Category: Bulgaria

Hristov & Partners, working with Dentons, has advised the EBRD on its investment in the USD 25 million Series A financing round for US-based Alcatraz AI. CMS reportedly advised Alcatraz AI.

According to an EBRD press release, the round was led by Almaz Capital and included the EBRD, Endeavor Catalyst, Silverline Capital, and Golden Seeds, along with participation from existing investors JCI Ventures, Ray Stata, and LDV Partners. Within the same round, a Silverline Partners Fund LP-led private equity consortium invested EUR 6.8 million in Alcatraz Bulgaria (as reported by CEE Legal Matters on October 14, 2022).

Alcatraz AI is a US-based company with a software product development team in Sofia, Bulgaria. The company develops facial recognition solutions using artificial intelligence and machine learning.

“At Alcatraz AI, we believe that safety and security is the first principle, and we are committed to leading a new era of frictionless access control by leveraging the unique power of the human face to make accessing spaces as secure, quick, and easy as unlocking your phone,” Alcatraz AI CEO Tina D’Agostin commented. “We are excited to enter the next phase of our company’s growth by partnering with our investors with a strong track record scaling companies globally that deliver next-generation technology.”

The Hristov & Partners team included Partners Pavel Hristov and Biliana Shagova and Senior Associate Dragomir Stefanov.

The Dentons team included Dubai-based Partner Christopher Rose and Sand Diego-based Partner Amit Singh.

Former Spasov & Bratanov Attorney-at-Law Irina Stanimirova has joined Komarevski, Dimitrov and Partners as an Associated Counsel and Head of the firm’s Real Estate & Construction practice.

Specializing in real estate, Stanimirova also represents clients in real estate and regulatory disputes. She previously spent over 12 years at Spasov & Bratanov as an Attorney-at-Law, from 2009 to 2022.  She previously worked as a Senior Legal Counsel at Tsvetkova Bebov & Partners, from 2008 to 2009. Between 2005 and 2009 she also was a Legal Counsel at PwC Bulgaria.

“Irina is a remarkable hands-on legal professional,” KDP Managing Partner Ilya Komarevski commented. “I’ve seen her applying the same passionate attention to detail when solving a problem in a private housing deal and in a complex infrastructural development project.”

Djingov Gouginski Kyutchukov & Velichkov has advised the Invenio Partners Fund II SCSP on its EUR 3 million investment in SAT Health.

“The investor has a key role in encouraging and helping companies with strong management teams to realize their full potential,” DGKV informed. “The purpose of the investment is to expand the presence of SAT Health on the market with a view of becoming the largest telehealth provider in the region.”

SAT Health is a Bulgarian company that specializes in the provision of pharma data and patient care solutions.

The Invenio Partners Fund II is a venture capital fund with a focus on Southeast Europe.

The DGKV team was led by Partner Georgi Tzvetkov and Senior Associate Vlada Tsenova.

Djingov Gouginski Kyutchukov & Velichkov has advised Utah-headquartered MarketStar on the acquisition of Out2Bound. Tzvetkova & Partners and Gospodinov & Genchev advised Out2Bound.

Out2Bound is a Bulgarian sales development agency.

According to DGKV, “MarketStar is the pioneer of B2B sales and revenue acceleration, and the acquisition pairs two leading companies, further establishing MarketStar as the global leader in full-funnel outsourced sales solutions.”

DGKV’s team included Partners Zdravka Ugrinova and Youliana Naoumova.

Tzvetkova & Partners’ team included Partner Stefan Tzvetkov and Senior Associate Martin Dimitrov.

GGLaw’s team included Managing Partner Dimo Gospodinov and Associates Silviya Stoykova and Hristo Yovchev.

Gugushev & Partners has advised the owners of 60K on its sale to US-based ResultsCX.

60K is a Bulgarian independent business outsourcer and a customer experience company.

ResultsCX is a US-based customer experience company.

Editor’s Note: After this article was published, Gugushev & Partners confirmed it had advised the shareholders of Tillbase Holdings on the sale of their subsidiary 60K to ResultsCX, with the deal involving three Bulgarian subsidiaries. The firm’s team was led by Managing Partner Stefan Gugushev, along with Senior Partner Dimitrinka Metodieva and Partner Daniela Petkova.

