Category: Bulgaria

DGKV provided local advice to California’s Sanmina Corporation on its acquisition of Osram EOOD, a Bulgarian lights and lighting devices manufacturer owned by Germany’s Osram GmbH. Hogan Lovells was lead counsel to Sanmina on the deal. Schoenherr advised Osram GmbH on the deal.

The DGKV team was led by Partner Zdravka Ugrinova and Counsel Ralitsa Gougleva.

The Schoenherr Sofia team advising Osram GmbH on the transaction was led by Partner Ilko Stoyanov and included Attorneys at Law Manuel Ritt-Huemer and Katerina Kaloyanova-Toshkova.

Energy consumers in Bulgaria have been facing two major challenges lately. Within the last several years power prices on the Independent Bulgarian Energy Exchange (IBEX) are showing uncanny volatility. At times they reached remarkable peaks, not only for the Balkans, but for the EU as well. Then, the security of supply has been in doubt, due to sometimes poor power connection.

Consumers are in search of solutions to both challenges.

There are already consumers in Bulgaria who have started to operate their own power generation installations, predominantly using the photovoltaic technology for building small to mid-scale solar power plants. While up to now the total power generation of these installations is not so significant compared with the overall generation on the electricity market, it shows a strong and increasing tendence of new capacities being put in operation; the electricity distribution system operators in Bulgaria report over 120 new applications for connection of such solar power plants in 2019 and 2020.

A key additional incentive for the development of own power generation installations is a recent legislative amendment exempting power consumers connected through a direct line to the power generation installation from the so called “obligations to society” fee and from the network connections fees.

This increasing demand for power generation performance calls for a suitable implementation mechanism. Undoubtedly, many options are available, but one, the “ESCO mechanism”, surely must be considered.

This mechanism involves an energy performance contract (EPC). The scope of an EPC is generally the implementation of energy efficiency improvement measures in factories, buildings, etc. Parties to the EPC are energy service company /ESCO/ (as a contractor) and energy consumers as final customers. The performance of an energy efficiency audit prior entering into an EPC is mandatory.

There are basically two types of EPCs, (i) shared savings model and (ii) guaranteed savings model. Both are possible to implement in Bulgaria.

The shared savings model EPC provides that the financing, the project development and the implementation costs are borne by the ESCO. The energy savings accumulated as a result are shared between the ESCO and the client during a certain period. This model requires that the ESCO should have the capacity to borrow funds, i.e. acquire financing from a third-party lender. Thus, the ESCO assumes both the technical and the credit risk.

The guaranteed savings model EPC provides that the ESCO guarantees certain energy savings accrued by the client. The client itself finances the necessary amount through a loan, its own funds, or a combination. Once the client pays the fees to the ESCO it keeps the difference between the fee and the energy savings. The ESCO bears only the technical risk in this model.

Regardless of which model is the most suitable for a certain client, both models promise to increase the demand for financing and the provision of technical services and goods. It is hoped that the end result will be achieving sustainability and security of power supply in the recent future, contributing also to achieving the national targets, set by the “Green Deal”.

By Aleksandar Aleksandrov, Senior Associate, Tsvetkova Bebov Komarevski

Boyanov & Co. has defended the interests of European airline Wizz Air in an appeal before the Supreme Administrative Court of Bulgaria, involving an “unjust discrimination” challenge to the terminal charges set by Sofia Airport.

According to Boyanov & Co, “since 2017, [the firm] has been supporting Wizz Air’s efforts to restore the equal treatment of the users at the two different terminals of the main airport serving Bulgaria’s capital city so that the passengers using the so-called ‘old terminal’ (T1, built over 70 years ago) are no longer required to pay the same level of charges as for the new modern Terminal 2, opened just before the accession of Bulgaria to the EU in 2007.”

According to the firm, “on January 21, 2021, the Supreme Administrative Court upheld the judgment of the Sofia City Administrative Court repealing the decision confirming the 2018 passenger charges on the grounds of breach of the principles of non-discrimination, cost-relatedness, and transparency, determined in Directive 2009/12/EC on airport charges.”

Boyanov & Co’s team included Partners Kina Chuturkova and Raina Dimitrova and Associate Trayan Targov.

Bulgaria’s Penkov Markov & Partners has joined the Lex Adria network, with the firm’s Managing Partner, Nikolay Cvetanov, serving as a member of Lex Adria’s Managing Board with existing board members Matjaz Ulcar, Hrvoje Vidan, Georgi Dimitrov, and Slobodan Doklestic.

