Category: Bulgaria

In Bulgaria, one ordinary and two extraordinary parliamentary elections were held in the span of eight months in 2021, and the country is now preparing for yet another extraordinary election on October 2, 2022. Which outstanding legislative packages are critical – considering the absence of regular parliamentary activities – and what are their implications for the country?

Unusual Circumstances

“The absence of regular government and the short-lasting parliaments have unreasonably delayed some essential legislative initiatives,” Penkov, Markov & Partners Partner Roman Stoyanov points out. The short mandate of the previous National Assemblies “was extremely inadequate for any substantial legislative activity,” adds Tokushev and Partners Law Office Managing Partner Viktor Tokushev. The substantial national and global crises, as well as the war in Ukraine, created hurdles for the most recent parliament too, PPG Lawyers Managing Partner Irena Georgieva says, noting that “the last parliament was focused on very disparate and sometimes inconsistent actions and measures, where real legislative activity was reduced to a minimum.”

One Priority Above All Others

Considering the unique circumstances of the country, all the interviewed lawyers agree that the most pressing legislative updates are the ones related to European funding under the Recovery and Resilience Plan (RRP). “In order to receive the EUR 724 million second tranche, the adoption of 22 legislative measures is necessary,” Tokushev says, noting that the deadline is December 31, 2022. “The legislative changes stemming from the country’s obligation to fulfill some of the milestones outlined” in the RRP are “an absolute condition for receiving the second payment,” Kambourov & Partners Partner Veronika Hadjieva adds. “The plan offers not only an opportunity to implement several large energy, infrastructure, and social projects but also to advance much-needed and long-awaited reform,” Kinstellar Managing Partner Diana Dimova explains, noting that “the national budget has been set up in expectation of receiving EU funds. In view of the pessimistic prognoses about economic conditions in the upcoming months, ensuring that Bulgaria continues receiving funds under the RRP is essential.”

The laws to be amended for receiving funding, according to Hadjieva, include “anti-corruption legislation, public procurement legislation, energy legislation, biological diversity legislation, as well as changes in the Bulgarian commerce act aimed at improving the efficiency of insolvency proceedings, and changes in e-governance legislation to reduce administrative burdens for people and legal entities.”

Among the legislative updates required as a precondition to receiving the second tranche of the RRP, several reforms stand out, having a significant impact on the country as well. For Stoyanov, Dimova, and Schoenherr Attorney-at-Law Elena Todorova the legislation ensuring energy independence is the most critical. “Of course,” Todorova says, we need the “legislative amendments that will enable the establishment of Bulgarian energy independence, such as a bill enabling small photovoltaic plants for family use.” Further, “any changes that stimulate the uptake of renewable energy and energy storage should be prioritized,” Dimova notes. And Stoyanov also highlights the importance of “the implementation of the European Green Deal,” noting that the Bulgarian economy, “is one of the most carbon-intensive economies in the union.” Georgieva, Stoyanov, Dimova, Todorova, and Hadjieva all note that the amendments to public procurement are also much needed. “A number of public works projects, including in infrastructure, are pending,” Dimova notes, with Stoyanov adding that the absence of proper regulations “resulted in multiple cases of abuse of competition” as well as “uncontrollable subcontracting to third parties without using competitive procedures.”

Another major issue, according to Dimova and Todorova, are the changes needed by the commercial act. The commercial act introduces “the variable-capital-company and accelerated liquidation of legal entities,” Todorova notes, with Dimova adding that “the change aims to attract more investments into the innovation and technology sectors. In addition, the commercial act transposes the EU Directive on preventive restructuring frameworks and introduces measures to enable preventive restructuring to avoid insolvency proceedings.”

Finally, among the legislative updates required as a precondition to receiving the second tranche of the RRP, Hristov & Partners Senior Associate Dragomir Stefanov says that “the draft law on the bankruptcy of natural persons stands out. Bulgaria lags behind all other EU member states in that field. Its importance goes well beyond the receipt of funds under the RRP.” According to him, “adequate legislation in this area will likely address some of the negative economic and social effects that the economic crisis and upcoming recession will have on the most vulnerable members of society.”

