In response to the Covid-19 pandemic, the Bulgarian government declared a state of emergency on 13 March 2020. Due to last until 13 May 2020, the emergency state may be extended. Retroactively applicable from 13 March 2020 is a statute, the State of Emergency Act. This will apply for the duration of the state of emergency.
The State of Emergency Act was supplemented and amended on 9 April 2020.
In this note, we address one aspect of the State of Emergency Act: the standstill of a range of private law remedies for the duration of the state of emergency, set out in s 6 thereof.
Section 6’s wording
Following amendment, as of 9 April 2020 s 6 now reads as follows:
“Until the repeal of the state of emergency, in case of delay in payment of obligations of private persons, debtors under loan contracts and other forms of financing (factoring, forfeiting and others) provided by banks and financial institutions under s 3 of the Credit Institutions Act, including when the receivables are acquired by other banks, financial institutions or third parties, and under leasing contracts, no interests and penalties shall accrue, the obligation shall not be accelerated and the contract shall not be discharged due to default, and no property shall be seized.” (NBLO’s translation)
Who does s 6 apply to?
The addressees of the provision are all “private persons”, i.e. individuals and legal entities, such as companies, which are non-public, which are debtors under certain contracts covered by s 6 of the Act. Public entities such as government bodies and municipalities are not within the scope. They remain fully liable.
How long for?
The standstill in s 6 of the State of Emergency Act is temporary, lasting for the duration of the emergency. This means that certain usually available remedies were suspended on 13 March 2020 and will continue in suspension until the end of the state of emergency - currently, 13 May 2020.
As above, certain other normally available creditor remedies were initially included in the statutory wording and were thus unavailable to creditors between 13 March 2020 and 9 April 2020. They are now once again available.
Once the state of emergency is lifted, the standstilled remedies will automatically come back to life.
As a result, debtors who have suspended payments taking refuge in the standstill will find themselves owing several instalments simultaneously and creditors will be able to both charge prospective interest, penalties, terminate the contract for breach or accelerate repayment of the contractual sum, and this may apply on the very first day after the state of emergency is lifted (depending on the contractual interpretation). One caveat is however that this has been identified and publicly debated, and may motivate further amendments to the Act.
As a result of the Act, remedies relating to payments under the following types of contract are brought to a standstill:
Typically, both of these types of contracts would involve periodic payments.
Section 6 does go somewhat further. It extends also to assigned receivables (e.g., to other banks or third parties like collection agencies) - but not where the obligation was due initially to a non-banking party that falls outside of the special definition.
Section 6 does not apply to non-financial obligations under otherwise financial agreements, for example, taking due care of a motor vehicle which is the subject of a lease. Default on non-financial obligations may still see creditors avail themselves of the remedies otherwise brought to a standstill by s 6 of the State of Emergency Act.
Nor does section 6 of the State of Emergency Act apply to remedies for obligations stemming from, in particular:
Very much as with force majeure, which we cover here, debtors can now provisionally lawfully suspend payments to the specified creditors, provisionally without default and without accrual of interests and/or penalties. It appears that the interest for the period of the standstill is forgone permanently: it cannot be charged subsequently.
Careful planning is called for as payments would be due all at once immediately after the last date of the state of emergency. The remedies would then (having been only suspended previously), immediately apply again. A debtor may therefore wish to negotiate with their creditor a mutually acceptable compromise.
Default on payment during the state of emergency will not be a ground for discharge of the contract by a dissatisfied creditor and they will not be able to accelerate their clients’ debts and start enforcement proceedings against them, among other things - for the duration of the state of emergency at least.
Parties still free to perform voluntarily?
The law only brings to a standstill the remedies for non-performance. Voluntary performance certainly remains possible during the state of emergency. If a payment is made, and was otherwise due, it would appear to be irreversible.
NBLO regularly advises clients on issues arising from contractual relations. If you have any further questions relating to the standstill of contracts in the context of Covid-19, please do not hesitate to contact us.
Authors: Yavor Markov and Kamen Shoylev
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