An in-depth look at Alexandra Doytchinova of Schoenherr covering her career path, education, and top projects as a lawyer as well as a few insights about her as a manager at work and as a person outside the office.

Career:

Schoenherr, Co-Head of the firm-wide Corporate M&A Practice Group, August 2022

Schoenherr Attorneys at Law, Partner, 2013-present

Schoenherr Sofia Office, Establishment of office and Management, 2004-present

Schoenherr Attorneys at Law (Vienna, Austria), Associate, 2002-2007

University of Graz – Institute for Civil, Foreign Private Law, and Private International Law, Teaching Assistant, 2000-2002

Education:

University of Graz, Austria, Magister Juris, 2000

Favorites:

Out of office activity: Traveling and exploring cities, cultures, and food

Quote: “Stay away from negative people. They have a problem for every solution.” – author unknown, but so very right.

Book: The Diary of a Young Girl by Anne Frank – still gets me emotionally like no other.

Movie: Love Actually – perhaps not my top pick, but still on my Christmas watchlist.

Top 5 Projects:

Advising Chaos Software, a global leader in photorealistic rendering technology, on the Bulgarian law aspects of its merger with Enscape;

Advising Ringier AG, a media conglomerate, on its acquisition of a controlling stake in Sportal Media Group;

Advising the MET Group on the acquisition of a 60-megawatt operational wind park in Bulgaria;

Advising Enery Development on the acquisition of the owner and operator of the biggest solar park in Bulgaria;

Advising VTB Capital on the acquisition of the Bulgarian Telecommunications Company.

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

Doytchinova: What stands out in recent years is Enery’s acquisition of the largest photovoltaic park in Bulgaria. It wasn’t only huge for market standards in terms of asset and value, but also complexity. And it was the most significant transaction that was negotiated and implemented during the peak of the pandemic in 2020. In addition to the standard M&A workstreams, complexity was added by having one of the first ever commercial refinancings of an existing financing granted by the IFC and the US DFC, through a multimillion bond issue. Various workstreams were handled in virtual meetings across global time zones. It was also one of the first big closings during the pandemic. We had to isolate afterwards, as one of the attendees had tested positive. This led to our first virtual closing celebration.

And what was your main takeaway from it?

Doytchinova: Whatever the complexity of the deal, the number of parties, the legal issues to be solved, or transaction structures to be designed, and however difficult the environment – if all stakeholders and, crucially important, their legal counsels pull on the same string – a deal can be pushed through smoothly, to a satisfactory conclusion for all parties.

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

Doytchinova: We spend so much time communicating with our clients, including evenings, weekends, and during vacations, that we also chat about private interests and time spent outside the office. As people’s interests are different, so are the topics of discussion. While one client may know that I like sailing or that I prefer working nightshifts, as this is the calmest time of the day, others may have learned that I grow chilies.

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

Doytchinova: If I had to name one single person, that would be Christoph Lindinger, former Managing Partner of Schoenherr and the driving force behind our CEE expansion, who took me on board in 2002. Although I had no relevant experience at that time, nor the international education of my fellow colleagues, Christoph put a huge amount of trust in me. I wouldn’t be where I stand today without him believing in me twenty years ago. Even though he was never a traditional mentor, he was a leader by example: his passion and excitement for legal work and unwinding the most complex issues was truly infectious. But it was not just dedication to client work that I learned from him. It was also leading a team, how to motivate and be there for your people in any situation. This is what forms the strongest teams.

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

Doytchinova: Plan ahead. Work is exciting, and you want to embrace the chances you get. But also plan ahead in terms of personal development. Spend time abroad, studying or just living in a different environment and a new culture. This would be so enriching.

This Article was originally published in Issue 9.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

ESG initiatives are rapidly becoming the status quo in the business world. Most corporations have some kind of sustainability measures in place in at least one of the three pillars – environmental, social, or governance. The majority of businesses in Bulgaria currently implement ESG projects voluntarily, indicating that stakeholders are not legally required to, for instance, incorporate climate mitigation and social responsibility initiatives into their organizations. But ESG trends aren’t going unnoticed by the regulators and ESG is gradually transforming into a compliance matter. However, beyond compliance, ESG lays the foundation for a competitive corporate strategy, positive climate action, and the discovery of new business opportunities.

