Category: Bulgaria

On August 19, 2021, CEE Legal Matters reported that Schoenherr had advised the MET Group on the acquisition of a 60-megawatt operational wind park in Suvorovo, Western Bulgaria, from Grupo Enhol. CEE In-House Matters spoke with Sandor Zorad, M&A Legal Counsel at the MET Group, to learn more about the deal. 

CEEIHM: To begin with, tell us about the MET Group.

Zorad: MET Group is one of the fastest-growing energy companies in Europe. Its main activities are related to natural gas and power (including wholesale, trading, and sales, as well as energy infrastructure and industrial assets). MET Group is headquartered in Switzerland, but it has subsidiaries in 13 European countries, with 700+ permanent staff representing more than 30 nationalities and revenues of over EUR 11 billion.

CEEIHM: MET Group recently acquired a wind park in Suvorovo, Bulgaria. Why did you choose to proceed with this particular project?

Zorad: Renewables are a key component of MET’s strategy going forward.

The acquisition of the 60-megawatt Suvorovo wind farm was completed in December 2021. This is the second Bulgarian wind farm acquisition of MET after buying a 42-megawatt wind park located in North-eastern Bulgaria from Italian Enel in January 2021.

This new acquisition fits well into MET Group’s renewables expansion strategy aiming to increase our renewable portfolio to over 500 megawatts by 2023 in Central and Eastern Europe, consisting of solar and wind projects, and an additional 500 megawatts by 2026.

CEEIHM: What is your plan for the wind park following the acquisition?

Zorad: We plan to be a long-term owner of the wind park in line with our Green Assets Division growth strategy.

CEEIHM: What was your role in the acquisition?

Zorad: My responsibility was to legally manage the deal throughout the full project cycle. This required strong cooperation with our internal stakeholders from management to the group legal team, members of our internal M&A business team, and also the local Bulgarian legal advisor which was Schoenherr Bulgaria (Stoyanov & Tsekova Law Firm).

CEEIHM: What was Schoenherr’s mandate on the deal and why did you choose them as your advisor?

Zorad: To complete the legal support of the project including the execution of a legal due diligence review, involvement in SPA negotiations, and preparation for closing.

Schoenherr had also advised us on our first Bulgarian wind park acquisition and we were fully satisfied with their services. This law firm has a very strong team in the field of M&A and also in energy law, so it was an ideal choice for our second acquisition.

I would like to specifically mention two individuals. Alexandra Doytchinova and Katerina Kaloyanova – both great M&A lawyers – were in charge and responsible for managing the project team of Schoenherr for the two acquisitions. Tsekova Stefana was excellent in her coordination of the due diligence review in the Suvorovo project, while we could always rely on the advice of Galina Petkova in merger clearance processes and Radoslav Chemshirovin in relation to all energy law matters.

Originally reported by CEE In-House Matters.

In 2012, the Bulgarian Parliament introduced statutory rules regarding the activities of temporary staffing enterprises (TSAs). Before that, their existence and operations were recognized and tolerated in practice, but their activities took place in a legal vacuum.

The 2012 rules tied the hands of businesses rather than effectively regulating the relations between commissioned employees, outsourcing companies, and employers using leased staff. It is not a secret that both outsourcing companies and staff feel they had a lot more business flexibility during the legal vacuum.

Nearly ten years later, businesses are still facing the same or even increased difficulties in implementing some globally popular models in Bulgaria. The most relevant example is the ‘Employer of Record’ (EOR) model.

An EOR is a third-party organization that hires and pays an employee on behalf of another company and takes responsibility for all formal employment tasks. Using an EOR allows companies to engage with overseas workers legally and efficiently, without having to set up a local entity or risk violating local employment laws.

Bulgarian Legislation Does Not Recognize EORs!

The principal rule under Bulgarian law is that the employee must enter a direct employment contract with the company they will actually work for. There are only two exceptions to this rule – the EOR model is not one of them.

