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Investing in Kosovo can certainly be a challenge. Yet, if equipped with advance knowledge of what to expect on the ground and with adequate local technical support, investing in Kosovo can  be lucrative and rewarding.  

Still, Kosovo, like many of the countries in the region, is plagued by some issues that have prevented serious foreign investors from trying it as their next frontier. Political and institutional instability, a weak rule of law, die-hard communist habits of the state bureaucracy, and unresolved political issues with its northern neighbor all can make Kosovo a challenging market for domestic and foreign investors alike.

Polls show that the most discouraging factor for foreign investors in Kosovo is the weak justice system. Unfortunately, while business legislation is comparable to that in developed countries, its implementation leaves much to desire. Moreover, the judicial system remains dysfunctional and inefficient due to its lack of human resources and low professionalism. This has created in most courts a huge backlog of cases which take years to reach a conclusion. And until now, that has been only half the battle, as enforcement of judgments was a true nightmare. And finally – the Balkans’ favorite – organized crime and corruption is more or less rampant in Kosovo, with its greatest presence in public procurement, as despite Kosovo’s numerous attempts, it has been unable to battle it effectively.  Until recently, all these factors made doing business in Kosovo  unfavorable to domestic and foreign investors.  

However, the picture is not completely bleak for Kosovo and Kosovo-bound foreign investors. Some indicators show that Kosovo indeed may be becoming more favorable to FDI, despite its recent business-unfriendly history. The Central Bank of Kosovo reports an increase of foreign direct investment (“FDI”) in Kosovo in 2013, as compared to prior years. In 2013, Kosovo received EUR 260 million in FDI, which is a 13% increase over 2012. The greatest investments came primarily in the real estate, construction and development, and financial sectors, while the lowest FDI was recorded in the energy, production, and trade sectors.  

This increase in FDI may be the initial result of some groundbreaking reforms, primarily by the now-outgoing Minister of Trade and Industry, with regard to improving the overall business environment in Kosovo. Foreign investment legislation has been revamped in an attempt to increase foreign investor confidence. The new Law on Foreign Investments that came into force in January 2014 provides serious assurances for foreign investors, including the prevention of any public or private interference in their business activities, the guarantee of equal treatment for foreign investors, and Kosovo’s pledge to subject itself to international investment dispute settlement mechanisms. The Business Registration Agency has been completely restructured, and in that process has opened up one-stop-shop registration centers in all municipalities in Kosovo. Moreover, with the assistance of the US Government, Kosovo has set up two ADR tribunals, one functioning within the Kosovo Chamber of Commerce and the other within the purview of the American Chamber of Commerce in Kosovo. Furthermore, a newly constructed private enforcement mechanism has just recently come into play in Kosovo ( in June 2014), and has shown some promising preliminary results with regard to enforcement of judgments and other enforceable instruments. A noteworthy 2013 accomplishment, thanks mainly to the assistance of the Swiss Government, has been the installation of a public notary system in Kosovo, which has lightened the load on the court system by transferring some non-judicial functions to public notaries. Finally, the local legal, accounting, business, and financial services providers in Kosovo, although not great in numbers, if carefully selected, can provide services commensurate to those found in the EU or the USA.    

With regard to its global or regional positioning as an attractive FDI environment, Kosovo is certainly not where it should be. But it is in a much better place than it was only a few years ago, and fortunately it is showing a positive trend.  Kosovo remains an attractive place to a certain type of foreign investor, who does not mind a good fight in order to get the top prize and the benefit of the first entrant advantage in many of Kosovo’s unexplored sectors, such as telecommunications, energy, agriculture, tourism, and so on.      

By Korab R. Sejdiu, Founder and Managing Director, Sejdiu & Qerkin

This Article was originally published in Issue 4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Experience has proven that in the majority of cases foreign investors who are planning to do M&A deals in Belarus do not pay serious attention to the procedural aspects of the process and potential legal problems that may arise. Thus, we have tried to create a summary of the 4 most common challenges faced by foreign companies when acquiring assets in Belarus, and to recommend ways to avoid or overcome them.  