Slobodan Doklestic, Managing Partner of Doklestic Repic & Gajin, commented that: “We are absolutely delighted to have PM&P as a member of Lex Adria. This provides not only top-level law firm in Bulgaria to our network, but also demonstrates that, in a very short time, our alliance has become a reputable regional service provider. We are looking forward to working together with PM&P and other member firms on further strengthening of our regional capacities to the benefit of our clients throughout the region.”

Since the cessation of the widely-used LIBOR benchmark has become a realistic prospect, due to the UK Financial Conduct Authority’s announcements that it will stop supporting this benchmark at the end of 2021, the question of what will take its place has become a hot topic for lenders and lawyers drafting credit agreements.

Currently, within the EU (including in Bulgaria), art. 28, par. 2 of Regulation (EU) 2016/1011 – commonly known as the “Benchmark Regulation” – requires banks to have alternative benchmark plans and reflect them in their credit agreements. As a result, benchmark replacement clauses have become standard in credit agreements – but there are particularities that need to be borne in mind when dealing with Bulgarian borrowers. In this respect it is worth noting that according to the most recent questions and answers published by the European Securities and Markets Authority regarding the Benchmark Regulation, contractual relationships within the EU are governed by national contract law and, accordingly, the legally adequate reflection of alternative benchmark plans may vary among EU member states. Bulgarian legislation in this respect was adopted in 2018 to address the practical issues arising from the discontinuation by the Bulgarian National Bank of the interbank-offered-rate for the Bulgarian national currency (called SOFIBOR). This legislation, however, was drafted expansively; it is not restricted to the SOFIBOR discontinuation alone, but is instead applicable to any benchmark replacements for the purposes of credit agreements when Bulgarian law applies. Parties to credit agreements are generally free to choose a non-Bulgarian system of law to govern their relations (traditionally English or New York law) but such a choice may not displace Bulgarian overriding mandatory rules and Bulgarian public policy laws as per the EU Rome I Regulation. Thus, foreign lenders would be well advised to incorporate certain clauses in credit agreements with Bulgarian borrowers to address the risk that specific Bulgarian benchmark replacement rules will be classified as overriding mandatory rules or part of Bulgaria’s public policy.

The main Bulgarian statutory benchmark replacement rule that this article will deal with is the requirement that, “as of the moment” a new benchmark becomes applicable, the new interest rate under the respective credit agreement may not be higher than the rate applicable before the change (the “Interest Rate Restriction Rule”). In the context of SOFIBOR’s discontinuation some local banks/lawyers are interpreting the phrase “as of the moment” to mean that it should apply only for the first interest period (e.g.,  1 month, 3 months, etc.) after the “moment” when the benchmark was effectively changed. This makes sense, as the rationale behind the Interest Rate Restriction Rule (deduced from the comments published alongside the draft bill when the rule was discussed in the Bulgarian Parliament) should obviously be a temporary freeze during the interest period running when the benchmark change becomes effective), allowing borrowers sufficient time to refinance their loans and avoid payment of higher interest due to the benchmark change. However, most banks/lawyers have taken a more restrictive approach, insisting that the Interest Rate Restriction Rule imposes a cap on the interest rate after the benchmark change equal to the interest rate amount that was payable before the moment of the benchmark change.

Although often overlooked there is another relevant rule that allows the parties to a credit agreement to deviate from the Interest Rate Restriction Rule by express contractual arrangement. As a result, lenders may avoid the risk of having a cap on the payable interest rate after an interest rate benchmark change by a simple contractual clause displacing the Interest Rate Restriction Rule (although this rule does not apply to consumer credit agreements and consumer mortgage credit agreements). Our client banks have accepted such contractual arrangements easily, and we have not seen much resistance from borrowers when negotiating them.

We remain available to assist those who would like more information about this issue or other important considerations related to the Interest Rate Restriction Rule.

By Tsvetan Krumov, Head of Banking and Finance, Schoenherr Sofia

This Article was originally published in Issue 7.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Penkov, Markov & Partners has helped CEZ a.s. obtain approval from the Bulgarian Energy and Water Regulatory Commission for its disposal of 67% of its shares in CEZ Distribution Bulgaria to Eastern European Electric Company B.V. (which is part of the Eurohold Group).

Penkov, Markov & Partners’ team included Senior Partner Vladimir Penkov, Partner Ivan Markov, Senior Associates Nikolay Voynov and Smilena Hrisanova, and Associates Boris Lazarov, Asen Apostolov, and Ivo Nickolchev.

The dynamic and challenging 2020 somehow distracted the attention of the EU citizens and businesses to the fact that on 31 January last year the United Kingdom made its important step out of the European Union. The transitional period, that was agreed to cover the whole 2020, ensured no changes to the way the day-to-day business was done during the past year. That came to its end on 1 January 2021, when the UK effectively left the European Union and the free movement of workers between the EU member states and the United Kingdom was officially over.