The first would be to provide services as TSAs, the next best thing. TSAs hire employees for temporary work and send them to companies, to work under their management and control. The Bulgarian Labor Code regulates temporary employment through a TSA and the Employment Promotion Act regulates TSA registration requirements and procedures. There are certain restrictions regarding the use of the TSA model, however, which also represent fundamental differences to the EOR model. TSAs are subject to registration with the Employment Agency of Bulgaria. The process normally lasts up to two months and the registration certificate is valid for five years (subject to further extensions).

TSAs (unlike EORs) may send employees to a user undertaking for temporary work only, in two cases: either to replace an absent employee or to complete a specific task/project, with a clear start and end. Staff may not be sent to support the ‘usual work’ of the client! The type of work – temporary – requires the conclusion of a fixed-term employment contract with the employee. The contract terminates once the titular employee returns or the specific project is completed.

The number of temporary employees sent by a TSA may not exceed 30% of the client’s own employees. The TSA and the user undertaking need to enter into a written agreement and are severally and jointly liable for the obligations against the employee stemming from the temporary work.

These restrictions mean that a global EOR service provider may operate in Bulgaria, after registering as a TSA and with the above limitations, which significantly alter the classic EOR model.

The second exception would be to provide a business service to the client. There are companies that provide typical EOR services – usually at the cost of employment plus markup – however, they enter a business service contract with their client. The service is not an EOR service, rather the subject matter of the employee’s work. The wording of the business service contract must be carefully drafted to avoid claims of ‘personnel leasing.’ For example, if the employee is a software developer, the subject matter of the business service contract would be ‘the provision of software services.’

Providing such business services does not require licenses/registration and there are no specific requirements for the operation of the providers. In some cases, such a subject matter would be entirely justified: the service provider operates in the same business sector as the end client and creates a dedicated team of professionals working exclusively for that client. In other cases, such structures would not be fully compliant with the law: an HR agency provides the end client with software development or marketing services, through a business service contract – when such services are clearly not in the same business sector where the client operates, nor are they typical for the sector in which the HR agency operates.

Companies providing such services have full liability as an employer against the employees. However, they also bear the risk of authorities claiming Bulgarian Labor Code breaches and imposing administrative sanctions. Even though such risks could be mitigated through well-drafted service contracts, they cannot be fully excluded.

By Radoslav Alexandrov, Partner, and Violeta Kirova, Principal Associate, Boyanov & Co

This Article was originally published in Issue 8.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

CMS has advised OTP Bank and its DSK Bank Bulgarian subsidiary on their EUR 17.3 million joint refinancing of Energy and Development Company’s 14.2-megawatt operational photovoltaic power plant in Bulgaria.

The Energy and Development Company was created in 2004 and operates in the construction and exploitation of renewable energy sources, production and sale of electricity from natural and other sources, commercial representation, and consulting services.

According to CMS, “the solar project operates under the contracts-for-premium scheme, introduced by Bulgaria in order to replace the feed-in tariff under the Second Renewable Energy Act.”

CMS’s team was led by Managing Partner Kostadin Sirleshtov and included Senior Associate Borislava Piperkova.

Schoenherr has advised Queisser Pharma Bulgaria on the acquisition of its new office space in Sofia from real estate developer Tremont. 

Queisser Pharma is a German pharmaceutical company present in more than 50 countries.

Founded in 2016, Tremont is a real estate developer investing in the construction, sale, purchase, and management of real estate properties in Bulgaria.

According to Schoenherr, the nearly 1,000 square meters of office space is located in a business centre in the Studentsky region in the southwest of Sofia.

Schoenherr’s team included Attorneys Elena Todorova and Dimitar Vlaevsky.

Schoenherr has advised RGreen Invest on a EUR 15 million bond agreement with a Renalfa group subsidiary, for the financing of the construction of a photovoltaic plant near the town of Razlog in southwestern Bulgaria, as well as on a standard security package for it.

The bond’s issuer is a member of the Renalfa group, a Bulgarian clean energy and e-mobility provider with a focus on renewable energy generation assets. 

RGreen Invest is a French management company representing a fund for green energy projects. With more than EUR 1.4 billion under management to date, RGreen Invest has financed projects in France and across Europe equivalent to an installed capacity of more than 3.3 gigawatts.

