CEE Legal Matters

Category: Bulgaria

  • Penkov, Markov & Partners Successful in Representation of BA Glass Bulgaria

    Penkov, Markov & Partners Successful in Representation of BA Glass Bulgaria

    Penkov, Markov & Partners has represented the interests of BA Glass Bulgaria, a part of the multinational glass producer BA Glass Portugal, in a dispute against Toplofikatsia Sofia EAD, a heating producer and supplier for Sofia.

    The Sofia Court of Appeal upheld the decision of the Sofia City Court to reject Toplofikatsia Sofia’s claim, which was based on Article 59 of Bulgaria’s Obligations and Contracts Act and related to payment of compensation for alleged unjustified enrichment in connection with the use of gas-pipeline diversion without payment of fees or any other remuneration.

    According to Penkov, Markov & Partners, “the core of the dispute was whether BA Glass Bulgaria AD owes to Toplofikatsia Sofia EAD payment of transfer fees, minding that it has settled its relations on the access and transfer of natural gas with Bulgargas EAD and pays to the public provider the transfer fees legally determined by the Energy and Water Regulatory Commission.”

    The Penkov, Markov & Partners team was led by Partner Roman Stoyanov and included Partner Svetoslav Dimitrov, Senior Associate Atanas Valov, and Associate Ralitsa Tihova. 

     

  • CMS and Hristova, Jivkov & Tsotsorkova Advise on Acquisition of Photovoltaic Parks in Bulgaria

    CMS and Hristova, Jivkov & Tsotsorkova Advise on Acquisition of Photovoltaic Parks in Bulgaria

    CMS has advised Global Biomet on the acquisition of two photovoltaic parks in Bulgaria from the US/Indian venture Good Earth. The seller was represented by Hristova, Jivkov & Tsotsorkova, a recent spin off from Eurolex Bulgaria.

    Global Biomet is the owner of the largest rooftop photovoltaic power plant in Bulgaria, and prior to this transaction was the owner of eight projects, both self-developed and acquired as operational assets. The new acquisition adds extra 2 200 kWp installed capacity to Global Biomet’s portfolio.

    The project also involves restructuring of the debt of the project originally extended by the KBC-owned United Bulgarian Bank. 

    The CMS team was led by Partner Kostadin Sirleshtov and Senior Associate Angel Bangachev, and included, among others, Associates Borislava Pokrass, Raya Maneva, Dimitar Dimitrov, Alexander Rangelov, and Borislava Piperkova. 

    The Hristova, Jivkov & Tsotsorkova team was led by Partner Hristina Hristova.

     

  • DGKV Advises VMware on Major Office Lease Deal in Bulgaria

    DGKV Advises VMware on Major Office Lease Deal in Bulgaria

    DGKV has advised VMware Bulgaria, part of the US cloud computing company VMware Inc., on its lease of more than 20,000 square meters of office space in two buildings in Sofia’s Garitage Park residential and business complex currently under construction.

    According to DGKV, the deal represents the largest office lease in Bulgaria for the last 10 years.

    DGKV provided VMware with advice and legal support during the negotiations and at the execution stage. The firm has represented both lessors and tenants in relation to retail space lease or sublease agreements, including drafting of individual or master lease agreements, negotiations, and/or early termination. Its team was led by Partner Violetta Kunze and included Senior Associates Nikolina Stefanova and Yassen Spassov. 

     

  • Venture Capital Structures in Bulgarian Start-Ups

    Venture capital investments in Bulgarian start-ups are on the rise, and modern legal structures such as share option plans and convertible notes can, if local law peculiarities are taken into account, be applied in the country.

    Share Option Plans

    Share option plans are designed to incentivize founders and key employees of the company to devote their time and efforts to the company’s interests. A share option plans involves the grant of an option to an employee to acquire shares over a certain period of time at a discounted value and upon certain conditions. The company and the employees are free to agree on the terms of the plan, and the corporate instruments to implement it are usually the issue of new shares and/or the transfer of existing shares.

    Issue of New Shares

    The issue of shares, as a rule, requires a shareholders’ resolution. This can be a drawback in a start-up company, which typically has a large investor base. In a joint stock company (AD), however, the board may be empowered by the general meeting to issue shares up to a certain amount and for period of up to five years. This empowerment should also restrict any pre-emption rights shareholders may have by law. In a limited liability company (ODD), the issue of new shares always rests with the general meeting of shareholders acting unanimously, which turns the share option plan into a more lengthy process. 

