There are overseas investors who have initially decided couple years ago to invest in off-plan projects in Bulgaria, where signed private purchase contracts (preliminary contracts) for purchase of off-plan properties, and paid deposits or even the full price for immovable properties, but at the end of the day, due to the developer’s non-performance, have been left with empty hands, no Title and even vanished parties (developers or agents). Usually in such concrete cases the developer has not completed the off-plan Bulgarian development on time due to various reasons (mainly because the fresh cash has ended) or has failed to transfer towards the individual buyer the ownership over the property in the usual way via registered Title Deed before local Bulgarian notary public. In such concrete cases, investors have had no other way to protect their legal and financial interests, but to start court cases before the local Bulgarian courts against the sellers/developers for non-performance of the signed purchase contracts and resp. to claim refund of their already paid deposits/installments. Unfortunately there are many situations where claimants haven’t secured their claims with establishing legal burdens on the assets of the defendant (i.e. freezing the developer’s available properties for the term of the case) so local developers, benefiting from the type of the local law system, have then used this lack of action and have tried to escape from their liability towards creditors, where managed on time to transfer all their assets towards third parties – usually local corporate bodies or private individuals, officially or unofficially related to the developers. So then a situation has been reached where foreign investors usually win their court cases against the local seller/developer, obtain court decisions in their favor, but technically are not able to collect their money voluntary or via the assistance of the local bailiffs, simply because the company of the judgment debtor (i.e. the developer) turns to be already empty one - there are no longer any valuable assets or money left in this company.
If you find yourself in such situation to be a creditor, where there are sufficient proofs that the debtor has already transferred all their assets to third parties and left an empty company, then please bear in mind that the local Bulgarian legislation entitles these investors, who have been officially proclaimed as creditors of the developer to secure their investments. This legal option for protection of the interests of the creditors, who find it difficult to collect their owned debt, represents a special civil court procedure called “Court claim per art.135 of the Contracts and Obligations Act”. The main goal of this court procedure is to cancel/make invalid certain property transfers (i.e. transfers of Title) done previously by the developer in order to reduce the number of their available assets that could be taken away by the bailiff for reimbursement of creditors. If reaching successful outcome in such a court procedure per art.135, there are two positive results and benefits for the concrete claimant/creditor:
- these property transfers will be officially announced by the court as non-binding (invalid) for the successful claimer only, and
- then the claimant can legally use the above certified fact by the court to freeze these properties and later via the local bailiff to sell these on a public auction in order to collect the owed amount from the judgment debtor (together with taxes and fees). In order the local court to accept, hear and approve with a valid court decision in favor of the claimant such a civil claim per clause 135 of the Contracts and Obligations Act several conditions should be met cumulatively:
1/ The applicant should be officially proclaimed in advance to be a creditor of the debtor /the developer/. So it will be very beneficial for creditors, if they can achieve a court decision in their favor against the debtor on a concrete case for non-performance and refund, but even without such a previous court decision, the procedure per art.135 still is available and can be performed - in this way during this court procedure it has to be proved by the claimant (the creditor) with the related valid documents that they have properly made in the past their payments towards the developer as per their agreements/, resp. to be certified that these payment have been received by the developer. to the specifications of the Bulgarian proofs of payment, please consult in advance with a Bulgarian lawyer on this matter – they will advise you if the proofs of payment which you may hold (receipts, payment orders, notification letters, etc) are sufficient enough stand in a particular local court and to prove your point.
2/ The debtor /the developer/ must have performed concrete and registered activities harming the creditor's interest, where making it impossible for the creditor to collect their debt - in most of the cases such harmful actions represent simple transfer of real estates of the developer towards third parties, who have been officially or unofficially connected to the developer and emptying/closing all bank accounts on their names.
3/ The new legal owner of these transferred assets must have known that by purchasing namely assets by the debtor /the developer/, the interests of the creditors have been harmed, i.e. the claimant in the civil court procedure per art.135 must prove in the local Bulgarian court that both parties /the debtor and new legal owner of the transferred properties/ have known about the debt owed towards creditors, but have had the intention to harm the interests of the creditor by completing the transfer of Title.
The most difficult to be proved in local court here is namely point 3, as detailed above. It is hard /but not impossible in most concrete cases/ to prove this “knowledge” and “intention” by the related parties for harming the creditors’ interest via transferring assets. Simply because a developer who owns many immovable properties, won’t transfer these to unknown third parties, but will prefer to secure their ownership and profit via transferring Title to officially or unofficially parties – other local corporate bodies or private individuals.
Also it is important to mention here that the option per clause 135 of the Contracts and Obligations Act can be used only within a specific deadlines, stipulated in the local legislation and starting since the day of performance the “deal” (i.e. signing the Title Deeds in the name of the new legal owners), which deals are object of the claim.
Also property transfers by the developer towards third parties, which have been performed 10 years ago /for example/ or performed even before private purchase contracts between the creditor and the developer have been signed, may not legally be disputed in court.
The preparation of the civil claim per art.135 of the Contracts and Obligations Act should be preceded by a detailed and precise legal examination of the current status of the developer and mainly related to all the previous deals and property transfers done by the developer in the past. All this legal work should be done by a Bulgarian lawyer, practicing in courts, who to examine the concrete case and to advise the creditor about the opportunities to protect their interests via the above given option.
For any additional questions on the above, please do not hesitate to contact us.
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