Bulgaria: A Welcome Reform Or A Market Disruption

The latest amendments to the Bulgarian Commerce Act are intended to implement the Late Payment Directive (2011/7/EU) (the "Directive"). The Directive was adopted in February 2011 and was due to be implemented by 16 March 2013. Currently, is adopted in 17 of 27 Member States of the EU. The aim of the Directive is to prevent the grossly unfair treatment of those creditors who are unable to negotiate level-playing field payment terms, irrespective of whether that status is due to the creditors' weaker bargaining power or to the fact that the terms are in fact subjected to limited negotiations, as with public procurements. The scope of the amendments in the Bulgarian legislation implementing the Directive concern only business to business and government to business transactions , for which  maximum terms are introduced for payment of monetary obligations. Unfortunately, the amendments do not entirely implement the Directive and certain provisions of this EU legislation have been left out, such as: 

  • the applicable reference rate; 
  • the starting date for certain payment terms provided in the Directive; 
  • not all types of public are subjected to the new regime, which applies only to public procurement; 
  • presumptions concerning grossly unfair transactions are not included;

The new regime is introduced at the end of the implementation period and shall affect the highly indebted Bulgarian private sector, which is yet to emerge from the financial crisis and whose financial instability is aggravated by cash-flow problems.

Background to the implementation of the Directive

The low indebtedness of the Bulgarian public sector, which stands at around 17-18 % of GDP, is a well-known fact. Nevertheless, the hidden costs of this success exist partly in the fact that Bulgaria's private sector has paid the price for the country's fiscal stability and is currently in a completely different financial state: the indebtedness levels of Bulgarian businesses exceeds 200 % of Bulgaria's GDP. That on its own would not be a cause for concern, if it was not for the great difference between indebtedness of the public and the private sectors.

Unfortunately, this development is not the most alarming trend in the country's economy, as pointed out in the Bulgarian Chamber of Commerce's recently published report on "The business indebtedness in the non-financial sector of the economy". According to data in this report, around 80 % of that business sector indebtedness is overdue, with the share of that debt which is in default increasing every year. The participants in the survey part of the report pointed out that more than half of their debtors in default are public authorities (at either the state or municipal level). In addition, the survey participants expressed concern that the terms of public procurements are formulated as to include unreasonably long payment terms for the public debtors, which is a major disadvantage and impediment for the business.

According to a survey that the Association of European Chambers of Commerce and Industry (Eurochambres) conducted on the terms for payment of monetary obligations in the public sector in the EU, Estonia and Finland are the only EU states in which public sector entities successfully pay their debts towards the private sector in less than thirty days. Bulgaria on the other hand is ranked in 15th place with an average term for payment of around 52 days, placing it in the middle of the Eurochambres table.

All of those delayed payments directly affect the economy by impeding the cash-flow of private sector companies, which in turn leads to decreased investment, job losses and last, but not least, insolvency.

Payment term amendments

The amendments to the Bulgarian Commerce Act include the following provisions:

  • The scope of the new regime includes commercial transactions as defined in the Commerce Act, as well as certain non-commercial transactions, to which debtors are public procurement assignors or freelance professionals, both of whom are not deemed to have commercial capacity under the Bulgarian law. Excluded from the scope of the new regime are negotiable instruments, payments during insolvency proceedings, as well as payment for damages, including insurance indemnifications; 
  • If the transaction falls into the scope of the new regime, there are different specific rules applicable in the event that the debtor is a public procurement assignor; 
  • If the debtor to the transaction is a public procurement assignor, the mandatory maximum term for payment is 30 calendar days. An exception to this rule is provided in case the nature of the goods or services or some other substantial factor justifies a longer term. In that event, the parties can agree to a maximum term of 60 days. However, such an extended term is permissible only if it is not grossly unfair to the creditor's interests. There is a general exception concerning healthcare entities, for which the amendments provide a standard payment term of 60 days, starting from the date of receipt of the invoice or an equivalent request for payment; 
  • If the debtor is not a public procurement assignor, the general mandatory maximum term for payment is 60 days. An exception to this rule is provided for in the event that the nature of the goods or services or some other substantial factor exists that justifies a longer term. In that case, the parties can agree to stipulate an extended term, if that is not grossly unfair to the creditor's interest or does not constitute an abuse of rights; 
  • If no specific term for payment is agreed between the parties, the debtor, irrespective of its capacity, is bound to pay within  14 days. The payment term starts from the date on which the invoice or an equivalent payment request is received, unless the goods or services are received at a later date, in which case the term starts from that later date. 
  • In the event that an acceptance or verification procedure is applied, the term starts from the date of the final acceptance or verification. The length of the procedure may not exceed 14 days from the date of the receipt of that final acceptance or verification. The parties may agree otherwise in case the debtor is not a public procurement assignor and the longer term is justified by the nature of the goods or services or some other objective factor. The longer term for the verification or acceptance must not be grossly unfair to the creditor's interests and must not constitute an abuse of his its rights; 
  • In case the parties agree for a term longer than the one provided for in the legislation, including in the event that it is grossly unfair or constitutes an abuse of the creditor's rights, the transaction may be deemed partially unenforceable to the extent that the terms exceed the one stipulated in the legislation. In that event, the court will most likely reduce the term of the contract to the one in the legislation;


In view of the aforesaid, the implemented Directive 2011/7/EU is a step in the right direction. The newly introduced limitations on the freedom of contract concerning payment terms are expected to have a beneficial effect on the Bulgarian economy. The reasonable maximum terms in the amendments give businesses sufficient flexibility and at the same time provide for longer terms in exceptional circumstances, thus protecting businesses from having weaker bargaining power. In addition, the amendments should also put an end to certain negative practices of public authorities abusing their position when setting the terms of the public procurements. As a result, the new regime's long-term effect helps to improve the financial stability of the Bulgarian private sector. The only remaining risk that may hinder the positive impact of the new legislation is the amendment's incomplete implementation of the EU's Late Payment Directive.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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