    Transfer of Shares

    An alternative to the issue of shares is the transfer of shares (from majority shareholders to employees). In all cases, the transfers are made pursuant to the targets set out in the share option plan. This grant of shares does not involve a capital increase, and the transfer occurs by a quick and simple procedure. In an OOD, the transfer of shares from a shareholder to an employee could be set out in a preliminary agreement between the company, the shareholder, and the employee. The execution of the final agreement will be subject to the conditions set out in the share option plan. The advantage of this approach is that the option holder can enforce, via a court order, the preliminary agreement if the company and the shareholders do not cooperate.

    Convertible Notes

    Early stage investments are often structured as convertible notes: securities incorporating a loan granted to a company which could be converted into shares at a subsequent investment round or upon the occurrence of a specific event (e.g. a change of control or an IPO). This is the preferred method of swift financing for both start-up companies and investors because it avoids the need to value the company at the time of the financing. Instead, the valuation is made upon the occurrence of a future event which provides a valuation benchmark (i.e., a subsequent investment round, a change of control, or an IPO). A convertible note set outs at a minimum the principal, interest rate, maturity date, and conversion price, together with conversion discounts and/or valuation cap and conversion events.

    For a Bulgarian start-up, a convertible note translates into: (i) a convertible bond (applicable in an AD only); or (ii) a loan which can be converted into shares by in-kind contribution. 

    Convertible Bond

    A convertible bond is the same as the convertible note described above. In a start-up context, it is not a financial instrument and its trading may be restricted. The conversion occurs at the discretion of the investor in a capital increase procedure initiated by the company with a resolution of the general meeting. Once a convertible bond is issued, the general meeting may not veto the conversion, which is a key advantage.

    Convertible Loan

    A convertible loan involves an agreement between the company and the investor whereby the loan converts into shares by capital increase, on certain conditions and at the discretion of the investor. The capital increase is effected via in-kind contribution of the investor’s loan receivables (principal and interest), which requires a general meeting resolution and an expert valuation of the receivable. Hence, a main disadvantage of this structure is that the investor needs the cooperation of the shareholders (who may veto the capital increase) and the company. A possible way out is to bind the shareholders and the company in the loan agreement to do the capital increase on the agreed-upon conversion terms.

    By Ilko Stoyanov, Partner, and Katerina Kaloyanova, Attorney at Law, Schoenherr Bulgaria 

    This Article was originally published in Issue 4.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

  • Kinstellar Advises on Merger of Cibank and United Bulgarian Bank

    Kinstellar Advises on Merger of Cibank and United Bulgarian Bank

    Kinstellar has advised United Bulgarian Bank and Cibank on the merger of the two companies.

    According to Kinstellar, as a result of the merger, the newly formed bank now has assets exceeding BGN 11 billion (EUR 5.6 billion), a larger branch network throughout Bulgaria, and a wider range of products and services, focused on individuals and small and medium-sized enterprises. The United Bulgarian Bank’s offering in Bulgaria will also capitalize on the support of the international banking group КBC.

    The merger followed the EUR 610 million acquisition of UBB and Interlease by KBC Group in 2017, where Kinstellar acted as main legal adviser to KBC Group (as reported by CEE Legal Matters on January 16, 2017).

    Kinstellar Sofia office worked on the merger documentation, including obtaining regulatory approvals from the Bulgarian National Bank, as well as on related employment and corporate law aspects. The firm’s team consisted of Partner Diana Dimova, Counsel Svilen Issaev, Managing Associate Nina Tsifudina, and Associate Stiliyana Ivanova.

     

  • Kinstellar Advises Adecco Group on Corporate Spin-off in Bulgaria

    Kinstellar Advises Adecco Group on Corporate Spin-off in Bulgaria

    Kinstellar has advised The Adecco Group on the spin-off of its business in Bulgaria into two separate companies. As part of the process, which started in July 2017 and concluded in January 2018, the IT Outsourcing business, one of the Adecco’s key activities, moved into a new structure that will operate under the brand Modis Bulgaria.  

    The Adecco Group is the world’s leading provider of HR Services, including temporary staffing, permanent placement, career transition, and talent development, as well as outsourcing and consulting. In Bulgaria, Adecco will continue providing recruitment services and temporary workforce solutions.

    The Kinstellar team consisted of Managing Associate Nina Tsifudina and Associate Vanya Evtimova.

