In 2022, we initiated court proceedings to protect the creditors of an insolvent company. The dispute concerned a property that had been removed from the debtor’s estate through three successive transactions. By the time the claims were brought, the property had already passed to a subsequent purchaser who did not fall within any category for which knowledge of the prejudice to creditors could be presumed by law.

The proceedings passed through three levels of jurisdiction and concluded in 2026. After the claims were dismissed at first instance, the appellate court admitted evidence that we had requested in due time but that the first-instance court had declined to obtain. The appellate court overturned the original judgment and upheld the claims. All three transactions were declared ineffective against the insolvency creditors, restoring the possibility for the property to be treated as available for realisation within the insolvency estate. The Supreme Court of Cassation subsequently refused permission for a further appeal, making the result final.

The central issue was how to establish the final purchaser’s knowledge where there was no direct admission or document clearly demonstrating such knowledge, and where no statutory presumption applied. This is frequently one of the most challenging elements in proceedings of this nature. Knowledge generally has to be inferred from numerous individual circumstances, the true significance of which becomes apparent only when they are considered together.

Three Transactions That Had to Be Considered as a Single Sequence

The property had not been acquired by its final owner directly from the insolvent company. Three separate transactions had taken place between the debtor’s initial disposal and the final acquisition. The protection of the creditors could therefore not be confined to challenging the first transfer alone.

Even where the first transaction is prejudicial, the creditors may remain without effective protection if the property is subsequently acquired for value by a bona fide third party before the claim is registered. In a chain of transactions, the position of the final purchaser becomes decisive. For the entire sequence of transfers to be declared ineffective against the creditors, the relevant conditions for protection must also be established in relation to the person who ultimately acquired the property.

This required us to reconstruct the complete history of the asset, including the relationships between the parties, the manner in which the individual transactions had been arranged, their commercial terms, the payments made and the parties’ conduct following the final transfer. It was not sufficient to examine each transaction as an isolated legal act. The court had to determine whether the three transfers, when assessed as a sequence, revealed a coherent factual and commercial pattern.

The first-instance court found that the transactions had objectively prejudiced the creditors because the property had left the debtor’s estate and the creditors’ prospects of recovery had been impaired. Nevertheless, the claims were dismissed on the basis that the final purchaser’s knowledge of the prejudice had not been established.

That conclusion was reached after the court declined to admit part of the evidence that we had requested in due time specifically to establish knowledge. The most disputed element of the claims was therefore determined without the court having obtained the complete body of evidence that had been requested.

This omission was material because the purchaser’s knowledge could not be established through a single decisive document. It had to be inferred by comparing and assessing a range of circumstantial evidence. When part of that evidence is excluded, individual facts may appear unrelated or may be given an explanation that changes once they are considered in the context of all the other circumstances.

The Procedural Turning Point Before the Appellate Court

In the appeal, we specifically challenged the first-instance court’s refusal to obtain the requested evidence. This was not an attempt to introduce a new case or to remedy a procedural opportunity that had previously been missed. The evidentiary requests had been made in due time but had not been granted, and that procedural defect was therefore raised expressly before the appellate court.

The appellate court admitted the evidence that had originally been requested during the first-instance proceedings. This made it possible to assess the final purchaser’s knowledge on the basis of the complete factual picture rather than a limited part of it.

The court obtained and considered documentary evidence, banking and accounting records, witness testimony, expert evidence and explanations provided by the parties. The analysis covered the relationships between the participants in the three transactions, their previous business dealings, the involvement of the same individuals in arranging the transfers, the terms of the transactions, their relationship to the property’s market value and the manner in which the asset was used following the final acquisition.

None of those facts was sufficient on its own to establish knowledge. Long-standing business relations do not automatically demonstrate bad faith. A departure from market terms does not independently prove a prejudicial purpose. The payment of a purchase price does not exclude knowledge, just as the absence of actual use of the property does not necessarily establish it. What mattered was the combined effect of the established facts and the way in which they supported one another.

The appellate court found that the circumstances surrounding the three transactions, considered in their chronological, commercial and personal context, formed a sufficiently coherent evidentiary basis for concluding that the final purchaser had known of the prejudice to the creditors. The first-instance judgment was overturned in its material part, and the entire chain of transfers was declared ineffective against the insolvency creditors.

The subsequent proceedings before the Supreme Court of Cassation again raised questions concerning the admissibility and assessment of the evidence, as well as the establishment of knowledge through circumstantial facts. The Supreme Court of Cassation refused permission for a cassation appeal, leaving the appellate judgment in force and the property available for realisation in the interests of the creditors.

How Protection Against Prejudicial Transactions Operates

A debtor’s property serves as the general source from which its creditors may seek recovery. Where a debtor disposes of an asset in a manner that impairs the creditors’ ability to recover what they are owed, the law allows the effects of that disposal to be declared ineffective against them.

This remedy is traditionally known in Bulgarian law as the actio Pauliana, or the Paulian action. Its purpose is not to erase the transaction or render it invalid against everyone. The transaction continues to have effect between the parties who entered into it. It cannot, however, be relied upon against a successful creditor, and the transferred asset remains available for enforcement for the purposes of satisfying that creditor.

Where the debtor is subject to insolvency proceedings, the protection operates for the collective benefit of the creditors. Bulgarian commercial law contains specific rules for challenging certain transactions carried out during the relevant periods before the opening of the insolvency proceedings, while also allowing the general protection against prejudicial acts to apply where its requirements are met. The correct legal basis must therefore be determined by reference to the nature and timing of the transaction and the particular facts of the case.

The practical objective remains the same: to make the asset available for realisation within the insolvency estate so that the proceeds may be distributed among the creditors in accordance with the statutory order of priority.

