On 30 December 2016, a new bill (the “Bill”) amending the Special Pledges Act (the “Act”) entered into force. The Act applies to pledges, which are not physically handed over to pledgees and are widely used as security by financial institutions active in Bulgaria. The Bill substantially changes the Act and intends to increase protection and guarantees for all parties involved.
The most important changes adopted in the Bill include:
- Amendments regarding enforcement:
- out-of-court enforcement procedures driven by pledgees face new regulations, including new terms and a fixed minimum sale price of the pledged assets;
- the announcement of the beginning of an enforcement procedure becomes crucial for the enforcement procedure and the pledgor is prohibited from undertaking any actions with the pledged property as of the moment of the announcement;
- subsequent pledgees may only commence an enforcement procedure after obtaining written consent of the first ranking pledgee; however, the first ranking pledgee does not need any approvals from the subsequent pledgees to enforce its rights;
- out-of-court sales announcements must be published at least 14 days prior to the sale deadline in a special newsletter published by the Ministry of Economy;
- after the sale in an enforcement procedure, pledges registered under the Act shall be deemed cancelled (however, other securities, such as mortgages, will stay in place);
- the use of bailiffs in out-court enforcement is explicitly regulated;
- depositors in enforcement proceedings must be either attorneys-at-law or registered auditors and the special “trusted” accounts of the depositors will not be subject to any distrain orders;
- establishment of a special pledge is deemed complete upon the registration of the pledge with the Central Register of Special Pledges (the “CRSP”) – not with the signing and the signature's notarization of the special pledge agreement;
- new higher majority thresholds apply to corporate resolutions of entities intending to pledge their assets;
- newly specified and much more detailed information must be provided upon registering with the CRSP;
- it is explicitly regulated that if a real estate asset is included within a going concern pledge, any improvements and additions to this real estate asset will be also deemed as pledged, unless otherwise agreed;
- explicit consent of existing pledgees is required prior to establishing a pledge over an already pledged property (this comes in addition to the general prohibition against disposal of already pledged property, without the consent of the pledgee); and
- appeals of the CRSP’s refusal to register a special pledge or any amendments thereof must be made within seven days of receipt of the refusal.