In Other News

Still, there are also a number of pending legislative proposals that are not related to the RRP. According to Stefanov, among these is the law implementing the EU Whistleblowing Directive. “This is a particularly sensitive field for multinational companies in Bulgaria,” he says. “The progress on that topic within the EU varies significantly between member states, and this complicates the companies’ efforts to introduce the necessary centralized and/or local internal procedures and rules.”

“Bulgaria has also set a goal to adopt the euro in 2024,” Tokushev adds. “Among the essential amendments for the adoption of the euro are changes to the Bulgarian National Bank Act and the preparation of the so-called ‘euro law.’” According to him, “with a functioning Parliament in the fall – at the earliest – the government’s timelines are extremely tight to meet the set schedule. It is necessary to make changes in over 100 acts.” Georgieva highlights the need to urgently introduce changes to the national budget. “Due to the dynamic inflationary processes in the country, the law on the budget in Bulgaria was voted in such a way that it was expected to be updated in the autumn, which at the moment seems rather unrealistic,” she notes. Tokushev also underlines “the raging inflation” in the country, noting that “it is necessary to prepare a legislative program, as well as instructions from the government, to prepare the economy.”

“In addition, there are several legal instruments to which Bulgaria has to adhere in order to advance its accession process to the OECD,” Dimova adds. “These instruments include legislative and non-legislative measures on anti-bribery, corporate governance, cyber security, tax transparency, etc.”

Making Up For Lost Time

All things considered, “adopting the legislative reforms in time might be a challenging task in the context of a political crisis and the absence of a functioning parliament, especially considering that some of the changes concern sensitive matters such as judicial reform and the energy market,” Dimova says. “What needs to be expedited is the election of a new parliament and a new regular government,” Todorova concludes, “but this is a process that cannot be legally expedited – it is stipulated and with fixed time frames. However, if the elections on October 2, 2022, lead to a truly functioning parliament and a new government, Bulgaria still has the opportunity to meet the conditions for receiving the funds and maintain its current industry growth.”

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.

Cautious optimism threads across Bulgarian markets – despite political instability and rising concerns fueled by the concurrent global crises – according to Komarevski Dimitrov & Partners Partner Venelin Dimitrov.

“Bulgaria has had four elections in less than two years, so you could say that our political climate is not a very stable one,” Dimitrov begins. The newly elected parliament had its first three sessions following the elections of October 2, and it is already facing challenges. “The citizens voted in such a way that no party gained a majority – a fairly wide coalition of likely more than three parties will be needed in order to govern in a stable fashion.”

Dimitrov goes on to explain that the political parties that made it past the finish line are very different in their philosophies and political approaches. This means that they will need “to find a way to work together and coalesce around important issues, in order to help people make it through these difficult times,” he explains. Still, Dimitrov shares that he is “cautiously optimistic about the times to come,” hoping that the new powers that be will help the country move forward in a stable way.

“The immediate task is to combat the incoming recession, fueled by rising inflation and interest rates, and further accelerated by the increase in energy prices, sanctions, and countersanctions both resulting from the war in Ukraine,” Dimitrov says, adding that the situation is particularly dire when taking into account that “Bulgaria just started to recover from the pandemic years.” He reports that the overall legislative efforts have been stalling in the country, as a direct consequence of political insecurity and instability. “The road ahead will have to include a comprehensive legislative agenda – transposing the EU whistleblowing directive, implementing ESG-related changes, and improving the overall state of compliance, to name but a few areas of interest,” he says.

However, where there are challenges, Dimitrov also feels there are opportunities. “We have seen a strong uptick of work related to the relocation of businesses and workers from Russia, Ukraine, and Belarus to Bulgaria, primarily in the area of IT,” he says. “In times like these, this is a major positive signal because it implies that the already booming domestic IT market will likely develop further,” he explains. 

Finally, Dimitrov reports that investor interest in Bulgaria is “resilient in the face of ongoing struggles. There has been a bit of a dip following the post-COVID-19 surge, but M&A levels are still good in Bulgaria. Consolidation on some markets continues as expected.” Dimitrov opines that investors are currently likely to employ a “wait and watch” approach, but that “they still wish to continue doing business, which is a positive sign. There are swaths of market optimism – especially in the renewable energy and construction sectors – and I am confident that this will spell good things for the economy,” he says in conclusion.

