Category: Bulgaria

Former Kambourov & Partners Founder and Partner Mitko Karushkov opened a new law firm in Sofia – Karushkov Legal Solutions.

Karushkov Legal Solutions will primarily, according to Karushkov, focus on providing legal advice to “new-age tech, media, telco, and financial companies.” The firm will also cover M&A, Corporate, Regulatory & Compliance, Media, Communications, and Technology and Gaming.

Karushkov has been with Kambourov & Partners for over 21 years. Prior to that, he was a Founder and Partner of Vachev & Karushkov Law between 1996 and 1998 and was an In-House Counsel with Glavbolgarstroy Holding between 1999 and 2000.

In February 2021, the Bulgarian Parliament adopted a major amendment to the Law on Protection of Competition (LPC). More than a hundred provisions were amended or newly introduced, making this change arguably the largest since the initial adoption of this law in 2008.

The main drivers of the change were the need to implement the ECN+ Directive and the efforts of the government to address the tensions between the big retail chains and local suppliers. Along with that, some finetuning of the merger control rules was implemented, including the introduction of the SIEC test for evaluating concentrations, and a good number of procedural and country-specific adjustments.

In fact, the existing Bulgarian legislation was already meeting, to a very large extent, most of the requirements of the ECN+ Directive, such as the independence requirements, the powers of the National Competition Authority (NCA) to inspect business premises, requests for information, finding and termination of infringements, interim measures, the power of the NCA to impose fines, the availability of a leniency program, etc. Some of the newly introduced rules, however, were perceived as real game-changers, especially in anti-trust-related risk analysis and management.

One such was the introduction of parental liability. Pecuniary sanctions for cartels, prohibited agreements, and abuses of a dominant position may be imposed not only on the infringing entity, but also on the person that exercises control over it, or the person that has acquired its assets, as a result of a transformation in which the infringing entity has ceased to exist, or on the economic successor of the activity through which the violation has been committed.

Another one was the structure and mechanism of collection of pecuniary sanctions imposed on associations for violations of Article 101 TFEU (Treaty on the Functioning of the European Union) and the respective Article 15 of the LPC related to the activities of their members. On one hand, the monetary risk was increased incomparably in such situations, by determining the basis for calculation as the cumulative amount of the turnovers of all members of the association operating on the affected market. On the other hand, in case the association fails to pay, which would quite certainly be the case every time, the members of the association should fund this liability and, if they do not, the NCA would be entitled to collect the amount from any undertaking which had a representative sitting on the management or controlling bodies of the association. If there is still an outstanding amount, the authority can collect it from any one of the other members of the association operating on the affected market.

These rules represented a disturbing development as they could be seen as departing from basic principles of Bulgarian national law regarding administrative liability. The situation, however, was exacerbated by the scope of applicability of these new rules. Despite the rule of Article 2(2) of the ECN+ Directive that the directive would cover the application of the national competition law only where it was applied in parallel to Articles 101 and 102 TFEU in the same case (with the explicit exception of the situations of Article 31(3) and (4) only concerning access to investigation files), the new amendment can apply to cases of application of national law only, which goes well beyond the purposes and applicability of the directive.

In the field of consumer goods supply, the government’s analysis showed that the concept of “abuse of stronger bargaining position,” introduced as a separate chapter in the LPC in 2015, did not work as expected, as in about 80 percent of the cases these rules were invoked in situations which had nothing to do with the initial purpose of the regulation. This finding came as no surprise because the specific regulation was very broadly formulated and easily applicable to any disbalanced commercial relation. Still pursuing the initial purpose of addressing the mismatch of the market power of retail chains and their smaller suppliers, the new amendment replaced the chapter on abuse of bargaining position with an entirely new one – Unfair Trading Practices in The Chain of Supply of Agricultural and Food Products, implementing Directive (EU) 2019/633 of the European Parliament and of the Council.

It remains to be seen how this new regulation will work in practice, but it is already obvious that, even if the proposed bill claimed that this amendment was seeking a better tool to pursue the initial legislative purpose, it already falls short because of its narrower scope, i.e. the supply chain of foods and agricultural products only.

By Svetlin Adrianov, EY Law Leader for Bulgaria, Albania, and North Macedonia

This Article was originally published in Issue 8.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Antoniya Markova, Daniela Petkova, Yoanna Ivanova, and Kostadinka Deleva have been appointed as Partners with Gugushev & Partners in Bulgaria.

