Legislative amendments to introduce protection of SMEs from creditors

Small- and medium-sized enterprises (SMEs) will be able to seek protection from creditors under amendments to the Act on SMEs, published for discussion on the website of the Ministry of Economy, Energy and Tourism. The procedure stipulated is simple and relatively quick. It will precede adjudication of bankruptcy and will apply to companies meeting the criteria for SMEs, i.e. those employing less than 250 people and with an annual turnover of up to BGN 19.5 mln.

“The current bankruptcy procedure is clumsy, while insolvency around the world is not such a dramatic event as assumed in Bulgaria. In many cases, after a company is declared bankrupt, it gets a chance to be stabilised, modernised and retain its working positions,” Vasil Velev, Chairman of the Bulgarian Industrial Capital Association, commented for Klassa.

“In recent years, the number of SMEs that have entered into insolvency proceedings has increased twice. Besides these, there are two groups of companies: such that have steeply reduced their output and others that have ceased activities altogether, which means that they are actually bankrupt but have no liabilities,” said Kamen Kolev, Deputy Chairman of the Bulgarian Industrial Association (BIA). According to him, trade disputes can quickly, cheaply and accurately be solved by arbitration.

In 2009-2010, the number of insolvent companies in Europe increased by more than 50%. Statistics show that, in most cases, the value of assets and the number of retained jobs are higher if a company in a dire financial situation is preserved, either entirely or its viable parts alone. Legislative amendments of this kind are being made both in the EU and around the world.

Under the proposed amendments, the term for holding negotiations and conducting a market research is four months from the decision for opening proceedings for protection from creditors. The deadline might be extended by no more than a month upon a motivated statement of the mediator on the expected agreement or the signing of a contract for transfer of assets. If insolvency procedures are initiated against the debtor after the signing of the agreement, the latter shall no longer be effective, but the contract for the transfer of the enterprise, of stocks or shares shall remain in effect.

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