#1 Lack of Assets Purchase Agreement as a full “live” agreement applicable in practice.

To sell a business in Belarus, in 99% of cases you need to sell the company (i.e., its shares, with all history, assets and obligations). Theoretically, the Belarusian Civil Code contemplates  an “enterprise as asset’s complex” that may be a separate object of the deal, but in practice in order just to obtain the proper legal status sellers need first to estimate this complex by professional auditors, then to register it. Only then can they dispose of it. And they cannot include in this complex such assets as contractual relations (only existing debts and receivables), goodwill, permits and licenses, and staff. Finally, deals of purchase and sale of such complexes are subject to 20% VAT. 

To avoid this process and to conclude separate deals for transferring contracts and staff in addition to the primary sale, the best solution is to use a share purchase agreement (SPA). The main disadvantage of this procedure is that the business is acquired along with the history of the company (which always involves risks). In addition, this solution may not be good if the company conducts different types of business (for example contraction and rent) and the buyer wants to obtain only a part. Our advice here is to organize the sale as a spin-off, with a new company spinning-off from the main old one (with its history), and only those assets which the parties want to sell are transferred (or, alternatively, the reverse: transfer everything except for the object of the deal). Such action will not be subject to VAT, and at the same time due diligence will be reduced to a check of the correctness of the reorganization and transferred assets. Moreover, a sale of shares does not require the obligatory estimate of the contract’s subject, so the price may be defined by the agreement of the parties.  

#2 Lack of shareholders agreement and option agreements.

Belarusian law has not yet adapted to complicated and flexible partnership agreements, which may be regulated only in the company’s charter, and not by agreement between parties. Also there is no provision for classical option agreements in local corporate law. So if the company is sold partially and a period of joint ownership is planned, relations for the future may only be regulated by very sophisticated charter plus different conditional SPA’s and “surrogate” agreements (different artificial loans, assignment of rights, etc.). The second option is to transfer all agreements to a non-resident form – when a Belarusian company is sold to a foreign holding in a different jurisdiction – and then all shareholder relations are structured in the corporate documents of that non-resident company.

#3 Habitat antitrust regulation in the sphere of concentration control.

On July 1, 2014, a new antitrust law entered into force in Belarus, but unfortunately it did not improve some controversial aspects regarding control over M&A deals. The requirement to apply for consent of the antitrust department remains for all acquisitions of more than 25% of shares in companies that have: (1) value of assets more than BYR 15 billion; or (2) amount of gross revenue calculated for the previous year of more than BYR 30 billion. Thus, application for consent is necessary regardless of the real influence of the company’s activity on the market, as this is not evaluated. And even if the share of the market is negligible but the company has valuable real estate as an asset, the parties must comply with the formal and somewhat onerous antitrust procedures. A better alternative here may be to structure the deal sharing the acquisition between separate buyers obtaining not more than 25% each, or at least to be prepared in advance with the necessary documentation for the application.

#4 No guarantees to change CEO as a result of full purchase of the company.

The Belarus Labor code does not provide special legal grounds to terminate a labor contract with the director (or any other employee) when changing full control over a company, although obviously new owners may be very interested in placing their own management teams in operational control. Accordingly, it may be important for a Buyer to state as a condition of the sale that the Seller provide the possibility to change the director at the sole discretion of the highest competent corporate body that may be provided by special clauses in the labor contract stating the amount of compensation. Since this is not legally connected with the fact of a change in ownership, the conditions for the dismissal of a director should be created separately, and may be included in the terms of M&A deal only as an additional warranty. 

There are, of course, other issues investors should be aware of as well. 

Despite everything mentioned above, it should be noted that M&As in Belarus are not particularly complicated and rigid. Still, potential solutions and costs should be evaluated in advance and carefully taken into account at the earliest M&A stage.  