The Brexit Deal of the last days of 2020 has in practice declared the UK a third country to the EU member states with respect to the matters of employment mobility. Hence, the freedom of movement of workers rule, as we know it, no longer applies when Bulgarian (or other EU) employees need to spend time working on a secondment in the UK. The special legal provisions of the Posted Workers Directive are no longer binding on the UK and respectively neither Bulgarian, nor other EU employers may rely on these when organizing business-related travels for their personnel to the UK.

Until 1 January 2021, Bulgarian and all other EU employees could easily travel for business purposes to the United Kingdom when the needs of their local employers required so. The Bulgarian law in particular differentiated between two main categories of such business travels: On the one hand, there were the business trips where usually for a short period of time employees visited the UK for business meetings, conference attendance, client-facing meetings, trainings, teambuildings, etc.; On the other hand, it was acceptable to have a Bulgarian employee posted to the UK to do some actual work for a client there or at the local employer belonging to the same group of companies, where the Posted Porkers’ Regulation applied (including with respect to the minimum remuneration and working conditions). The Union’s uniform rules on employment mobility had secured that the EU employees could travel freely to the UK, stay there and come back home to their home member state where the bureaucratic immigration rules governing visas, work permits, calculation of maximum stay, etc. did not apply.

Well, they do apply now!

The effective Brexit has put an end on the free non-regulated movement of personnel between the EU and UK companies. The UK government has made it clear that it will not tolerate any foreign employees – regardless if they are sent on a business trip or posted in the framework of provision of services – working in the UK without complying with the relevant immigration formalities.

Therefore, while UK employers can still avail of the EU posting regime when sending employees to the Union, an EU employer can no longer rely on the Posted Workers Directive to temporarily send an employee to the UK for the purposes of fulfilling a certain task or delivering a service. In practice, this means that effective 1 January 2021, employees that are citizen of the EU can only be sent on regular business trips to the UK and, if some actual work will be done for the benefit of the receiving party there – a visa will be required.

From a migration standpoint, a visa requirement is never good news. As it will be from now on, EU employers will first have to secure visas for their employees if they will need to be sent to the UK to temporarily do some work there. It seems that the UK will apply the rule regardless of the duration of the employee’s stay there, so it will be the case that even a week-long business trip of a Bulgarian developer to assist, for example, for the launching of a new software product in the UK, will require a visa. This stems from the prohibitions imposed on business visitors in the UK to do paid or unpaid work for a UK company. On the less bureaucratic side, business trips of the EU employees for a conference or a meeting will not require a visa.

From an employment law perspective, the new rules will relieve the EU employers from the burden to find out and apply the special rules and standards of the receiving country on the posting of employees in the framework of provision of services. Although those rules are in their essence extensively directed to protect the employee’s interests, they impose significant administrative burden on the employers. The execution of special annexes to the employment contracts are just the first step, then follows the mixed application of both employment law provisions of the sending and the receiving state. Finally, the posting of workers regime requires that the posted employees are paid at the host country salaries’ standard while there – and it seems needless to say that in the cases of employees posted to the UK, the minimum salary levels there were often a challenge for the foreign employers to meet.  

This financial struggle will now come to an end to create what seems to be the bigger problem – how would the business continue to operate if the mother company or a key subsidiary of the EU domiciled entity is situated in the UK: so close and yet so far away with Brexit now being here. Initially, it will most certainly come like a shock – the limited access to the UK’s employment market, the potentially impeded visa-free access to the UK, the reduced options for free movement of personal data between the companies of the same corporate group, etc.

But then the truth is that there are still valid options to keep the international business up and running even post Brexit, and the online video management is not the only one of these. When hands-on approach will be needed in the UK and an EU employer needs to send some of its employees to the UK to secure it, some useful legal mechanisms, already known in the EU may come in place, such as the intra-company transfers. After all, if not anything else, 2020 – the year of the Brexit Deal and the COVID-19 pandemic – has given us a lesson that a solution may always be found when there is a proper challenge.

By Ilya Komarevski, Partner, and Mileslava Bogdanova, Senior Associate, Tsvetkova Bebov Komarevski

“The majority of us will be more than happy to see 2020 behind us,” laughs Stefana Tsekova, Local Partner at Schoenherr Sofia. “But luckily for us at Schoenherr, it was a good year, especially for big ticket deals. We advised on the Vivacom deal, valued at 1.3 billion euros, making it the biggest deal ever on the Bulgarian market. It started before the Covid crisis hit, but luckily it continued. We actually advised on another big transaction on the energy sector as well — the acquisition by Enery Development of the biggest photovoltaic plant operational in Bulgaria, with 50 MW installed capacity [as reported by CEE Legal Matters on September 15, 2020]. So in terms of deals we were lucky.”

