Bulgaria: a welcome reform or a market disruption?
Opinion 2 minute read

Bulgaria: a welcome reform or a market disruption?

28 April 2013

The latest amendments to the Bulgarian Commerce Act are intended to implement the Late Payment Directive (2011/7/EU) (the "Directive"). Adopted in February 2011 with an implementation date of 16 March 2013, it is currently adopted in 17 of 27 Member States of the EU.

The aim of the Directive is to prevent the grossly unfair treatment of those creditors who are unable to negotiate level-playing field payment terms, irrespective of whether that status is due to the creditors' weaker bargaining power or because the terms are in fact subjected to limited negotiations, as with public procurements. The scope of the amendments in the Bulgarian legislation implementing the Directive concern only business to business and government to business transactions, for which  maximum terms are introduced for payment of monetary obligations. Unfortunately, the amendments do not entirely implement the Directive and certain provisions of this EU legislation have been left out, such as: 

  • the applicable reference rate
  • the starting date for certain payment terms provided in the Directive
  • not all types of public are subjected to the new regime, which applies only to public procurement 
  • presumptions concerning grossly unfair transactions are not included.

The new regime is introduced at the end of the implementation period and shall affect the highly indebted Bulgarian private sector, which is yet to emerge from the financial crisis and whose financial instability is aggravated by cash-flow problems.

The implemented Directive 2011/7/EU is a step in the right direction. The newly introduced limitations on the freedom of contract concerning payment terms are expected to have a beneficial effect on the Bulgarian economy. The reasonable maximum terms in the amendments give businesses sufficient flexibility and at the same time provide for longer terms in exceptional circumstances, thus protecting businesses from having weaker bargaining power. In addition, the amendments should also put an end to certain negative practices of public authorities abusing their position when setting the terms of the public procurements. As a result, the new regime's long-term effect helps to improve the financial stability of the Bulgarian private sector. The only remaining risk that may hinder the positive impact of the new legislation is the amendment's incomplete implementation of the EU's Late Payment Directive.

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