By Dmitry Arkhipenko, Managing Partner, and Helen Mourashko, Senior Associate & Head of Corporate Practice, Revera Consulting Group

This Article was originally published in Issue 4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The awarding of procurements in Bulgaria continues to be an extraordinary challenge, for both the bidders in different types of procedures and contracting authorities alike.  

The latest development

One of the most recent amendments to the PPA, a provision set to come into force on October 1, 2014, is an especially fresh example of a completely inadequate legislative decision that has caused turmoil among the majority of authorities. This provision, under the pretext of aspiring to achieve maximum transparency in all procurement actions and limiting corruption, introduces rules that will presumably transform the authorities into database-crunching website gurus on a local level.

On its official webpage, each contracting authority will soon be obligated to publish the following for each announced tender: the preliminary notices; the decisions to initiate the procedures; the tender notices; all tender documents; any changes to such documents; additional explanations; invitations; all minutes and reports issued by the designated committee; the participation guarantees; the procurement contracts; the framework agreements; the date, grounds and amount for each payment due; contract completion or termination, and so on. 

Bor?d already? We are not even halfway through the list of documents that must be published (we will spare you from listing the rest).

The legislator finishes the enumeration with the prescription “and any other useful information,” thus leaving even the most diligent of contracting authorities on tenterhooks lest a document has been omitted and left unpublished, putting them in violation of the law and making them a target for possible sanctions.

The consequences

This is the point where any humor that may have existed will start to run somewhat dry. Serious questions, however, persist. What is to arise from this amendment to the PPA and how will this “innocent” overzealousness on the part the legislator reflect on proper public spending?

Here comes an example: An average-sized contracting authority carries out between 200 and 400 tenders each year. For each such tender, some 40 documents must be uploaded and kept on the authority’s server for a minimum of one year following the completion of the procedure or the performance of all obligations. A portion of these documents must, as per law, be stored for an unlimited period and cannot be removed. There is no need to employ high-level arithmetic skills. It should be obvious that we are talking of thousands upon thousands of documents and millions of scanned pages for each authority.

All of these steps must be taken simultaneously with the implementation of the obligations set out by the Directives – the procurement information to be promulgated in the EU Official Journal, the national Public Procurement Register, the mass media …

Thus, while aiming to ensure maximum transparency in the award process, the provision will in fact create incredible hassles for what is already an extremely complicated administrative apparatus and add further financial burdens to the authorities. The latter will need to maintain state-of-the-art official websites and ensure that procurement data is constantly updated and uploaded – which will lead to the need to hire and train personnel for those purposes. In other words: a huge waste of time, means, and human resources, concentrated in an activity with a very ambiguous objective and a yet more ambiguous outcome.

The final picture

There is no question about it: the process of awarding procurements in Bulgaria must become more transparent than a pane of glass. However, we feel confident in predicting that corruption will remain entirely unaffected by this latest measure. Why? Because while the general public is busy perusing each and every duly scanned and uploaded document, the seat designated for expedient control over actual procurement performance will remain unoccupied. Secret arrangements and agreements following the conclusion of contracts will continue, discriminatory criteria, utterly confusing for anyone outside the business, will abound (even after the implementation of the 2014 Directives), and the favoring of candidates and handing out of procurements by each new government will continue to happen again and again.

So, instead of wasting money on improving websites and turning procurement for white hospital coats into an undertaking worthy of a dissertation, would not it be much more rewarding to instead finally introduce e-procurement in Bulgaria and strengthen ex ante control?

Other EU member states managed to figure this out a long time ago. Why can’t Bulgaria do likewise?      

By Alexandra Doytchinova, Managing Partner, and Irena Georgieva, Attorney-at-Law, Schoenherr

This Article was originally published in Issue 4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Poland continues to be on top of the list of the most attractive locations for foreign investors. In Bloomberg’s “Best Countries for Business 2013” ranking, Poland scored  highest among all Central and Eastern Europe countries and ranked 20th worldwide, among 161 nations analyzed in the ranking. Poland’s economy is one of the largest in the EU – and is the largest of the former communist countries of Eastern Europe. Economic forecasts for Poland are also optimistic. Real GDP growth is projected to speed up, driven by expanding exports and a gradual strengthening in domestic demand.  

