Банкеръ Weekly



It is still a risky undertaking to be a creditor in Bulgaria because effective legislation in our country defends the interests of the debtors, rather than those of the creditors. Practice in the last few years has localized three major traps, which debtors lay for their creditors, taking advantage of the letter of the law. One of them is connected with the term for repayment of the liability. Hardly any citizen or owner of a small firm has thought that time could nullify his debt to the State, to a bank, or a supplier. But the Act on Liabilities and Contracts stipulates such a possibility, and some companies with good lawyers have already taken advantage of it. In the bulletin of the Supreme Court of Cassation (SCC) of November 2002 there is a case describing how in June 2002 the supreme magistrates rejected a request by Biochim commercial bank for adjudicating Agrometal EOOD (owing USD230,000 to the credit institution ) insolvent. The motives were that the term whithin which the creditor has the right to claim his receivables from the debtor has elapsed. The term for the interest is three years after the date of the last installment under the credit, and for the principle it is five years.From SCC's ruling (which is becoming the usual practice in courts, but is not obligatory) it is clear that even if the creditor has laid a claim for adjudicating the debtor insolvent, the term for the loan's repayment continues to be counted. It is terminated only if judgement against the debtor has been passed or insolvency procedures have been opened and the creditor's receivables have been accepted by court. In other words, the bank may have remanded its debtor to be announced insolvent, but this is not a sufficient guarantee that he won't evade the obligation to pay off his liabilities. If the insolvency procedures drag on for more than five years and the case goes from one court institution to another, the term for its repayment will elapse. As a result, Themis's servants will reject the creditor's request for announcing the debtor insolvent, and the latter on his part has every right not to repay his liabilities. It is needless to mention how long insolvency procedures against a firm could last if its owners motivate the magistrates in an appropriate way. It turns out there is an enormous hole in the legislative documents, which legalizes the draining of commercial banks. And it is known that credit institutions extend loans by the money attracted from citizens and firms. The Government is drafting the successive amendments to the Commercial Code and when voting them the MPs may lock most of the doors through which debtors run away from their creditors. The intention to restore the term within which a company that is unable to pay off its liability should file an application to the court of announcing it insolvent, is praiseworthy. In the words of the Deputy Minister of Justice Sevdalin Bozhikov, this term will be 60 days. It would be good if the deputies think if the Penalty Code should not stipulate severe sanctions for executive directors and managers of firms who have failed to observe the term for opening insolvency procedures. And the Act on Liabilities and Contracts should include a provision that the term for repayment of a debt ends on the date an appeal is filed for announcing the debtor insolvent. Thus, the interests of creditors will be fully protected both from the tricks of debtors and from some mala fide magistrates.Measures should be taken also against para 6 of the Privatisation Act, which is being alluded to by the owners of divested companies as an argument for not paying their liabilities to creditors. In fact, this para was included in the Act on Transformation and Privatisation of State-owned and Municipal Enterprises, which was repealed in March 2002 by the adoption of the Act on Privatisation and Post-privatisation Control. This paragraph stipulates that all creditors should claim their receivables from the company when announcing the procedure for its divestment. Many firms stopped servicing their liabilities to the banks after they were sold by the motive that their creditors had not claimed their liabilities and have violated para 6. The BANKER weekly has described in detail two of the lawsuits, initiated with that argument. The Dospat-based company Nitex was not servicing its EUR450,000 debt to Biochim, and the Sliven-based manufacturer of electric engines Dynamo litigated its liabilities of almost USD5MN to its creditor United Bulgarian Bank. In both cases the magistrates extended rulings in favour of the banks. The SCC's ruling of March 2002, rejecting the claim of Agrometal EOOD was also in favour of the creditors. Agrometal was claiming it it did not owe money as the creditor had not claimed its receivables prior the creditor's privatisation. If the Bulgarian legislation was based on the case law (as in the USA and Great Britain), SCC's ruling would had become obligatory practice for all courts. At the present situation, however, it is possible for another team of SCC's magistrates to extend quite the contrary ruling. i.e. that the debtor may not pay off his liabilities as the creditor has not claimed its receivables. The problem may be solved quite easily by including in the Transitional and Final Provisions of the Commercial Code a stipualtion that the privatized company shall not be relieved of the liabilities to its creditors even if they have not claimed them prior the sale of the state-owned company. The third scheme for doing the dirty on creditors is when the owner of the enterprise becomes its biggest creditor. This scenario was played for the first time by Gad Zeevi, whose companies in the Netherlands became major creditors of the bankrupt Balkan Airlines. The same scheme was repeated by the owner of Kambana 1899 - the Dutch company Helian Commodities, whose subsidiaries bought out the debts of the Bourgas-based oil refinery to the State Reserve and became its biggest creditors. That enables unconscientious owners of much endebted firms to dominate in the general meeting of creditors and impose rehabilitation plans, which are only to their benefit and injure the interests of all other companies, banks and employees, which have receivables from the indebted firm. Is it possible to introduce in some of the laws a ban for selling the debts of a company against which insolvency procedures have been initiated. Section 4 Insolvency of the Commercial Code might include a provision, stipulating that firms connected with the bankrupt company which have receivables from it, shall line in the queue of creditors and have a deliberative vote in their general meeting. That will block the possibility for owners of companies against which insolvency procedures have been initiated to dominate the general meeting of creditors by purchasing the enterprise's liabilities. Of course, sceptics would immediately ask how such connections shall be established if the debt is bought out by off-shore companies. Here experience can be drawn from the Banks Act, which demands from the off-shore companies buying shares in the credit institutions detailed information about their owners. The Act against Money Laundering can include a provision, obliging all off-shore companies which purchase Bulgarian firms's debts to present detailed information about their owners at the Bureau for Financial Investigation and enter these data in BNB's credit register. Otherwise, the deal shall be blocked and announced null and void. Thus, the possibility for unconscientious debtors to rob their creditors, covering behind the letter of the law, will be intersected. Of course, the blocking of the described vicious schemes for injuring the interests of creditors shall not solve the problem regarding unconscientious debtors, but it will at least embitter their life and cause them higher expenses. And the business climate in Bulgaria will gain from that.

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