In §18 of the Final Provisions of the Law onthe Amendment and Supplements of the Tax-Insurance Procedure Code (Promulgated in the State Gazette issue No14, 15.02.2011) a new paragraph 8 has been added to art. 141 of the Law of Commerce concerning the managers of limited liability companies. Currently, the text of art. 141, para 1, sentence 1 of the Law of Commerce states that as a manager of a limited liability company cannot be appointed a person “who has been declared insolvent or who has been a manager, a member of a managing or a controlling organ of a company which has been wound up because of insolvency over the last two years preceding the court ruling declaring the insolvency where unsatisfied creditors have remained”. The absence of such hindrance is to be evidenced through a declaration submitted along with the rest of the documents required for the registration of the limited liability company in the Commercial Register.
With regard to the application of the requirement of art. 141, para 8, sentence 1 of the Law of Commerce in practice the following questions may occur:
1. Does the fact that a foreign natural person, who has been a member of a managing or controlling organ of a company that has been declared insolvent in a foreign country represent an obstacle for the said person to be registered as a manager of a limited liability company within the territory of the Republic of Bulgaria? Respectively, could a Bulgarian national who was a member of a managing or controlling organ of a company declared insolvent in a foreign state be registered as a manager of a company in Bulgaria?
2. Does the insolvency declared in a foreign state have to be stated in the declaration on art. 141, para. 8 of the Law of Commerce and if so, could it be a ground for a refusal to register the company in Bulgaria?
3. Does the fact that the appointed manager has not declared the insolvency represent a ground for the liability of that manager in this regard?
The following arguments can be brought in support of the thesis that the insolvency declared in a foreign country does represent an obstacle for managers or members of managing or controlling organs of a company declared insolvent to be managers of a newly registered company in Bulgaria: 1) A person who has already been proved as a poor manager of a company in a foreign country would be allowed again to manage and organize the activity of another company; 2) Circumstances for the evasion of national legislation would be created; 3) The Bulgarian nationals on one hand and foreign nationals on the other hand who are managers of a limited liability companies might be unequally treated in the regime.
However, the arguments in support of the thesis that the requirement of Art. 141, para 8, sentence 1 of the Law of Commerce apply only to cases of insolvency declared within the territory of the Republic of Bulgaria, are quite significant too. First, scrutinizing the motives to the draft Law on the Amendment and Supplements to the Law-Insurance Procedure Code reveals that the new requirements have the following purpose: to prevent the incorporation of new companies by natural persons, who have already proved themselves as poor managers and have managed companies that have outstanding public liabilities. Subsequently, the main aim of the new provisions incorporated into the Tax-Insurance Procedure Code and the Commerce Act is on one hand to protect the Bulgarian treasury by limiting the direct losses and on the other hand to protect the private creditors of the companies that have been declared insolvent. The conclusion can, therefore, be made that the requirements established by art. 141, para 8 apply to insolvency declared within the territory of Bulgaria and any broader interpretation of the provision is unreasonable.
Secondly, any interpretation of said provision in a sense that it refers to cases of insolvency declared in foreign countries would contradict one of the fundamental freedoms proclaimed and established by the Treaty on the Functioning of the EU, namely, the freedom of establishment. Art. 49 of the Treaty prohibits the introduction of restrictions in the legislation of a Member State which hinder the setting-up of agencies, branches or subsidiaries by nationals of any Member State established in the territory of any Member State.The abolishment of such restrictions in national legislations also refers to the conditions governing the entry of personnel belonging to the main establishment into managerial or supervisory posts in such agencies, branches or subsidiaries (Art. 50 of the Treaty). The argument that the purpose of such restrictions is the attempt to avoid frauds, evasion of regulations in force or poor management of companies cannot itself provide ground for a refusal to register a limited liability company in Bulgaria. This view is also shared by the practice of the European Court of Justice (C-212/97).
Last but not least, the lack of full harmonization among national legislations on the insolvency matters, as well as the different meaning attributed to the term “insolvency” in the various legislations, represent yet another argument in support of the narrow interpretation of art. 141, para.8 of the Commerce Act as referring only to insolvency declared within the territory of the Republic of Bulgaria.
After assessing the arguments listed above the following conclusion can be drawn: the requirements established in art. 141, para. 8, sentence 1 of the Law of Commerce should be interpreted as referring only to cases of insolvency declared within the territory of the Republic of Bulgaria. The fact that a natural person has been declared insolvent or has been a member of a managing or controlling organ of a company declared insolvent in a foreign country cannot itself provide any grounds for refusal to register this natural person as a manager of a newly established company in Bulgaria. It could, however, be a ground for the liability of that manager in the relations between the manager and the company.
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