Djingov Gouginski Kyutchukov & Velichkov, working with Linklaters, has advised the joint lead managers on the increase of Bulgaria’s global medium-term note program to EUR 12 billion and the EUR 2.25 billion issuance of sovereign bonds. Eversheds Sutherland member firm Tsvetkova Bebov and Partners and Clifford Chance reportedly advised the Republic of Bulgaria.

BNP Paribas, Citigroup Global Markets Europe AG, J.P. Morgan SE, and UniCredit Bank AG acted as joint lead managers on the sovereign bond issuance.

DGKV’s team included Partner Georgi Tzvetkov and Counsel Gergana Monovska.

In April this year the information systems of “Bulgarian Post” became the subject of a serious cyber-attack. The Commission for Personal Data Protection (CPDP) imposed a fine of BGN 1 million (approx. EURO 511.292) and after a 3-month inspection found that the company neglected cyber security and no measures were taken to protect users’ data. There was no analysis that would lead to a proper implementation of organizational measures for the protection of data electronically. After the encryption of the data of 680,000 individuals, personal names, social security numbers, and information about personal cards were leaked. The amounts of money that the employees received, as well as their bank accounts, are available. Sensitive data on the age and health status of employees, as well as emails of the company’s customers, were also accessed.

A few months later, this October, the websites of the Presidency, the Ministry of the Interior, the Ministries of Defense, Justice and the Constitutional Court and others (14 Bulgarian institutions in total) were also hacked. Most of the attacks were of the DDoS attack type, associated with a delay or temporary restriction of access to the site.

One of the architects of the cyber defense of the Israeli army (Gabi Siboni) arrived in the country and gave a short interview to the media. He paid special attention to the business: “I don’t know the exact situation in Bulgaria. I can only say that you can always be better qualified. From what I know, there is a lot to be done, since the preparation is not only on the part of the Bulgarian state administration, but also on the part of the Bulgarian business branch, as well as the civil sector. They should be better prepared. The business sector is just a unit, just like the country. If they attack the business, they can harm the Bulgarian economic system. It’s as simple as that.

As simple as that… says the expert, but it seems the words remain somehow unheard and misunderstood.

The latest research from the World Economic Forum’s Center for Cybersecurity reveals several key critical differences in the perceptions of CIOs and business managers in general. First and foremost is prioritizing cyberspace in business decisions. While nearly all of the business executives surveyed explained that cyber resilience is integrated into their risk management strategies, only 55% of the security officers surveyed agreed with this statement.

Getting business leadership buy-in for cybersecurity projects is also becoming a point of misunderstanding. Most of the respondents shared that cyber resilience is considered a priority in their organization and has the support of their management. Significantly less is the share of those who see cyber resilience as a core part of their company’s overall risk management. Many security experts comment that they are not consulted when making business decisions, which leads to problems later on. Misunderstandings between different executives as a direct result of incompatible priorities and security policies can leave companies vulnerable to attacks.

Next comes the attitude to cyber legislation and the need for legal consultants in a number of actions to prepare an internal organizational legal framework for response to an attack in the specific business organization.

A dissection of the basic principles of creating a credible defense program^[1] shows that there is almost no level of response that does not involve the intervention of a legally trained expert. Preparing a legally valid response to the relevant regulator; assessing whether personal data is affected; determining the level of compliance with the legal regulation; working with the IT team; stopping the possibility of using stolen data; participation in possible legal disputes are all stages that should not be missed in preparing for the next attack.

In the country, however, the processes seem to happen too slowly, and a large part of the business claims business preparation at a level similar to an article in New York magazine back in 1996: “Cyber is such a perfect prefix. Because nobody has any idea what it means, it can be grafted onto any old word to make it seem new, cool and therefore strange, spooky.”

[1] (i) identifying weaknesses in the organization; ii) protection through access management and training; iii) determination of personal and/or sensitive data flows (trade secrets); iv) rapid identification of incidents and coordination with suppliers and partners; v) adequate response and signaling and vi) recovery of information.

