An action to have a transaction declared ineffective against a creditor

A judgment on a claim under Article 135 of the Bulgarian Obligations and Contracts Act, known as a Paulian action (an action for the relative ineffectiveness of a transaction), does not give the claimant a right in rem. A successful claim does not transfer property rights: ownership of the property does not pass from the third party back into the debtor’s estate. Its effect is to allow the creditor to enforce the claim against an asset that in fact belongs to a third party who is not the debtor and has neither provided security over property nor personally guaranteed the principal debtor’s obligation. The third party who contracted with the debtor in the transaction prejudicial to the creditor remains the owner. Only in relation to the successful Paulian creditor is the transfer of ownership treated as not having taken place. This is the particular sense in which a judgment upholding an Article 135 claim makes the transaction ineffective against the creditor. Even once the judgment becomes final, the transaction retains its effect of transferring title: it is treated as never having transferred title only as against that particular creditor. Registration of the statement of claim under Article 135 gives notice and protects the claimant by making subsequent dispositions ineffective against that claimant. Any disposition of the property by the defendant after registration cannot be relied on against the claimant. This does not give the claimant priority over other unsecured creditors participating in the distribution, even where their restraints on the property were registered after the statement of claim.

The order in which claims are paid follows the statutory priorities in Article 136 of the Act. The extent to which claims of the same rank are paid is governed by the rule of proportionate satisfaction in Article 136(3). In the case discussed, the distribution is among unsecured creditors, so they are to be paid pro rata.

This article does not constitute a legal opinion or legal advice concerning any particular situation or person. For legal assistance with a specific case, consult a lawyer.