     

  • Improvement of the Measures Against Tax Evasion and Tax Fraud in Bulgaria

    One of the defects of the Bulgarian tax system and of the enforcement authorities in Bulgaria – the lack of direct access to information for the purposes of administrative cooperation (the automatic exchange of information) between the relevant authorities and legal entities – is on its way to being resolved.

    In the beginning of October Bulgaria’s Council of Ministers approved a draft law amending and supplementing the Bulgarian Tax and Social Procedure Code (TSPC) mainly with respect to the automatic exchange of information, and filed it with the Bulgarian National Assembly. This law aims to implement EU Directive 2016/258, which addresses tax evasion and tax fraud and aims to increase transparency in the taxation field, including exchanges of information between the relevant tax authorities. We see this legislative step as an improvement of the tax system and an effective step against tax evasion and fraud.

    The scope of the automatic exchange of information between the tax authorities of Member States – including exchanges of financial information, and of information related to advance cross-border rulings, among others – was extended through several EU Directives.

    The draft law amending and supplementing the TSPC empowers tax authorities to access information, documents, and any other data (including information regarding the beneficial owner of a legal entity) gathered by the obliged persons mainly within the procedure of expanded customer due diligence pursuant to the provisions of anti-money laundering legislation. 

    The amendments in the TSPC relating to the automatic exchange of financial information would allow revenue authorities to obtain information about, for instance, the beneficial owners of intermediary structures in order to more effectively detect tax evasion. Most important is that the tax authorities could rely entirely on the information collected through the application of anti-money laundering measures and thus easily establish potential cases of tax fraud and tax evasion.

    Beside implementing EU legislation into Bulgarian law, the draft law also introduces some other measures in the fight against tax evasion and clarifies previously-adopted provisions. Amendments and supplements were adopted this past summer with respect to the personal liabilities of managers, members of management bodies, procurators, commercial representatives, and commercial agents of a legal entity which are subject to tax or compulsory social security contributions or are required to withhold and pay taxes or compulsory social security contributions. Indeed, it is possible to make persons personally liable if they have concealed facts and circumstances before the revenue authority or the public bailiff resulting to any obligations for taxes and/or compulsory social security contributions cannot be collected. The personal liability of such representatives is limited to the outstanding tax obligation. 

    Additionally, such persons, as representatives of the taxable entity, are also liable when making payments in kind or in money in bad faith, representing a hidden distribution of profits or dividends, or when they alienate property, including an ongoing concern, for no remuneration or at prices significantly lower than the market prices or perform actions relating to burdening the patrimony to secure a third party debt and then cashing the patrimony in in favor of the third party.

    The TSPC also contains measures to stop people from carrying out a series of share purchase transactions to avoid shareholder’s liability in cases of insolvency and over-indebtedness. Indeed, majority shareholders and to some extent minority shareholders shall be jointly liable for the company’s outstanding obligations for taxes and compulsory social security contributions in the event they transfer their participation (so that they cease to be majority shareholders) in bad faith – the liability being proportional to their participation in the alienated part of the capital.

    We consider such amendments useful both in facilitating the collection of taxes and in improving the tax culture of tax payers. 

    One deficiency which we see in adopting the draft law amending and supplementing the TSPC, however, is the fact that it currently refers to a draft Measures Against Money Laundering Act, which is currently in process of adoption. Therefore, we recommend that the amendments to the TSPC be adopted only after the Measures Against Money Laundering Act.

    Once the amendments to the TSPC are adopted, we expect the tax and court practice to be changed, especially with respect to the collection of information. 

    By Jivko Sedlarski, Head of Tax, Penkov, Markov & Partners 

    This Article was originally published in Issue 4.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

  • DGKV Advises OTP Bank and DSK Bank on a EUR 80 Million Restructuring for Libena Resorts

    DGKV Advises OTP Bank and DSK Bank on a EUR 80 Million Restructuring for Libena Resorts

    DGKV has advised Hungary’s OTP Bank and its Bulgarian subsidiary DSK Bank EAD on a EUR 80 million restructuring and extension of additional facilities to the Bulgarian subsidiaries of Libena Resorts.

    Through its four subsidiaries — Akademika Sea Palace AD, Sunny Travel Club EOOD, Sunny Travel EOOD and Sandrose Holidays EOOD — Libena Resorts owns and operates six four and five-star hotels and resorts on the Bulgarian Black Sea coast.