By Irena Georgieva, Managing Partner, PPG Lawyers

Djingov Gouginski Kyutchukov & Velichkov has advised both sides in Purcari Wineries’ acquisition of a 76% stake in Angel’s Estate Winery.

According to DGKV, “Angel’s Estate is a full cycle winery located near Stara Zagora, in one of the most prominent wine regions in Bulgaria, the Thracian Lowlands. Purcari Wineries is the leading wine producer in the region, having wineries in Moldova and Romania.”

DGKV’s team included Partners Zdravka Ugrinova and Georgi Tzvetkov, Counsel Valentin Bojilov, and Senior Associate Krassimir Stephanov.

CMS has advised CTP on the acquisition of two Transcapital logistics projects in Sofia from the Andreew Investment Group. KPMG Legal advised Andreew on the deal.

According to CMS, the projects comprise nine warehouse facilities and three office buildings covering over 73,000 square meters. “There is also the potential to develop another 11,000 square meters and building permits for 20,000 square meters of warehouse space,” the firm informed.

The Andreew Investment Group’s core business activities are in the property, financial services, and distribution sectors.

CMS’ team was led by Partner Atanas Bangachev and included Counsel Jenia Dimitrova, Senior Associate Katya Todorova, and Associates Vaska Solakova and Diyan Georgiev.

KPMG Legal’s team included Partner Juliana Mateeva and Senior Manager Dilyana Dimitrova.

As a firm that specializes in asset recovery for victims of cybercrime when the assets or scammers are in Bulgaria, we’ve seen that, in the last few years, cyber crimes are increasing worldwide. The fraudsters use similar techniques to mislead their victims: through numerous hacking attacks, they send emails on behalf of and/or to the victims or persons related to them using fake email addresses very similar to the originals. The aim of the fraudsters is to trick the victims to transfer substantial amounts of money to the fraudster’s bank accounts in Bulgaria. Then, the fraudsters usually move the received sum to a bank account in another country or to a bank account of a related company in Bulgaria. These money transfers are in breach of Bulgarian and international AML Law.

One of our clients, one of the biggest multinational companies, became a victim of the abovementioned scheme/cybercrime and possible AML infringement. The fraudsters represented themselves as the supplier with whom our client had a long-term business relationship. Through hacking attacks, the fraudsters sent emails to both our client on the supplier’s behalf and to the supplier on the client’s behalf, using fake email addresses similar to the originals. Probably, the electronic correspondence, exchanged between our client and its supplier regarding the deliveries and their respective payments, was monitored by the fraudsters over a long period of time. The fraudsters deceived our client to transfer a significant amount of money to two bank accounts, one of which was in Bulgaria. The recipient of the amount, a Bulgarian company, was registered shortly before the abovementioned email correspondence and according to publicly available information, the manager and sole owner of the capital of this company had a dubious reputation.

We understood that our client became a victim of a complicated ongoing criminal scheme involving an unknown number of organized participants. We immediately notified the competent authorities and the involved bank in Bulgaria. Thanks to our long-term collaboration with the public authorities and local banks, we promptly succeeded to freeze the fraudsters’ assets and, later, to recover our client’s stolen funds. The whole asset recovery procedure continued for one year approximately. However, our experience shows that such a recovery procedure may take several years.

We expect that the number of cases related to cybercrimes will increase significantly in the next years due to the limited powers of authorities on monitoring and preventing cyberattacks, as this kind of crime is carried out in the virtual online world.

By Konstantin Mikov, Attorney at Law, Mikov & Attorneys

Djingov, Gouginski, Kyutchukov and Velichkov has advised a Silverline Partners – Fund LP-led consortium of private equity investors on their EUR 6.8 million Series A investment in Alcatraz Bulgaria. Cooley reportedly advised Alcatraz on the deal.

According to DGKV, Alcatraz Bulgaria is a member of the Alcatraz AI group. The group develops facial recognition solutions using artificial intelligence and machine learning. It was founded by Bulgarian Ventsi Gaydardzhiev. Alcatraz AI was established in Silicon Valley, while Alcatraz Bulgaria is responsible for the main engineering operations from its office in Sofia.