Markova joined Gugushev & Partners in 2012, as a Senior Associate, and was promoted to Head of the firm’s Public Procurement and Labour Law department, in 2020. According to the firm, Markova “has established herself as a versatile specialist with significant expertise on a wide number of legal issues in the fields of labor and social security law, public procurement, real estate and construction law, protection of cultural heritage, contractual law, administrative and public law, administrative penal process, as well as civil and administrative litigation.”

Petkova has been with the firm since 2016 and is currently the Head of the Corporate and Tax department. Prior to that, she was a Senior Associate at Kinkin & Partners, between 2013 and 2016. According to the firm, Petkova specializes in the field of corporate and commercial law, tax law and international tax planning, mergers and acquisitions, private equity and venture capital investments, and banking and finance.

Ivanova specializes in intellectual property, data protection, telecommunications, media and digital technologies, and litigation. Since 2015, she is the Head of the IP and Data Protection department at Gugushev & Partners. According to the firm, she has over 15 years of experience as a lawyer and she is also a member of the board of the national group of the International Association for the Protection of Intellectual Property.

Deleva joined Gugushev & Partners in 2008, as a Senior Associate, and currently leads the firm’s Energy, Capital Markets, and Foreign Investments department. Before joining the firm, Deleva was an Associate at IK Rokas & Partners, between 2005 and 2008. She specializes in commercial law, capital markets, and public companies. According to the firm, Deleva is also “a leading expert on immigration matters, issuance of visas, residence permits, and citizenship.”

“Each of them has proven their expertise and leadership skills and has over 15 years of experience in the relevant field, advising some of the most significant clients, deals, and projects in our market,” the firm informed. “The changes also aim to strengthen the company’s practice of internal promotion and development of its employees, thus demonstrating the equal opportunities spirit crucial in our law office.”

“Each of them gave me a unique sense of pride, a sense of support, satisfaction during our work together,” Gugushev & Partners Managing Partner Stefan Gugushev added. “A sense of teamwork and independence, exceptional honesty and loyalty, and dedication to our combined project that is the Gugushev & Partners Law Office.”

In recent years, as a result of the global political and economic environment and the consequences of the Covid-19 pandemic, the e-commerce has become a preferred method for trading goods and services for both businesses and consumers. More and more online trading platforms are emerging, where platform operators connect sellers and buyers using different business models and payment mechanisms.

In connection with the operation of these platforms, an important question pops out, namely whether there is a risk that a platform is considered as one providing payment services. If this is the case, it may be necessary for the platform operator to get a license as a payment institution.

The issue has been also discussed at EU level and has been addressed in Directive (EU) 2015/2366 of the European Parliament and of the Council of 25 November 2015 on payment services in the internal market (PSD2), the provisions of which have been transposed into Bulgarian law in The Payment Services and Payment Systems Act (PSPSA).

One of the aims of PSD2 is to improve existing EU rules on e- payments by protecting payment service users, including when using more innovative payment services, such as payments via various platforms on the Internet and through mobile applications. Recital 11 of PSD2 emphasizes that certain e-commerce platforms may fall within the scope of the regulation, respectively Bulgarian operators of such platforms must as a rule obtain licenses for payment service providers from the Bulgarian National Bank before starting their activities. The Bulgarian National Bank has not yet ruled on the issue, but some European regulators expressed their view that platforms that connect sellers and buyers, support the sales and, as part of the process, manage payments, provide payment services and fall within the rules.

PSD2 and respectively PSPSA introduce various exceptions from the scope, which could be applied to the activity of e-commerce platforms.

Such is, for example, the exception under art. 2, para. 1, item 2 of the PSPSA, according to which outside the scope of the regulation are payment operations performed by the payer to the payee through a commercial agent, who is authorized via contract only on behalf of the payer or only on behalf of the payee to negotiate or to enter into a contract for the purchase and sale of goods or for the provision of services. This means that the platform could benefit from the exception and avoid the need to be licensed as a payment institution if it acts as a commercial agent of only one of the parties to the sale. For the application of this exception, it is irrelevant whether the commercial agent enters into possession or exercises control over the funds for the sale.

A number of questions arise in relation to the application of the exceptions, that are not explicitly regulated by law, respectively there are difficulties in the application of the rules in practice. For example, in which case will the platform be considered as acting as a commercial agent for only one of the parties and in which case will it act on behalf of both parties to the sale. It is also not clear how the requirement to not “enter into possession or control of funds” should be interpreted. For example, if the operator of the platform receives the price for the goods / services in his/her bank account as a proxy of the sellers in order to withhold a commission for the intermediary service, is it considered that the operator possesses or controls the funds or not? These and other issues should be analyzed in the light of the business model chosen by the platform, the payment mechanism and the relationship between the operator and the users of the respective platform.

