Commercial Legal And Institutional Reform (CLIR) - Economic Growth

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COMMERCIAL LEGAL AND INSTITUTIONAL REFORM Diagnostic Assessment Report for the Republic of Bulgaria March 2002 Supporting Institution(s). Governmental, quasi-governmental, or private institutions that either support or facilitate the implementation, administration, interpretation, or enforcement of framework law(s) (e.g., bankruptcy trustees, notaries) Market For <strong>CLIR</strong>. The interplay of stakeholder interests within a given society, jurisdiction, or group that, in aggregate, exerts an influence over the substance, pace, or direction of commercial law reform. IS THERE A MARKET FOR COMMERCIAL LAW REFORM IN BULGARIA? Government supplies goods & services to End Users... Governments: Legislate Enforce Monitor Protect Invest Subsidize Train Businesses: Vote Lobby Advise Protest Evade Bribe Withdraw Booz Allen Hamilton Page 12 End Users demand a market environment that is stable, transparent, & efficient...
COMMERCIAL LEGAL AND INSTITUTIONAL REFORM Diagnostic Assessment Report for the Republic of Bulgaria March 2002 IV. FINDINGS A. BANKRUPTCY LAW OVERVIEW Generally, Eastern Europe has come to recognize that insolvency is not a means to tear down an economy, but a means to redistribute assets to build or rebuild a section of the economy in need. This insight underlies the adoption of the insolvency reform laws in 1994 in Bulgaria. Bulgaria first enacted insolvency legislation in 1897, but the legislation was abandoned during the communist period. When an insolvency package was first introduced in the early 1990s, it was aborted because of the perception that it was too radical. However, the Bulgarians introduced in 1994 the Law Concerning the Amendment and Amplification of the <strong>Commercial</strong> Law. The reform law focuses on reorganization of the debtor with emphasis on equal treatment for all creditors. See Article 607(1) (“Bankruptcy proceedings shall be aimed at providing fair satisfaction of creditors and opportunities for reorganization of the debtor’s enterprises.”) and Article 607(2) (“Bankruptcy proceedings shall take into consideration the interests of the creditors, the debtor and his employees.”). Admirable in its objectives, the Bulgarian insolvency legislation bends over backward to include every possible opportunity for creditor participation. However, this attempt at ultimate fairness undermines the system’s effectiveness, generating lengthy, unnecessary litigation, numerous delays due to excessive exercise of appeal rights, and inconsistent legal standards for major issues such as valuation. The practical aspects of the system are further hampered by involvement of incompetent officials, improper compensation to receivers, inability to abide by legal time triggers within the Code, and overburdening of judges with largely administrative matters. LEGAL FRAMEWORK Insolvency proceedings are preceded by an examination into the insolvency of the debtor. Insolvent means “merchants who are unable to perform a money obligation under the commercial transaction, due and established on certain grounds at the stage of considering the petition into insolvency. . .” (Article 606). The petition may be brought by the debtor, creditors, or by a liquidator (Article 625). The court is to consider petitions brought by the debtor or liquidator “immediately” in camera (Article 629(1)) and within 14 days if submitted by creditors (Article 629(2)). Furthermore, the legislation imposes a duty upon any debtor who becomes insolvent or excessively indebted to request a bankruptcy proceeding (Article 625(1)). Once insolvency is determined, pursuant to Articles 629 and 630, that ruling is held to be “effective in respect of all” (Article 630(3)). However, the ruling is immediately appealable. See Article 633 (providing for seven days to appeal a ruling under Article 630) and Article 613a(1) (“Rulings and judgments issued by district courts in connection with bankruptcy proceedings shall be subject to appeal before the relevant appellate court Booz Allen Hamilton Page 13
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