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The private healthcare sector across CEE has been expanding at a remarkable pace, reshaping the way people access and experience medical care.

Article contributors: 

• Darius Paulikas, Head of Medical and Pharmaceutical Law, Widen
• Doina Doga, Head of Life Sciences, ACI Partners
• Elena Todorova, Counsel, Schoenherr Bulgaria
• Indrikis Liepa, Partner, Cobalt
• Roman Pecenka, Partner, PRK Partners
• Zrinka Vrtaric, Attorney at Law, Deloitte Legal

Willingness To Pay for Premium Services

Demand for private healthcare services has surged over the years, fueled by rising incomes and growing health awareness. In Bulgaria, it has been driven by “a rising standard of living and increasing demand for high-quality medical services, shorter waiting periods, and more personalized care,” Schoenherr Counsel Elena Todorova explains. “Private healthcare facilities are equipped with modern technology and offer a broad range of specialized treatments, many of which are unavailable in public hospitals.”

A similar trend can be observed in the Czech Republic, where the demand for services outside the public health insurance system has grown steadily. According to PRK Partners Partner Roman Pecenka, “the aging population plays a significant role, as it increases the demand for healthcare services in general and particularly for chronic disease management, long-term care, and rehabilitation services.” Additionally, people are showing a “willingness to pay for premium and personalized healthcare services.”

Digital transformation is another significant driver. “Innovations like telemedicine, electronic health records, and AI-driven diagnostics are becoming increasingly integral to healthcare delivery,” Pecenka notes. The shift toward preventive and personalized medicine is further reshaping the industry. “We are seeing greater emphasis on wellness programs and treatment plans tailored to the unique needs of individual patients.”

“Although public medical assistance in Latvia is meant to be available to all residents, this is far from the reality,” Cobalt Partner Indrikis Liepa highlights. “Insufficient public funding and questionable efficiency result in interminable queues for popular diagnostic checks and medical procedures.” Meanwhile, private healthcare institutions are appealing to “more demanding customers who are willing to pay for quality service or prompt attention.”

Similar gaps exist in countries like Lithuania, Moldova, and Croatia. In Lithuania, “while public institutions often struggle with long waiting times and operational inefficiencies, private providers offer faster, more tailored services,” Widen Head of Medical and Pharmaceutical Law Darius Paulikas says. “Many patients, particularly from urban areas like Chisinau, prefer private clinics to avoid long waiting times, outdated equipment, and impersonal care often associated with public healthcare,” ACI Partners Head of Life Sciences Doina Doga adds on Moldova.

Yet, both Paulikas and Doga stress that private healthcare remains primarily accessible to those with higher incomes. “As per the last available data, around 84.2% of the population relies on public healthcare services, while only 15.8% uses private healthcare facilities,” Doga says.

In Croatia, on the other hand, Deloitte Legal Attorney at Law Zrinka Vrtaric highlights that “the government collaborates with private providers to reduce the strain on public facilities, and more Croatians are purchasing private health insurance, which makes private care more accessible to the middle class.”

Health Tourism: A Catalyst for Growth

Health tourism is emerging as another significant growth factor. In Croatia, the affordability of private healthcare compared to Western Europe is a major draw for both local and international patients. “Private healthcare in Croatia remains much cheaper than in Western Europe, making it an attractive option for both locals and medical tourists,” Vrtaric explains, adding that the sector’s growth is evident, with private healthcare accounting for 12% of the total market and expanding at a double-digit rate annually.

Bulgaria, too, has become a hub for medical tourists. “Bulgaria attracts around 50,000 medical tourists a year, many of them from neighboring countries or the Middle East,” Todorova adds. Similarly, Moldova is “a destination for international patients seeking high-quality, affordable services, particularly in dental care, fertility treatments, plastic surgery, and ophthalmology,” Doga notes. “The establishment of the Moldovan Medical Tourism Association in 2021 has further bolstered this trend, actively promoting Moldova’s medical services.”

The Czech Republic is “recognized for its affordability and high-quality services in areas such as dental care, plastic surgery, and spa treatments,” Pecenka points out, adding that “this reputation will likely continue to attract international patients, further boosting the sector’s growth.”

The Growing Pains of a Thriving Sector

Despite robust growth, the private healthcare sector faces some challenges. Todorova notes that challenges are typically related to “shortages of qualified medical professionals and low wages for young professionals.” She emphasizes that “according to media reports, around 1,500 medical students graduate each year in Bulgaria,” yet “around 60% of graduates choose to stay to practice in the country, while the remaining 40% seek opportunities abroad.”

Doga and Pecenka draw attention to the disparity between the public and private sectors. In Moldova, “the public sector often struggles to retain medical professionals due to less competitive salaries and working conditions, leading many specialists to transition to the private sector,” Doga notes. Likewise, Pecenka says that in the Czech Republic, workforce shortages lead to “intense competition for doctors and nurses between public and private providers further straining the system.”

In Croatia, “many doctors work in both sectors, but since private clinics often pay better, they prioritize their private patients,” Vrtaric adds. “This means fewer resources and longer waiting times for those relying on public healthcare.” Croatia also “struggles to retain qualified doctors and nurses, many of whom leave the country for better pay and working conditions abroad.”

“The gap in access to healthcare between urban and rural areas is also a challenge,” Todorova highlights, as “most private facilities are concentrated in the large cities.” Doga also stresses that “approximately 75.8% of private medical institutions are located in cities, particularly in Chisinau, the capital. Consequently, rural populations and individuals with limited financial resources face significant barriers to accessing private healthcare.”

In Lithuania, “young doctors and nurses are increasingly choosing major hospitals in bigger cities and are less likely to work in regional hospitals, exacerbating staff shortages in rural areas,” Paulikas adds. “This imbalance, combined with a declining interest in nursing as a profession, poses long-term challenges for both public and private healthcare providers.”

Consolidation: A New Chapter

Across the region, consolidation is the name of the game. Over the past ten years, in Latvia, “the consolidation of private healthcare providers has become evident,” Liepa points out. “It began with pharmaceutical wholesalers acquiring independent pharmacies, creating vertically integrated pharmaceutical product distribution chains. This was followed by a few of these distribution chains expanding into the healthcare services sector by acquiring existing or establishing new private healthcare institutions.”

In Bulgaria, “this is typically driven by the need to achieve economies of scale, to expand service provision, and to improve operational efficiency,” Todorova says.

The Czech Republic is also seeing a significant shift toward consolidation. “First, economies of scale play a significant role,” Pecenka says. “Larger healthcare groups can achieve cost efficiencies by streamlining operations and negotiating better terms with insurers and suppliers. Additionally, the sector is attracting interest from private equity firms and strategic investors.”