Cutting red tape

So, is there a downside? As in every other country, investors entering the Polish market need to overcome certain hurdles. Bureaucracy is often indicated on top of the list. Excessive formalism and state control established by communism and communist-era attitudes in public administration are important factors discouraging foreign investors. And businesses have often complained about the complexity of legal regulations (particularly taxes, including ambiguous and unclear tax interpretations).

As a result, the governing party in Poland has promised to cut red tape, and introduced several reforms aimed at lowering business barriers. More changes are upcoming, in particular a complex reform of the Polish construction law that, according to the government, should simplify and speed up building permit procedures. The long-awaited reform will unify construction regulations into one legal act, making proceedings easier and more efficient.

Payment gridlock

Another significant hurdle for businesses operating in Poland is payment gridlock. Poland still lags behind other European countries in terms of timely payments. In 2013, 69.5% of invoices were paid late. Higher rates were reported only in Great Britain and Portugal. In addition, 10.8% invoices were overdue more than 90 days. Most entrepreneurs indicate defaults of their own debtors as the main reason for not regulating their debts, creating a vicious circle. Gridlock may considerably impair companies’ financial standing or even lead to bankruptcy. 

This difficult market situation has been addressed by lawmakers as well. Several law changes introduced in 2013 were aimed at increasing payment discipline. New regulations were introduced applying to, among other things, VAT (simplifying “bad debt relief”), income tax (introducing tax consequences for overdue payments for debtors and creditors), and maximum payment terms (that should, as a general rule, not exceed 60 days). These new laws, combined with the Polish economy picking up speed, have had a noticeable effect. Companies’ invoice-payment discipline is improving. The Companies’ Liabilities Index, which shows how payment gridlock impedes the functioning of business (i.e., the easier it is for companies to collect debts, the higher the index is), has reached its highest value in the last five years. And average payment delay and debts collection costs are lowering. Overall signs indicate that payment trends in the country are improving. 

Positive business outlook

Ultimately, and despite some challenges and hurdles, investor confidence in Poland remains strong. And, indeed, these difficulties are characteristic of the entire CEE region (many post-communist countries face extensive bureaucracy) or Europe (the number of unpaid invoices has increased significantly during the crisis in many countries). Meanwhile, economic perspectives for Poland look promising. The economy is gaining momentum, and many of the challenges that remain may be overcome with the assistance of tax and legal advisors who know their local and regional markets and can help businesses find a smooth way through them. We have seen the legal and economic backgrounds change in Poland during recent years. Now, as we see business activity reviving again in CEE, we look with optimism to the future.      

By Siegfried Seewald, Partner, Wolf Theiss Poland

This Article was originally published in Issue 4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Foreign investors considering purchasing or divesting themselves of stakes in Lithuanian companies that own agricultural land are facing a potentially unpleasant surprise.   

The transitional period ended on May 1, however, the market should be free, and Lithuania should no longer be able to prohibit non-nationals from acquiring agricultural land. However, this is not reflected in the actual law, as restrictions enacted to be effective the same day the transition period ended cannot be seen as allowing free movements — in particular when foreign investors are concerned. 

The legal environment before May 1, 2014, did not regulate the transactions of acquisitions and alienation of shares in legal entities owning agricultural land. Now, however, these transactions fall within the scope of the Amending Law. In particular, if the object of the transaction involves a stake of more than 25% of a company owning more than 10 hectares of agricultural land, the vendor or purchaser has to carefully assess and structure the transaction to satisfy the requirements of the Amending Law, which sets special criteria that the potential purchaser has to meet, and limits the purchaser to a maximum of 500 hectares of agricultural land.

