Category: Bulgaria

  • CMS and Bouzeva & Partners Help Negotiate Settlement Between Global Biomet and Sustainable Energy Development Fund

    CMS has helped Bulgaria’s Global Biome settle a multi-million euro renewable energy dispute with the Sustainable Energy Development Fund related to recent changes to Bulgarian legislation. The SEDF was advised by Bouzeva & Partners.

    According to CMS, pursuant to changes to Bulgaria’s energy legislation that followed a 2016 World Bank study, renewable energy producers in the country were obliged to transition from long-term Power Purchase Agreements to Contracts-for-Premium, with the Sustainable Energy Development Fund topping up the difference between the market price of electricity and the agreed subsidies. According to the firm, the dispute “was successfully settled following six months of negotiations and concessions by the parties.”

    CMS’s team was led by Managing Partner Kostadin Sirleshtov, assisted by Associate Elena Yotova-Yordanova.

    The Bouzeva & Partners team was led by Partner Nikolay Daskalov and included Associate Milena Muraveeva.

  • The Buzz in Bulgaria: Interview with Diana Dimova of Kinstellar

    “The main topic of all discussions in Bulgaria now is of course the COVID-19 crisis,“ says Diana Dimova, Managing Partner of Kinstellar’s Sofia office. “The good news is that the epidemic situation is under control with some 700 active cases, largely due to decisive measures taken early.“

    Dimova reports that a state of emergency was declared in Bulgaria when the country registered only 16 cases. As a result of that declaration, she says, “public gatherings are limited and most public venues are closed, except for grocery stores, banks, pharmacies, and insurance offices. Intercity travel to and from Sofia is prohibited without proper reasons,” she says. “We’re cut off from the rest of the country at the moment.“

    Of course, the government is trying to ease the resulting damage to the Bulgarian economy. According to Dimova, “one of the measures it has offered is a stimulus package that will reimburse employers for 60% of employee salaries and social security contributions, with the employers covering the rest.“

    Also, she says, “the capital of the Bulgarian Development Bank will be increased by BGN 500 million (approximately EUR 255 million) to be used for portfolio guarantees to commercial banks on investment loans and working capital loans to SMEs affected by the coronavirus outbreak. In addition, the Fund Manager of Financial Instruments in Bulgaria EAD [the entity managing financial instruments co-financed by the European Structural and Investment Funds] will provide guarantees totaling BGN 170 million (approximately EUR 87 million) to third party lenders that will back up a fresh loan portfolio of up to BGN 850 million (approximately EUR 435 million).” Companies would be able to benefit from long-term loans of up to ten years mainly for working capital needs.

    Still, she says, many believe this is not enough, and she reports “a push to expand the stimulus package even further.”

    The Bulgarian Development Bank, however, which is tasked with implementing some of these measures, is itself embroiled in scandal, Dimova reports. “The bank recently approved a multimillion euro loan to a debt collection agency that acquired NPL portfolios from two still publicly unnamed banks. This provoked public outrage and led to a removal of the current management of the bank – it was simply unacceptable to support this type of business undertaking during this crisis.“

    Dimova reports that the Bulgarian parliament approved an increase of the public debt ceiling, “so we may soon see the government issuing more bonds in an effort to raise financing to battle the crisis.“ Also, she says, Bulgaria’s National Bank approved a private moratorium on credit facility payments for a period of up to six months. According to her, “unlike the 2008/2009 crisis, the banking sector comes into this situation strong and should be able to withstand the pressure.“

    Not everybody is suffering, Dimova reports. “Not all sectors of business have suffered a huge hit,” she says, reporting that “certain IT companies providing support, data center services, e-commerce, and food distribution companies all see increased demand for their services.“

    Finally, Dimova reports, “the court system is going through a dramatic change right now, with testing currently underway to discern if court hearings can be held remotely.” She says that Bulgaria’s legal profession is adapting to the “new normal“ as well. According to her, law firm M&A practices are “taking an expected hit, with many transactions stopping midway since valuations of targets, for example, may no longer be valid. Even the sectors which were strong, like energy, are experiencing a slowdown, due to expectations that banks may not be financing projects at a pace they did before the crisis.“ She believes that “a spike in restructurings is bound to happen, but not immediately due to all the measures implemented,” and reports that “we are, however, seeing strong activity in the employment and commercial lease practice areas.“

     

  • Bulgaria: Insolvency During the State of Emergency and Creditor Protection

    Bulgaria has been in a state of emergency since 13 March due to the COVID-19 outbreak. On 23 March the Parliament voted on a special State of Emergency Act (COVID-19 Act) which suspended all court, arbitration and enforcement terms and proceedings during the state of emergency, currently in force until 13 April.

    Surprisingly, even before the COVID-19 Act was approved, on 15 March the Supreme Judicial Council announced the suspension of almost all court proceedings, including the filing of new civil and commercial claims. Thus, the work of the judicial system in Bulgaria has been almost fully suspended, except for some minor criminal and family law cases.