As elsewhere, Tsekova says, sectors of Bulgaria’s economy that depend on people moving about, such as tourism, hospitality, and transportation, were seriously hit, “but other sectors, like mining, actually recorded growth, so overall, more or less, it was a good year.”

When she’s asked whether firms in Bulgaria suffered financially, she says that some firms were forced to lay off some of their junior lawyers, or reduce salaries, “but nothing huge.” She says that Schoenherr was not forced to take those steps. “We didn’t,” she says, “because we were quite confident that things would get better — and, of course, we were quite fortunate with these two big deals. What we did instead was to reduce our business week to four days during the shutdown.”

The political situation in Bulgaria remains unstable, she says, looking back on the street protests that dominated much of the year. “Those protests are not really still happening,” she says, “because of Covid-19 and the restrictions on going out, so at some point they stopped, but this does not mean that people are happy.” And she says the decrease in protests cannot be attributed to an effective government response to the crisis. “We have a lot of debt cases in the health system, which was not able to handle everyone, and the political action plan was not set properly either.” She rolls her eyes. “It’s tempting to say 2021 will be better because there’s no way to go but up,” she says, laughing grimly, “but policies that might increase the ability of the economy to recover are connected to institutions like transparency and fairness. In April we will have parliamentary elections, and it will be of utmost importance that they will be well-organized and transparent.”

She concedes that most predictions see the ruling party retain power, but she says that “some changes will certainly occur.” Ultimately, “it’s really important to organize proper elections,” she says, placing knowing emphasis as she says, “because this is Bulgaria.” She notes that the media in Bulgaria is regularly ranked as near or at the bottom in Europe on terms of independence  “However,” she says, “there are certainly movements in this regard, as United Group, in addition to its acquisition of Vivacom, a few months ago also acquired a big network of TV channels, and PPF’s acquisition of Telenor a few years ago was quite big [as reported by CEE Legal Matters on March 26, 2018], as was its subsequent acquisition in 2019 of CME [reported on November 6, 2019], which holds a lot of TV channels in the region, including, in Bulgaria, one of the largest national channels.” As a result, she says, “there are certain hopes, I would say, that they will be able to reflect the political realities in an independent manner so that people can really see what the government is doing.”

Is she optimistic? “In-between,” she laughs. “We are always hopeful, but never really hopeful. Still, it’s a step in the right direction.”

Finally, she says, turning back to the economy, “there should be opportunities in 2021 linked to the European Green Deal, which is good for Bulgaria.” She says Schoenherr is already working on several major transactions in the renewable sector, “and we expect greenfield investments in the sector to increase soon.”

Ivanov & Tsoncheva has advised Bulgarian startup Quendoo on EUR 750,000 in financing it received from Bulgarian VC fund Vitosha Venture Partners.

Quendoo is a digital platform that allows property owners and hoteliers to have control of their bookings, payments, marketing, and availability. The platform enables owners to synchronize their choice of marketing channels and revenue control all via a single dashboard. 

Ivanov & Tsoncheva’s team was led by Attorney Liliya Tsoncheva.

Ivanov & Tsoncheva could not provide more information on the deal.

DGKV has successfully represented Bulgaria’s Mezzanine Partners Consortium before the Fund Manager of Financial Instruments in Bulgaria EAD, the Bulgarian Commission for Protection of Competition, and the Bulgarian Supreme Administrative Court, in a public procurement tender (and related disputes) for a manager of a BGN 75.4 million (approximately EUR 38.5 million) Mezzanine Fund/ Growth Fund, which is designed to provide financing to small and medium enterprises.

According to DGKV, “the latest dispute arose as the result of a decision by Fund Manager of Financial Instruments in Bulgaria EAD to replace the awarded bidder, Mezzanine Partners, as contractor, with the second ranking bidder, Consortium Mayfair Partners, due to Mezzanine Partners’ alleged failure to provide necessary documents for the execution of the Operational Agreement.”

According to the firm, “the FMFIB’s decision was appealed and revoked by final and binding decision of the Supreme Administrative Court, and Mezzanine Partners was recognized as the awarded bidder.” As a result, the firm reports, the Operational Agreement between FMFIB and Mezzanine Partners is expected to be finalized sometime this month.

DGKV’s team included Partner Georgi Tzvetkov, Counsels Anton Krustev and Valentin Bojilov, Senior Associate Gergana Monovska, and Associate Hristo Stoyanov.