Another key driver is market positioning, Pecenka adds. “By consolidating, providers can expand their geographic reach, diversify their service offerings, and strengthen their brand recognition.” Lastly, he says, “regulatory pressure is also a factor. Larger, well-resourced organizations find it easier to meet stringent healthcare regulations and quality standards, giving them a significant advantage over smaller, independent providers.”

In Croatia, the consolidation trend is motivated by the need to streamline operations and invest in advanced technology. “Consolidation allows providers to offer a wider range of services under one roof, making them more appealing to patients,” Vrtaric concludes.

This article was originally published in Issue 11.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

In the midst of ongoing conflict, one solution is emerging that could be a crucial factor in attracting foreign investment to Ukraine: war risk insurance. Asters Senior Partner Armen Khachaturyan, Dentons Partner Adam Mycyk, Integrites Partner Igor Krasovskiy, and Redcliffe Partners Managing Partner Olexiy Soshenko discuss how this specialized insurance product is shaping the investment landscape.

“A Gap-Filling Insurance Product”

“Since the outbreak of full-scale war, only direct damage to public and private sectors in Ukraine has reached over USD 150 billion, let alone indirect losses and additional expenses needed for the recovery needs,” Krasovskiy begins.

“An ongoing war, with nearly 3 years of destruction of critical infrastructure, typically doesn’t draw your average risk-averse investor to any country,” Mycyk adds. As a result, “investments in Ukraine have been limited, significantly constraining the potential for economic growth,” Soshenko agrees. “One of the primary challenges for foreign investors is the lack of political or war-time risk insurance to protect their assets in Ukraine.”

“Standard insurance policies typically exclude risks associated with wartime scenarios, such as missile or drone attacks, property losses due to occupation, and related damages,” Soshenko observes. Krasovskiy says that “unfortunately, most of the insured companies are unable to recover their losses as the standard pre-war insurance products expressly excluded the coverage for damages caused due to political violence. Surprisingly, even rare holders of political violence insurance policies have struggled with receiving compensation from insurers. Naturally, even risk-taker investors, who are brave enough to invest during wartime, are anxious to reduce their exposure to war risk.”

War-risk insurance, “unlike standard commercial insurance policies that traditionally exclude losses caused by war, has become a tool to help mitigate risk exposure for investors,” Mycyk continues. “As a gap-filling insurance product, it aids in unlocking capital and enabling reconstruction efforts.”

Consequently, “war-risk insurance is crucial for attracting foreign investment to Ukraine at the time of its lasting war with invading Russia,” Khachaturyan notes. “It provides for investors’ financial security thus incentivizing investments badly required for reconstruction of Ukraine’s industry, transportation, housing, and energy ruined or damaged during the war. It can also improve the resilience of local businesses suffering from Russian military attacks.”

Key Elements

In terms of what is included, Khachaturyan explains that “in September 2024 the Ministry of Economy and the National Bank of Ukraine submitted the draft Law on the System of War Risk Insurance, providing for establishing a nationwide insurance system to compensate losses incurred by individuals and companies as a result of military actions in Ukraine. The bill also provides for the establishment of the State Agency for War Risk Insurance, which will be responsible for implementing the policies on assessing and managing war risks.”

War-risk insurance, Khachaturyan clarifies, “covers a wide range of risks, from physical destruction to business interruption. The specific elements of this type of insurance depend on a particular insurer.”

Distinct from standard insurance, Soshenko elaborates that war-risk insurance typically includes: (a) coverage for damages caused by hostile actions, such as military operations, missile strikes, and drone attacks, (b) compensation for property loss or profit loss due to occupation of territories where assets are located, and (c) coverage for injuries or fatalities of personnel working near conflict zones.

Mycyk adds that two key categories of insurance products are primarily being offered: “Political Violence Insurance – covering losses from physical damage caused by war, terrorism, riots, or civil unrest,” and “Political Risk Insurance – protecting financial components of investments by covering risks like expropriation, currency inconvertibility, debt defaults, and government actions.”

Role of International Institutions

In this context, “international financial and development institutions play a pivotal role, particularly given the limited capacity of local insurers and Ukraine’s classification as a red zone by foreign reinsurers,” Soshenko explains. “Notable initiatives include the EBRD’s collaboration with Aon to launch a EUR 110 million guarantee for Ukraine war-risk insurance” and “DFC’s reinsurance facility for ARX, offering up to USD 50 million in political risk insurance.”

“Although local insurers still have very limited access to the global reinsurance market, they offer war risk coverage to businesses and SMEs,” Krasovskiy continues. “The caps on such insurances rarely exceed USD 1 million per insured and the assets located near critical infrastructure or closer than 100 kilometers to the frontline are uninsurable. However, thanks to an up to USD 350 million reinsurance facilities mechanism of the DFC, devised in collaboration with Aon, local insurers are expected to raise the limits up to USD 1.5 million per location and considerably expand their insurance portfolios.”

“International and multilateral organizations, international and development finance institutions, and export credit agencies took the lead by working with private insurers to expand offerings,” Mycyk agrees.  “While some global insurers are beginning to offer policies, premiums and terms remain highly variable. The Ukrainian government is also working to incentivize insurance solutions, including through Ukraine’s own Export Credit Agency.” Additionally, he notes that “IFIs/DFIs and ECAs are playing a pivotal role by offering financial guarantees and risk mitigation tools,” as these organizations “offer investment guarantees to reduce perceived risks for private investors, partner with private insurers to expand war risk insurance capacity, and support Ukrainian government initiatives to develop sustainable insurance markets.”

Khachaturyan also draws attention to international organizations that have contributed to war-risk insurance initiatives in Ukraine. “The Multilateral Investment Guarantee Agency (MIGA) provides political risk insurance and credit enhancement to private sector investors and lenders,” he emphasizes. “It also protects investments against non-commercial risks and can help access financing on improved terms. Since the beginning of the war, MIGA has provided over USD 215 million to support businesses in Ukraine.”  Additionally, “The US International Development Finance Corporation provides political risk insurance, as well as loans, loan guarantees, and direct equity investments. It is now considering establishing a permanent office responsible for military risk insurance in Ukraine. In June 2024, the DFC announced a package of USD 357 million for political risk insurance in Ukraine.”

Furthermore, Krasovskiy says, “Marsh McLennan, Lloyd’s, and the Ukrainian government have launched a so-called ‘Unity insurance facility’ to provide affordable war risk insurance for ships carrying all non-military cargo.”

What To Expect

Looking ahead, Khachaturyan highlights that “Ukraine’s investment attractiveness was always based on its geographical location, favorable climate, abundant natural resources, and pursuit of integration into the EU. Based on a recent survey of the European Business Association in Ukraine, Ukraine’s Investment Attractiveness Index has slightly improved in 2024, but the war remains the main negative factor affecting the investment climate. The efficient and transparent war-risk system should stimulate international investors to enter the market, giving them not only an opportunity to recover damages but the confidence to do business in the warzone.”

