Banks are privileged creditors in debt enforcement proceedings, according to a Constitutional Court ruling on 2 October 2012.

Article 417 of the Civil Procedure Code contains a procedure allowing state institutions, municipalities and banks to require immediate payment of a debt (or performance of another obligation). All they have to do to get an order for payment is to produce to the court, and get it to approve, a document or a copy of accounting books which evidences the existence of the debt.

Unlike other means of debt enforcement, the debtor cannot oppose the application. It can only appeal against the order for payment but even lodging an appeal does not stop the order from having immediate effect. In practical terms, the debt has usually been collected long before the appeal is heard. The debtor is entitled to seek recovery of the payment if, on appeal, the court finds any defect in procedure but this puts creditors such as the banks in a very strong position.

There have long been concerns that Article 417 may infringe the principle of equality enshrined in the Bulgarian Constitution. The Ombudsman, as is his right under the Constitution, asked the Constitutional Court to decide whether legislation was compatible with the Constitution.

The court ruled that state institutions and municipalities are entitled to an easier way of collecting debts, as they are acting in the public interest and the performance of their socially significant functions is dependent on the availability of financial resources. This reasoning is important as it would also apply to the tax authorities and entitle them to the same favourable position.

As for banks, the court decided that:

  • unlike most corporate bodies, they are governed by specific legislation because of their importance to society
  • as their finances are raised by public deposits, they need to have liquid capital at their disposal to repay depositors
  • they were also entitled to a more efficient means of debt recovery than other creditors to prevent their financial standing from being affected by a large number of unpaid debts

This ruling is authoritative and settles the controversy, removing any grounds for disputing the banks’ right to use this easier means of debt collection.

Law: Decision No. 12/2012 of Constitutional Court of Bulgaria; Civil Procedure Code