CEE Legal Matters

Category: Bulgaria

  • DGKV Advises Mundus Services on Acquisition of A.S.S. Bulgaria EOOD

    DGKV Advises Mundus Services on Acquisition of A.S.S. Bulgaria EOOD

    Djingov, Gouginski, Kyutchukov & Velichkov (DGKV) has advised Mundus Services AD on its EUR 3.2 million acquisition of 100% of the capital of A.S.S. Bulgaria EOOD – a supplier of technical equipment maintenance to office and administrative buildings and engineer of security systems – from S.V.S. EOOD (80%) and a private individual (20%). The sellers were advised by the Bazinas Law Firm on the deal, which remains subject to approval by Bulgaria’s Commission for Protection of Competition.

    Mundus Services – which, according to DGKV, “became Bulgaria’s largest corporate structure in the field of facility management after it acquired Facility Optimum Bulgaria and cleaning services firm Viki Komfort 2004 in 2016” – is a joint venture of Empower Capital investment fund and the Finnish-based investment firm KJK Capital.  

    The DGKV M&A team was led by Partner Stephan Kyutchukov, assisted by Senior Associate Valentin Bojilov and Associate Nikola Minchev, while Partner Nikolai Gouginski and Associate Vladislav Antonov handled competition matters.  

    The team of the Bazinas Law Firm, in Greece, was led by Yiannis Sakkas. Mr. Sakkas did not reply to our inquiry on the matter.

  • DGKV Victorious for Golden Leaf Tobacco Against Bulgartabac

    DGKV Victorious for Golden Leaf Tobacco Against Bulgartabac

    DGKV has successfully represented Golden Leaf Tobacco Company Inc. in a commercial dispute with Bulgartabac Holding through one of its subsidiaries – Sofia-Bulgartabac AD (Sofia BT).

    The dispute, which was heard in the Sofia City Court, involved Golden Leaf’s claim to USD 1.2 million outstanding receivables under an international sale contract. The Sofia City Court ruled in favor of Golden Leaf, awarding the claimed amount in full as well as legal fees. The decision remains subject to appeal.

    The DGKV team included Partner Angel Ganev and Senior Associate Simeon Simeonov.

  • The Buzz in Bulgaria: Interview with Borislav Boyanov of Boyanov & Co.

    Despite beginning the conversation by asserting that “there are not many new things to report in Bulgaria in terms of legislative amendments or legal market changes,” in fact Borislav Boyanov, the Managing Partner of Boyanov & Co., is fairly optimistic, pointing out that the Bulgarian economy is “relatively ok, reporting 3.4% growth in 2016, which for Europe is very good.”

    Boyanov concedes that FDI went down last year, but he reports a trend of local buyers buying the Bulgarian assets of international companies, which he describes as “both good and bad: it’s good because local companies are becoming stronger, but it’s bad because countries need foreign investors, and as I said, FDI was down.” Boyanov notes that, “Bulgaria has certain issues, for example with the necessary judicial reform — but in general this trend is not only because of Bulgaria; this is a global trend, and investors are cautious about foreign investments in Europe right now.”

    Despite the mixed report, Boyanov says that his firm had “a very good year in 2016 — maybe the best ever.” He explains that the number of transactions increased in the country last year — though not their size — and the IT and BPO sectors are famously strong in the country, as “there are some extremely good companies, and the sectors attract a lot of attention.” The Real Estate sector seems to be showing movement as well, he reports, though he concedes that, “other than that, not much.”

    Many of the problems the market is facing are not local, Boyanov insists; they’re global or regional. Indeed, he reports that there’s anxiety in his country because “of what’s happening around Europe and around Bulgaria,” and he points to a dramatic 2016 in neighboring Greece, Turkey, and Ukraine.

    Finally, Boyanov notes, the country’s previous government resigned at the end of last year. A new President will step in next week and will call new elections, “so we will lose at least four to five months.” He sighs that “the political uncertainty doesn’t contribute to economic growth,” but he also ends on a positive note: “if we can get a good, stable government, I’m optimistic, because Bulgarian companies are starting to move in the right direction, even internationally, primarily in FinTech.”

  • Kinstellar Advises KBC Group on Acquisition of United Bulgarian Bank and Interlease Leasing Company

    Kinstellar Advises KBC Group on Acquisition of United Bulgarian Bank and Interlease Leasing Company

    Kinstellar, working alongside Linklaters, has advised the Belgian KBC Group on its EUR 610 million acquisition of the United Bulgarian Bank and Bulgaria’s Interlease leasing company from the National Bank of Greece.