Soshenko also underlines the need for additional measures, including “amending the cross-border payments moratorium (NBU Regulation No. 18 dated February 24, 2022) to enable non-resident insurers and reinsurers to enter the Ukrainian market,” and “adjusting regulatory requirements to provide greater assurance to market participants.”

“It is unlikely that a robust insurance market in Ukraine can be created without the involvement of global private reinsurers,” Krasovskiy adds. “The government in collaboration with international organizations should encourage and incentivize global reinsurers to re-engage on the Ukrainian war risk which is a crucial pre-condition for private investments to flow in Ukraine.”

Mycyk believes that war-risk insurance is, “just one tool available to scale investment flows into Ukraine.” Additionally, “complementary incentives, such as tax breaks, investment guarantees, and financing support for insured projects can help further reduce perceived investment risks. The effectiveness of war-risk insurance often relies on international guarantees and support – if this support diminishes, the availability and affordability of insurance could be adversely affected.”

This article was originally published in Issue 11.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Montenegro’s real estate and hospitality sectors have been gaining momentum, driven by the country’s natural beauty, strategic location, and an increasingly favorable investment environment. Keker, Bujkovic, Pejovic Partner Aleksandra Bujkovic, JPM Partners Senior Partner Lana Vukmirovic Misic, BDK Advokati Senior Partner Luka Popovic, and Vujacic Law Office Partner Sasa Vujacic discuss the country’s competitive advantages, challenges faced by investors, and the steps needed to further enhance its appeal to foreign capital.

Favorable Climate for Business

“With its sunny beaches and high mountains, Montenegro has recently developed into a prime tourist destination in the region. In addition, Montenegrin legislation is more than open to foreign investment, with low taxes being the primary cause,” Vujacic begins, pointing to the country’s annual corporate tax rate of 15%. “Generally, for a foreigner to establish a company in Montenegro, it is only necessary to obtain a residence permit and thereafter register the company at the Central Registry, with the entire process lasting no more than a month.” Vujacic stresses that “Montenegro already features a rich array of top-end hotels – Hilton, Crowne Plaza, Hyatt, and Splendid, among others – many of which were built with the help of government subventions, largely through exemptions or deductions of local taxes.”

Bujkovic echoes that “Montenegro’s key competitive advantages in the Adriatic real estate and hospitality sector lie in its strategic location, natural beauty, and a historically open investment environment.” However, she notes that “recent developments suggest a shift in focus, with some benefits and promotional efforts for foreign investments being scaled back.” According to her, “recent actions – or the lack thereof – suggest an apparent stagnation in strategic initiatives. Despite this, the country still offers significant opportunities for growth, particularly in the luxury real estate and hospitality sectors.” Importantly, Bujkovic points to the fact that Montenegro provides foreign nationals the right to “purchase real estate without restrictions, except for agricultural and forest land unless tied to a corporate structure. The country’s relatively low property taxes enhance the financial attractiveness of real estate investments, and the introduction of a progressive property transfer tax system in 2024, though new, remains competitive within the European context.”

Popovic too stresses the ease of doing business in the Adriatic country. “Montenegrin forex regulations are very liberal and there are no restrictions on capital transfers or any payments to or from Montenegro. Also, Montenegro has no restrictions on foreign ownership of companies. Furthermore, the corporate income tax rate is low, with progressive tax rates of 9%, 12%, and 15%, respectively.” Additionally, he explains that “the hotel regulations provide for various modes of hotel operations, including the so-called ‘condo model’ and ‘mixed-model’ that are hybrids of traditional hotels and condominiums, which allow investors to generate better returns on investments. Finally, hotel licensing procedures and categorization are rather straightforward, and, in my experience, the licensing authorities are efficient.”

Furthermore, Montenegro’s accession path to the EU has shaped much of its policy direction. As Vujacic notes, “as a part of Montenegro’s accession to the European Union, particularly the Stabilization and Association Agreement of 2007, Montenegro is required to harmonize its legislation with EU directives in all the relevant areas.” Additionally, “Montenegro has signed bilateral treaties with Greece, Bosnia and Herzegovina, Serbia, North Macedonia, and Albania. It should be particularly noted that all investors from EU Member States have the same status as national investors – national status,” Vujacic reports.

On the flip side, Bujkovic argues that the country’s regulatory framework also presents “notable challenges and in certain cases, areas of oversight or neglect when compared to its Adriatic neighbors,” adding that “Montenegro faces challenges shared with other Adriatic nations, including concerns about political and legal predictability.” Still, Popovic believes that “in terms of regulatory framework and procedures, Montenegro provides for more predictability than some neighboring non-EU countries, and more flexibility than the neighboring EU countries.”

Navigating Investment Challenges

As Bujkovic hints, it’s not all sunshine and sandy beaches – investment challenges are still very much present in Montenegro.

Vujacic points to inadequate spatial planning as a frequently cited hurdle. “The main problem for investments coming into Montenegro is spatial planning that is yet to be sufficiently developed in certain parts of the country, therefore making obtaining parcels and building on them more difficult. In addition, the administration can sometimes move slower than it generally should. In order to help foreign investors in Montenegro, the Montenegrin Investment Agency was established.”

According to Bujkovic, “the permitting process is complex and often plagued by lengthy delays. Regulatory uncertainties, including frequent policy changes and inconsistent zoning regulations, add to the difficulties. A critical issue is the absence of the General Regulation Plan, the country’s key planning document. Without it, existing regulations are applied inconsistently, and there is no standardized approach to handling expired planning rules.” Moreover, she echoes Vujacic in stressing that “slow bureaucracy exacerbates these issues, with project approvals often hindered by inefficient administrative processes.” Furthermore, Bujkovic adds that “the language barrier adds to the difficulty, as insufficiently developed documentation in English makes it harder for international investors to navigate legal and procedural requirements.” Vukmirovic Misic agrees with these points, adding that, ultimately, “investors sometimes find it challenging to navigate differences in interpretation of zoning plans, land-use regulations, or property rights.”

From Popovic’s perspective, it is infrastructure fees and property disputes that are the key causes of slow projects. “There is a concept of the fees for communal development of the land, that refers to the process of equipping land with essential infrastructure, such as roads, water supply, sewage systems, and utilities, to make it suitable for construction or use. Investors are supposed to pay the fee, and local municipalities are obliged to do the needed infrastructure work. But in reality, this process is very slow and often encumbered with resolving property disputes between the municipalities and the owners of the land where the infrastructure is needed to be built, and that can affect the dynamics of the project,” he explains.

At the same time, government changes can occasionally stall momentum, according to Bujkovic: “Montenegro has made progress in attracting foreign investment in the hospitality sector through incentives like tax breaks, streamlined processes for high-value projects, and promotional efforts to position the country as a premium tourism destination. However, frequent changes in government have created instability, shifting priorities, and inconsistent policies, which undermine long-term planning and deter investors who value predictability.”

