Amending Bill to the Civil Procedure Code (CPC)

09_RL_Amending Bill to the Civil Procedure Code (CPC)_VA[english]

On 13 July 2015, the Council of Ministers submitted an amending bill to the Civil Procedure Code (CPC) to the National Assembly. The proposed amendments focus primarily on enforcement proceedings, covering a wide range of disputable issues which have emerged in the case law with regard to the implementation of the statutory provisions as a result of the entry into force of the “new” CPC in March 2008. A further proof of the existence of numerous contentious issues and the need for elaboration on the legal provisions concerning enforcement proceedings is the Interpretative Case No 2 of 2013 brought by the General Assembly of the Civil and Commercial College of the Supreme Court of Cassation, which examined 14 disputable issues of the existing case law. On 26 June 2015, the Supreme Court of Cassation gave its interpretative decision, ruling on those aspects of enforcement proceedings which were characterized by inconsistent case law in the interpretation and implementation of the law. Some of the issues which were the subject-matter of interpretation and the reasons pointed out by the judges of the Supreme Court of Cassation, underlying the unequivocal answers in the decision are included in the amending bill to the CPC.

The proposed amendments eliminate the option for the enforcement proceedings to be opened at the permanent address or seat of the third-party debtor, where the enforcement is targeted to recovery from the latter, as laid down in Article 427(1)(2) of the CPC. Currently, the local jurisdiction envisaged in Article 427 of the CPC makes it possible for many enforcement proceedings to be brought to enforcement officers in Sofia. The reason is that the recovery is intended to involve the debtor’s claims to bank accounts and the seats and head offices of banks are located in Sofia. The proposed recast of Article 427 of the CPC makes the rules for determining the local jurisdiction largely consistent with those laid down in the general provisions of the Civil Procedure Code and gives the debtor the advantage of an easier access to the enforcement proceedings brought against him. Should the enforcement case be transferred to another enforcement officer in another district, the claimant is to be sanctioned to bear the costs related to the filing and sending of the case.

It would be appropriate to specify this part of the proposed amendments by obligating the enforcement officer to verify the debtor’s current and permanent addresses in the national database. This will prevent a situation in which the claimant provides a wrong address of the debtor. The existing practices reveal many instances in which the debtor has changed his address and therefore the debtor is not aware of the enforcement proceedings brought against him. The debtor becomes aware of the proceedings at a much later stage, after which out-of-court action has to be undertaken in accordance with the existing legislation. The problem emerges typically in the cases in which an immediate enforcement order is issued under Article 417 of the CPC and the order is to be delivered through the enforcement officer. On the one hand, enforcement proceedings develop at very high speed in such cases but, on the other hand, the debtor has not been enabled to exercise his rights to protection in the proceedings involving the issuance of an immediate enforcement order. If the debtor is not aware of the voluntary payment notice, it becomes possible for the creditor to be satisfied before the debtor has undertaken out-of-court control action or before the result of such action is made available. Due to the creditor’s satisfaction, provided that the creditor’s claim is proven unjustified (which takes quite a long time until the decision becomes enforceable), it might turn out difficult for the debtor to recover the property used to satisfy the creditor’s claim back to his patrimony. More often than not, such recovery becomes impossible, where the creditor’s claim is satisfied through a public sale of movable and immovable property of the debtor, which results in the acquisition of the ownership right by a third party. Then the debtor will have to settle only with enforcement against the “creditor” and recovery from his property but the debtor will not be in a position to get back the property taken away from him due to the unjustified claims of the “creditor”.

Unlike the immediate enforcement orders under Article 417 of the CPC, the enforcement orders under Article 410 of the CPC provide the debtors with greater opportunities to protect themselves against unjustified creditor claims. The reason is that there is no immediate enforcement ordered. Furthermore, the enforcement order under Article 410 of the CPC is delivered by the court issuing the order rather than through the enforcement officer. It is a standing practice of courts, failing to deliver the order to the address specified by the claiming creditor, to verify the current address in the national database and to stick the notice only upon confirmation of the address. After the time limits laid down by the law expire, the debtor is considered duly notified. Where the current address proves different from the one specified by the creditor, the court delivers the order to the current address of the debtor.

Another positive development which alleviates the costs incurred by the debtor is the insertion of the new Article 433a of the CPC, in which the law-maker explicitly states that the enforcement officer lifts any foreclosure or distraint ex officio in the recovery process and in the collection of costs. The new provisions will discontinue the current practices of enforcement officers to burden the debtor with additional fees and costs after the debtor has already paid the fee on a pro rata basis to the enforcement officer, borne all other enforcement costs and satisfied the claimant, as a result of which there exist no legal grounds for the security measures to continue with regard to the debtor’s property.

The bill includes an amendment to resolve one of the most burning issues since the “new” CPC entered into force, i.e. the action that is appealable by the debtor in the enforcement proceedings, the regulation of the unsequestrable property, and the obligation of banks to notify enforcement officers whether unsequerstrable income exists in the bank accounts from which the debt is to be recovered.

