War is the continuation of politics by other means. This saying of the German strategist Carl von Clausewitz amazingly suits the condition Bulgarian banks are in the moment. It is well known that their main activity is collecting deposits and extending loans. With the first part all things are clear, but when it comes to the second one – the everything becomes more complex. And when it comes to forced collection of overdue debts, the battles between the two sides starts looking like a real war. Only two cases are sufficient to illustrate the bitterness of the process.
Let’s take the case
of UBB against Sofia Real Estates.
According to the publication in the Commercial Registerm, the company owes around EUR1.85 million to the credit institution, secured by mortgage on property in Sofia. In February 2011, the bank opened a public sale of the property because the loan had not been serviced. The bank finds its buyer who even transfers the money into an account. But it turns out that the bank cannot get to the sum. The reason is that in the meantime the debtor Sofia Real Estates applies for initiation of bancruptcy proceedings. Having learned about that the UBB immediately launches a counter claim that is accepted by the Sofia City Court but, what is more – Amaks Group Corporation is permitted as a creditor of the company to join the claim. However, it is registered offshore – in Panama.
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The offshore company claims that under a brokerage contract for the purchase and sale of property from February 10, 2006, Sofia Real Estates owes it EUR3 million. Therefore the Panama offshore company wants Sofia City Court to announce the date of insolvency of Sofia Real Estates as taken place on 1 January 2006. The goal is clear: to beat the mortgage in favour of UBB. This is shrewdly conceived, but there some quite interesting details around the operation. Because the debtor company itself, at least according to the Commercial Register was founded on February 9, 2006 and may not become insolvent before it is created.
It is because of the claim submitted by the offshore company, the payment procedure from 2011 under which the Sofia Real Estates’ property was sold, was subsequently stopped and the bank cannot get its money.
Legal absurdities
UBB appealed this decision on 31 October 2011 before the Sofia Appellate Court. But it turns out that the court has still not pronounced on the claim, because the documents so far have not managed to travel the long way between the two courts in Sofia. The City Court did not find time to send those documents to the appellate judges, but in September 2012 it saw a window in its programme only to decide that the date of commencement of Sofia Real Estates’ insolvency is February 26, 2006 – that is just 16 days after the establishment of the company. So the magistrates themselves corrected an oversight in their ruling but it directly injured the bank because the date of insolvency is still before the conclusion of the mortgage with UBB and when it enters into force, the bank will lose the collateral.
A similar case was encountered by Piraeus Bank Bulgaria, to which
Veros Constructions Ltd.
has to repay EUR3.67 million under three credit agreements, concluded in 2008 and 2009. The money was used for the construction of a residential building with total area of 13,215 square metres in the Sofisa metropolitan district Vitosha. Obligations were secured by mortgages and pledges on receivables from customers. So far everything looks precise and neat!
Immediately after receiving the first loan in 2008, however, the company headquarters was moved from Sofia to Pernik. And hardly accidentally so, since magistrates in this town are known for their numerous decisions to the detriment of creditors.
Court assistance to debtors
In 2010 at the request of George Pahlev – the then manager and owner of Veros Constructions – the Pernik district court declared the company bankrupt and set the initial date of insolvency on Nov. 13, 2007. This automatically invalidates all contracts pledges and mortgages between banks and the firm concluded at a later date. Thus the secured creditor Piraeus Bank Bulgaria turns out to be put in a position of an ordinary creditor.
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