Opportunities on the Horizon

Focusing on emerging trends, Vujacic highlights the advantages that upscale hotels benefit from. “With the new set of regulations, it was made possible for foreign investors in Montenegro who invest in 4+ star hotels to be exempt from paying a part of local communal taxes. This advantage was reserved only for investors in 5-star hotels until recently.”

Vukmirovic Misic points to expanded tourism routes. “Improvements in infrastructure and the country’s natural beauty have been significant drivers for the growth in the hospitality sector. The Adriatic coast remains the focal point for hospitality investments, with the highest interest concentrated around Budva, Kotor, Tivat, and Herceg Novi,” she explains. Moreover, she reports that “due to the already constructed section of the highway and the planned continuation, it is reasonable to expect that the established tourism routes will expand to the central and northern parts of the country. This can be confirmed considering the fact of the number of hotels being built in Kolasin, which indicates a growing investment in the tourism sector and regional economic growth.”

Popovic points to condo and mixed hotel models as those in pole position. “The condo model allows hospitality units to be sold to third parties, with owners participating in a rental pool arrangement while the mixed model requires part of the building to be operated as a traditional hotel, with the rest sold to third parties who may choose, but are not obligated, to participate in the rental pool arrangement,” he explains. “These models are permitted exclusively for five-star hotels in more developed areas and for both five- and four-star hotels in less developed regions of the country. This innovation has significantly enhanced the financial viability of hotel projects, attracting foreign investors.”

Efforts To Seize the Moment

Looking ahead, Vujacic reports that “the new general spatial planning plan, including the plan for general regulation, is to be adopted in the first quarter of 2025. For this purpose, the draft on Spatial Planning Law and the draft on the Construction of Buildings Law has been adopted in December of 2024, as the previous step before the final adoption of the previously mentioned plans/laws.”

Building on that, Vukmirovic Misic adds that “to enhance its appeal to real estate and hospitality investors, Montenegro should prioritize infrastructure development, digitalization, and modernization of spatial plans. Investing in transport infrastructure such as roads, airports, and ports, alongside expanding utilities like water, electricity, and waste management, will improve accessibility and support large-scale projects. Improving spatial plans and accelerating the permit approval process is essential.” Additionally, she says that it is equally crucial to ensure that all advancements are “conducted thoroughly so that the drive for efficiency does not result in approving projects that could have negative consequences for our country.”

Resonating this, Bujkovic recommends “establishing a centralized online platform where permits can be tracked in real-time, introducing mandatory deadlines for decision-makers, and ensuring clear submission guidelines.” Additionally, she feels that “large-scale infrastructure upgrades – such as modernizing airports and expanding road networks – combined with sustainability measures, would further strengthen Montenegro’s long-term appeal for investors.”

Finally, Popovic calls for a unified approach to urban development. “The key effort must focus on urban planning, as many areas still lack detailed plans that are a precondition for any construction works,” he says. “To address this, strategic decisions are needed to define the types of developments the country aims to attract. These decisions must then be implemented through a streamlined, efficient, and transparent spatial planning process.” 

This article was originally published in Issue 11.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Nestle South Eastern Europe Head of Legal & Compliance Natalia Lysa discusses her career, the rewards of working closely with business operations, and the challenges of navigating legal complexities during Ukraine’s war.

CEELM: Tell us a bit about yourself and the career path you took leading up to your current role.

Lysa: I’m a mom of two boys and a corporate in-house lawyer leading the legal and compliance function for South-Eastern Europe at Nestle, which is one of the three large companies I worked for. My background is somewhat diverse. I first studied accounting, though I’ve never worked as an accountant. I also have a legal background, and later I studied corporate governance. Learning is my big passion and driver, so who knows, it’s very likely that this list will be continued. Earlier in my career, I served as an assistant to a judge, but I have worked entirely in-house since then. Before joining Nestle, I worked with a mix of local and international teams at Danone and AES Corporation. Over the years, I grew into roles like Manager, Director, Head of Legal, and Compliance Officer. I even held the title of General Secretary, which involved overseeing legal, compliance, public affairs, regulatory, security, and communications. I view myself as a lawyer and a manager of legal and compliance functions, with my diverse experience shaping my approach.

CEELM: What drew you to the in-house world and why have you stayed?

Lysa: Staying in-house was a choice I made consciously. I love being part of a business and seeing projects through from start to finish. For example, we’re currently building a new factory in Ukraine – one of the largest Nestle investments in the region – and securing a EUR 40 million investment was part of the process. External lawyers helped at the contract stage, but I’ve been here throughout, overseeing every phase. There’s a sense of pride in seeing the products on the shelves, especially when my kids try them and give feedback. That’s the beauty of working in our industry – you’re a driver, not a passenger, not a consultant. The variety in my day keeps it exciting. While legal work is a part of it, much of my time is spent managing teams, projects, and external counsel. The complexity ensures there’s always something new, even when I think nothing can surprise me anymore.

CEELM: How large is your in-house team currently and how is it structured?

Lysa: Our legal, compliance, and security team for Southeast Europe covers 11 geographies across five hubs: the North Hub in Croatia, the South Hub in Serbia, the Romania Hub, the Bulgaria Hub, and the Ukraine & Moldova Hub. I lead the team based in Kyiv, but we operate without a traditional head office. In total, excluding security, we’re about 20 people. To optimize operations, we challenge ourselves to simplify processes continuously. For example, in Ukraine, we have a large Nestle Business Service center in Lviv, which acts as a hub for routine legal tasks like claim validations. This center serves over 40 countries globally, and despite the war, it remains one of Nestle’s most efficient hubs. This reflects the strong trust Nestle places in Ukraine’s resilience and capabilities.

CEELM: What has been keeping you and your in-house team busy over the last 12 months?

Lysa: Last year for us was a year of transformation. We created the new South-Eastern Europe region, redefined roles and priorities, and settled the team into this new structure. The war in Ukraine has been a constant challenge, impacting everything from mobilization and damages to regulatory limitations. Despite this, we managed to move forward with major projects, including building a factory that will produce noodles in Ukraine, new confectionary lines in Sofia, and a meat substitute factory in Serbia – important innovations for Nestle. Tax authorities in Romania and Ukraine have been particularly demanding, but we dedicated significant effort to proving our compliance and standing firm in our position.

Looking ahead, we’ll continue to focus on these strategic projects while managing the realities of war. Our radar is also tuned to evolving regulations and business needs in the region.

CEELM: How do you decide if you’re outsourcing a project or handling it in-house?