The requirements for a purchaser of shares in a company which owns agricultural land are the same as they are for those who purchase agricultural land directly: that is, the purchaser has to have engaged in agricultural activity for at least 3 of the 10 years preceding acquisition, it has to declare land and crops, its income from agricultural activity has to exceed 50 per cent of all income, and its economic viability has to be proved by a mandatory procedure. These requirements can be met by almost no foreign investors. Thus, practically speaking, the requirements eliminate the possibility of entering into share deals with foreign investors seeking to get a foot into agricultural businesses in Lithuania. The Amending Law actually froze ongoing deals with new foreign investors. And the Amending Law also restricts the ability of current foreign investors to divest themselves of stakes in local companies and retreat from the market. 

Further, the 500-hectare threshold of agricultural land an investor is allowed to own cannot be triggered by a share deal either. For the purposes of calculation of the threshold the agricultural land held by all related parties is considered. The criterion for determining related parties is a direct or indirect stake granting 25 per cent of votes. 

The expansion of the scope of the Amending Law so as to include share deals together with introduction by the same law of other new restrictions caused a wave of discontent among foreign investors, which immediately raised an issue of legitimate expectations. However, the law is in effect and foreign investors have to be armed with patience, as at the moment the possibility to amend it to loosen the legal requirements are only being discussed.      

By Giedre Dailidenaite, Partner, and Odeta Maksvytyte, Senior Associate, Varul

This Article was originally published in Issue 4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

When a foreign company acquires a Serbian target, there are several issues which have to be considered when structuring the acquisition financing.   

The prohibition of upstream security and financial assistance is often dealt with by setting up a Serbian acquisition vehicle, pushing down the acquisition debt to such SPV, which initially grants only its share in the operating target as collateral, and merging the SPV and the operating target after the closing, whereupon the operating target provides security on its assets for what has become its own debt as a result of the merger. However, this is not of itself a bullet-proof solution. One would have to have a valid business reason for the post-closing merger to fight a potential argument that the merger was designed to circumvent the financial assistance prohibition.

Other considerations to be taken into account when structuring financings involving Serbian assets as security stem from the features of Serbian pledge laws. 

Whereas Serbian law regulating pledge on movables, IP, and receivables recognizes the concept of security agent as a third party that may take and enforce security on behalf of the creditor, no such concept exists with respect to pledge on immovable. Accordingly, multiple lenders must either each take security for their own portion of the loan or create a joint and several creditor-ship structure whereby each creditor may clam and enforce the entire debt, including by enforcing security. A third option would be to create a parallel debt structure, whereby an artificial debt in an amount equal to the amount owed at any relevant time by the borrower to all lenders under the loan agreement(s) is created in favor of a third party-security agent. This enables the security agent to become a creditor of its own right and enforce security in this capacity. The parallel debt language also provides that the discharge of any portion of the debt owed by the borrower to the lenders under the loan agreement operates as a discharge of an equal amount owed by the borrower to the security agent and vice versa. The problem with the application of this structure in Serbia is that it has not yet been tested by courts and the lenders are generally not willing to accept the risk that the structure may be challenged as a bogus or simulated contract.

With respect to eligible collaterals, it should be noted that the Serbian Pledge Register stands on a controversial position that no pledge over a bank account may be established except on the specific balance in the bank account existing at the time of pledge registration. Such pledge does not extend to funds which may subsequently flow into the pledged bank account. Therefore, in order for the pledge to capture any funds that may come into the bank account over time, the pledgee and the pledgor would have to annex the pledge agreement and update the pledge in the registry each time the balance on the bank account changes, which is entirely impracticable. 

If an acquirer is interested in physical cash pooling which would include the Serbian target, it should know that this type of cash management is not regulated by Serbian law and would not be possible due to restrictions imposed by the Serbian Foreign Exchange Act. Firstly, this piece of legislation contains an exhaustive list of grounds for making cross-border payments, none of which includes transactions underlying cash pooling. Cash pooling could not be justified as a loan to a foreign related company holding a master account, because Serbian companies may not grant loans to non-residents other than to their own subsidiaries. Secondly, Serbian companies may hold bank accounts abroad only in specific enumerated circumstances, none of which includes holding a bank account for the purpose of cash pooling.      

