Bulgaria – Distressed M&A 2022

Despite the improvement in the economy, the unpredictability around the effects of the covid-19 pandemic remains. The downturn trend has been mitigated to a great extent by the private credit moratorium, which the Bulgarian National Bank introduced in line with the guidelines of the European Banking Authority. Under certain conditions of the moratorium the commercial banks were released from the obligation to reclassify a loan if they grant a ‘concession’ (eg, temporarily postpone capital or interest payments of a loan). The term of the permitted deferrals expires at the end of 2021; therefore further deterioration in the performance of the projects and the value of the assets can be expected beyond 2021.

The Bulgarian Ministry of Justice has proposed substantial reform to insolvency in line with the road map for reform of the framework for insolvency and stabilisation, which has been prepared in cooperation with the European Commission in 2019 in respect of the Action Plan of the Republic of Bulgaria to Join the ERM II. As part of the reform, certain amendments to the Bulgarian Commercial Act were under public discussion in the period before the first parliamentary elections in April 2021. They aim to minimise the risks of jeopardising the process by the debtor.

However, due to the inability to form a coalition government and the dissolution of parliament, the legislative process in 2021 was blocked and the anticipated insolvency changes have not moved forward. The implementation of the Restructuring Directive (Directive No. 2019/1023), which provides tools for early control of financial distress and prevention of insolvency, will be also delayed. Not only has the July 2021 transposition deadline not been met, but also no draft law had been prepared for discussion by that time and any progress on this will depend on whether and when parliament will return to work.

Originally published in Distressed M&A – Work areas – Getting The Deal Through – Lexology