According to Schoenherr, “the transaction enables RGreen Invest to further expand its footprint throughout Europe, following the company’s strategy of providing long-term support for developers of renewable energy projects. At the same time, the bond represents a legal novelty in several respects. 

Schoenherr’s team was led by Sofia Head of Banking, Finance & Capital Markets Tsvetan Krumov and included Attorneys at Law Kristina Lyubenova and Milena Gabrovska.

At the end of November 2021 Bulgarian Competition Protection Commission (CPC) launched inquiry of the consumer goods and services e-commerce sector (The Sector Inquiry). The Sector Inquiry is part of CPC’s priority in the field of antitrust for 2021 to monitor constantly digital markets for prohibited agreements or practices as well as for abuse of dominant position. CPC also defines the e-commerce sector as one of its investigations top priorities in 2022.

CPC underlines that in the recent three years it has conducted several antitrust investigations concerning e-commerce sector. They have provided CPC with information about certain issues of the competition environment on the digital markets in Bulgaria. Thus, with launching the Sector Inquiry CPC follows the practice of the European Commission and of the national competition authorities in other Member States (the NCAs).

The Statistic

According to CPC, it focuses on digital markets now due to the blooming of the information technologies that has been further encouraged by the pandemic in the past two years. During 2021 CPC has monitored and analysed statistic related to e-commerce. CPC based its analyses on data collected from Bulgarian National Statistical Institute (NSI), Bulgarian E-Commerce Association and EuroCommerce.

As result, CPC finds that the growth of e-commerce in Bulgaria on annual basis within the last five years is between 21% and 35%. The expected growth in 2021 is 30% comparing to 2020. In addition, 30.9% of the customers between 16-74 years purchased online goods and services for personal use in 2020. Another reason for this growth is the increasing Internet penetration which in 2020 is 78.9% of the Bulgarian households.

NSI’s data show that most of the people in 2020 purchased online clothes, shoes, and accessories (75.3%), followed by household goods (31%), sport goods (26.3%), hotel reservation and tourist packages (21.1%), cosmetics (20.8%), etc.

As per the CPC’s initial findings Bulgarian consumers prefer to purchase goods and services via Internet from online merchants which are registered in Bulgaria (90% of the purchased goods in 2020). Further, 34.6% of the goods and services are purchased online from merchants in EU and 20.6% form merchants outside EU.

CPC expects e-commerce sector in Bulgaria to continue growing within the next few years because of the increasing Internet penetration, established habits for using online shops and trust in e-commerce.

The Aim of the Sector Inquiry

With the Sector Inquiry CPC aims to extent its knowledge about the functioning of digital markets in Bulgaria, especially in relation to the most popular consumer goods and services; how market powers affect the market participants’ behaviour; and what are the impediments for the competition and growth of the e-commerce. CPC wishes to get a more detailed picture about the processes which are going on the digital markets. This will provide CPC with sufficient information whether any further measures are necessary to be undertaken for the proper development of the markets and the competition environment.

The CPC Powers

Within the Sector Inquiry CPC will determine the relevant markets and will investigate their structure and characteristic, entry barriers, market participants, level of competition, regulatory frame as well as existing self-regulations. On this basis CPC will make its conclusions about the competition environment of e-commerce sector.

For this purpose, CPC may request information and all kind of pieces of evidence, such as: written, tangible and digital, from all parties (e.g., suppliers, online shops, and customers) which are active on the relevant markets. Further, CPC may take oral or written explanations from the market participants and their contract partners. During the investigation CPC may use external experts as well as may request information and support from the other NCAs and European Commission. CPC is not allowed within sector inquiry to conduct on-site inspections.

What’s next

If CPC finds serious indications for anticompetitive practices during the Sector Inquiry, CPC may open investigations for prohibited agreements/practices and/or for abuse of dominance under CPA and/or TFEU. CPC may also open investigations for early implementation of mergers without being notified to CPC or prior CPC’s clearance under the CPA, if such evidence are found.

When CPC finds need certain legal or administrative measures for improvement of the competition environment to be undertaken, CPC will inform the respective competent state or local authorities, when the Sector Inquiry is adopted.

