In July 2020, Bulgaria's National Assembly adopted a bill that supplements the Obligations and Contracts Act, introducing an unfamiliar opportunity for debtors in Bulgarian Civil Law by creating a ten-year absolute statute of limitations governing the expiration of receivables against natural persons.
The bill also anticipates the following exceptions in the application of the absolute ten-year statute of limitations:
- When the obligation is deferred;
- For obligations of natural persons acting as sole traders;
- For obligations arising from unlawful damage or unjust enrichment;
- When stopping the statute of limitations (e.g. from filing a lawsuit while the court proceedings are ongoing or while the enforcement proceedings are ongoing).
The bill anticipates a transition period of six months for its entry into force. Furthermore, it remains unclear how current cases will be regulated after the transition period and most importantly what will happen to receivables where the absolute statute of limitations has expired or will soon expire.
Bulgarian Civil law recognizes the institute-of-limitations period, which is divided in two types – general and special. The general limitation period is five years and applies to all civil claims except for those pertaining to the special three-year statute of limitations. Claims that expire with the three-year statute of limitations include receivables from remuneration; receivables for compensation and penalties from unfulfilled contracts; and receivables for lease, interest and other periodic payments.
As a general rule, the period of the statute of limitations begins when the receivables become due. If it is agreed that the receivables become due after an invitation, then the statute of limitations begins when the obligation has occurred. For receivables from impermissible damages, the statute of limitations begins from the findings of the perpetrator of the tort.
A question has been raised whether the anticipated absolute statute of limitations (with the expiry of receivables against natural persons) is equivalent to the limitation period. In its legal consequences, the expiry of the limitation period no longer gives the creditor the right to claim his receivables through the courts. An absolute statute of limitations would be a legal fact in which the right of the creditor to claim his receivables expires irrevocably regardless of the intentions and actions of the creditor. Additionally and importantly, the ten-year period is counted regardless of the interruption of the statute of limitations, which can occur in the following cases:
- by the recognition of the receivables from the debtor;
- by filing a court claim or objection or the request to initiate conciliation proceedings;
- by taking enforcement actions from the creditor.
The above means that regardless of whether the limitation period has been interrupted on any of those three grounds, ten years after the 'demandability' of the receivables have passed, the creditor loses the right to claim them from the natural person.
The bill was introduced in order to end lengthy enforcement proceedings against debtors, which in the case of natural persons often transferred to their heirs after their death. In countless cases, debtors are natural persons who do not own property from which a creditor can be satisfied, and although a debt is uncollectible, execution actions against these debtors continue. There is no legal way for natural persons to declare bankruptcy in Bulgaria, which is why they are often debtors for life.
On the other hand, the introduction of the absolute ten-year statute of limitations for the obligations of natural persons would lead to an unreasonable limitation on the rights of creditors. The simple expiration of the absolute limitation period would deprive creditors of the opportunity to collect receivables regardless of their interests or behavior. Also the interests of one part of society (e.g. unscrupulous debtors) could prevail at the expense of another (e.g. bona fide debtors) because debtors will have received their part of what is owed from a given contract, but creditors will be deprived of the right to take back what was given or to receive what is owed to them. There are many cases where debtors find ways to hide or postpone the fulfilment of obligations, during which time the period for the absolute statute of limitations could expire.
Crucially, the absolute statute of limitations for the obligations of natural persons exists in almost every EU country with only the duration (between three and 30 years) differing. The bill remains controversial among the public given that its negative consequences for business prevails over its benefits for ordinary debtors.
The bill is expected to have its second and final reading before the end of 2020. If it is accepted at this time, the absolute ten-year statute of limitations will apply from the middle of 2021. As a result, it is important for all creditors of natural persons to carefully consider the consequences and implications of the proposed absolute statute of limitations and to take necessary steps for settlement of due claims or initiating court actions.
For more detailed information on exercising creditors rights, filing of court claims and expiry of receivables in Bulgaria, contact your CMS partner or local CMS expert:
Senior Associate, CMS Sofia