In view of the above, and given the risk of penalties for breaches of the payment legislation, before a platform starts operating, it is advisable to analyze the business model, to assess whether the operator provides payment services within the meaning of PSD2 and PSPSA, respectively whether a license as a payment institution is necessary; whether any of the provided exceptions can be used or if it is more appropriate to look for an alternative approach.

By Adelina Mitkova, Managing Associate, and Simona Toneva, Associate, Deloitte Legal 

Kinstellar and Eisenberger + Herzog have advised Belgian KBC Group subsidiary KBC Bank on its EUR 1 billion acquisition of Raiffeisen Bank International’s Bulgarian subsidiary Raiffeisenbank. Wolf Theiss advised the seller.

Closing is expected in 2022, pending regulatory approval.

The transaction includes Raiffeisen Bank International’s Bulgarian banking operations, Raiffeisen Leasing Bulgaria, Raiffeisen Asset Management, Raiffeisen Insurance Broker, and Raiffeisen Service.

According to E+H, through the transaction, the KBC Group further expands its Bulgarian core business and strengthens its position in the Bulgarian banking market.

The Kinstellar team was led by Partner Diana Dimova and Counsels Nina Tsifudina and Svilen Issaev and included Counsel Mladen Minev, Of Counsel Dessislava Fessenko, Senior Associates Georgi Kanev, Emil Lukaev, and Yasen Nikolov, Associates Denitsa Kuzeva, Nikolay Gergov, and Gabriela Ivanovam, and Trainee Lawyer Donika Stavreva.

The E+H team was led by Partners Alric Ofenheimer and Josef Schmidt and included Partner Laurenz Liedermann and Associate Johannes Helm.

The Wolf Theiss team included Vienna-based Partners Andrea Gritsch and Claus Schneider and Counsel Zeno Grabmayr, as well as Sofia-based Partners Richard Clegg and Katerina Kraeva.

Boyanov & Co has advised the European Investment Bank on increasing the financing of Oliva AD.

According to Boyanov & Co, the financing was “made available pursuant to a Luxembourg law governed finance contract executed in 2017, for EUR 37,2 million, for the purposes of adding new components to the company’s project for the construction of a new edible oil processing plant and grain silos.”

Boyanov & Co’s team included Partner Damian Simeonov and Senior Associate Georgi Drenski.

CMS has advised the Bulgarian Branch of ING Bank on its 1000 square-meter lease of office space in the North Tower of Sofia’s Infinity Tower development.

Established in 1991 in the Netherlands, ING Bank is present in 40 countries and its products include savings, payments, investments, loans, and mortgages in retail markets.

According to CMS, “the challenging project continued for more than five months and involved ING‘s local and global teams.”

The CMS Sofia team was led by Head of Real Estate Jenia Dimitrova.

Bulgaria is just a stone’s throw away from completing the electricity market liberalization that has been in progress in recent years. The main goal of the Bulgarian Government is to gradually eliminate regulated electricity prices by the end of 2025 and to fully transition to market conditions by promoting market competition.

As a result of the legislative amendments adopted in early 2018, the electricity generated for the free market is now traded exclusively via IBEX (Independent Bulgarian Energy Exchange) segments. In 2018, access to the organized free electricity market was granted to renewable energy and hydropower producers with a total installed capacity in the range of one to four megawatts.

As of July 1, 2021, RES producers and cogeneration facilities with an installed capacity in the range of 500 to 1000 kilowatts are also integrated into the wholesale market, at freely negotiated prices. As a result, the liquidity of the organized free electricity market has increased, as have its stability and transparency.

The liberalization process also encompasses all types of business consumers. This step was launched in 2020, in two phases.

The first phase, or “grace period”, of their free-market entry provided that business customers had to conclude a contract with an electricity trader by October 1, 2020. They would otherwise stay with their current supplier, also acting in an electricity trader capacity, but no later than June 2021. This first phase was expected to encourage business consumers to select a free-market supplier, which would accelerate the liberalization. In practice, most of the businesses stayed with their original supplier, and electricity supply diversification did not occur.

The second phase of business customer integration on the free market has expired at the end of June 2021. Those who had not entered into an individual contract with a free market trader by that time were automatically transferred to a “Supplier of Last Resort”, which will, however, supply them with electricity at significantly above the market prices. The higher and non-market prices should have served as an incentive for business consumers to join the free market sooner, but as this reorganization is fairly recent the aftermath is yet to be seen.