Lysa: We prioritize doing work in-house whenever possible. I’m fortunate to have inherited a highly skilled team that understands our business deeply. This expertise allows us to handle most projects and initiatives internally. We know the responsibilities, timelines, and nuances better than anyone. However, for certain specialized projects or in countries where we lack internal resources, we turn to external counsel.

CEELM: When picking external counsel, what criteria do you use?

Lysa: Reputation is the most important factor, though not necessarily based on top-tier rankings. These days, there are countless ratings, and it’s hard to trust them entirely. We rely more on recommendations from other in-house lawyers. Price isn’t the primary driver either. It’s about finding reliable, skilled counsel. We’re also conservative in our relationships – if we’ve had a good experience with a firm, we prefer to continue working with them rather than switch for the sake of change.

CEELM: What do you foresee as the main challenges for GCs in Ukraine in the near or mid-term future?

Lysa: The war has become a grim reality, and we’ve adapted to operating amid air raid alarms and disruptions. It’s not easy, but the systems we’ve built allow us to function effectively. That said, we remain optimistic about the end of the war – it’s a wish we carry into every new year.

When the war ends, it will bring a professional disruption of its own. Everything will need to change to adapt to a new normal. This will be a monumental challenge, but it’s one we’re ready to face because it will come with the peace we’ve all been longing for – not just for Ukraine but for Europe as a whole.

This article was originally published in Issue 11.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Vezuv Director of Legal Affairs Filip Knezevic talks about his career and the challenges of navigating the regulator’s relationship with the gambling sector.

CEELM: Tell us a bit about yourself and your career path leading up to your current role.

Knezevic: My legal career began 15-16 years ago, and I was fortunate to work for companies that were part of larger groups, whose activities were very diverse. I started in media, at a local television station, where I worked for a year. Then I moved to the investment arm of the same group, which was active in banking, education, and real estate development. This allowed me to gain extensive experience in legal work in these sectors.

Later, I transitioned to a UAE-based real estate investment company that acquired The Capital Plaza in Montenegro, where the first Hard Rock Cafe in the region opened under their management, and such a huge international franchise implied highly regulated operations and strict legal procedures. This involved a lot of international activities, and I spent a decade there. However, I felt I had reached the limit of professional growth in that position and decided to take on a new challenge. That’s when I joined the Vezuv group, primarily operating in the gambling industry, but also involved in hospitality and real estate development.

Our group operates in three markets – Montenegro, Serbia, and Bosnia and Herzegovina – employing around 1,100 people, most of whom are based in Montenegro, where we dominate the gambling market, covering close to 60% of it. The work is highly dynamic, and I’ve been able to apply my diverse legal and business experience.

CEELM: How is working in-house different from that of a private practice lawyer in your view?

Knezevic: Throughout my career, I’ve had ad hoc engagements with different companies and projects, including litigation for the companies where I worked in-house. This gave me some perspective on the differences between external lawyers with in-house roles.

As an external lawyer, your engagement is often limited to a specific part of a project. But as an in-house counsel, you are involved from the very start all the way to the end result. For example, in real estate projects, you oversee the entire lifecycle – from securing building permits and managing design to construction and final approvals. There’s a deep satisfaction in seeing a tangible outcome that you’ve contributed to legally.

A standout example is The Capital Plaza project. It took 10 years to develop, and while it faced many challenges and initial skepticism, it ultimately became a thriving hub. Being part of such a journey and seeing it “shine” is incredibly rewarding.

CEELM: How large is your in-house team currently, and how is it structured?

Knezevic: In Montenegro, where our core operations are based, we have five in-house lawyers, including myself. Three of us handle everything from advisory work to administrative tasks. One lawyer is dedicated to real estate development, and another focuses on hospitality, such as our five-star hotel Porto Palace in Tivat, adjacent to Porto Montenegro.

In Bosnia, we have two lawyers, whilst, in Serbia, we are currently relying on external legal offices as we are just starting our operations there.

CEELM: How do you decide whether to outsource a project or use internal resources?

Knezevic: In the gambling industry, there are very few external lawyers specialized in gaming-related cases. As a result, 90% of our legal matters and disputes are handled in-house. When it comes to outsourcing, we evaluate it on a case-by-case basis. If a project involves expanding into new territory, mergers and acquisitions, or similar projects that require thorough due diligence, we prefer to work with external lawyers from that market as local expertise is crucial.

For complex matters requiring significant resources, we often outsource to avoid overloading our in-house team, allowing them to focus on regular operations.

CEELM: What criteria do you use when selecting external counsel?

Knezevic: Prior experience in specific matters is the primary criterion. For instance, if it’s a labor-related issue, we prioritize firms with extensive courtroom experience. The client portfolio of a law office is also an important consideration, as it reflects their quality and reputation.

CEELM: What has been keeping you and your in-house team busy over the last 12 months? What about the upcoming 12 months?

Knezevic: Over the past 12 months, our focus has been on territorial expansion. We launched operations in Serbia, which required significant legal work. We’re also exploring a potential expansion into another market, though it’s still just an idea at this stage.

Additionally, we successfully converted a completed building on the coast into a five-star hotel – a challenging process that we completed in April 2024. Establishing a business of this scale required significant legal effort to secure all the necessary permits.

Another major focus has been the proposed changes to the Lex Specialis gambling law. The process was initially non-transparent, sparking intense public debate. The proposed changes were significant and primarily aimed at increasing tax revenues from the gambling industry. We, along with other operators in Montenegro, had to engage heavily, submitting formal objections and suggestions. Unfortunately, the authorities don’t understand the industry as we do. 14-15 major operators united to highlight how some provisions were impractical and would negatively impact the sector. We’re now awaiting the outcome of the public debate.

Looking ahead, we plan to develop a large business-residential complex in Podgorica, which is currently in the design phase. Expanding our presence and operations in Serbia will also require considerable legal and strategic efforts, especially since we also expect new gambling legislation to be introduced and implemented in Serbia in the first quarter of 2025. Additionally, we’ll continue to monitor and address regulatory changes in Montenegro, including new winnings tax calculation requirements that are proving tricky for operators.

CEELM: What do you foresee as the main challenges for GCs in Montenegro in the near and mid-term future?

Knezevic: Montenegro has faced significant political instability in recent years, with three governments since 2020. Each new administration brings different priorities, laws, and approaches. This constant flux creates confusion, particularly with frequent changes in legislation and administrative procedures. For example, ministries have fluctuated in number, adding to the complexity.

As Montenegro progresses toward EU accession, we’re seeing an influx of regulations. However, many of these are directly transposed from EU laws and aren’t always compatible with our local context. This creates practical challenges for implementation.

Another issue is the slow digitalization of government administration. While technological improvements are introduced, they often fail to be implemented effectively, creating bottlenecks for both commercial and private sectors.

