Answer ... Bulgarian law regulates possessory and non-possessory pledges, mortgages, suretyships, co-debtorships, bank guarantees and financial collateral agreements. Pledges over future assets and receivables are also permitted.
Possessory pledges are created by virtue of the Obligations and Contracts Act. They require delivery of the collateral and delivery of the documents evidencing the pledge of receivables to the pledgee. In case of possessory receivables pledges, the pledgee must also collect the interest and the principal. To this extent, possessory pledges are not entered into by professional lenders, since they are not practical.
Non-possessory pledges may be created over the following assets:
- movables;
- machines and equipment;
- receivables;
- electronic shares;
- shares in collective investment schemes;
- shares in limited liability companies;
- general and limited partnerships;
- IP rights;
- going concerns; and
- inventory.
Bulgarian law also regulates floating charges, which may include floating pools of receivables, movables or inventory, goods, materials and shares issued electronically or shares in collective investment schemes. The pledge over a going concern is also a type of a floating security regulated by local law.
Mortgages are created over real property only. They require:
- execution of a notarial deed;
- registration in the Property Register; and
- payment of notarial and state fees, both of which are substantial.
However, mortgages are a strong security tool. Moreover, as mortgages are among the oldest security instruments, their creation, amendment, release and enforcement have been reviewed in depth by the courts. Therefore, there is sufficient case law on diverse issues related to mortgages and their enforcement.
Suretyships are usually required in the case of consumer loans. In the case of corporate financing, the practice in mid-size financings is to request the provision of co-debtors as an additional security tool.
Bank guarantees are among the limited abstract security instruments regulated under Bulgarian law. However, they are not a common security tool in the case of corporate finance and larger finance agreements.
Financial collateral agreements were first introduced in Bulgaria in 2006. The provisions of the law implement the provisions of the EU regime. Financial collateral pledges are not subject to any complex formal requirements and are easy to perfect and enforce. Moreover, financial collateral benefits from the special option of close-out netting, which makes it a preferred tool for banks and generally a part of any bank finance agreement with a qualifying borrower. However, as under the relevant EU case law, disposal of the collateral (ie, the cash available in the bank account) must be limited as a validity requirement under financial collateral arrangement agreements – that is, the account holder will be prevented from disposing of the moneys deposited in the pledged account – the practicality of this instrument has also been challenged.
Going-concern pledges and pledges over floating pools of receivables, equipment, machines and inventory are commonly used.