    Besides the temporary suspension of pending insolvency proceedings, the measures introduced by the COVID-19 Act and the Supreme Judicial Council also mean that courts will not review and open new proceedings of this kind until 13 April at the earliest. The COVID-19 Act also prolongs by one month after the expiration of the state of emergency the term in which a company’s management is obliged to file for insolvency if the company is bankrupt. If the managing directors do not file the application with the court within the statutory period, they risk facing criminal charges and civil liability towards the company’s creditors.

    In addition, the newly adopted COVID-19 Act surprisingly allows for the suspension of all payments falling due during the emergency period. Under the COVID-19 Act, in case of a delay in payment, the legal remedies available to the creditor, such as statutory interest, penalties, termination of the contract or enforcement, will not apply during the state of emergency. This means that creditors (e.g. banks, leasing companies, landlords, etc.) will not be able to charge default interest on unpaid debts and initiate execution procedure or other legal actions against debtors as long as the state of emergency is in place.

    Creditors’ interests are clearly in great danger during the state of emergency in Bulgaria as a consequence of these stipulations and the absence of a working judicial system. Therefore, it is strongly recommended that creditors immediately take all steps left at their disposal, even if limited, to protect their rights. One option is to secure their receivables by all means possible, e.g. parent or personal guarantees, or increase the value of the existing ones. Another option would be to request the court to grant preliminary protective measures against the debtor’s property. This procedure is basically the only court procedure still not suspended by the state of emergency measures.

    By Dimitar Vlaevsky, Attorney at Law, Schoenherr

  • Bozhko Poryazov Moves from Delchev & Partners to Popov, Arnaudov and Partners

    Bozhko Poryazov has left Delchev & Partners to join Popov, Arnaudov and Partners as Senior Associated Partner and Head of Real Estate and Investments.

    Poryazov graduated from the University of National and World Economy in 2003. Prior to joining Popov, Arnaudov and Partners, he spent two years as a project manager at Human Dynamics and 15 years at Delchev & Partners.

    According to Popov, Arnaudov and Partners, “Poryazov is a lawyer with strong experience in the fields of real estate law, inheritance law, construction, building regulations and spatial planning, commercial law and investments, [and] legal representation in disputes resolution before court jurisdiction. He has been specializing in the full legal services of real estate investments, consultancy services in the field of property law, construction and spatial planning.”

  • Deal 5: Lazar Petrov on the Fund of Fund’s Set Up of Two Alternative Investment Funds

    On January 7, 2020, CEE Legal Matters reported that Tokushev & Partners had helped the Fund of Funds in Bulgaria make arrangements with two financial intermediaries to create several alternative investment funds for equity investments. We asked Lazar Petrov, Director of Financial Instruments and Operational Programmes of the Fund of Funds, to walk us through the set-up of the alternative funds. 

    CEELM: To start, tell us a bit about the FMFIB.

    Lazar: The Fund of Funds is a state-owned company that is entrusted with mandates from several European Structural and Investment Funds (ESIF) Operational Programs in the country. Currently, our assets under management add up to approximately BGN 1.2 billion and our responsibilities cover the structuring, implementation, and monitoring of a wide portfolio of financial instruments.

    We act as a typical Fund of Funds and select financial intermediaries for the implementation of our products. About 55% of our assets are allocated to infrastructure projects in the spheres of urban and regional development, tourism, mobility, and environmental protection, and social services, among others. The remaining 45% target sustainable investments in entrepreneurship, business support, and innovation.

    Close to BGN 300 million consist of equity instruments. The equity segment of our portfolio is the most dynamic and challenging aspect of our work.

    CEELM: Wha is the business case behind these alternative investment funds?

    Lazar: The idea of AIFs is well-known and such structures have been operating for a long time now in countries such as, for example, the United States, Luxembourg, and the Netherlands. Basically, such investment vehicles provide a great opportunity for private companies in different stages of development, but with strong growth potential, to find an appropriate funding solution for their investment programs. The business from an investor’s perspective is high risk, but also high return.

    There are positive trends in the Bulgarian market for such investments and we are going to back up six AIFs with diverse investment strategies ranging from acceleration to later stage investments.

    One of our priorities regarding the legal structures behind the AIFs is to have both the fund managers and the funds registered in Bulgaria.  We have spent substantial efforts in creating prerequisites for that to happen, also in terms of initiated changes in the regulatory framework. The local market has reached the stage where these AIFs can be registered here and contribute to the development of the already-thriving eco-system.

    CEELM: What would you say was the most complex element to sort out from a legal standpoint in this set-up?

    Lazar: The overall legal framework is clear, both on the EU and national levels. Yet, the implementation challenge is starting now and there is simply not a sufficient number of precedents and enough examples to use as case studies. The system lacks a level of flexibility and capacity of the respective authorities and other stakeholders involved in the process.

    As an institutional investor and a public organization operating in the venture capital world, we need to find the optimal balance of being absolutely compliant with a very complex regulatory framework on the one hand and trying to act market-oriented on the other.

