Bulgaria's State of Emergency Act suspends all payment obligations

Following the announcement of a state of emergency in Bulgaria on 13 March due to the COVID-19 outbreak, on 23 March the Parliament finally also approved a special law to regulate the country's government during this period. The newly adopted State of Emergency Act (COVID-19 Act) surprisingly allows for the suspension of all payments falling due during the emergency period, currently in force until 13 April, but the Government already announced that it plans to prolong it until 13 May. This may be interpreted as the State deeming the COVID-19 outbreak as a force majeure event affecting everyone under economic threat from the situation not only during the emergency period but afterwards.

A week ago, the Government of Bulgaria and the National Bank several times stated that no moratorium will be declared on bank loans. But the newly voted COVID-19 Act provides that in case of a delay in payment during the state of emergency period the legal remedies available to the creditor, such as statutory interest, penalties, termination of contract or enforcement, will not apply. This means that creditors (e.g. banks, leasing companies, landlords, etc.) will not be able to charge default interest on unpaid debts or initiate execution proceedings or other legal actions against debtors for the duration of the state of emergency. This measure is even more drastic for creditors compared to those already undertaken by some countries, such as a moratorium on credit and leasing repayment.

The whole COVID-19 Act was discussed and voted amid chaos in the Parliament and it is likely that the majority of the deputies did not understand exactly what they voted for. The initial reaction from the Bulgarian banks is that they are willing to accept a moratorium on credit payments but expect some countermeasures by the government, e.g. how such unpaid credits will be treated by the National Bank during the state of emergency period, etc.

Nevertheless, the major issue according to the banks and the managers of other leading Bulgarian companies is that a full moratorium on all payments may endanger the functioning of the economy, which is already under enormous pressure due to the COVID-19 outbreak. Since the courts also stopped working during the state of emergency period, it would be impossible for any creditor to collect its debts if the debtor does not pay voluntarily. Therefore, once the Parliament realises what exactly has been ratified, the regulation may be amended to refer only to bank and other financial institution loans.

The effect of this provision also remains unknown with respect to the providers of utilities such as electricity, water and mobile services. Usually such service providers have the contractual right to suspend the provision of their services if no payment is received within the agreed term. However, it could be argued that the regulation does not allow for the suspension of such services due to non-payment during the state of emergency period.

In addition, the moratorium on payments may be seen as the Bulgarian Parliament viewing the COVID-19 pandemic as an event of force majeure that basically affects everyone. Such an interpretation, as long as the regulation is not soon amended, may have a profound impact on all contractual relations even after the state of emergency expires.

The COVID-19 Act also provides that no court or prescription periods shall run during the state of emergency period.