Just a quick update on what happened last Friday (21st October 2011)…

We went to sign the preliminary contract at the notery’s office. While we had some issues with the procedure on how to complete the deal, we managed to resolve them so that everyone is relatively safe until the completion.

The complexity comes from the fact that the plot was mortgaged by a bank and we wanted to take some money from the bank as well to complete the deal. However our bank didn’t want to release the money in our account before the deal is complete… But how to complete the deal without having the money to pay for it?

The solution was found between all parties and as we were getting ready to sign, the notery found that the previous owner of the plot is bankrupt. She advised us that taking into account the current state of the bankruptcy law in Bulgaria, the creditors of the previous owner can still come forward and claim the deal void, leaving us with lots of debts and no property.

Although, she wasn’t 100% sure about this part of the law and after making few consultations with bankruptcy lawyers, she still insisted its very risky to go forward before extensive consultation with lawyers.

And so we got our deposit back, but still need to go and check this out with those that know more about this part of the law. However… its looking less likely this can ever be resolved by the minute.

So here is the scheme we got ourselves into:

Company A is bankrupt. They are the previous owners of the plot. At some point in time they sell (transfer) the property to Company B.

Now Company B is trying to sell the plot, and thats where we come in.

“Bancrupt rule” – an interesting article (in Bulgarian, translation by Google), from Capital, conveniently published this weekend, about the abuse of the insolvency date.

The first problem comes from the difference between the date on which the bankruptcy was declared and the actual beginning of that period. It seems like in the Bulgarian law those two can be different and quite far apart.

If I’m a company now and declare myself bankrupt, I can claim that this state actually occurred five or ten or more years ago. And at this point, completely legitimately, I can ask for all my money back from all people and companies I dealt with since that date that was far in the past.

The second problem is that because Company A and Company B on that deal, where the plot ownership was transferred, were represented by the same person – Ms Doe from Company A sells to herself but representing Company B.

Third problem – the value of the deal was (allegedly) times below the market value of the plot.

There are a lot of questions how does all this relate to us and can any of this hurt us and I don’t know myself, but we will know soon enough.

One thing is for sure – it smells and we’d be stupid not to verify.