Under the general regime governing transactions for value, the creditor must establish not only that the debtor knew of the prejudice, but also that the counterparty had the requisite knowledge. The specific avoidance actions available in insolvency proceedings may be subject to different requirements, depending on the relevant statutory ground, the nature and timing of the disposal and the relationship between the parties.

The payment of a purchase price does not, in itself, exclude the existence of prejudice. The assessment is fact-specific and depends on whether the transaction actually impaired the creditors’ prospects of recovery. Relevant considerations may include the relationship between the value given and the value received, the subsequent movement of the funds, the commercial rationale for the transaction and the remainder of the debtor’s property.

When Knowledge Is Presumed

Under the general regime, knowledge of the prejudice is presumed only for a narrowly defined group of close relatives expressly identified by law. That presumption cannot be extended by analogy to other persons merely because they have maintained long-standing personal, professional or commercial relations with the debtor.

In insolvency proceedings, Bulgarian commercial law also contains specific rules concerning related parties. Those rules apply within the particular statutory situations for which they are provided. They do not mean that every close business relationship or involvement within the same commercial circle automatically establishes knowledge or bad faith.

Where an applicable statutory presumption arises, knowledge is accepted unless the opposing party proves otherwise. Where the person concerned falls outside the exhaustively defined categories, the creditors must establish knowledge under the ordinary rules of evidence. That was the position of the final purchaser in this case.

It is not necessary to prove that the purchaser knew the identity of every creditor, the precise amount of every claim or the debtor’s complete liability structure. What must be established is that the purchaser knew of circumstances indicating that the specific disposal could impair the creditors’ ability to obtain satisfaction.

This assessment cannot be made in the abstract. It depends on the information available to the purchaser, the purchaser’s relationships with the other participants, the terms of the transactions and the overall factual context.

Establishing Knowledge Without Direct Evidence

Circumstantial proof cannot be based on mere suspicion. Each individual fact must be established through admissible evidence, while the relationship between the facts must support a reasoned and internally consistent conclusion.

Where property passes through several parties, relevant circumstances may include the sequence and timing of the transactions, the relationships between the participants, the manner in which the terms and payments were arranged, departures from ordinary market practice, previous transactions between the same parties, the involvement of the same representatives, the conduct of the parties after the acquisition and the actual use of the property.

None of these factors has a predetermined evidential value. A low purchase price, a personal relationship, a previous business connection or the absence of immediate use of the acquired asset does not automatically mean that the purchaser knew of the prejudice. The significance of each factor depends on the particular case and on whether, when considered together with the other established circumstances, the factors create a sufficiently persuasive overall picture.

The creditors’ ability to present all evidence requested in due time is therefore particularly important. Where the first-instance court incorrectly refuses to obtain such evidence, that procedural defect must be expressly raised in the appeal. An appeal does not provide an unrestricted opportunity to restart the evidentiary process. The appellate court may, however, admit evidence that was requested in due time and incorrectly excluded by the first-instance court.

In the proceedings conducted by our firm, the admission of precisely that evidence enabled the court to assess the facts not as separate and unrelated circumstances, but as components of a coherent evidentiary framework.

Particular Challenges Arising from a Chain of Transactions

Successive transfers can make the protection of creditors considerably more complex. The law preserves the rights of bona fide third parties who acquired the property for value before the proceedings were registered. Timely registration of the claim is therefore an essential part of the protection, but it does not remove the need to examine the legal and factual position of every party in the chain.

Where a creditor challenges an entire chain of transactions, the grounds for relative ineffectiveness must also be established in relation to the final purchaser. If the final purchaser acquired the property for value and in good faith under circumstances in which the law protects that acquisition, successfully challenging the first transaction will not necessarily make the property available to the creditors.

Tracing the asset before proceedings are commenced is therefore a fundamental part of case preparation. The ownership history, parties and representatives involved in each transaction, payments, registrations, timing of each acquisition and evidence of the respective purchasers’ knowledge must all be examined.

In this case, the protection covered all three successive transactions. Once the final purchaser’s knowledge had been established, the entire chain of transfers could be declared ineffective against the creditors, restoring the possibility for the property to be realised within the insolvency estate.

What the Successful Outcome Demonstrates

The proceedings confirmed that the absence of direct evidence or an applicable statutory presumption does not prevent creditors from establishing knowledge of the prejudice. Success nevertheless depends on proving the relevant facts and demonstrating that, considered together, they support a single, reasoned conclusion.

Procedural preparation is equally important. Evidence must be requested in due time, its relevance to the disputed issues must be clearly explained and any incorrect refusal to obtain it must be specifically challenged. In this case, the appellate court admitted the evidence that we had requested at first instance, and the combined assessment of that evidence allowed the dispute to be determined on the basis of the complete factual record.

Following more than four years of work and proceedings before three levels of jurisdiction, we achieved a final result under which all three transactions were declared ineffective against the insolvency creditors. The property consequently became available for realisation within the insolvency estate and for the satisfaction of the creditors.

Conclusion

Protection against prejudicial transactions requires an accurate determination of the applicable legal regime, a complete reconstruction of the asset’s history and a carefully developed evidentiary strategy. This is particularly important where the property has passed through several successive purchasers and the final purchaser’s knowledge is not presumed by law.

In such cases, a formal review of the title deeds is not sufficient. It is necessary to examine the commercial rationale of the transactions, the relationships between the participants, the actual movement of funds, the conduct following the acquisition and any other circumstances capable of showing whether the final purchaser was aware that the transactions could prejudice the creditors.

Vassilev & Partners has practical experience in representing creditors and insolvency trustees, challenging prejudicial transactions, tracing subsequent transfers and conducting proceedings aimed at restoring assets to the scope of the insolvency estate. The result achieved in this case reflects the consistent development and defence of the evidentiary case before all three levels of jurisdiction.

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