Economic and legal analysis of voluntary compliance measures

| Full text of the analysis |

The purpose of this analysis is to review and assess a specific part of the "Action Plan with Measures Addressing the Main Problem Areas Impeding Investment Growth", adopted by the Council of Ministers, last revised in 2019. More precisely, a measure from this plan, which falls under the responsibility of and was submitted at the proposal of the Ministry of Justice.

We are also talking about voluntary, extrajudicial methods for resolving disputes between parties related to debt collection, which are a serious burden for both the parties to the process and the judicial system.

The proposal itself is the following: creating a new Article 426a in the Civil Procedure Code regarding the collection of debts through voluntary performance.

This measure refers to the introduction of a new element to the debt collection procedure, which concerns the so-called "small claims". The Plan states that "currently, the collection of so-called 'small debts' creates problems insofar as judicial intervention results in the accumulation of state fees, attorney's or legal consultant's fees, interest and court enforcement fees, which significantly increase the debt. The creditor must make significant upfront costs, and time is also needed until the final recovery of the amounts."

The procedure for collecting debts through voluntary enforcement with the assistance of a bailiff (PSZDISSI) can be assessed in several ways.
possible ways, based on expectations in terms of economic and legal effects. With the available, albeit incomplete, statistical information on judicial enforcement, when we talk about the collection of obligations through voluntary enforcement, expectations for savings in terms of fees, remuneration, interest and others can be approximated.

In addition to these calculations, as part of this publication, a legal analysis has been carried out and as part of it, specific recommendations for regulating the procedure have been outlined. An international comparison has also been made with countries in Europe that have similar measures already functioning in their legal systems. We have divided our review of the measure into two parts, the first deals with the economic aspects of the proposal, the second with the legal ones. The main conclusions are as follows:

• There is a need to change the legislation, as the current legislative framework leads to an overload of district courts (and mainly the SRC) with cases concerning obligations of small material interest.
• Cases under Art. 410 and Art. 417 accounted for 33.6% of the total workload of the district courts or 17.8% of the workload of the entire judicial system in 2019;
• The average direct annual costs of the entire society for debt collection in the period 2006 - 2019 are between 292 - 326 million BGN;
• We expect the direct costs of the entire society for debt collection for the period 2020-2021 to be between BGN 800-893 million;
• In the most conservative scenario with a 20% transition to the proposed voluntary implementation procedure (PSZDISSI), savings for society of between BGN 137 – 165 million could be realized for the period 2020 – 2021;
• The total savings for society from switching to the proposed voluntary implementation procedure (PSZDISSI) for the two years of the period 2020 - 2021 could reach between 0.11% to 0.22% of the estimated GDP for 2020.
• The additional economic benefits of introducing the voluntary implementation procedure beyond direct savings, which are not accounted for in our model, may include multiplier effects such as easing business turnover, improving the general investment environment, additional access to credit, etc.;
• Measures such as voluntary compliance and various forms of mediation are widely used and applied in European countries, which in some cases can serve as good examples of practices to be introduced into Bulgarian legislation.

You can read the full analysis at this link.

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