ESG Reporting Requirements

Many of the recent regulatory initiatives at the EU and national levels are aimed at encouraging capital allocation to sustainable investment. Thus, investors need a clear framework to screen ESG-related information and weed out companies that are all talk and no do. This issue is addressed by the proposed Corporate Sustainability Reporting Directive (CSRD) and Regulation (EU) 2020/852 on the establishment of a framework to facilitate sustainable investment (Taxonomy Regulation).

The CSRD extends the scope for mandatory non-financial reporting to all listed companies on EU-regulated markets and all companies that exceed at least two of the following: (1) annual turnover of EUR 40 million; (2) balance sheet total of EUR 20 million; or (3) 250 employees on average per year. It introduces an obligation for external assurance of the reports following applicable auditing standards. The CSRD will also require reporting specific information on sustainability matters as well as the role of management toward sustainability targets. Companies will need to gather quantitative and qualitative data to demonstrate and prove progress. Therefore, obligated entities need to prepare for such reporting in advance, especially in the case of large multinational companies where reporting obligations will have to be managed in parallel in different jurisdictions, including outside the EU. As the reports will be much more data-driven, corporations will need to establish internal processes for the collection and analysis of the necessary data. It is expected that the first reports will need to be submitted in 2024 for the 2023 financial year. Once the CSRD is adopted, we expect its provisions will be replicated in Bulgarian legislation without change.

The Taxonomy Regulation focuses on the environmental aspect of ESG and defines sustainable activities based on six environmental objectives. It requires the disclosure of key performance indicators such as the proportion of the company’s turnover accrued from environmentally sustainable activities. Overall, the Taxonomy Regulation aims to prevent greenwashing by defining technical and measurable standards for a sustainable business and Bulgarian companies will have to swiftly adjust their policies to it. Currently, greenwashing may trigger liability under Bulgarian law for misleading advertisements or unfair commercial practices applied to consumers.

Risk Mitigation Strategy

Although the above-mentioned legislation may seem like yet another administrative burden, the mere reporting requirements are not the heart of ESG regulations. The goal for each director should be strategic planning and the adoption of risk mitigation policies for all ESG-related risks. The risks in question may seem distant and directors tend to prioritize more pressing matters over climate goals set for 2050. However, such risks can strike suddenly and the unprepared may fall behind. No company is immune to increasing consumer pressure looking for green products or reputational damage arising from poor employee satisfaction or a lack of environmental awareness.

Bulgarian companies have to recognize the growing emphasis on ESG standards and legislation, which will become crucial for their global competitiveness in the near future. A good starting point for the risk mitigation strategy of every company is the revision of all corporate policies on ESG or their creation if overlooked in the past. These may include environmental measures such as going paperless, limiting waste, and improving the energy efficiency of buildings and processes. Further, amendments to contractual terms might be required to ensure that business partners share the same environmental and social values. A default on contractual ESG obligations or misleading disclosures may be caused not only by the company’s actions but also through association with questionable clients and suppliers. Directors need to be particularly careful with inaccurate disclosures to state bodies as, under Bulgarian law, they are criminally liable for them.

By Stefana Tsekova, Partner, and Dimitar Kairakov, Senior Associate, Schoenherr

This Article was originally published in Issue 9.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Bulgaria is making significant efforts to boost the share of renewables in its energy mix and reduce its dependence on fossil fuels. The new REPowerEU Plan provides for a massive scaling-up and speeding-up of renewable energy in power generation, industry, buildings, etc.

The proposal of the European Commission is the headline 2030 target for renewables to be increased from 40% to 45% under the Fit for 55 package. A Solar Rooftop Initiative with a phased-in legal obligation to install solar panels on new public, commercial, and residential buildings is also on the table.

