the total court-accepted claims may jointly request the resumption of insolvency proceedings.
(iv) Liquidation Phase
If no recovery plan is proposed, or if the debtor fails to comply with an approved plan, the court declares the debtor insolvent and initiates liquidation. The court formally closes the proceedings once all obligations are paid or the insolvency estate is fully depleted.
During any phase of the insolvency proceedings, the debtor may enter into a settlement agreement with all creditors whose receivables have been accepted in the proceedings, to resolve outstanding monetary obligations. In such case, if the settlement agreement complies with the law, the court terminates the insolvency proceedings. If the debtor fails to fulfil its obligations under the settlement agreement, the insolvency proceedings can be resumed upon request of creditors holding at least 15% of the total court-accepted claims.
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