Guaranteed compensation for workers in the event of company bankruptcy

In January 2005, new legislation was introduced which gives workers and employees in Bulgaria the right to guaranteed compensation in the event of employer insolvency. To provide for such an eventuality, contributions will to be made to a special fund at the National Social Security Institute (NSSI). The amount of these contributions will be determined every year by the Law on the Budget of the NSSI. For 2005, however, the amount is to be calculated as 0.5% of the wages and is an expense borne entirely by the employer.

All individuals and legal entities who hire people on the basis of an employment contract, and against which it is possible to begin insolvency proceedings, are obliged to pay mandatory monthly contributions to the National Social Security Institute (NSSI) fund for all their workers and employees with employment contracts.

Entitlement to guaranteed compensation

Workers and employees are entitled to guaranteed compensation if:

• their employer has been operational for at least six months before the date of insolvency, or over-indebtedness, as specified in the court ruling opening the insolvency proceedings;

• social security contributions for all social risks have been or will be paid for them;

• their employment relation has not been terminated, as of the date of promulgation of the ruling opening insolvency proceedings, or has been terminated during the last three months prior to that date.

Workers and employees are not eligible, if at the date of onset of insolvency, specified in the opening ruling of the insolvency proceedings, they are:

1. partners of the company;

2. members of the management and supervisory bodies of the company;

3. spouses and direct lineage relatives of the trader-individual or the persons as per items 1 and 2.

Only claims incurred after 1 January 2005 and concerning periods after that date are guaranteed. The entitlement to compensation begins on the date of pronouncement in the State Gazette of the ruling opening the insolvency proceedings.

Granting of 'guaranteed receivables'

According to the legislation, 'guaranteed receivables' are the accrued and unpaid:

• outstanding wages, payable on the basis of individual or collective employment agreements;

• monetary indemnities, payable by the employers by the virtue of a legal act.

Guaranteed receivables are granted on the basis of the application-declaration filed by the worker or employee to the relevant regional NSSI unit, within 30 days from the date of promulgation of the ruling opening the insolvency proceedings.

The maximum monthly amount of guaranteed receivables is determined, on an annual basis, by the NSSI’s Law on the Budget. It cannot be less than two and a half times the national minimum wage, valid as of the date of promulgation of the ruling.

For 2005, the maximum monthly amount is BGN 450. In comparison, the average monthly wages for 2004 was BGN 303.

Special fund

A specialised fund has been established at the NSSI, to handle payments of guaranteed receivables of workers and employees.

The supreme governing body of the fund is the supervisory board. It has eight members consisting of:

• four representatives from the nationally representative employer associations;

• two representatives from the nationally representative organisations of workers and employees;

• two representatives, one from the Ministry of Labour and Social Policy and one from the Ministry of Finance.

Commentary

The new legislation on guaranteed claims for workers and employees, in the event of employer insolvency, addresses a gap that has existed in Bulgarian industrial relations policy. It also responds to one of the European Commission’s main recommendations to Bulgaria in the social policy sphere. (Ivan Neykov, Balkan Institute for Labour and Social Policy)