CPC will also send the Sector Inquiry to the National Assembly and/or Council of Ministers to be considered by preparation of strategies, programs or plans for development of the e-commerce sector, if any.

According to the CPC’s practice so far, the final Sector Inquiry might be expected by the end of 2022. Considering the reasoning of the decision for launching of the Sector Inquiry, most probably CPC will follow the recent best practices of the European Commission and the NCAs concerning the e-commerce sector. Since e-commerce sector will be one of the CPC’s investigations priorities in 2022, it might be expected CPC to focus on identifying hardcore anticompetitive practices concerning the most popular goods and services which to be further investigated.

By Mariya Papazova, Partner, PPG Lawyers

Bulgaria is already in delay with the transposition of Directive (EU) 2019/1937 on the protection of persons who report breaches of Union law (the “Whistleblowers Directive” or the “Directive”): like several other member states, Bulgaria has so far failed to bring into force the laws, regulations, and administrative provisions necessary to comply with the Directive. The European Commission has already sent a formal notice for non-transposition of the Directive on the grounds of Article 258 TFEU – Article 260(3) TFEU.

The delay was mainly due to lack of operating parliament for more than eight months, in the context of three consecutive general elections in 2021, the first two failing to result in establishment of governing coalition out of the political parties elected. After the third elections, a four-party coalition government was formed in December 2021. This stabilization of the political situation in Bulgaria will accelerate many backlogged legislative processes, including the transposition of the Whistleblowers Directive. The process of preparing the transposition of the Directive is currently in its final stages, with an inter-ministerial working group with a wide range of experts preparing a Draft Bill on the Protection of Persons who Report or Publicly Disclose Information on Breaches (the “Draft Bill”).

The material scope of the Directive is relatively wide, including breaches of EU law, affecting a number of areas in which the business operates such as public procurement, financial services, products and markets, and prevention of money laundering and terrorist financing, product safety and compliance.

The list also includes the breaches affecting the EU’s financial interests as well as the breaches related to the Union’s internal market (e.g., competition and state aid). Member states may also provide for a wider material scope.

The protection provided by the Directive in respect of persons who report breaches of Union law (or whistleblowers) also covers a wide range of persons from the private or public sector who possess information on breaches in a work-related context. These can be employees, self-employed persons, shareholders, board members, subcontractors, suppliers, trainees and volunteers, as well as persons during a recruitment process or pre-contractual relations.

Persons reporting breaches of Union law receive protection where the following two conditions are met: 1) they have reasonable grounds to believe that the information they reported was true at the time of reporting; and 2) they have reported in one of the ways provided for in the Directive. The Directive provides protection also for those who submit anonymous reports but leaves the Member States to decide whether to introduce the acceptance of anonymous reports in their national law.

The Directive provides for three ways of reporting breaches: 1) internally (usually, “up-the-organization ladder” – by reporting breaches within a private or public sector undertaking; 2) externally – by reporting to a competent national authority; and 3) publicly – by disclosing the relevant information about the breach to the public. In order to be protected in case of public disclosure, whistleblowers must first report internally or externally, but such reporting has remained without a follow-up.

The introduction of adequate rules and procedures for internal reporting of breaches of EU law is an obligation of businesses. In this regard, the Directive provides that this obligation applies to private sector undertakings with 50 or more employees, except for undertakings covered by the EU acts governing the financial services, products and markets, the prevention of money laundering and terrorist financing, transport safety and environmental protection. However, after carrying out a risk assessment, member states may also impose this obligation on undertakings with less than 50 employees.

For private sector undertakings that have between 50 and 249 employees, the Directive provides some flexibility, allowing resources to be shared between undertakings as regards the receipt of reports and any investigation to be carried out. It is expected that Bulgaria will opt for these shared channels of reporting.

It is likely that the final version of the Bulgarian Draft Bill will not provide for an extension of the material scope beyond that provided for in the Directive. It is also expected that no obligation will be introduced for undertakings with less than 50 employees to create channels for internal reporting of breaches. In addition, the Draft Bill is not likely to provide option for anonymous reporting.