In accordance with the existing CPC, the debtor has no right to appeal against enforcement action beyond the remit of Article 435(2) of the CPC. The existing legal framework is very scanty with regard to the rights to protection, which the debtor enjoys in enforcement proceedings. The refusal of the enforcement officer to stay or terminate the enforcement proceedings at the debtor’s request becomes appealable. Until now, the assessment of the prerequisites for suspension or termination of the enforcement proceedings was within the exclusive discretionary powers of the enforcement officer. Since the refusal by the enforcement officer was not subject to appeal in court, the debtor had no access to a rapid and effective remedy against unjustified inaction or unwillingness of the claimant to terminate the proceedings after recovery.

Another major problem is the lack of control over the initial price of the property in a public sale procedure. The debtor does not have timely remedy at his disposal if the price of the property is established at a too low level since the property assessment does not belong to the exhaustive list of appealable action. The proposed amendments read that the debtor has the right to challenge the assessment of the property and, in this case, the enforcement officer has the obligation to appoint another expert or a panel of three experts to determine the market value of the property. The refusal of the enforcement officer to prepare a new assessment is included on the list of appealable action. Thus speculation with the assessment of the debtor’s property will be largely prevented.

The proposed amendment envisages that the initial price of the property in the public sale will amount to 85 percent of the property’s market value instead of the current 75 percent. Nevertheless, the bill introduces a new provision which is very much to the detriment of the debtor. It lays down a cap on the amounts which bidders can quote in the public sale, stating that “bids exceeding the initial price by more than 30 percent shall be null and void”. The restriction prevents the opportunity for the property to be sold at market value or at a price that is 15-percent higher than the market value, which is a permissible and non-excessive difference on the free market. The proposed amendment would further damage the debtor’s interests, when the property is acquired at a second public sale in which the initial price is set at 80 percent of the initial price of the property in the first auction. If the proposal is adopted, the bids in the second sale, which are lower than the market value of the property but 30-percent higher than the initial price, will be declared null and void, while the debtor will be deprived of the right to have his property sold at real market value. (For example: the market value is BGN 100,000. The initial price in the first public sale is BGN 85,000. The initial price in the second public sale is BGN 68,000. Any bid above BGN 88,400 will be declared null and void).

The amending bill to the Civil Procedure Code is intended to change the legal framework related to the freeze of the debtor’s bank accounts for payment purposes.

The bill attempts to render more specific the provisions of Article 450a of the CPC, which envisages the opportunity for electronic freeze of debtors’ bank accounts. Those provisions entered into force in January 2014 but it is still impossible for electronic freezes to be applied. The objective of the electronic freeze is to reduce the costs incurred in the course of enforcement proceedings because freeze notices sent to each commercial bank within the territory of the country cost to the claimant BGN 15 net of VAT (subsequently recovered by the debtor). With the electronic freeze the enforcement on the bank accounts of the debtor the total cost will be BGN 15. Typically, creditors do not have the updated details of their debtors’ bank accounts or the bank accounts they are aware of do not contain sufficient resources to cover the debt. Therefore they request enforcement officers to send freeze notices to all banks. The legislation was amended to allow the electronic freeze option but no deadline was introduced for the establishment of an enabling system. The proposed amendments transform this optional provision into an imperative one, stating that bank account freezes are imposed by the enforcement officer by means of an electronic notice and eliminating the existing option for enforcement officers to refuse to impose freezes electronically through an opt-in or opt-out in the integrated electronic freezes platform by serving a unilateral statement to the Minister of Justice. The Minister of Justice is given three months to issue an ordinance on the specific requirements to the electronic platform. The new amendments rule out the participation of the Governor of the Bulgarian National Bank in the establishment of these requirements. It is envisaged that the freeze notice will be considered by the bank upon its downloading from the electronic system but there is no provision to obligate banks to download the electronic freeze notices immediately.

The other amendment concerning the enforcement on the bank accounts of the debtor introduces the explicit obligation of the bank to indicate the origin of the frozen resources which represent unsequestrable income. There are specific legal grounds for the bank to be entitled to refuse and to be under no obligation to transfer resources representing unsequestrable income of the debtor to the enforcement officer’s account up to the statutory amounts.

So far banks have invoked the “bank secrecy” under the Credit Institutions Act and have refrained from providing information to the enforcement officer with regard to the available unsequestrable income of the debtor. Therefore the debtor is the only person entitled to submit a certificate on the origin of the resources in the bank account. This matter was examined in Interpretative Case No 2 of 2013, in which the Supreme Court of Cassation upheld that the amounts in the debtor’s bank accounts, originating from unsequestrable income, were not subject to conversion into sequestrable resources on the sole ground that they were receivable from a bank by their nature. However, an interpretative decision cannot obligate banks to notify enforcement officers or empower them to refuse the transfer of available resources to the account of the enforcement officer up to the statutory amount of the debtor’s unsequestrable income in spite of the instructions of the enforcement officer to do so. There are additional amendments on the amount of the unsequestrable income.

The amending bill to the Civil Procedure Code is at attempt at striking a balance between the satisfaction of the creditor and the protection of the debtor’s interests, while finalizing the enforcement proceedings at optimized costs. Most of the proposed amendments are intended by the law-maker to remedy the weaknesses and omissions of the “new” CPC, one of them being the restricted right of the debtor to protection in the course of enforcement proceedings by ruling out judicial remedies against all actions of the enforcement officer other than those under Article 435(2) of the CPC. Nevertheless, it is necessary to make a thorough assessment of the need for and the wording of some amendments so that to avoid the need for further interpretation or the inapplicability of specific provisions.