By Mirjana Mladenovic, Partner, BDK Attorneys at Law

This Article was originally published in Issue 4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The privatization of majority state-owned companies continues to be the primary source of M&A activity in Slovenia in 2014. However, several recent sales processes in Slovenia – most notably the Mercator sale process – have also included non-state related sellers participating in a sale consortium for the sole purpose of selling their shareholdings. Such sellers typically do not hold joint control over the target and, as far as the consortium is concerned, its members have never obtained merger clearance for acquisition of joint control over the target or published a mandatory takeover for the shares in the target. In such circumstances, any potential purchaser as well as the selling consortium are faced with several dilemmas.   

Second, because the sellers have only teamed up for the purpose of the sale, they usually do not have a good insight into the workings of the target company and are therefore not prepared to give the buyer any business-type representations and warranties (relating to either the period between the last published annual accounts and signing or the period between signing and completion). 

One of the solutions to the above issues, introduced by our law firm probably for the first time in Slovenia in the Mercator/Agrokor deal, was for the buyer and the target to enter into a pre-completion business combination agreement. In such an agreement, the buyer typically gives  the target company several undertakings (in connection to future business conduct of the combined groups, increase of capital, pay-downs to lenders of the target group in case of change of control triggers and similar) in exchange for deeper due diligence and assurances by the company about its past and future business behavior. Although such assurances are given by someone who will be acquired, the fact that management of the target (which may also be requested to give them personally) stands behind the assurances provides at least some level of comfort to the buyer. Management representations and warranties are not common in Slovenia (also because the management usually does not have a substantial capital interest in the target) but have in the past been often requested. Business combination agreements may also regulate assistance with respect to merger clearance proceedings and various information undertakings. It is not unusual for definite share purchase documentation to be conditional on the entry into a business combination agreement with the target. 

While obviously all business combination agreements must take full account of applicable competition laws and takeovers rules in order not to trigger any premature merger clearance or mandatory takeover bid requirement, such agreements seem to be slowly becoming a “market standard” in deals involving a consortium of independent sellers.      

By Bojan Sporar, Partner, Rojs, Peljhan, Prelesnik & Partners

This Article was originally published in Issue 4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

This article will provide a snapshot of the major regulatory reforms in the Republic of Moldova affecting the M&A sector. Having been directly involved in assisting the Moldovan government to cope with the challenges of the reform era, our legal specialists would like to share in this brief overview just some of the actions which have influenced or will influence the M&A sector in Moldova, which is ready to start growing.  

Protection of Competition

In July 2012 the new Competition Law was approved in Moldova. The law provides for specific rules on competition clearance of economic concentrations by the Competition Council, the competent Moldovan competition authority. Thus, prior to putting an economic concentration into operation, parties involved in the transaction should take care to obtain proper competition clearance, otherwise their transaction may lead to negative legal consequences.

The new Competition Law has set out more clearly the thresholds that make competition clearance mandatory. An economic concentration is subject to notification when the combined turnover of all undertakings involved in a deal exceeds MDL 25 million (about EUR 1.6 million) for the year preceding the intended transaction, and at least two of the undertakings concerned had a turnover in Moldova exceeding MDL 100 million (about EUR 633,000) in the year preceding the transaction. The penalty for failure to notify the competent competition authority can be significant, reaching up to 4% of the turnover for the preceding year.

At the moment, only three economic concentrations have been cleared and authorized by the Competition Council. However with the improvement of the economy and an increase in the efficiency of the Competition Council, we expect to see growth in M&A deals next year. 