    It took a great level of proficiency in order to analyze in detail the applicable legal structures in Bulgaria and more precisely the pros and cons of the different types of legal entities. This is what we felt was the most complex element from a legal standpoint.

    CEELM: What aspects of the legal work did you keep in-house and what did you externalize? 

    Lazar: The Fund of Funds has a strong team of highly-qualified legal professionals with education, background, and hands-on experience in EU law, public procurement law, banking law, and other financial regulations. We mostly perform the types of work-related to these themes in-house. Of course, when necessary, with respect to these issues, we receive support from our colleagues in the Ministry of Finance (our de-facto sole-shareholder), the Tax authorities and so on.

    We outsource legal work which is either highly specific and niche or non-reoccurring and which requires independent external review. The closing of an AIF can be described as a long and complex process, which we manage both by using our internal resources and external support. Such support is especially necessary in the final, very intensive stages of the closing process, to complement our expertise with professional legal advice on the viable options, best practices, identification and mitigation of legal risks, etc. Our management always seeks to obtain the highest level of assurance before the finalization of the closing process so to approve the start of the investment period of our AIFs.

    CEELM: What were your main considerations in retaining Tokushev & Partners as your external advisor on this process?

    Lazar: Our history with Tokushev & Partners as our external advisor has begun with an assignment related to one of our AIFs. We needed an independent and professional legal analysis that explores the available options under the local Commercial Act with respect to the structuring of the fund along with their advantages and disadvantages. We chose them for the professional track record, academic recognition, and established reputation, especially within the financial industry. Honestly speaking, we needed a high-profile legal advisor to match the sophistication and the quality of the advisors of our fund managers.

    Being a public entity, we tender our legal services, and Tokushev & Partners participated in an open call and were able to provide the most economically advantageous offer based on the quality of their team and the competitive price.

  • Bulgarian Coronavirus Payment Moratorium and its Effect on Cross-Border Financial Transactions

    The Moratorium was not self-proclaimed by the Bulgarian Parliament as an overriding mandatory piece of law so the courts discretion in cross-border scenarios has been retained

    1 Emergency and temporary character of the Moratorium in Bulgaria

    On 24 March 2020 in the State Gazette of Bulgaria, the Measures during the Emergency Situation Act [Закон за мерките и действията по време на извънредното положение, обявено с решение на Народното събрание от 13 март 2020 г.] (the “Act“) was published, whereby the Parliament of Bulgaria inter alia imposed various measures (most of them being applicable as of 24 March 2020, but some having a retroactive effect – see below) that can affect financial transactions, which will be briefly reviewed in this update (collectively referred to as the “Moratorium“). The Moratorium will apply only for the duration of the emergency [coronavirus] situation which was in turn imposed via resolution of the Parliament of Bulgaria for the period of 13 March 2020 until 13 May 2020.

    2 Disapplication of any payment default consequences

    With respect to all individuals, corporates and other private law persons [частноправни субекти], the Act disapplies the consequences (i) of payment default – as default interest and liquidated damages; as well as (ii) of all non-monetary consequences – as debt acceleration, rescission of contracts and retaking of property. Normal contractual interest (i.e. different from default interest) will continue to accrue.  This may be deduced both from the wording of the Act, as well as from the fact that during the debates on the Acts, a draft proposal to disapply any payment of interest obligations was rejected by the Parliament.

    The rule disapplying payment default consequences will apply retroactively as of 13 March 2020.

    There is a draft bill (approved by the Parliament’s legal committee on 5 April 2020) whereby the rule described in the current item 2 will be limited only to credit transactions and other forms of financing (forfaiting, factoring, etc.). Further – if the draft is enacted into law it will no longer disapply “any” payment default consequences, but only the “contractual” ones, as well as debt acceleration, rescission of contracts and retaking of property. However, until the draft bills are voted on by the Parliament and become binding in law, any payment default consequences under any transaction will be disapplied.

    3 Additional regulatory requirements to short-selling transactions

    As opposed to a number of other EU jurisdictions, the Bulgarian Moratorium does not provide for a prohibition on short-selling transactions during the emergency situation. However, the temporary measures announced by the European Securities and Markets Authority forcing investors to reveal more information about their short-selling positions by halving the threshold for disclosures should apply directly in Bulgaria under Regulation (EU) No 236/2012.

    4 Freeze on enforcement procedures

    As per the Act, public sales and other court-bailiff enforcement procedures shall be suspended, this being applicable as of 24 March 2020.

    Out-of-court enforcement procedures (incl. procedures under the Financial Collateral Agreements Act, transposing in Bulgaria Directive 2002/47/EC) are not mentioned expressly but as far as the trigger for such enforcement procedures may be payment default, indirect restrictions seem to be arguably in place.

    5 How does the Act affect close-out netting and flawed-assets arrangements?

    Currently the Moratorium disapplies the payment default consequences under any transaction so not only credit transactions but other financial transactions as derivatives, repo transactions and lending of securities may be affected as well. There is no express rule in the Act relating to close-out netting arrangements. Arguably, in as far as the latter involve termination of all mutual transactions the Moratorium may be an obstacle.