However, only with the final Act of Parliament, once enacted, will Bulgaria decide: 1) whether to extend the material scope provided for in the Directive by introducing additional areas that may be affected by breaches; 2) which the institutions to which reports can be sent will be, as well as which institutions will have the powers to impose sanctions for breaches of the law; 3) what should the specific measures for protection of the persons reporting breaches be; 4) whether the obligation to introduce rules and procedures for internal reporting of breaches will apply to private undertakings with less than 50 employees; and 5) whether anonymous reports of breaches will be provided for.

The absence of an adopted transposition act, as a rule, should lead to direct application of the Directive, but in view of the still discussed seven main options for the member-states, of the advanced legislative process in Bulgaria, and the existence of the first Draft Bill, we do not expect sanctions for non-compliance with the Directive on the part of Bulgarian businesses.

By Eleonora Mateina, Managing Associate, and Rashko Stoyanov, Associate, Tsvetkova Bebov & Partners

In 2018 the Bulgarian Stock Exchange (BSE) was granted approval by the Financial Supervision Commission (FSC) to create the new Small and Medium Enterprises (SME) Growth Market BEAM (Bulgarian Enterprise Accelerator Market), under the provisions of the Markets in Financial Instruments Directive 2014/65/EU (MiFID II). The new segment of the BSE aims to promote the development of small and medium-sized companies, which have a key role in the economic growth of the country.

The BEAM Market is a special market that enables national and foreign small and medium-sized enterprises – registered as joint-stock companies having non-materialized shares – to raise funds under softer terms compared to those on the regulated market. At the same time, such businesses are enjoying similar advantages as those of public companies. A company is considered an SME before being admitted to trading if, according to its latest annual financial statements, it meets two of the following criteria: less than 250 employees, net annual turnover does not exceed EUR 50 million, or total book value of the assets does not exceed EUR 43 million.

The BEAM Market could be the first step on the road to becoming a listed company on the regulated market. It is attractive for ambitious and innovative companies with existing business and growth potential, which need additional financing to develop their activity and achieve greater publicity for their products and services. At the same time, the BEAM Market is an excellent alternative funding opportunity for start-ups with innovative ideas and promising business plans, as it ultimately reduces the dependence on bank funding, which is an important advantage at the early stages of the development of a company. Companies listed on the BSE Main Market cannot be traded on the BEAM Market, however, there is no such limitation for companies listed on stock exchanges in the EU Member States.

The BEAM Market provides companies with a number of advantages in the admission to trading process as well as in their further life as listed companies when compared to the requirements for companies listed on the regulated market. Companies may raise funds of up to EUR 3 million through an initial public offering or further increase their funds by up to EUR 3 million, once already listed on the BEAM Market, without the need for a prospectus approved by the FSC. Furthermore, if the company aims at a capital increase of more than EUR 3 million, only a simplified prospectus approved by the FSC is necessary. The requirements of public reporting are limited to only the publishing of the annual and semi-annual financial reports. Moreover, in the interest of management optimization and efficiency, the management bodies of the companies listed on the BEAM are allowed to carry out fixed asset transactions above certain values specified in the Public Offering of Securities Act (POSA) and transactions through which receivables or liabilities above a certain value specified in the POSA arise, without prior approval by the general meeting of shareholders.

In addition, there are also a number of advantages provided to the shareholders, such as exemption from the regulated market requirements of: (a) disclosure of their shareholdings after exceeding a certain threshold and/or acquisitions of a certain percentage of the companies’ voting shares; and (b) placing tender offers for buying the shares of the minority shareholders after acquiring a certain percentage of the company’s voting shares and exceeding a certain threshold. Companies listed on the BEAM Market have access to a wide range of individual and institutional investors and can benefit from the possibility to list on the Main Market of the BSE under preferential terms.

The BEAM project is a step ahead in the development of the capital market in Bulgaria, making it more accessible for smaller businesses. Currently, four companies are listed on the BEAM Market, however, it is expected that soon many more companies, having growth potential, will take advantage of the facilitated access to diversified sources of financing and the cheaper and simpler access to the public market, thus attracting a broader investor base and expanding their businesses. Tax relief for capital gains made on the BEAM Market by legal entities and individuals – for the period between January 1, 2021, and December 31, 2025 – is also envisaged as an incentive to the investors. Hopefully, as its name suggests, the BEAM will shine a light on small and developing businesses and their investors, providing interesting opportunities for growth to both sides.