Simplification of the corporate reorganization procedure

M&A deals as a rule lead to corporate reorganizations which are subject to proper registration by Moldovan competent authorities. The legal formalities related to corporate reorganizations have been rather lengthy and bureaucratic in Moldova, sometimes exceeding six months prior to formal entry of changes in corporate documents. Companies involved in reorganization were required to publish an announcement on their reorganization in two consecutive issues of the Official Gazette of the Republic of Moldova. Upon being informed of reorganization, any creditors could request that the company being reorganized provide additional guarantees for their claims within two months of the announcement’s publication. 

a) The term for creditors to request additional guarantees was reduced from two months to one month from the moment of publication of the announcement in the Official Gazette of the Republic of Moldova or from the date of other notice to the creditor.

b) The number of notifications required to be published was reduced from two announcements to one.

c) The term for submission of reorganization documents for registration was reduced to thirty days after proper notification of creditors, while prior to reform it was three months.

d) Finally, all notifications published in the course of the reorganization process will be also placed free of charge on the official website of the Moldovan registration authority, which will reduce the costs of informing the creditors.

Alternative dispute resolution mechanisms in M&A deals

One of the major challenges to foreign investments in Moldova is the quality of the judicial system and enforcement of judgments. As a prevailing practice foreign investors insist that a foreign law governs M&A deals involving Moldovan entities and that potential disputes be settled in a foreign forum (the usual choices are the arbitration courts of Hague, Stockholm or Paris). Still a number of aspects in an M&A deal are subject to Moldovan legislation, a fact which requires the close attention of Moldovan counsel preparing a legal opinion on any transaction. It should be noted that a choice of Moldovan law and venue in fact may offer decent comfort to foreign investors, at a much lower cost. Of course, there’s little doubt that a better legal framework and more transparent dispute resolution process would significantly improve the current situation and increase the attractiveness of the Moldovan dispute resolution mechanisms which are more affordable to Moldovan companies.

To boost this sector the Government has undertaken to reform both arbitration and mediation legislation to reflect the best and most efficient practices. We await a major shift in ADR which will definitely smoothen some of the issues affecting the M&A sector as well.    

By Cristina Martin and Andrei Caciurenco, Partners, and Carolina Parcalab, Senior Associate, ACI Partners Law Office

This Article was originally published in Issue 4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Croatia has gained a reputation for being an overly regulated, bureaucratic, and non-investor- friendly market. The steady decline of foreign direct investments is often cited as being the result of this perception. However, with some recently enacted legislative changes, the long process of removing barriers has hopefully started and will reverse this trend.  

A particularly good example of this is the struggle of a reputable US-based fund to proceed with a residential development in Dubrovnik, just below the old Napoleon fortress and next to the proposed Dubrovnik golf course (which has been facing similar obstacles). Unfortunately, the development became entangled in the very protective (and political) local zoning regime, as the County (the second level of regional government in Croatia) denied its consent to the detailed urban plan proposed by the City of Dubrovnik. Despite the fact that a number of mandatory public debates had taken place during the process of the urban plan adoption, in which architects’ associations, citizens’ groups, local land-owners, and other interested parties voiced their opinions and finally supported the plan, County officials persistently blocked adoption. The County did this by doing such things as requesting documents not required by the applicable regulations and requesting additional studies.They even went as far as refusing to accept express clarifications of the relevant legislative act from the Ministry of Construction and Physical Planning confirming that the City’s (and investor’s) proposal was in accordance with all applicable regulations.

The Wolf Theiss team, led by Zagreb-based Partner Luka Tadic-Colic, assisted by Senior Associate Silvije Cvjetko and Split-based Counsel Dora Gazi Kovacevic, has been assisting the investor since 2010 in removing a number of hurdles that the project has faced over the course of its development (such as land registration issues and obtaining approvals and consents required in the zoning process), and has supported it in numerous discussions with the relevant authorities, including the Minister of Construction himself. As a measure of last resort, we are now developing a strategy for the final legal battle, including filing damages claims before Croatian courts, claims before European courts, investment arbitration tribunals, and even bringing criminal charges against the relevant officials.