    Concerning the flawed-assets arrangements, respectively – the special arrangements in lieu of such arrangements as per Section 2(a)(iii) of the 2002 ISDA Master Agreement under French law, these arrangements resemble the right of retention (ius retentionis) under Bulgarian law, being agreed however via contract. The statutory right of retention – as per the relevant Bulgarian law of contracts, consists in the right of a party to retain/refuse its performance (of any type) until the counterparty performs its contractual obligation. This right is not premised on the occurrence of a payment default. So, it is not a sanction for or consequence of “payment delay” (the latter being in the focus of the Moratorium) but rather a mechanism to preserve the equivalence in the parties’ relations at an early stage.

    By parity of reasoning, contractual arrangements, whereby performance by a par-ty to a derivatives transaction is made dependent, or conditional on the perfor-mance by the counterparty of the latter’s obligation, should not be viewed as re-stricted by the Moratorium. Therefore recourse may be taken to mechanisms like those in Section 2(a)(iii) of the 2002 ISDA Master Agreement, in case of potential payment default by a Bulgarian counterparty to a derivatives transaction.

    If the current Moratorium is limited to credit transactions only (as mentioned in item 2 above), payments under derivatives should cease to be affected by the Moratorium so close-out netting and flawed assets arrangements should apply with no limitations.

    6 Events of default in financial transactions in the context of the Act

    As far as certain factual matters may be agreed as being events of default in financial transactions, complex issues may arise as to the effect the Act may have in view of their occurrence. Very often for the occurrence of the grounds for opening of insolvency proceedings against a counterparty (e.g. inability to pay or balance sheet over-indebtedness) may be agreed upon as events of default with respect to that counterparty. The Act does not displace the effects of such occurrences and the latter will continue to be events of default. Further as far as the filing for opening of insolvency proceedings by a creditor of the insolvent debtor is not disapplied, events of default referring to the “filing of an application” as the triggering event, should continue to apply. In practice all court proceedings in Bulgaria (subject to minor exceptions) are suspended so events of default referring to filing of applications for opening of insolvency proceedings that have not been rejected by the court within a certain time frame, will be affected, as far as there would be no court hearings on which rejection may take place. Under the Act all statutory deadlines expiring during the emergency situation shall be extended by one month after termination of the emergency situation. Thus events of default referring to the mandatory filing for the opening of insolvency proceedings by a company’s management body (having an obligation to do so within 30 calendar days following the occurrence of the grounds for insolvency), may be affected as well.

    7 Cross-border application of the Act

    There are no special rules in the Act for cross-border scenarios, nor any rule modifying or disapplying the general conflict of laws and jurisdiction rules for payment obligations.

    Should Bulgarian courts be competent on a dispute they may arguably apply the Moratorium rules as overriding mandatory provisions under art. 9 (2) of Regulation (EC) No 593/2008 (the “Rome I Regulation“). The courts would have a discretion whether to do so, as far as the Moratorium (as opposed to some other jurisdictions, as in Italy) is not self-proclaimed by the Bulgarian parliament to constitute overriding mandatory provisions.

    If other EU courts are competent (which is quite often agreed in Bulgarian cross-border financial transactions), and the place of performance is not in Bulgaria, the restrictive wording of art. 9 (3) of the Rome I Regulation would prevent them from directly applying the Bulgarian Moratorium. Some guidance as to the possible route to give effect to a foreign piece of law (as the Bulgarian Moratorium) was provided by the European Court of Justice (“ECJ“) in Judgement in Case C‑135/15 of 18 October 2016 (Greece v Nikiforidis) in the context of the application by German courts of Greek emergency financial laws. In particular such laws may be applied “as a matter of fact” by the competent foreign court in accordance with the reasoning of ECJ if the domestic private international law of the forum contains a rule similar to art. 7(1) of the 1980 Rome Convention on the law applicable to contractual obligations (the “Rome Convention“), which was the case in Greece v Nikiforidis as per art. 34 of the German Einführungsgesetz zum Bürgerlichen Gesetzbuch. By way of comparison, art. 46(2) of the Bulgarian Private International Law Code [Кодекс на международното частно право] (similarly to German law) reproduces art. 7(1)  of the Rome Convention, so should Bulgarian courts be competent (which would be a rare case in cross-border financial transactions), they may apply foreign laws similar to the Bulgarian Moratorium as a matter of fact despite the restrictive wording of art. 9 (3) of the Rome I Regulation.

    Another potential route whereby Bulgarian courts may give effect to the Moratorium in a cross-border scenario is by refusing to recognise and enforce a foreign judgment, applying a rule incompatible with the Moratorium) as “manifestly contrary to public policy” of Bulgaria (under art. 45(1)(a) of Regulation (EU) No 1215/2012 (the “Brussels I Regulation Recast“). However this ground to refuse recognition and enforcement is so rarely applied by courts that any attempt to predict if the Moratorium represents a part of the Bulgarian public policy would be quite uncertain.