By Dimitrinka Metodieva, Senior Partner, and Kostadinka Deleva, Partner, Gugushev & Partners

This Article was originally published in Issue 8.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Gugushev & Partners has promoted Victor Gugushev and Dafinka Stoycheva to Senior Partner.

According to Gugushev & Partners, Dafinka Stoycheva laid the foundations of the dispute resolution practice of the firm and has, over the course of fifteen years, “developed the largest Dispute Resolution Department  in Bulgaria.” She holds a master’s degree in law from Sofia University St. Kliment Ohridski and has been with Gugushev & Partners since 2007. She made Partner with the firm in 2016.

According to the firm, Victor Gugushev is responsible for “the strategic partnerships and business development of the firm.” He too has been with Gugushev & Partners since 2007. He holds a master’s degree in law from Sofia University St. Kliment Ohridski and an LLM from the Queen Mary University of London.

“They both have proved their exceptional legal knowledge as well as their committed, detailed, and at the same time, agile approach to any task at hand,” commented Managing Partner Stefan Gugushev. 

Political stability, managed inflation, and support plans for the most vulnerable social groups and businesses could ensure a financially stable year in Bulgaria, according to Tsvetkova Bebov & Partners Managing Partner Nikolay Bebov.

“Last year was very interesting from a political perspective, as three parliamentary elections were held in Bulgaria,” Bebov explains. “We had ‘regular’ elections in spring, which could not produce a stable configuration of the parliament, leading to two additional extraordinary elections. Finally, in November 2021, it was possible to elect a working parliament, with a coalition of four political parties, which put up a government in December. At the moment, we have a normal parliamentary process with the involvement of the opposition parties.”

Bebov points out that the new parliament has to address some urgent legislative issues. “We still don’t have legislation regarding the budget for the year 2022. In normal circumstances, it would have been approved by November or December of the preceding year, but now we have to wait for a few more months until it is voted.” However, Bebov says that the legislation provides for some interim arrangements for such cases, enabling a rather smooth transition.

“The new parliament is also aiming to implement some structural reforms, to improve judiciary and the efficiency of public administration, and to address problems with corruption,” he says. “In addition, Bulgaria is joining the global trend to adopt measures to shift towards a green economy. However, such issues require not only a consensus on the legislative level but also a technocratic approach.”

The business and social climate in Bulgaria is not very different from the rest of the region or even the world, Bebov notes. “COVID-19 remains a challenge for the health system, for the educational system, for budget spending, as well as for many businesses. Bulgaria also needs to improve the rate of vaccination compared with other EU countries. And the risks for further lockdowns may not be ruled out, even though COVID-related restrictions in Bulgaria remain mild.”

According to him, “one of the most common negative trends in Bulgaria is the increased gas and energy prices, putting most of the energy-consuming industries in a very difficult position. The industries have to implement measures to maintain profit margins and manage costs.” At the same time, he points out that the government is “under pressure to provide energy-related compensations to such industries heavily affected by current restrictions.”

“Overall, like elsewhere, we have the biggest inflation numbers compared to the past years,” Bebov adds, noting that it has created challenges for the population, businesses, and the government, and led to increased public spending. However, he notes that “Bulgaria has a stable financial position and a low amount of external debts. On top of that, Bulgaria is economically and financially integrated into the EU. Therefore, we believe that the inflation rate will not be much different compared to other EU countries.” Bebov points out, that as of January 1, 2024, Bulgaria plans to switch its currency from LEV to EUR, providing additional financial safeguards for the country.

“Another longer-term challenge is the Bulgarian demographics, in particular, decreased number of the population, aging, and increased migration rates,” he says. “This problem has become particularly noticeable after several waves of the pandemic. A few governments in the past, as well as the current government, have been discussing the measures to stop these negative trends and to propose measures such as tax benefits for families which have more children, but these are rather strategies than specific plans.”