According to the Bulgarian legal doctrine, a commercial enterprise is a dynamic bundle of rights, liabilities and actual relations that represent the activity of the trader. As an independent legal subject, a commercial enterprise may be subject to both a transferring deal (sale, in-kind contribution) and a non-transferring deal (pledge, lease).
I. Pledging according to Bulgarian law
The option of pledging a commercial enterprise in Bulgaria is explicitly covered in the Bulgarian Registered Pledges Act (Art. 4 (1), p. 5), along with the provisions of the Bulgarian Commerce Act and the general rules for the pledge referred to in Article 156 et seq. of the Bulgarian Obligations and Contracts Act, which find secondary application. The pledge agreement secures a debt with interest and penalties thereon. According to Art. 21 (1) RPA, a contract for pledge of commercial enterprise shall be concluded in writing, with notary certification of the signatures, being a form of reality, i.e. failure to meet these conditions would lead to the nullity of the transaction pursuant to Art. 26 (2), item 3 OCA. It is important to note that according to Bulgarian commercial law a resolution by the general meeting of the company is not a precondition for the conclusion of such a contract. Subject to the provisions of the RPA (Article 1), property forming part of the enterprise shall not be transferred to the pledge, and thus the trader may continue to carry out their activities.
In order for the pledge to be opposable against third parties claiming rights over the enterprise, it must be registered in the account of the trader in the Bulgarian Commercial Register (Art. 21 (2) RPA) and shall have effect five years from the date of initial entry. This entry is minimally necessary, but the law in Bulgaria does not exclude the possibility for additional registration in other registers, in order for the pledge to be opposable to third parties who have acquired rights in separate elements of the enterprise. For example, if an enterprise owns property under Art. 4 RPA, which is explicitly described in the pledge agreement and the same is also entered in the Bulgarian Central Pledge Register, the pledge can oppose the contract against a third party-transferee, although the element subject to transfer is no longer an integral part of commercial enterprise. This entry is also for a five-year period.
According to Bulgarian law in the event of restructuring of the commercial enterprise, in which the latter transforms into newly established companies (splitting, separation), the pledge follows all newly established companies, i.e. it may be enforced against any person acquiring the pledged property.
In case of a restructuring in which the pledged enterprise passes to the subject already has its own entity (consolidation, merger), the pledge only passes over the totality, which has belonged to the pledger - Art. 21(5) RPA. Within 6 months the transfer must manage the pledged enterprise separately (Art. 16а CC), during which period the pledge creditor has two options - to require execution or additional security. If this request is satisfied, they are entitled to execution, following which the pledge will indemnify the principal debt, or will respectively receive additional security. If, however, the request is not satisfied in one month, in order to receive indemnification, the pledge may sell the enterprise as a totality of rights and liabilities, or by execution on separate assets belonging to the enterprise. If upon expiry of the six-month term the pledge has not invoked any of the above measures, the pledge is redeemed.
According to Art. 21 (6) RPA, simultaneously with the entering of the transformation the Bulgarian Registry Agency shall make entry in the files of the transforming companies, as well as of a sole entrepreneur in event of transfer of property to a sole owner, and shall also enter the passing of the pledge of the commercial company to the respective legal successor, in which case neither the approval of the pledgor, nor that of the legal successor is necessary. Thus the pledge could be enforced against third parties.
II. Execution on commercial enterprises in Bulgaria
In case of default on the principal debt the pledge creditor has two options - to be indemnified by the commercial enterprise as a totality of rights, liabilities and actual relations (Art. 46-51 RPA) or by its separate elements in the manner provided for the relevant property in Art. 44-45 RPA, in which case they should first sell those whose sale will least impair the activity of the enterprise.
1. Execution on separate elements of the commercial enterprise
- Security (Art. 45 RPA) - the security is transferred by the creditor in a proper manner. For example, in Bulgaria the bearer securities are transferred by simple transmission, registered securities - by cession and promissory notes - by endorsement. If the security has an exchange price, it is sold at the price declared by the exchange the day before the transfer;
- Taking - the taking may be sold (assignment) or if monetary - be collected. According to the Bulgarian Registered Pledges Act the monetary taking is considered assigned for collecting to the pledge creditor with the entering of the proceeding to execution;
- Share of the company - the pledge creditor may make a statement for termination of the company according to Art. 96 CC or for termination of the participation of the pledger in the company with the pledged share according to Art. 125 (2) CC.
2. Execution on the commercial enterprise as a totality of rights, liabilities and actual relations
If the pledge creditor chooses indemnity by the commercial enterprise as a totality of rights, liabilities and actual relations, they may appoint a manager of the enterprise, such that the announcement to the trader in such case must also contain the consent of the manager for his appointment. The appointment of the manager is an absolute obstacle for the creditor to be indemnified with separate elements of the commercial enterprise. After registering the manager of an enterprise in the commercial register, the trader may not exercise their rights over the commercial enterprise.
According to Art. 47 RPA, the person who was the manager until the entry of new one is obliged to provide the necessary assistance. The manager of enterprise shall carry out all activities, related to the usual activity of the commercial enterprise. He cannot expropriate or burden the enterprise as a whole or the real estates included in it, to undertake promissory liabilities, to take loans and to carry out court proceedings. This follows from the purpose of the manager - to protect the enterprise from any detrimental actions by the trader and to prepare the accounting records for the sale of the enterprise - not to conduct business activities. The trader himself, however, subject to the agreement of the pledge, may perform actions that are outside the scope of the rights of the manager.
The manager has two main responsibilities, namely: to accept the commercial enterprise by inventory, thus establishing the constituent elements of the commercial enterprise and preventing any concealment and fraud, and to manage the commercial enterprise and represent the trader, by taking all measures to safeguard their interests with due diligence.
The law has explicitly outlined the cases in which the rights of the manager of the enterprise are terminated - their refusal, the appointment of a new manager, upon distrait or death, termination of the pledge itself, and a court decision in case of legal offense. If the pledge fails to appoint a new manager of the commercial enterprise within two weeks of registration of the invitation to do so, the trader shall restore the right of management by applying to the Registry Agency.
The commercial enterprise as a whole may be sold under the provisions of Art. 15-16a CC - by a written agreement with notarized signatures, such that the legal successor manages separately the commercial enterprise for a period of 6 months from the registration of the transfer. The pledge is terminated with the sale of the enterprise.