Finally, the gambling industry continues to face stigma, with many focusing solely on its social aspects. Despite being heavily regulated and a significant contributor to state revenues, there’s a lot of hypocrisy in how the government addresses it publicly. This lack of understanding and appreciation for this sector’s value is a persistent frustration for operators in the space.

This article was originally published in Issue 11.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

An in-depth look at Igor Lozenko of Sayenko Kharenko covering his career path, education, and top projects as a lawyer as well as a few insights about him as a manager at work and as a person outside the office.

Career:

• Sayenko Kharenko; Partner; 2020-present
• Sayenko Kharenko; Counsel; 2017-2020
• Avellum; Counsel; 2016-2017
• Avellum; Senior Associate; 2016
• Sayenko Kharenko; Senior Associate; 2013-2015
• Sayenko Kharenko; Associate; 2007-2013

Education:

• School of International Law, Kyiv International University; LL.M.; 2008
• King’s College London; LL.M. in International Financial and Commercial Law; 2022

Favorites:

• Out-of-office activity: travelling; sailing; playing squash
• Quote: “The more I learn, the more I realize how much I don’t know” – Albert Einstein
• Book: Martin Eden by Jack London
• Movie: The Talented Mr. Ripley (1999) by Anthony Minghella, and equally, the 2024 series adaptation

Top 5 Projects:

• Advising J.P. Morgan on USD 22.5 billion consent solicitation by Ukraine in relation to 13 series of its outstanding Eurobonds and GDP-linked securities
• Advising Landesbank Berlin on EUR 245 million financing for constructing two stages of the 200-megawatt Botievo wind farm by Wind Power, the renewables segment of DTEK, Ukraine’s largest energy holding
• Advising Deutsche Bank, ING, Natixis, and UniCredit on the USD 1.592 billion Eurobond issue coupled with the cash tender offer and consent solicitation to refinance existing Eurobonds of Metinvest, one of the largest steel producers
• Advising BNP Paribas, Deutsche Bank, Goldman Sachs, and Ukreximbank on the debut USD 825 million state-guaranteed ESG Bond issue by Ukrenergo, the state-owned electricity transmission system operator, to finance repayment of “green” tariff debts in the system
• Advising the ad hoc bondholders committee on the USD 2 billion long-term restructuring by DTEK, resulting in the conversion of all existing bond and bank debt into new Eurobond issues implemented through two inter-conditional schemes of arrangement sanctioned by English courts

CEELM: What would you say was the most challenging project you ever worked on and why?

Lozenko: Throughout my career, I’ve had the opportunity to work on a wide range of loan financings, international capital markets transactions, and debt restructurings involving major Ukrainian corporates, as well as sovereign and quasi-sovereign borrowers. These transactions were always highly complex and varied, each posing unique challenges, making it difficult now to single out one as the most challenging above all others. That said, the real test came with the start of the full-scale invasion of Ukraine. Every project completed within a war setting brought its own set of challenges. We had to reinvent our approach to deal-making, working under unprecedented circumstances with air raid sirens in the background, unstable internet connections, and the need to ensure business continuity while prioritizing the safety of our team.

Still, from my most recent practice, I would distinguish one project finance deal in the renewables sector (the details of which remain confidential). In addition to the typical complexities of project finance and the need to adapt the structure to the restrictive currency controls under martial law, a massive Russian cyber-attack took down all public registers in Ukraine the night before the security documents were registered as final conditions precedent. We had to quickly adapt, working through unforeseen hurdles to meet critical deadlines.

CEELM: And what was your main takeaway from it?

Lozenko: The key takeaway is that legal expertise alone may not be enough. What could be decisive is your ability to adapt to extreme circumstances while maintaining an unwavering commitment to client service. Crises reveal not just professional capabilities but also human resilience.

CEELM: Name one mentor who played a big role in your career and how they impacted you.

Lozenko: I have worked with Michael Kharenko since the very start of my career, and I think he has been instrumental in shaping my professional development. What stands out about his mentorship is not just the legal expertise he shared but also his ability to see the bigger picture in every situation. I learned from him that being a great lawyer isn’t just about knowing the law – it’s also about understanding business realities, anticipating market trends, and, most importantly, building trust with clients.

CEELM: Name one mentee you are particularly proud of.

Lozenko: I’ve had the privilege of mentoring many talented lawyers, and one of the mentees I’m particularly proud of is Oles Trachuk. I first met Oles when he joined as a Junior Associate, and watching his growth has been incredibly rewarding. What makes me particularly proud is his technical excellence and how he’s developed his unique approach to client relationships and team leadership. He’s now managing complex international transactions and mentoring others, perhaps the greatest satisfaction a mentor can have.

CEELM: What is one thing clients likely don’t know about you?

Lozenko: I am a licensed skipper. Boat sailing has enhanced my ability to perform under pressure, anticipate potential obstacles, and adapt quickly.

CEELM: What is the one piece of advice you’d give yourself fresh out of law school?

Lozenko: Don’t just focus on legal knowledge – invest time in understanding business, developing emotional intelligence, and building trusted relationships. Technical expertise is just the foundation. Your ability to connect with people and understand business needs will define your success.

This article was originally published in Issue 11.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

An in-depth look at Luka Popovic of BDK Advokati covering his career path, education, and top projects as a lawyer as well as a few insights about him as a manager at work and as a person outside the office.

Career:

• BDK Advokati; Senior Partner; 2023-Present
• BDK Advokati; Partner; 2017-2023
• BDK Advokati; Managing Senior Associate; 2013-2017
• BDK Advokati; Senior Associate; 2012-2013
• Hidroterm a.d.; Executive Director; 2007-2011
• ETG Group; Head of Legal; 2006-2007

Education:

• University of Belgrade, Faculty of Law; LL.B.; 2006

Favorites:

• Out-of-office activity: Hiking
• Quote: “Missing a train is only painful if you run after it.”
• Book: Fooled by Randomness by Nassim Nicholas Taleb
• Movie: Fight Club

Top 5 Projects

• Advising the Government of Montenegro as the majority shareholder of the national electric utility EPCG, on the exit of Italian company A2A from its shareholder structure (the transaction was valued at EUR 230 million)
• Advising the Turkish company Net Holding on their entry into the casino and hospitality markets in Montenegro, including the development of the five-star Merit Starlit hotel and casino
• Advising Abu Dhabi Capital Fund on the EUR 55 million sale of the premier business and residential complex Capital Plaza, to BIG CEE
• Advising Alcazar Energy on the acquisition of the local project company and the further development of the 118-megawatt Bijela wind park
• Advising Turkish Global Ports on acquiring a majority stake in one of the leading commercial ports in Montenegro, Port of Adria, through a privatization process launched by the Government of Montenegro

CEELM: What would you say was the most challenging project you ever worked on and why?