    As far as enforcement is concerned, under Brussels I Regulation Recast the courts of the Member State in which the judgment has been or is to be enforced are competent so the Bulgarian enforcement restrictions set out in item 4 above would apply in case the enforcement takes place in Bulgaria.

    By Tsvetan Krumov, Attorney at Law, Schoenherr

  • Bulgaria: Healthcare & Life Sciences in a Global Pandemic

    Healthcare and life sciences have a special status as a type of legal practice. The debate about what this specialisation entails, and to what extent it even qualifies as legal work, is endless. However, as a crisis is also an opportunity, the coronavirus pandemic has defined the areas where law, healthcare and the life sciences overlap.

    It is now clear that the COVID-19 crisis has the greatest impact on hospitals, pharmaceutical and medical device companies. They needed to quickly set up sustainable emergency management systems to maintain their normal operations. At this point, the sector is also expected to provide a practical solution to the COVID-19 crisis as soon as possible, before the economic crisis becomes unmanageable.

    The crisis raises several legal and commercial issues for the healthcare and life sciences sector. Below we have attempted to provide a brief summary of them.

    Telemedicine needs flexible regulation

    Bulgaria is suffering from a shortage of healthcare professionals. Now it is even more difficult for the patients to find adequate medical care at the healthcare facilities – quarantine is an important tool to limit the spread of the infection.

    Right now, digital medicine and telemedicine are especially important, because they can provide patients with access to medical care. In a quarantine situation, healthcare can take advantage of existing global concepts for digital medicine and telemedicine. Thus, each patient can be referred to appropriate medical care without being threatened with infection. We can see that it is working. For example, a high-profile healthcare emergency unit is providing online advisory for the treatment of emergency cases in the locked down town of Bansko.

    In addition, it is necessary also to refine the Bulgarian legislation on electronic prescriptions and create a legal framework for digitalisation of orders and deliveries of all types of medicines.

    Clinical trials

    COVID-19 is already causing changes in the timing of many studies, which in some cases may lead to deviations from sponsors’ plans.

    On 20 March 2020, the European Medicines Agency published recommendations for sponsors and researchers on how to manage clinical trials in the context of the COVID-19 pandemic (“Guidance“).

    In addition to providing specific advice on the launch of new clinical trials for COVID-19 treatment, the Guidance aims to serve as a harmonised set of recommendations at the EU level. It provides specific information on changes and deviations from the protocols that may be required in clinical trials performed during the state of emergency or quarantine.

    The Guidance also includes tips for ensuring the safety of research participants and maintaining the quality of the data generated, such as:

    1. Changes in the consent declarations.
    2. Changes in the course of ongoing trials: replacement of physical check-ups with telephone or video conferences, temporary suspension of the process, suspension of patient recruitment, etc.
    3. Risk assessment: All clinical trial adaptation decisions should be based on the sponsor’s risk assessment. In it, priority is given to the safety of the research participant and the validity of the data. In case of a conflict between these two parameters, safety should always prevail.
    4. Communication with authorities: Pharmaceutical companies should review the effects of COVID-19 on upcoming and ongoing clinical trials, revise any existing study concepts and, if necessary, provide notices to the relevant competent authorities.

    Delayed deliveries

    Many manufacturers of raw materials and generic medicines in India and China have limited or stopped production to control the spread of the disease. Delays in deliveries can lead to difficulties in supplying life-sustaining medicines as well as to illegal imports or the release of pirated products on the market. The latter is greatly facilitated by the development of e-commerce and the inability of the competent authorities to track the deliveries.

    Pharmaceutical companies should review their contractual rights to limit the negative effects of the delayed deliveries on trade.

    Medical devices

    According to information from mid-March, the Bulgarian Ministry of Health is working on drafting an amendment to the Bulgarian Medical Devices Act. An interagency working group has been set up on this project. According to official information from the Ministry of Health, the draft amendment to the Medical Devices Act will be published for public discussion before 26 May 2020, the date on which the implementation of Regulation 2017/745 starts.

    This means that in practice, the adaptation of national legislation to the directly applicable Regulation 2017/745 is likely to be delayed. For a certain period after 26 May 2020, there may be administrative ambiguity regarding the competencies of the Bulgarian Drug Agency for the registration and placing on the market of medical devices. Therefore, our advice to manufacturers is to take into account the above information when planning for the Bulgarian market.

    Communication from the Bulgarian Competition Protection Commission

    On 25 March 2020, the Bulgarian Competition Protection Commission (CPC) officially notified the application of certain competition rules in the context of the COVID-19 state of emergency.

    In its communication, the CPC emphasises that, despite the state of emergency, market participants are obliged not to prevent, restrict or distort competition through their actions. To ensure that the public will have access to products important for public health protection as well as essential products, the CPC states that it will very closely monitor the pharmaceutical and food industries as well as trade.

    Food safety

    According to an FSA report, the virus that causes COVID-19 is unlikely to be caught through food. COVID-19 is a respiratory disease and is currently not known to be transmitted through food or food packaging.

    According to information from the food industry, the Bulgarian control authorities are working hard to ensure that food business operators know what their responsibilities are and what action they need to take to maintain high standards of safety and security of their personnel.

