02 Sep Collection of receivables in Bulgaria

02.09.2024 г.

author: attorney-at-law Doychin Ivanov

 

Collection of receivables is one of the main topics, which comes to our attention as litigation lawyers in Bulgaria.

Our clients often seek our legal advice and assistance regarding settlement of outstanding debts due by their clients or contractual counterparts.

The cases related to such outstanding debts may widely vary.

In some cases, our clients engaged with orders to perform services, and their clients failed to pay the agreed remuneration under the terms and conditions of the contracts between them. In other cases, our clients sold goods to their clients and again the latter failed to pay the agreed price under the terms and conditions of the contracts between them.

We are also very often engaged in disputes related to proclamation of contracts for null and void due to the breach of their terms. In such cases again the topic regarding collection of receivables also comes to light in favour of the party, who acted in good faith and did not breach the contract.

Whatever the case may be, if you have outstanding receivables this article may be useful for you so that you know your rights and options.

Of course, should you decide that you do not want to act on your own, we are here to help.

So, what do you need to do in order to collect effectively your outstanding receivables?

 

1. Gather all possible information about the financial situation of your debtor

 

First things first. Take an informed decision whether to proceed and go all the way in performing every possible option of pursuing your debtor.

In any case throughout the whole process, you need to be very careful and as much precisely as possible aware what is the financial situation of your debtor. This is very important because usually the procedures of collection of receivables require additional financial resources.

If your debtor is financially secured you must act decisively and quickly. If you know that your debtor is financially very unstable and possess nothing or there are plenty other creditors whereas the debtor has scarce property, then despite all arguments in favour of collecting the debts you must rethink the situation and probably leave it behind. The most crucial argument against continuing with the procedure of collection of receivables in this case is that you will spend some more money which in the end no one will be able to recover.

Remember, in general the only one who is obliged to pay you is your debtor and since he may be broke then he will not be able to recover anything from your receivables and supplementary expenses.

So, after clarifying the above let’s dive into the other details of the collection of receivables procedure.

 

2. Invitation for voluntary payment of the debt

 

Usually, the first step is sending to the debtor an official letter of invitation for voluntary payment of the debt. This means that the creditor shows an attitude of cooperation and rely on the same by the counterparty. At the same time this may give supplementary time for the debtor to undertake swift steps for decapitalization and disposal of its assets and other property.

The creditor can send the official letter of invitation via email, via courier or via a Notary invitation. The last option is the most reliable, but it takes more time to serve the Notary invitation to the debtor and it is also the most expensive one.

 

3. Application for issuance of a Court Order for payment of the debt

 

This procedure has been introduced in Bulgaria under respective EU Directive and therefore it is probably known with respective minor differences all over the EU member states.

The procedure commences with an application to the court. In the application the claimant describes all facts and subject matter of the claim and asks the court to issue an Order for payment. The court issues the Order almost automatically and serves it to the debtor, which is entitled within 1 month period to object against the claims.

If the debtor lodges an opposition against the claims, then the court instructs the claimant to file a regular Statement of claims and thus the usual court procedure on civil cases develops.

If the debtor does not lodge an opposition against the claims within the above said 1 month term, then the Order for payment enters into force and then the claimant is entitled to receive a Writ of execution and then go to a Private enforcement agent and initiate an enforcement procedure against the debtor.

This option is not as friendly as the first one with the official letter of invitation for voluntary payment of the debt. However, it is still not as hostile compared to the third option by starting the procedure of collection of receivables by a Statement of claims and initiation of a regular civil court case.

 

4. Initiation of a court case for the debt against the debtor

 

This option commences by filing a Statement of claims against the debtor in court from the very beginning. Then the court serves the Statement of claims to the debtor and the latter is entitled to present a Reply to the claims within 1 month period. Then the court schedules open court hearings and upon gathering of all allowed and necessary evidence and hearing the final arguments of both sides, the judge issues a court decision. The court decision is subject to appeal. Upon exhausting all possible court instances depending on the strategy of the losing side, a final court decision is issued and then the creditor may proceed with an enforcement proceeding before a Private enforcement agent.

This option is often used in cases where the creditor has exhausted all out-of-court means for negotiations with the debtor and as a result the creditor came to the conclusion that the debtor willfully refuses or intentionally neglects payment of the debt.

 

5. Comparison between all three options described above

 

In conclusion, the creditor has three separate options for dealing with the case:

 

• Sending only a letter of invitation to the debtor and wait whether the debtor will agree to cooperate (Option A)
• Submit an application in court for issuance of an Order for payment of the debt (Option B)
• Initiate a court case for the debt against the debtor (Option C)

 

Under Option A the creditor will not spend any further expenses or he will incur only some small expenses, which will not be recovered by the debtor, unless the latter agrees so voluntary. Here the creditor does not have any means of impact over the debtor, and the creditor relies entirely on debtor’s good will. If the debtor does not cooperate, the creditor has to choose between one of the remaining two options which comprise the involvement of the court.

 

Under Option B the creditor will be entitled to recovery of the expenses by the debtor. However, if the debtor lodges an opposition against the application, then this option goes automatically into Option C. Again, all expenses shall be borne entirely by the debtor, if the creditor wins the case. This Option is suitable only if the creditor expects that there will be a chance that the debtor cooperates. Otherwise, the creditor will lose a couple of months for issuance of the court Order, serving it to the debtor and elapsing of the period for the latter to react by filing an opposition against the court Order. The expenses in this option are relatively moderate. If the debtor agrees to pay, then all is good, and the creditor shall receive the debt plus the expenses made. However, if the debtor decides to defend against the creditor’s claims, then the procedures goes automatically into the option C.

 

Under Option C the creditor decides to act decisively for recovery of the debt, because the creditor is relatively sure that the debtor will not cooperate. All expenses shall be borne entirely by the debtor if the creditor wins the case. Upon a successful court decision, the creditor will be entitled to receive a Writ of execution and then go to a Private enforcement agent and initiate an enforcement procedure against the debtor. However, this is the most expensive option.

 

Here is the financial part of all three Options above:

 

• Option A – no fees at all or some small amounts for attorney’s fees for legal advice and preparation of the official letter of invitation
• Option B – 2 % of the debt – state fee + attorney’s fee depending on the amount of the debt
• Option C – 4 % of the debt – state fee + attorney’s fee per court instance depending on the amount of the debt

 

Should Option B turn automatically into Option C the creditor will not have to pay again the whole amount of the state fee of 4 % of the debt but only supplementary 2 % of the debt because the creditor already paid initially 2 % of the debt for a state fee for the application procedure. However, this rule does not apply to the attorney’s fees.

In any case all expenses made in any of the court procedures (Option B and Option C) shall be borne in the end by the debtor provided the latter lost the case, i.e. the creditor proved its claims right against the debtor.

 

 

The team of the Ivanov & Yonkova Law Firm is available to provide answers to additional questions on this, as well as on other topics that are important to you.

 

This article is based on the current Bulgarian legislation at the date of its publication and does not constitute a legal opinion or advice related to a specific situation or case.

 

Author: attorney-at-law Doychin Ivanov

Managing Partner at Ivanov & Yonkova Law Firm