Two proposed amendments to Bulgaria’s Bank Insolvency Act have been introduced to harmonise local law with EU rules and to further refine the legislation
March 2019 – On 22 February 2019 and 26 February 2019 two bills were introduced in the Bulgarian parliament to amend the existing Bank Insolvency Act (“Bills”).
The purpose of the first of the Bills is to introduce the provisions of Directive (EU) 2017/2399, which partially harmonises the hierarchy of creditors in cases of the insolvency of banks or investment firms. Among its proposed changes the bill would introduce a new, additional class of creditors, in particular, holders of ordinary non-preferred unsecured claims, which would have a higher ranking than own funds liabilities and subordinated liabilities, but a lower ranking than other unsecured senior liabilities. Thus the ranking of creditors in a bank insolvency as stipulated by Art. 94 of the Bank Insolvency Act would be changed. The bill also provides for an exception to the general ranking of claims under Art. 722 of the Commercial Act regarding banks, investment firms, some financial institutions, mixed financial holding companies and mixed-activity holding companies for which currently only a partial reference to the priority of claims with regard to liabilities with different levels of subordination and own funds liabilities is provided under Art. 94 para. 1 of the Bank Insolvency Act. The aim is to take into account in the relevant insolvency proceedings the specifics of financial instruments with different levels of subordination issued in countries with more developed financial systems.
The recognition of the new ranking of the insolvency claims of banks, investment firms, certain categories of financial institutions, mixed financial holding companies and mixed-activity holding companies is expected to give these institutions more opportunities to issue debt from the new non-preferred class, while still respecting the requirement of subordination. This should also lead to a reduction in their financing costs.
The second of the two Bills aims to further refine the provisions of the Bank Insolvency Act. Its main proposed changes are, inter alia:
to limit the costs of the insolvency estate for court proceedings, including litigation, and in particular to clearly define the circle of parties to the appeal, from whom no state fee will be collected (the insolvency administrator, the provisional insolvency administrator, the fund or the relevant bank);
to enable, on the basis of direct negotiation, an insolvency administrator to sell property and rights that cannot be realised through a public sale without an initial price until the realisation of the property or the right, which also contributes to the ultimate filling of the insolvency estate; and
to enable creditors to be entered ex officio on the list of receivables accepted by the insolvency administrator in order to guarantee their rights in the event of an offsetting.
The proposed amendments to the Bank Insolvency Act aim to bring Bulgarian law in line with European rules in this area and to further refine and clarify the wording of the legislation.
For further questions and assistance with this and any-banking related matters, please contact Svilen Issaev, Counsel, at , or Kristina Lyubenova, Associate at .
 Directive (EU) 2017/2399 of the European Parliament and of the Council of 12 December 2017 amending Directive 2014/59/EU as regards the ranking of unsecured debt instruments in insolvency hierarchy.
 If the public sale of the assets and the rights included in the liquidation program fails to be realized after being conducted three times, the insolvency administrator can sell them under direct negotiation without an initial sale price until the asset or the right is realized.
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