DGKV’s team was led by Partner Georgi Tzvetkov and Counsel Valentin Bojilov.

Zvezdelina Filova has become the new Local Practice Leader for Deloitte Legal in Bulgaria, following the departure of former Partner Reneta Petkova.

According to Deloitte, Petkova joined the firm in 2014 and had been leading the firm’s legal practice in Bulgaria since then. “Deloitte in Bulgaria has had its Legal practice in place for more than 23 years, but things have started to take a whole new perspective in 2014, when [Petkova] joined,” the firm’s announcement regarding the leadership change read.

According to the firm, Filova “will be working closely with [Petkova] in the weeks to come – for a smooth transition and carryover of the tasks and responsibilities.”

Specializing in employment, commercial, regulatory, corporate law, stabilization and insolvency, IP, and dispute resolution, Filova joined Deloitte Legal in 2015 as an Attorney at Law and Senior Manager. Before that, she spent over three years with CMS as a Senior Associate and, earlier, over ten years as an Attorney at Law with Antov & Partners, where she started in 2001.

Thanks to its qualities – environmental friendliness and a wide range of applications, hydrogen occupies an increasingly central place as an energy carrier. Focus on its use, and in particular on the use of green hydrogen, is also placed at European Union (“EU”) level, where in a number of acts, it is considered an important factor for decarbonization, fulfillment of the global goals of the Paris Agreement and achievement of carbon neutrality until 2050. The reason is that both hydrogen and electricity can be generated from greenhouse gas neutral sources addressing climate change and air quality issues. To deploy green hydrogen and turn it into a viable solution to decarbonize, a lot of investments and a favorable regulatory framework are required.

In accordance with the set goals, green hydrogen is already an integral part of the policies developed by the Bulgarian authorities. Hydrogen production from renewable sources is among the policy measures provided in the Integrated Energy and Climate Plan of the Republic of Bulgaria 2021–2030 (“IECP”). According to IECP, steps will be taken to launch hydrogen production via Power to X plant solutions, as the surplus electricity generated from solar and wind power is expected to be used for hydrogen production. As a basis for the development of hydrogen capacities in Bulgaria, IECP foresees a pilot project for a hydrogen plant with a total installed capacity of 20 megawatts by 2030 to be developed.

The production of green hydrogen occupies a leading place in the Bulgarian Recovery and Resilience Plan (“BRRP”). One of the reforms provided for in part “Green Bulgaria” in the BRRP is aimed at preparing and approving National Roadmap to improve the conditions for unleashing the potential of hydrogen technologies and mechanisms for producing and supplying hydrogen. As a result, the barriers to developing and implementing these technologies shall be identified and proposals for regulatory changes shall be prepared accordingly.

Taking into account that currently, there are no green hydrogen production plants built in the country, in the BRRP, a Scheme to support green hydrogen and biogas pilot projects (the “Scheme”) is developed. It is foreseen that the efforts will be directed to the launch of projects that can be implemented in close cooperation between scientific research and industry. The aim is the Scheme to enable the introduction of green hydrogen with application in industrial production, as well as its future use in transport and for the production of electricity and heat energy. The provision of funds under the Scheme shall be made on the basis of a project proposal selection procedure, in which the criteria for the selection of project proposals will be determined. The financial resource is intended for purchase of new machinery, facilities and equipment representing tangible fixed assets. As per Regulation (EU) No. 651/2014, the aid intensity shall be 45% to 65% depending on the type of undertaking (micro, small, medium or large) and will not exceed EUR 15 million per undertaking. The aim until 2026 is for 65 megawatts of green hydrogen production capacity to be installed. 

The specific requirements under the Scheme are yet to be announced. Implementing the above-presented projects is expected to be a significant incentive for investments in the field, which will positively impact economic growth and create job positions. Investments in hydrogen are also in line with the EU taxonomy for sustainable finance, which should not be overlooked. They will also stimulate the low-carbon development of the economy and reduce dependence on fuel and import of energy which is of crucial importance nowadays. 

By Mihaela Dimitrova, Associate, PONTES