Category: Bulgaria

The most popular Bulgarian security interests under credit transactions are special pledges, resembling English floating charges.

Problems under the statutory framework until recently

Under special pledges over receivables in Bulgaria, collateral providers until recently retained their right to collect the receivables until collateral takers registered the commencement of enforcement in a special public register and the collateral provider was notified thereof. Collateral takers could notify debtors under pledged receivables and start collecting them in an out-of-court procedure to satisfy the debt due to them only after these formalities. As prerequisites for rerouting payments under pledged receivables, these formalities used to be a concern for banks, which typically act as collateral takers under receivable pledges. When banks decide to resort to pledged receivables, they wish to reroute payments as quickly as possible. Major foreign banks have often asked us to make such arrangements so they could start collecting receivables immediately. This was impossible under the former framework, as it did not allow banks to reroute payments merely via unilateral notice to the debtor instructing it to start making payments to the banks. Banks also had to contend with the rule that payments could only be rerouted upon commencement of enforcement, which requires the acceleration of secured debt, as collateral takers should specify the amount of payable secured debt they enforce when registering commencement of enforcement. This may block pre-insolvency resolution measures for collateral providers and be expensive for banks, as holding accelerated bad debt triggers the need to make provisions for such bad debt.

New statutory framework and options for collateral takers

Such concerns have been alleviated by a statutory amendment that came into force at the beginning of 2017, allowing different arrangements regarding the moment at which rerouting payments under pledged receivables takes place. As the commencement of enforcement is no longer the only prerequisite for rerouting payments, the statutory amendment allows pledge agreements to stipulate that collateral takers may start collecting pledged receivables simply by a unilateral notice instructing the debtor to reroute payments. The possibility of rerouting payments upon unilateral notice is binding on the debtor if it is communicated to it at the outset in the perfection notice on the establishment of the pledge. Although there is no limitation on the parties’ arrangements as to when a unilateral notice may be served on the debtor, collateral providers would normally request that there be at least an event of default (short of acceleration) so the possibility of service is triggered.

Collateral takers’ rights after rerouting of payments via unilateral notice

Following a rerouting of payments upon a unilateral notice, the collateral taker would have a security right over the proceeds collected from the pledged receivables, i.e. the pledge would be “transformed” from a security interest over receivables (due by a third party) into a security interest over proceeds collected by the collateral taker itself. Under a statutory rule, the collateral taker may enforce such proceeds collected from the pledged receivables, but the general requirement for acceleration would be a prerequisite to commencing enforcement. The fact that creditors would have full possession and control over proceeds from the pledged receivables prior to enforcement would make them more willing to postpone acceleration (as holding bad debt is expensive) and agree on debt restricting if collateral providers are in distress. Banks have welcomed the unilateral notice arrangements, as they have always striven to be able to reroute payments immediately when structuring receivables pledges. We have implemented such arrangements in several major financings in 2017 and 2018.

By Tsvetan Krumov, Attorney at Law, Schoenherr 

Last year was a good year for the Bulgarian economy, which registered 3.6% GDP growth. The Bulgarian Government plans to further boost the economy in 2018, and initial projections vary from 3% to 4% growth. The main trigger for this will be the continuation of spending public funds on strategic infrastructure projects.

Landmark projects still in progress include the Bulgarian highway e-toll system and the ongoing modernization of the national railway. In early 2016, Bulgaria’s Road Infrastructure Agency opened a tender for the e-toll system for the republican (national) road infrastructure. Due to numerous appeals of the tender, the procedure ended in late 2017, with a EUR 92 million contract awarded to a consortium led by the Austria’s Kapsch Group. The deal was signed in January 2018, but construction has not started yet, since there are still pending appeals. Kapsch will have 19 months to design and implement the e-toll system.

Another major infrastructure project is the modernization of a 50 km long railway section in western Bulgaria that was launched last summer. The section is part of European Corridor IV, which connects the ports of Bremen, Hamburg, and Rostock with Istanbul. The European Commission recently approved the financing of the project, which is expected to exceed EUR 511 million, making it the largest railway project in Bulgaria so far. On February 12, 2018, the procedure was suspended due to an appeal.

The Government’s commitment to infrastructure projects is even stronger now. At the annual Strategic Infrastructure and Investments 2018 conference held in Sofia on February 27, 2018, the Chairman of the Management Board of the Road Infrastructure Agency announced that BGN 3.5 billion in contracts would be awarded this year for highways in southwestern and northern Bulgaria and several republican roads in northern Bulgaria.

Other major infrastructure projects which are continuing from 2017 or are expected to be launched in 2018 are the Greek-Bulgarian natural gas inter-connector, the Bulgarian gas hub, the concession of the Sofia Airport – the nation’s largest – and the modernization of the Bulgarian national passenger train operator.