In compliance with the European Union’s goals, Bulgaria will strive to achieve at least a 27.09% share of energy from renewable energy sources (RES) in gross final energy consumption by 2030. The National Recovery and Resilience Plan (NRRP) outlines the need for stimulating the production of electricity from RES by reducing the administrative burden on renewable investments with regard to the installation, connection, and operation of the facilities.

Consequently, on June 7, 2022, an act supplementing the Energy from Renewable Sources Act (ERSA) was published in the Bulgarian State Gazette No. 42. The amendments’ aim is to optimize the deadlines for the construction of power plants up to 5 megawatts for covering own consumption and its faster implementation to optimize electricity costs.

The act introduces a notification regime in the cases where an end customer installs a power plant on the roof or facade of buildings or properties in urban areas, the energy from which will be used only for own consumption. The notification shall be addressed to the electricity transmission network operator, the relevant electricity distribution network operator, or the closed electricity distribution network, as the case may be. Prior to entry into force of the amendments, the investors had to follow the procedure for connecting to the grid, which, in some cases, could take considerable time.

In order to avoid any possibilities to circumvent the law, it was decided that in order to build the power plant in the simplified order, the total installed capacity of the power plant could be up to twice the amount of the capacity provided to the end customer as a consumer but not more than 5 megawatts.

According to the new provisions of the ERSA, the respective operator shall provide an additional agreement to the access and transmission agreement signed with the end customer within 14 days of receipt of the notification, in which the technical requirements for the connection scheme of the power plant to the electrical system are specified and the rights and obligations of the parties are regulated. The agreement shall serve as a guarantee for the security of the power grid and prevention of the entry of electricity and disturbances in the network, as a statement of opinion on the conditions and manner of connection is no longer required. It is also expressly regulated that the owner of such a power plant may return surplus or sell electricity to the distribution network only after fulfilling the requirements of the procedure for joining as a producer.

In view of the applicability of the new rules, the respective provisions of the Spatial Development Act and Excise Duties and Tax Warehouses Act have also been supplemented. Unlike under the previous regime, approval of development-design projects is no longer required for the issuance of a construction permit for such projects. For the constructions in question, only an opinion of a specialist engineer and the additional agreement to the access and transmission agreement are now required.

Given the energy crisis, society, businesses, and the government realized the significant importance of having an accessible, reliable, and sustainable form of energy. Thus, the interest of businesses in investments in the RES sector for their own consumption is rising and further law amendments favorable to investors are expected.

By Kostadinka Deleva, Partner and Head of Energy, and Mihaela Dimitrova, Associate, Gugushev & Partners

This Article was originally published in Issue 9.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The year 2021 effectively brought back the Bulgarian capital market into the spotlight of public interest. Seven IPOs were listed on the Bulgarian Stock Exchange (BSE), raising a total of EUR 12 million, which is the highest number of offerings in 15 years, going back to the period before the 2008 financial crisis. There is only one reason for this development: the rise of the SME Growth Market – beam – where all said IPOs have taken place.

By its nature, beam is not a regulated market, but a multilateral trading system, which is organized by the BSE, the regulated market operator. Its main purpose is to provide opportunities to small and medium businesses for acquiring investments that are alternative to bank financing and under lighter conditions, compared to the regulated market.

There are three essential characteristics of the beam market in comparison to the regulated market, which allures more interest from the companies:

First and foremost, in order to raise funds on the beam market, there is no requirement for prospectus approval by the Financial Supervision Commission (FSC), the Bulgarian regulator of capital markets.

Second, the companies allowed on beam do not become public companies (to which are applied numerous law regulations) but are rather subject to a much lighter regulatory framework as per the BSE’s market rules.

Third, companies allowed on beam are primarily those that cover the requirements for SMEs.

Undoubtedly, the highlight is the first of these characteristics because two of the companies that have successfully raised funds through beam IPOs – Biodit and Smart Organic – have had previous refusals by the FSC to approve their prospectuses. Despite these refusals, the IPOs of these companies were successful as the full amount of the financing was raised. We see this as a clear indication that investors don’t need the FSC’s overprotection.