    By Elena Todorova, Attorney at Law, Schoenherr

  • What Can or Must Employers do under the New Act on Measures and Actions during the Emergency State and What Opportunities Does it Provide?

    As everyone in Bulgaria has felt on a number of levels, the country has been in a state of emergency as of 13 March 2020, declared by a decision of the National Assembly. A number of orders from the Minister of Health have introduced and continue to introduce a number of anti-epidemic measures and restrictions. Some of these measures have also already been implemented in the form of a law, being included in the text of the new act on measures and actions during the emergency state, announced by the decision of the National Assembly from 13 March 2020 (“Act“).

    Below you can find information on the questions that arise in the daily life of employers in the current situation in terms of employment law and data protection.

    • Employment aspects – what is important for employers to know?
    • Depending on the specific type of work, employers may assign employees to work from home or to work remotely without requiring their consent. The introduction of such a mode of work is made by an order issued by the employer, which also outlines the specific conditions for carrying out the work. According to the amendments in the Labour Code (introduced in the transitional and final provisions of the Act), by making use of this option the employer can only change the place of work, but not other elements of the employment contract.
    • According to the minister’s orders, if the introduction of remote working is not possible for a certain business or a position, the employer must apply enhanced anti-epidemic measures on the work premises – filters, disinfection, frequent ventilation, provision of protective equipment, non-admission of employees or third parties showing symptoms of acute infectious diseases.
    • The General Labour Inspectorate recommends and in the course of inspections requires, the risk assessment (prepared by the employer with the participation of the occupational health service, which each employer should have) to be supplemented by the new risks stemming from COVID-19 and, accordingly, organisational and technical measures to be envisaged and implemented by the employer to mitigate these risks. We recommend that employers carry out their activities during this period in close contact with their occupational health services, especially in view of the rapidly changing legal landscape.
    • The Act and the amendments to the Labour Code introduced by the Act provide the following other possibilities for employers:

    – to provide employees with up to half of their annual paid leave without the consent of the employees;

    – to introduce part-time work for all employees or only for employees of certain departments during the period of the emergency state (before the Labour Code was amended, this was possible only when the workload is reduced and for no longer than three months in a calendar year);

    – to suspend the work of the whole undertaking (or part of it) or of individual employees for the whole period of the emergency state (or for part of it). In this case, as well as if the work has been suspended due to an order of a public authority, the employer is entitled to provide the entire paid annual leave of the employees concerned without their consent (regardless of whether employees have eight months of employment on record or not). If the work is suspended by a public authority, the employer must not allow the concerned employees to access their workplaces for the period determined by the public authority.

    If an employee falling within a certain category (for example a pregnant employee or an employee in an advanced stage of an in vitro treatment, an underaged employee or an employee with a permanent disability of at least 50%, an employee reassigned to another position for medical reasons etc.) requests to be granted paid or unpaid leave, the employer is obliged to accept the request.

    The leave, when work has been suspended or when they are requested by these categories of employees, is considered employment on record.

    When the work has been suspended due to the state of emergency, the employer must still pay the employees their gross remuneration (if respectively, they are not on a leave).

    • The Act provides that during the state of emergency, no attachments shall be imposed on the bank accounts of individuals, as well as on salaries and pensions. However, attachments could still be imposed for maintenance obligations, for tort damages and for due salaries.
    • Amendments to the Social Security Code provide financial aid to certain employers. If they meet the criteria set by the Council of Ministers, the National Social Security Institute will transfer to these employers 60 % of the social security income of the insured employees for January 2020 during the validity of the Act, but for a period not exceeding three months. The employer is obliged to pay the employees their full remuneration (i.e. the employer must pay the remaining 40 % of the remuneration from their own funds). If the employer does not pay the full amount of the remuneration to the employees for whom the financial aid has been received, the employer must reimburse the aid.

    On 30 March 2020 the Council of Ministers adopted a decree setting out the particular requirements and procedure for granting the state aid. The aid could be used by (i) employers, whose operations have been discontinued as a result of an order of the state authorities for the duration of the emergency state (e.g. restaurants, bars) and (ii) almost all other employers (with few excepted industries which are otherwise supported by the state, e.g. agriculture), who have temporarily stopped (entirely or partially) work or have introduced part-time work for their employees and have a minimum of a 20 % decrease in revenue. The comparison basis for the decrease in the revenue depends on the date of establishment of the employer’s company. For companies established before 1 March 2019, the revenue for the month preceding the month of filing the application for financial aid should have decreased by at least 20 % compared to the same month in the preceding year (i.e. if the application is submitted in April 2020, the revenue for March 2020 should have decreased by at least 20 % compared to March 2019).

    The main requirements for the employers applying for financial aid are:

    • to be local natural or legal persons, or foreign legal persons having business activities in Bulgaria;
    • lack of outstanding tax and social security contributions liabilities established by a valid act issued by the competent authorities;
    • lack of insolvency or liquidation proceedings;
    • to keep the employees for whom they have received the aid for a period not shorter than the period of receiving the aid;
    • not to terminate employment agreements on the grounds of closing down of part of the enterprise, staff reduction, decrease of the workload, and on the grounds of putting a stop to the work, for more than 15 days during the period the employer receives the state grant;
    • lack of established violations of employment and labour migration laws in the past six months before the issuance of the order for the work stop.