To allow the launch of some of the strategic infrastructure projects (such as the Sofia Airport), a new Concessions Act was adopted in Bulgaria, which entered into force on January 1, 2018. This Act – which implements the provisions of the EU Concessions Directive and is considered to be modern and more investor-friendly than the previous law – takes into consideration the importance of maintaining the long-term balance between the interests of the concessionaire and the ones of the concession grantor. It explicitly defines this balance as “economic balance” and rules that the economic balance of the concession shall be preserved for the whole duration of the contract. In order to guarantee transparency and fair competition among investors, the Concessions Act also contains detailed rules on the competitive procedures for awarding concessions, signing and performing of concession contracts, and their early termination.

The modernization of the Bulgarian public procurement regulation was done back in 2016 and was also based on the two EU Directives on Public Procurement, again implementing them in the country’s national legislation.

Regardless of the improvements to the legislation that regulates PPPs and the strong political support for such projects, there are still certain difficulties that investors and their legal advisors experience, in particular during the tender phase of the projects. A major legal concern appears to be the significant number of appeals of procedures. Many of these appeals are groundless and their exercise is often perceived to abuse the right to appeal. The problem is not new, as many procedures in the past have been delayed or terminated due to such appeals. Historically, various legislative changes have been adopted to preclude groundless bad faith challenges of tenders, including increases in statutory fees. The Government and the Parliament are still searching for an appropriate mechanism that guarantees the right of appeal while discouraging its abuse. The solution will not be easy, as this is less a matter of regulation and more a matter of demanding good faith on the part of bidders. Nevertheless, the advantages outweigh the difficulties, and the sector remains quite attractive.  

By Kostadin Sirleshtov, Partner and Angel Bangachev, Senior Associate, CMS

This Article was originally published in Issue 5.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

As of 1 April 2018, applicants in tender procedures must submit the European Single Procurement Document (“ESPD”) in electronic form using a template provided by the European Commission.

The obligation to provide the ESPD in electronic form applies to all tender procedures regardless of when the procedure was opened. Thus, all ESPDs submitted on or after 1 April 2018 have to be in electronic form in accordance with article 67, para 4 of the Public Procurement Act (“PPA”). Recently, the provision of the PPA has come under the spotlight regarding the specifics of the submission. Below we highlight few key points on this topic:

Electronic form

The electronic form of the ESPD (eESPD) is not defined by the type of signatures used, but on the basis of its being stored electronically (not on paper). Thus, the eESPD is an electronic document and as such it must be properly signed upon submission of the tender application.

Signing of the eESPD

To validly sign an electronic document (in this case eESPD) and present it in original form to the contracting authority, the legal representative/s of the respective applicant and any other person/s exercising control over the applicant’s activities, must sign it by way of electronic signature (“e-signature”). There are different types of e-signatures and if the contracting authority has not specified the type of signature in the tender documents, the applicant could use a qualified electronic signature issued by an approved provider. The qualified e-signature has the equivalent legal effect of a handwritten signature. The lists with the trusted qualified e-signature providers by country are published on the web site of the European Commission.  

Further, there are two types of qualified e-signatures:

1. Qualified Natural Person Signature Certificate: the certificate is issued to a natural person (“Holder”) and may be used for personal identification for Internet applications, financial transactions, secured and encrypted communication, electronic correspondence, electronic document signing, making legal statements, authentication and data encryption activities; and
2. Qualified Delegated Signature Certificate: the certificate is issued to a natural person and contains information about a legal entity that has delegated authority to the Holder and may be used for personal identification for Internet applications, financial transactions, secured and encrypted communication, electronic correspondence, electronic document signing, making legal statements, authentication and data encryption activities.

Generally, the preferred form for use of the qualified e-signature for a company’s purposes is the Qualified Delegated Signature Certificate. However, if there are no specific requirements of the contracting authority and the natural person is a representative of a few companies within a group of companies, then the Qualified Natural Person Signature Certificate would be more convenient and could also be used.

Ongoing tenders and timing issues

If the deadline for submission of applications for ongoing tenders is approaching and the applicant does not have sufficient time to obtain the qualified e-signatures, it may file the application in hard copy or with the partially signed eESPD (with only a few of the qualified e-signatures). In such case, when reviewing the application, the commission of the contracting authority will/should find an inconsistency in the application and should instruct the applicant to provide a corrected application (signed with qualified e-signatures) within 5 business days. The applicant could use the time between the filing of the application and the receipt of the instruction from the commission to obtain the necessary qualified e-signatures.

By Stefana Tsekova, Local Partner and Dimitar Kairakov, Intern, Schoenherr