Symptomatic treatment does not help, a holistic approach is needed
If we borrow some analogies from medical terminology, we can define stabilization as a process of regaining tone and restoring good vital indicators of an enterprise that has shown the first symptoms of illness. Some harmful factors are progressing around it, which negatively affect its condition. For example, frequent periodic maturities under a contract under which the company is a payer, combined with irregular payments from its main debtor, can contribute to the development of an unhealthy environment. The company falls into a slight peculiar “suffocation”, is unable to supply its organs with enough oxygen at times and, accordingly, to maintain all systems in the body in good shape.
This condition is not life-threatening, nor is it contagious. It is reversible, but only if adequate and timely measures are taken. First of all, the patient himself must realize his symptoms and their significance in order to seek help. Although there are advisors in the form of accountants, consultants, mentors, etc., the merchant’s management body is the one who is responsible for starting treatment. He must file an application with the court, in which he describes the state of the company . The most important thing is to convince the court, based on real financial data, that this business is experiencing some difficulties, but has not become insolvent and there is a way to be cured (stabilized). According to the requirements of the law, in order to start the stabilization procedure, the business must be in imminent danger of insolvency , that is, there must be real data that it may stop payments or be unable to fulfill its obligation within 12 months. Statistics show that most stabilization applications are rejected by the court on the grounds that insolvency was already present, therefore the “patient” should be referred to the emergency department with more intensive care, namely bankruptcy proceedings.
Wandering the health paths
Some of the decisions in the Commercial Code deserve some criticism, as they impose too great an administrative burden on the company in difficulty . It must provide the court with a bunch of data, calculations, forecasts for possible development and analyses of its economic indicators as soon as it files the application for stabilization. This proves to be overwhelming for many representatives of small and medium-sized businesses, who do not have the necessary expert team to assist them in this endeavor.
The merchant must explain to the court that if his current condition continues for too long or the quantitative accumulations lead to qualitative changes, it may develop into a severe chronic “disease”. He must also demonstrate readiness for full disclosure of the problems. First of all, a notice is published in the Commercial Register that the merchant has filed a stabilization application with the court. Then he must present to the court and disclose to all interested parties information about his finances for the past few years and to the present, as well as the expected development in the future. In addition, the merchant must also propose a solution (stabilization plan) that, in a compromise manner, fully or partially satisfies all his creditors. This solution may be of a very different nature or combine different methods – deferral of obligations, forgiveness of obligations, sale of the enterprise, conversion of creditors’ claims into part of the capital, etc.
Originally published at: Capital Edition: Issue 27, 2025
By Dimitrov, Petrov & Co., Bulgaria, a Transatlantic Law International Affiliated Firm.
For further information or for any assistance please contact bulgaria@transatlanticlaw.com
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