Bulgaria: Boost to creditors’ rights on pledged receivables
The most widely used Bulgarian security interests in credit transactions are special pledges, which function similarly to English floating charges.
Historically, under special pledges covering receivables in Bulgaria, collateral providers maintained their right to collect receivables until collateral takers registered enforcement commencement in a public register and notified the provider accordingly.
Collateral takers could only notify debtors and initiate collection through an out-of-court procedure after completing these formalities. Banks, acting as typical collateral takers, found this process cumbersome since they preferred to reroute payments quickly upon default.
NEW STATUTORY FRAMEWORK
A statutory amendment effective from early 2017 addressed these concerns by permitting flexible arrangements regarding when payment rerouting occurs. Rather than requiring formal enforcement registration, pledge agreements may now allow collateral takers to redirect receivables payments through unilateral notice to the debtor.
This unilateral notice option becomes binding on the debtor when communicated through the perfection notice establishing the pledge. While parties retain flexibility on timing, collateral providers typically require an event of default before such notice may be delivered.
COLLATERAL TAKERS’ RIGHTS
Upon payment rerouting through unilateral notice, the collateral taker gains security interest over collected proceeds, effectively transforming the pledge from receivables into a security interest over funds collected by the taker itself.
Collateral takers may enforce collected proceeds under statutory rules, though acceleration generally remains necessary to commence enforcement proceedings. This arrangement encourages creditors to delay acceleration and negotiate debt restructuring when borrowers face distress.