    The deadline for filing applications for financial aid with the Employment Agency is 21 April 2020. Further details and samples of required documents are available on the website of the Employment Agency: https://www.az.government.bg/pages/izplashtane-na-kompensacii-za-zapazwane-na-zaetostta/

    • Data Protection what information could employers require from employees in regard to COVID-19?

    In recent weeks, there have been numerous queries from companies about their right to ask employees about their health and personal travel, considering the pandemic. Unfortunately, these queries have been cast aside and have not found their answers in the Act.

    The Bulgarian Commission for Personal Data Protection (“CPDP“) has not adopted guidelines in regard to COVID-10 yet (unlike the data protection authorities in Germany, France, the Netherlands, Spain, Italy, the UK, etc.).

    The first glimpses of guidance on the topic came when the European Data Protection Board published statements on 16 and 20 of March (“Statements of the EDPB“). Although they provide some guidance, the Statements of the EDPB are unfortunately relatively general and refer to national law, and as we indicated above, the newly adopted Act does not touch on this topic. Therefore, the main source of answers remains the legal framework – the General Data Protection Regulation (“GDPR“).

    The lack of specific guidance from the competent data protection authorities further complicates the challenges for companies, since in most cases the legal framework does not give a clear answer, and measures should be taken in light of all the circumstances of the particular case. Without being exhaustive, some of these challenges are considered below.

    • Can employers measure the temperature of their employees?

    A definitive answer cannot be given at this time.

    Temperature measurement is a form of collecting employees’ health data, which is a special category of personal data. As a rule, such data cannot be collected, except under one of the exceptions expressly stated in the GDPR. In some EU countries, this measure has already been explicitly banned by national data protection authorities.

    However, the CPDP has not yet issued an opinion on this matter. Therefore, although it carries some risk, this measure may still be introduced in some exceptional cases.

    In the context of the pandemic, the Statements of the EDBP point employers towards the exception of “public interest in the area of public health”. The application of this exception, however, requires an additional basis in national law. Unfortunately, such a basis was not adopted under the Act. However, it could be argued that the legal obligation of employers to ensure healthy and safe working conditions could serve as such an additional basis.

    Due to the current absence of clarity, it is advisable for employers to refrain from introducing such a measure. If applied, however, this measure should only be limited to cases of reasonable suspicion (e.g. symptoms, contact with a sick person, travel to a “high risk” country, etc.) and should be carried out by a healthcare professional.

    • Can employers require their employees to provide information about recent or future travel to “high risk” countries?

    Yes, given the current state of emergency.

    Travel information to “high risk” countries is not a special category of personal data and can be processed on the basis of legitimate interest (as opposed to health information). A list of “high risk” countries has been published on the webpage of the Ministry of Health.

    Given the pandemic, employers should be able to require this information, based on their legitimate interest and even their legal obligation, to ensure healthy and safe working conditions. Another basis that employers could rely on is the protection of the vital interests of their employees (a basis also mentioned in the Statements of the EDPB).

    • Can employers ask their employees whether they have been in contact with a person with a COVID-19 positive test?

    Yes, given the current state of emergency.

    Information as to whether the employee has had contact with a person with a positive test for COVID-19 should also not be treated as a special category of personal data. Given the pandemic, employers should be able to rely on their legitimate interest and even their legal obligation to ensure healthy and safe working conditions also in this case. Another basis that employers could rely on is the protection of vital interests of their employees (a basis also mentioned in the Statements of the EDPB).

    • Can employers disclose the names of employees with a positive COVID-19 test?

    Generally no, unless in exceptional cases.

    Disclosing the names of employees suffering from COVID-19 is also considered a special category of data. According to the Statements of the EDBP, employers can generally inform their employees of COVID-19 cases, but they must refrain from disclosing the name of the particular employee. A name can only be disclosed in exceptional cases when absolutely necessary and, if possible, to a limited number of persons – in order to protect the health of the colleagues with whom the sick employee has had contact.

    In these exceptional cases, it could be argued that disclosure is necessary on the basis of an important public interest in the area of public health (in relation to the obligation to ensure healthy and safe working conditions). In making the decision, the employer must consider all the risk factors and specific circumstances of the case, including the nature of the sick employee’s job. For example, if the employee has worked from home for the last 14 days and has not contacted colleagues or clients since then, disclosure of this employee’s name by their employer might not be justified. On the other hand, if the employee was at their workplace and had contact with colleagues, the latter should be notified, subject to confidentiality and prior notification of the sick employee.

    Another possible basis for disclosing the name of a sick employee is if the employee has manifestly made this information public (e.g. by posting on social media).

    Of course, given the pandemic, employees should themselves realise their personal responsibility to inform their colleagues and other contacted persons so that the latter can at least take care of their health and that of their loved ones.