In the meantime, Croatia has undertaken certain steps in the right direction to assure a more favorable climate for foreign investors. For example, recent changes in zoning legislation have removed the need to obtain certain consents at the regional government level, which would help in resolving situations such as the one described in Dubrovnik. Another important milestone is the recent adoption of the Strategic Investment Act, aimed at expediting the realization of strategic national investments and projects. Unfortunately, many private projects will not meet the relatively strict criteria to qualify under the Act in terms of: (i) the value of investment (generally, projects must exceed 20 million Euros), and (ii) a focus on specific sectors or activities. Also, qualifying for the status of a strategic project does not automatically occur when the conditions are met, as a discretionary decision of the Government is also required. This may not provide foreign investors with a sufficient level of security in planning their investments. However, for projects that eventually succeed in qualifying as strategic investments, the relevant construction permits will be decided upon at the central government level and cannot be torpedoed at the local level.

Finally, the Croatian prosecutor’s office has recently emphasized its commitment to combat the arbitrariness of local “sheriffs” and corruption on the local level in general. We strongly believe these are steps in the right direction and that, once undertaken, they will result in a better investment climate in general.  

By Luka Tadic-Colic, Partner, Dora Gazi Kovacevic and Silvije Cvjetko, Attorneys, Wolf Theiss

This Article was originally published in Issue 4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

In Albania commercial companies are most commonly incorporated under the form of limited liability companies or joint stock companies, and supervised companies such as banks, non-banking financial institutions, and insurance and reinsurance companies must be incorporated as joint stock companies. In practice a large number of significant companies — in terms of turnover, number of employed employees, carried-out projects, etc. — are established as joint stock companies as well, including a significant number of companies controlled by foreign investors.  

Due also to the lack of a properly organized stock market in Albania, to date only one company has been licensed as registrar of shares by the Albanian Supervisory Authority. This company is the Share Registration Centre Sh.a. (“SRC”). The SRC is controlled by the Albanian Ministry of Economic Development, Trade, and Entrepreneurship, which owns more than 80% of the shares of the SRC.

In June 2014, the Albanian Minister of Economic Development, Trade, and Entrepreneurship approved an Instruction requiring all joint stock companies registered in Albania (including those with private offer) to register amendments relating to share transfers, registered capital, number and/or nominal value of shares, etc. with the SRC before registering such amendments with the NRC. It is worth mentioning here that the NRC is a central public institution under the direct control of the Albanian Ministry of Economic Development, Trade, and Entrepreneurship, and therefore disposed to implement any orders issued from its direct superior.

Surprisingly, while relevant normative acts regulating the registration of shares of joint stock companies have not been amended, the Minister of Economic Development, Trade, and Entrepreneurship reiterated the same illegal and extra-statutory instruction by irrationally imposing additional procedures and costs on private offer joint stock companies.

In addition, the SRC procedures, costs, required documents, procedural terms, etc., are not published. Filing expenses applied by the SRC are excessively high and out of any logic compared to those by the NRC, which applies a fix flat fee of less than USD 1 for any rendered service. In practice, registration delays with the SRC are excessively long due also to the very limited number of employees at the company and their general lack of professionalism and experience. Finally, the SRC has only one central office, in Tirana, which means that joint stock companies operating in other cities are obliged to go to Tirana in order to perform filings with the SRC (for comparison, the NRC has more than 30 offices located in all the important cities of Albania).

The discussed instruction has been officially objected to by Albania’s leading law firms through a letter sent to the Minister of Economic Development, Trade, and Entrepreneurship requesting that it revoke the issued instruction. It has also, once again, been publicly contested by the Albanian business community. Nevertheless, to date this illegal, irrational, and abusive instruction remains in force, demonstrating thus that in Albania, political will may still overcome laws, and independence of administrative power from the executive is far from being ensured.      

By Andi Memi, Partner, and Selena Ymeri, Associate, Hoxha, Memi & Hoxha

This Article was originally published in Issue 4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.