Concerning the requirements for companies admitted to the beam market, it should be noted that these companies should publish only their annual and six-month financial statements. Furthermore, the requirements for transactions above a certain threshold or with affiliated parties to be approved in advance by the general meeting of shareholders do not apply, nor is the obligation for tender offering in case of a shareholder increasing his/her company share applicable. Nevertheless, companies are expected to comply with all requirements against market abuse.

The new significant development in the beam market that happened in 2022 is that the maximum amount of sought financing through an IPO was increased from EUR 3 million to EUR 8 million, the latter being the absolute maximum under the applicable EU regulation. This is an important amendment because it provides the option for already developed companies, which may have been discouraged until now by the lower maximum amount for sought financing on the growth market, to place an IPO. Since most Bulgarian companies are medium-sized enterprises at best, beam is now converted into a very attractive opportunity for practically any company that has not already acquired public status.

To summarize, for a company to be allowed on the beam market, it first needs to be a joint-stock company, regardless of how long it has existed, meaning there is no requirement concerning the company’s history. Second, it needs to draft a document for the offering, which is simplified in comparison to the prospectus, and the company needs to choose an investment intermediary that will carry out the offering itself. Third, there should be a contract in place with an advisor that will support the process of acquiring approval for the beam and the first two years on the market. Such advisors can be investment intermediaries as well as law firms, accountants, or financial consultants, being subject to a preliminary assessment by the BSE and should obtain the respective approval in this regard.

By Viktor Tokushev, Managing Partner, and Boris Teknedzhiev, Partner, Tokushev and Partners

This Article was originally published in Issue 9.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

On October 26, 2021, the General Assembly of the Supreme Court of Cassation issued Interpretative Judgment No. 5/2019, clarifying what procedure employers must follow with respect to employee layoffs on the grounds of “closure of part of the enterprise,” which at present is frequently utilized in the context of companies’ mergers and acquisitions.

The Bulgarian Labor Code provides limited options for employee layoffs, that should be strictly followed by the employer for a dismissal to be lawful. Due to the lack of clarity in the effective law – specifically in terms of the “closure of part of the enterprise” ground – for layoffs and the immense discrepancy in court practices on this matter, the adoption of an Interpretative Judgment was crucial for streamlining its lawful application.

Because of inconsistencies in court practice on the matter, an opening of a so-called “Proposal for an Interpretative Judgment,” which would kick off the procedure, was highly anticipated by the business world. At the end of 2019, the Supreme Bar Council submitted its proposal, which was admitted by one of the judge panels of the Supreme Court of Cassation, and Interpretative Case No 5/2019 was opened by the Chairman of the Supreme Court of Cassation trying to answer two main questions: What is the legal definition of a “closure of a part of the enterprise?” What obligations or discretions does the employer have when performing selection?

First, all relevant authorities, along with representatives of the academic world, were requested to submit statements on the matter that would have to be taken into account in the Supreme Court’s subsequent general assembly discussion.

In the adopted interpretative judgment, the Supreme Court stated that the grounds of “closure of part of the enterprise” require the cumulative presence of two prerequisites:

(1) a certain organizationally separate unit to be removed from the structure of the enterprise, and

(2) the activity of this unit to have been terminated. In an internal reorganization, on the other hand, structural changes in the enterprise are carried out in which some units are changed by merging, separation, division, etc., but their activity is preserved and, therefore, an internal reorganization is not a valid ground for lawful termination of employment contracts of employees, who have previously worked in the reorganized unit.

The Supreme Court further interpreted whether the employer is required to perform the selection when closing a part of the enterprise. It specified that, in this case, given the abovementioned requirements are met, the employer has the right but not the obligation to perform a selection. In this instance, then, the performance of the selection is at the employer’s discretion.

The employer may exercise its right of selection when there are workers or employees in positions with the same, or with insignificantly different work functions, as the ones in the closed unit in the remaining organizationally separate units of the enterprise within the same district.

The interpretative practices of the Bulgarian Supreme Court are mandatorily applied by all court instances and are crucial to the development of consistent case law and legislation.

By Dafinka Stoycheva, Senior Partner, and Tsvetina Stefanova, Senior Associate, Gugushev & Partners

This Article was originally published in Issue 9.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.