    In conclusion, even if employers consider they could require some of the above personal data from their employees, the former ought not to forget that this must be done in compliance with all other data protection requirements. These requirements include being transparent with employees about the processing of their personal data, updating records of processing activities, performing a data protection impact assessment (where applicable), deleting data at the end of the pandemic, etc.

    The above information is up to date as of 1 April 2020. In view of the rapidly evolving situation, the competent authorities update their guidelines on a daily basis. It is therefore necessary that companies evaluate any measures on a case-by-case basis, keep up to date with the latest developments and seek professional legal advice before taking any of the measures discussed above.

    By Ivelina Vassileva, Attorney at Law, and Kristina Chakarova, Associate, Schoenherr

  • Even in a State of Emergency Human Rights must be Respected!

    Even in a State of Emergency Human Rights must be Respected!

    (Doctors love their children too)

    The prosecutor’s office is investigating doctors from St. Mina Hospital in Plovdiv, a hospital designated by the Bulgarian Crisis Headquarters to receive patients with suspected COVID-19. In an open letter sent to the Minister of Health, the doctors at St. Mina stated that they have not been instructed to implement the protocol for the admission and treatment of patients with COVID-19, and that the hospital did not have the necessary personal protective equipment to work with such patients.

    Human rights during a state of emergency

    Bulgaria is in a state of emergency for the first time since World War II. There are almost no lawyers still alive from that time to share their experience of how the state of emergency affects our human rights. Moreover, there are almost no lawyers who can even imagine the extent to which a state of emergency affects those rights. At most, perhaps some of us remember the heated debate on the adoption of Article 57 (3) of the Bulgarian Constitution.

    According to constitutional law experts, the state of emergency suspends all rights guaranteed by the Bulgarian Constitution except for the rights under Articles 28, 29, 31, 32 and 37. The rights that remain intact are the right to life, the right that no one can be subjected to torture, cruel or degrading treatment or clinical trials without their written consent, the right to a fair trial, the presumption of innocence in criminal proceedings, the right to privacy and protection against any harm of personal and family life, honour and dignity, as well as the right to freedom of thought, conscience and religion.

    In short, even in a state of emergency, a citizen of Bulgaria may refuse to carry out certain activities if those activities endanger their life or the lives of their family. This applies not only to the doctors and the nurses at St. Mina Hospital, but also to police officers, to people working in public transport, pharmacists, couriers and all other professions that are now working on the front lines of the crisis. In addition, every citizen of Bulgaria has the right to express their thoughts in accordance with their own conscience, and this includes the right of everyone to express dissatisfaction and to protest.

    Professional ethics

    We all have heard about the Hippocratic Oath. However, how many non-doctors are aware that it does not preclude the use of common sense and personal judgement.

    In addition, under the Code of Professional Ethics, a Bulgarian doctor may refuse treatment when there are no conditions for the fulfilment of their professional rights and obligations or when there is a direct threat to their health and life.

    As to the (medical) staff engaged under an employment contract, in accordance with the Labour Code (Article 284), the Health and Safety at Work Act (Article 36) and Ordinance 3 on the minimum safety requirements, employers are obliged to ensure free personal protective equipment in all places where the work involves a risk to the health and safety of the employees. Moreover, the Labour Code prohibits the employer from “replacing” the personal protective equipment with cash equivalents and permits the employees to refuse to perform their work in the event of a serious and imminent danger to their life and health. The Labour Code also imposes on the employee an obligation to notify their employer when they quit their job because of a life and health threat. There is no explicit provision as to which methods of notification are legal and which are not. Hence, there is no prohibition on notifying the employer (even if it is the State or a municipality) in the form of an open letter.

    In a situation where the courts are closed, exercising one’s rights is very difficult. Let us not forget that the state of emergency does not forbid clear-headed assessment not only by doctors, but also by jurists in the prosecution and pre-trial offices. After all, as Sting puts it, “There is no monopoly of common sense.”

    By Elena Todorova, Attorney at Law, Schoenherr

  • Promotions and Practice Appointment at Kambourov & Partners

    Irena Petkova, Martin Emanuilov, and Ivo Alexandrov have been promoted to Partner at Kambourov & Partners, and Plamen Yotov has been appointed the new head of the firm’s EU & Competition practice.

    According to the firm, “Irena will be assuming more leadership responsibility in the firm’s energy practice, while Martin will be overseeing the tax litigation work,” and “Ivo will be responsible for the Regulatory & Compliance and Enforcement of Securities practices.”

    Petkova holds an MA in law from the Sofia University St. Kliment Ohridski. Prior to joining Kambourov & Partners, she spent almost four years with Boyanov & Co, three years with the EuroLegalGroup Law Office, and almost two years with Djingov, Guginski, Kyutchukov & Velichkov.

    Emanuilov holds an LL.M. from the Sofia University and has been a member of Kambourov & Partners since 2005.

    Alexandrov holds an LL.M. from the University of National and World Economy and has been with Kambourov & Partners for over six years.