Popovic: I would say it was the representation of Tara Resources in the acquisition and development of the Brskovo zinc and lead mine, a promising and strategically important project for the economic development of northern Montenegro. Despite its potential, the project faced significant challenges, including a lack of planning documentation and opposition from local activists citing environmental concerns. Political instability and frequent changes in government further complicated the situation, as the state’s position shifted and initial support diminished. The project attracted considerable media attention and became a highly contentious issue for the administration. Despite our concerted efforts alongside the client to defend the project and address all concerns, the result was the effective suspension of the project and the termination of the underlying concession agreement by Montenegro. The epilogue is yet to come.

CEELM: And what was your main takeaway from it?

Popovic: Things are not always as they appear. I would prefer not to elaborate further.             

CEELM: What is one thing clients likely don’t know about you?

Popovic: I initially wanted to pursue an acting career and even attempted to enroll in an acting academy. Fortunately, I didn’t pass, which led me to shift my focus to law. During my law studies, I had a minor role in a student film.

CEELM: Name one mentor who played a big role in your career and how they impacted you.

Popovic: I have a (good) habit of observing what others do well and using that to improve my own skills. I have learned something valuable from each of our partners, but the greatest influence on my practice has come from Tijana Kojovic, our Managing Partner. Her meticulous approach to legal work, manner of breaking down complex legal situations into their components, analyzing each in detail, and drawing logical and well-articulated conclusions, have shaped the way I do my work. She was the first person I met at BDK, and her impact on my approach to lawyering has been significant.

CEELM: Name one mentee, you are particularly proud of.

Popovic: Her name is Bisera Andrijasevic. While not directly my mentee, as her expertise primarily lies in competition law, which does not overlap with my practice, she is a member of the Montenegrin BDK team that I have been leading. She has consistently demonstrated excellence as a lawyer, reliability as a colleague, and an impeccable work ethic. Her outstanding qualities and contributions have propelled her through our ranks, resulting in her becoming a partner in our firm, co-head of our competition practice, and head of our life sciences & healthcare sector.

CEELM: What is the one piece of advice you’d give yourself fresh out of law school?

Popovic: Many things in life happen randomly. Keep learning. Acquire new skills. Build your network. And don’t take life too seriously.

This article was originally published in Issue 11.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Financing transactions often involve lenders taking security over the assets of a borrower’s group of companies. The typical security package in Bulgaria includes security over the borrower’s and other relevant group companies’ shares and the receivables deriving from such shares.

This article focuses on shareholder distributions arising by operation of law rather than payments to shareholders that are contractually agreed (e.g., under shareholder loans or service agreements). In general, shareholders in Bulgaria are entitled to a distribution of profits and dividends, liquidation quotas, proceeds from the repurchase or redemption of shares and capital decreases, and any payments in the course of any type of corporate transformation or conversion of the legal form. As these are, by their nature, contingent receivables of the shareholder against the company, they may be subject to security.

Generally, security over receivables in Bulgaria may be established by way of a contractual pledge, a registered pledge pursuant to the Bulgarian Law on Registered Pledges, or, in specific cases, a financial collateral arrangement pursuant to the Bulgarian Law on Financial Collateral Arrangements. However, there are certain specifics and recent developments in relation to registered pledges over shareholder distributions that should be considered when financing deals in Bulgaria.

Firstly, the nature of the respective shareholder should be considered. While a contractual pledge over shareholder distributions may be provided by both natural persons and legal entities, a registered pledge over receivables deriving from shares may only be established by traders, i.e., companies, and if they act as shareholders, individual entrepreneurs. Natural persons may establish a registered pledge over their shares in certain types of companies but not over the receivables from such shares.

Secondly, the perfection requirements of the security over shareholder distributions from certain types of shares should be addressed. To date, the most common way of taking security over shareholder distributions deriving from any kind of shares has been the registered pledge due to its ease of establishment, relatively low cost, and the option of out-of-court enforcement. The perfection of such a pledge includes its registration with the Central Pledges Registry. In recent months, however, the registry has refused to register some pledges over shareholder receivables, particularly those deriving from shares in joint-stock companies.

The arguments for the refusals maintained by the Central Pledges Registry are that the receivables deriving from physical shares, such as registered shares, are inseparable from the shares and can only be pledged by way of pledging and physically delivering the share certificate in the possession of the pledgee. Therefore, in the registry’s view, a registered pledge that does not require the delivery of documents or assets does not apply to any physical shares nor to distributions deriving from such shares. When challenged before the relevant courts, some of the refusals have been upheld, while others have been revoked.

Both the refusals and the court decisions that confirm them seem to disregard the distinction between the rights of the shareholder to participate in the distribution of profit and to receive dividends on the one hand and the receivables against the company for such dividends once the right has materialized on the other.

The recent examples of refusals of the Central Pledges Registry and court decisions create inconsistency and uncertainty. In certain cases, pledges over receivables deriving from shares in joint-stock companies are being registered, while in others, registration is refused. This is important for lending transactions, as often perfection of the security, including over shareholders distributions, is a condition for disbursement of the funds. Refusals and potential re-filings and/or objections before courts, until the matter is resolved, may delay utilizations. Further, refusals concerning shareholder distributions specifically deriving from shares in joint-stock companies lead to unequal treatment of companies.

Lenders still have the option to resort to a contractual pledge or, where available, a financial collateral arrangement instead of a registered pledge over shareholder distributions, but that would deprive them of the advantages provided by the registered pledge. Alternatively, for the time being, financing institutions may insist on having a registered pledge over shareholder distributions deriving from shares in joint-stock companies. In such cases, however, they should factor in the possible delays or risk of having to waive the requirement altogether in case of a prolonged registration process or refusals that are appealed but eventually confirmed by the court.

By Svilen Issaev, Counsel, Head of Banking, Finance & Capital Markets, Kinstellar Bulgaria

This article was originally published in Issue 11.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Did you know that corporate bonds in Moldova are unlocking a financial transformation, raising millions for businesses, and opening doors for investors? For years, Moldova’s capital markets have been characterized by limited activity, primarily consisting of equity securities and government bonds. The emergence of corporate bonds marks a significant turning point, signaling a transformation in the country`s financial ecosystem. Recent regulatory reforms and successful stories of bond issuances are redefining the market, creating new investment opportunities for market participants.

Reshaping Moldova’s Financial Landscape

The revival of corporate bond activity in Moldova was spurred by the initiatives of leading financial institutions like Moldova Agroindbank (Maib). In 2023, Maib launched its first corporate bond program, raising MDL 258 million from over 740 investors through a public offering. This marked a significant milestone, demonstrating both the demand for alternative investment instruments and the development of Moldova’s financial sector. Building on this momentum, Maib’s subsequent bond programs have further expanded the market, offering competitive returns and attracting diverse investor classes, including retail and institutional participants.