The other aspect of the liberalization process is the integration of the Bulgarian electricity market with the regional and pan-European electricity markets. The first step was completed in November 2019, with the pilot market coupling on the Intraday segment with Romania. The Bulgarian-Greek Day Ahead segment market coupling was launched in May 2021, with a significant impact on the national electricity market, as it provides interconnection to the Italian electricity market. The focus is now firmly set on other coupling projects with Romania, Serbia, and North Macedonia, though these are expected to be implemented at a later stage. The Bulgarian-Romanian Day Ahead segment market coupling is expected to launch at the end of September 2021, following the successful implementation of the Interim Coupling Project for the connection of the regional 4MMC coupling (Czech Republic, Hungary, Romania, and Slovakia) to the common European electricity trading system, in June this year.

The immediate effect of the market coupling will be a significant decrease in market concertation, especially on supply. Another crucial effect will be the increase in competition, as the adjacent market areas will bring additional participants to the national market. Those would act as sellers in case of higher prices, and buyers in case of lower prices. The market coupling will also act as a serious buffer to tackle electricity oversupply and deficits. The increasingly good integration and correlation between the markets shall introduce global factors as decisive for the national markets, with a view to stabilizing prices and balancing them on a long-term basis.

In line with the Third Liberalization Package of the EU, Bulgaria will continue to accelerate the liberalization of its energy market. The end of the liberalization process and the signing of electricity purchase-sale transactions on entirely market-driven principles will contribute to the achievement of fair prices and equal treatment of all market participants.

The Bulgarian electricity market will become fully integrated with the European markets, with the advantages of this market coupling, including automatic real-time direct access to supply offers and purchasing from market participants from all EU members, benefitting all Bulgarian producers, consumers, and traders.

By Kostadinka Deleva, Head of Energy, Capital Markets, and Foreign Investments, Gugushev & Partners

This Article was originally published in Issue 8.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

CMS has successfully collected the feed-in tariff from the Republic of Bulgaria in favor of Solar R1, Solar RAS, and Solar Group Systems following various litigation rounds extending over seven years.

Solar R1, Solar RAS, and Solar Group Systems are Korean renewable energy investors in Bulgaria.

Earlier this year, CMS has been successful in other cases involving the feed-in tariff, including representing Bezmer Energy in a dispute against the Ministry of Finance of the Republic of Bulgaria (as reported by CEE Legal Matters on January 7, 2021), successfully representing Philicon-97 (as reported on June 16, 2021), and Global Biomet (as reported on August 19, 2021).

CMS has also advised on the refinancing of Solarian Holdings’ portfolio, which includes Solar R1 and Solar RAS, earlier this year (as reported on August 2, 2021).

Last year, CMS had advised Solarian Holdings on the acquisition of a 5-megawatt photovoltaic power plant from FEC Perun (as reported on May 28, 2020) and the acquisition of a 2.25-megawatt photovoltaic power plant from Julian Torchanov and Mat Ltd. (as reported by CEE Legal Matters on August 21, 2020), both located in Bulgaria.

The CMS team was led by Sofia Managing Partner Kostadin Sirleshtov and included Senior Associate Borislava Piperkova, Associate Elena Yotova-Yordanova, and Trainee Diyan Georgiev.

Schoenherr, working with Paul Hastings, has advised French-based Sendinblue on the acquisition of Bulgarian e-commerce metrics company Metrilo from its founders and investors. Atanassov & Ivanov reportedly advised Metrilo on the deal.

Metrilo investors Speedinvest II International, Launchhub Fund Cooperatief, and Eleven Capital were among those involved in the transaction.

According to Schoenherr, “Sendinblue is the only all-in-one digital marketing platform empowering B2B and B2C businesses, e-commerce sellers, and agencies to build customer relationships through end-to-end digital marketing campaigns, transactional messaging, and marketing automation. Sendinblue was founded in 2012 by Armand Thiberge with a mission to make the most effective marketing channels accessible to all businesses. Headquartered in Paris with offices in Seattle, Berlin, Noida, and Toronto, Sendinblue supports more than 300,000 active users across 160 countries.”

According to the firm, Metrilo was founded in 2014 by Murry Ivanoff and Peter Iliev. Based in Bulgaria, Metrilo is a marketing and sales analytics SaaS platform for e-merchants.

Schoenherr’s team was led by Partner Alexandra Doytchinova and included Associates Gergana Roussinova-Ivanova and Kristina Bozhinova.

The Paul Hastings team was led by Partner Charles Cardon.