    DGKV was responsible for the drafting and execution of the loan documentation and the limited due diligence of each borrower and owner, as well as for advising on financing and restructuring process.  

    The DGKV team was led by Partner Nikolai Gouginski, assisted by Senior Associate Kaloyan Krumov and Associates Lora Aleksandrova, Aleksander Shpatov, and Tsvetelina Bayraktarova.

     

  • The Buzz in Bulgaria: Interview with Ilko Stoyanov of Schoenherr

    The Buzz in Bulgaria: Interview with Ilko Stoyanov of Schoenherr

    According to Ilko Stoyanov, Partner at Schoenherr in Bulgaria, although his country has a very small legal market, which means that it is difficult to identify trends and to forecast the future, non-performing loans, the GDPR, and the rapid growth of artificial intelligence are topics that will definitely keep lawyers wired throughout 2018.

    “Even though in Bulgaria the trends of the legal market are changing from year to year,” he says, “I can identify at least two or three important things that kept the industry busy last year, and probably will still be relevant in 2018. First, there are these non-performing loans — the so-called NPLs — which are quite a hot topic across all of Europe. Banks are looking to sell their NPL portfolios to companies that are specialized in collecting these loans. Their goal is to free their capacity, because their entire business relies on extending credit to clients rather than dealing with defaulting clients, which involves large resources from the banks, and usually there are companies, like the buyers of these NPLs, who are more specialized in dealing with default loans.” Stoyanov notes that NPL transactions boomed in Europe after the financial crisis, as they have around the world, and Bulgaria experienced its largest NPL transactions in 2016 and 2017, both in secured and unsecured portfolios. “I believe that these transactions will continue in Bulgaria in 2018 as well,” he adds. 

    The other hot topic that Stoyanov mentions involves the GDPR. “Data protection is a thing that everybody is talking about,” he says. “All the large companies need to reorganize themselves and their IT systems in order to comply with the new rules on how they collect and process personal data.” He reports that a lot of Bulgarian law firms have already started preparing to advise in relation to personal data. “Our office is on the opinion that the related expectations of law firms will be greater than the demand from clients. Although clients are looking for legal counseling and IT advice regarding the GDPR, I think that IT advice will be in a higher demand,” says Stoyanov.

    Turning to the topic of how artificial intelligence might change the legal industry, Stoyanov believes that robots and machines will be able to take over an increasing amount of legal work in upcoming years. “The rapid rise of artificial intelligence surely will affect the legal market. Although our firm has not yet seen the consequences of this phenomenon, or how automation really works in the legal field, everybody talks about the possible consequences. It is already happening in the US and in the UK, so at some point it will happen in Bulgaria as well. People are concerned that AI will take legal jobs. We can’t tell for sure when or in which areas, but it might happen — for example with legal due diligence. A firm would not be obliged to hire 20 lawyers anymore for the legal analyses of a country, for it can be done by a machine in a much shorter time.” Computers are unlikely to take over all work from lawyers, he says. “Analyzing documents is probably easier but it would take some time for machines to learn to draft contracts or deal with negotiations. But it might come sooner rather than later and we must adapt. What we do as lawyers is probably not unique despite how we feel about it.”

    When asked what’s keeping his firm busy at the moment, Stoyanov says that they are dealing mostly with cases related to real estate, energy, NPL, M&A transactions, and foreign investments. “I have to mention that investments coming from the outside were a bit down since the financial crisis — five years ago, for example, we advised more Bulgarian clients then foreigners. But today this interest is growing, with foreigners mainly making greenfield investments. The majority is coming to Bulgaria to create new plants or manufacturing facilities, and this is clearly a source of enthusiasm for us.”

     

  • Tsvetkova Bebov Komarevski Hires New Head of Energy

    Tsvetkova Bebov Komarevski Hires New Head of Energy

    Aleksander Aleksandrov has joined Tsvetkova Bebov Komarevski to head the firm’s energy practice.

    Aleksandrov, who according to the firm, also specializes on spatial planning and construction law, environmental law, waste management law, and natural resources law, joins the firm as a Senior Associate.

    Aleksandrov commented on his new role: “I am excited to be part of the Tsvetkova Bebov Komarevski team. The thing that attracts me most is the uncompromised professionalism of my colleagues. I look forward to working with such remarkable lawyers in a family atmosphere. I expect a lot of professional challenges and new friendships.”