Legal Framework

The issuance of corporate bonds in Moldova is governed by the Law on the Capital Market, No. 171/2012, supported by regulatory guidelines issued by the National Commission for Financial Markets (Commission). In 2022, the Commission introduced the Practical Guidelines for the Issuance and Trading of Corporate Bonds, offering much-needed clarity for both issuers and investors regarding the procedural and regulatory requirements. While joint-stock companies have long had the legislative foundation to issue bonds, significant progress was achieved in May 2022 through amendments to the Law on Limited Liability Companies, No 135/2007. These amendments simplified the issuance process for limited liability companies (LLCs), making it more accessible for LLCs to access the bond market.

Legal Requirements for Issuers

The procedure for issuing corporate bonds in Moldova varies based on whether the issuance is conducted through private placement or public offering. Both processes share core steps, albeit with distinct regulatory nuances. The key steps for bond issuance are: (1) Approval of bond issuance by the issuer’s governing body, which defines the bond type, interest rate, maturity, and issuance size. Public offerings require the engagement of an authorized investment firm, while for private placements this step is optional but recommended. (2) Preparation of subscription agreement, which outlines terms for investors. Public offerings require additional documentation, including a prospectus and, where applicable, collateral-related agreements or guarantees. (3) Opening a temporary bank account to collect subscription funds. (4) Placement of bonds to a selected group of investors (in case of private placement) or to the general public (in case of public offering). (5) Approval of reports and investor list detailing the issuance results, including the final list of subscribers (investors). (6) Submission to the Commission of the issuance report and supporting documentation for the purposes of registration in the Register of Securities Issuers and subsequently with the Central Securities Depository. (7) Utilization of funds after completing the issuance process. Private placement and public offering differ not only in terms of the placement method but also by security type. Therefore, there are secured bonds, which are backed by sufficient and solid guarantees, such as pledges of the issuer’s assets, third-party assets, bank guarantees, third-party guarantees, or insurance policies; and unsecured bonds, which are not backed by specific assets but can be issued if the issuer meets certain conditions set by regulatory authorities.

Corporate Bonds Are a Game-Changer – And the Roadblocks Ahead

Corporate bonds are transforming how companies in Moldova access capital. For issuers, they offer a smarter way to secure long-term funding while keeping full ownership intact. They also enable companies to align repayment schedules with their operational cash flows, making them a more practical alternative to traditional loans. For investors, corporate bonds provide a stable, higher-yielding alternative to traditional savings options. However, challenges persist, including the need for greater financial literacy among the populace and the development of a robust secondary market to ensure liquidity.

The Way Forward

Moldova’s corporate bond market is at a pivotal juncture. The combination of a supportive regulatory environment, successful issuances, and growing interest from both issuers and investors underscores its potential. By addressing existing challenges and leveraging opportunities for innovation, Moldova can position itself as a competitive player in the regional capital markets. Corporate bonds have the potential to serve as a transformative force in Moldova’s financial future. As the market matures, these instruments will become a cornerstone of the country’s economic growth, enabling businesses to access capital while offering investors reliable opportunities.

By Nicolina Turcan, Head of Fintech and E-Payments, ACI Partners

This article was originally published in Issue 11.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Cash pooling arrangements allowing companies to optimize their cash and better manage liquidity have been present as part of the financial product offered by banks to their clients for some time now.

While the notional cash pooling involving the consolidation of cash balances for the purpose of calculating interests is regularly used in practice, the physical cash pooling involving physical transfer of funds between bank accounts (providing optimization of liquidity management) is rarely used.

Even though there is no statutory framework regulating cash pooling arrangements, definitions of notional and physical cash pooling are imposed in the by-laws enacted by the Croatian National Bank for the purpose of collecting information on transactions between residents and non-residents.

In the CNB’s Instructions on Collection of Reports (CNB Instruction) envisaged under the Decision on Collection of Information for the Purpose of Drafting the Balance Sheet, Foreign Debt and International Investment Levels Delivered to the CNB in Electronic Form (CNB Decision), cash pooling is defined as a specific financial product that enables the consolidation (viewed as a net balance) or aggregation of positive and negative balances on bank accounts of different entities onto a single (master) account.

Depending on the type, cash pooling is classified under the CNB Instructions as either lending activity or deposit-taking activity.

The physical cash pooling models involving the actual transfer of funds from residents to non-residents and vice-versa are classified under the CNB Instruction as other lending activities and have to be reported as such to the CNB.

If there are no physical transfers of funds from residents and non-residents and the residents have full and unrestricted control over the funds in their accounts opened in a foreign financial institution participating in the notional cash pooling, such a transaction is considered deposit-taking activity as per the CNB Instructions.

Thus, according to the mentioned by-laws, physical cash pooling should be deemed as lending activity, at least for the purpose of appropriate reporting to the CNB.

In practice, the notional cash pooling arrangement is regularly practiced and offered by the banks as part of their services. The model is mostly established between the mother company and its subsidiaries having the bank accounts opened with the same bank which operates the cash pooling arrangement based on the cash pooling agreement entered into between a bank and each cash pooling participant.

Physical cash pooling is rarely, if at all, used in practice.

The question that arises is whether the physical transfer of funds would even be possible without it being legally grounded and what would that ground be.

Having in mind the by-laws regulating physical cash pooling for the purpose of CNB reporting, it is likely that such arrangements would need to be structured as intra-group loans – either by the subsidiary in favor of the mother company (to fulfill the target budgeting) or by the mother company to the subsidiary in order to allocate the funds collected at the treasury account, representing also the ground for banks to do the transfers.

Provided that would be the case, physical cash pooling could have certain tax and legal consequences.

Consequences Connected to Physical Cash Pooling

From the “borrower’s” perspective, the companies should observe the withholding tax aspects of the transaction as well as the interest deductibility rules which could be relevant to interest expenses they would be charged.

When in a “lender’s” position, the transfer pricing rules would determine the level of interest income relevant for the lender.

One of the legal consequence is that the physical cash pooling could be considered as hidden distribution of profits prohibited under the Croatian Companies Act provided the funds are not fully recoverable by the participating companies.

Furthermore, the cash pooling arrangement could be challenged by the company’s creditors or bankruptcy trustee in the event of insolvency provided such an arrangement impacts the company’s liquidity and jeopardizes the company’s ability to fully fulfill its payment obligations. The consequence of successful challenges would be the obligation of the company to reimburse the amount transferred under the cash pooling arrangement back to the “paying” company. 

Final Remarks

While there is no legal obstacle to entering into cash pooling arrangements involving the physical transfer of funds, the underlying agreement would most probably be regarded as a loan agreement (intercompany loan agreement) having certain consequences (both legal and tax-wise) that need to be taken into consideration when structuring such a transaction as a mode of optimizing the cash management of the group companies.

By Martina Kalamiza Grozdek, Partner, Lovric Novokmet & Partners

This article was originally published in Issue 11.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.