    Once completed, the acquisition will make KBC the biggest bank-insurance group in Bulgaria, in terms of assets, with a market share of approximately 11%. KBC already owns CIBANK and DZI (an insurer) in Bulgaria, and through this transaction it will also enter the leasing business in the country.

    Kinstellar acted as the main legal adviser to KBC on the transaction, including the due diligence process and the negotiation of the transaction documents. Linklaters’ offices in Brussels and London advised on EU regulatory matters, and were also involved in the negotiations of the share purchase agreement.

    The Kinstellar team was lead by Partners Diana Dimova and Anthony O’Connor and included Counsel Antonia Mavrova, Of Counsel Desislava Fessenko, Managing Associates Svilen Issaev, Mladen Minev and Nina Tsifudina, and Associates Stiliyana Ivanova, Vanya Shubelieva, Plamena Deliyska, and Vladimir Sotirov, among others.

    The identity of the firm advising the sellers was not disclosed.

    Editor’s Note: After this article was published Boyanov & Co. announced that it and Freshfields had advised the National Bank of Greece on the deal. The Boyanov & Co. team consisted of Senior Counsel Svetlina Kortenska and Associate Ilina Maltzeva.

    Subsequently, in October 2017, Kinstellar announced that it had assisted KBC Group in obtaining competition authority approval for the deal.

    Image Source: bankingtech.com

  • DGKV and CMS Advise on UniCredit Acquisition Financing for Bulpros Consulting

    DGKV and CMS Advise on UniCredit Acquisition Financing for Bulpros Consulting

    Djingov, Gouginski, Kyutchukov & Velichkov Law Firm has advised Bulpros Consulting AD on acquisition financing it received from Unicredit Bulbank AD for an acquisition by its German subsidiary of a majority interest in a global software business held by GROUP Business Software Europa GmbH, GBS Pavone Groupware GmbH, and GROUP Business Software (UK). CMS advised UniCredit on the financing. According to DGKV, “the transaction creates one of the largest Bulgarian IT services and solutions suppliers.”

    According to CMS Partner Elitsa Ivanova, who led the firm’s team advising UniCredit Bulbank on the deal, “in terms of value it was not a large deal but in terms of structure and documentation, it was a complex cross-border acquisition finance that included three jurisdictions, combined with a very challenging time frame (I think we achieved financial close from start to finish in less than one month).”

    DGKV describes Bulpros as “a fast-growing European IT Services company operating already on many European and global markets and providing customized solutions with a focus on IT and BPO consulting.” According to the firm, “Bulpros is the fastest growing technology company in Bulgaria.”

    DGKV’s work included the review and negotiation of a term loan and guarantee issuance facilities agreement with Unicredit Bulbank AD, as well as related documents and instruments (including security documentation governed by Bulgarian law). The firm’s team was led by Partner Georgi Tzvetkov and included Senior Associate Kaloyan Krumov and Associate Lora Aleksandrova. Gleiss Lutz worked alongside DGKV in conducting “a limited high-level legal review of certain legal issues under German law relating to the German targets.”

    Ivanova, at CMS, was responsible for the English and Bulgarian law advice, with Partner Thomas de la Motte from CMS Hamburg responsible for German law aspects of the transaction. The firm’s team included Plamena Kostadinova, Andreas Keller, Borislava Piperkova, Juliana Muteva, Anita Soomrova, Bridget Nichols, Thomas Jessop, and others from the firm’s offices in Sofia, Hamburg, and London.

  • DGKV Advises European Investment Fund on Setting up of a Second Wave Private Equity Fund

    DGKV Advises European Investment Fund on Setting up of a Second Wave Private Equity Fund

    Djingov, Gouginski, Kyutchukov & Velichkov (DGKV) has advised LaunchHub Advisors OOD and the European Investment Fund (EIF) on the setting up of two new seed stage venture capital funds to invest in early stage startups in Bulgaria and across Southeastern Europe.

    The lead fund represented by LaunchHub Fund Cooperatief, U.A. will manage funds provided under the EU JEREMIE Initiative, while the second fund – Launch Hub Co-Invest KDA – will be one of the first funds in Bulgaria raising only private money. The newly established LAUNCHub Funds will have at their disposal a total of EUR 18 million to be relocated by the end of 2018.

    DGKV’s work on the project included structuring of the funds, negotiating the principal terms and conditions for formation of a partnership for joint investments, private vehicle structuring, and preparation of transaction and incorporation documents. According to a DGKV press release, “the team has accrued significant experience after being instructed by the European Investment Bank to handle the negotiations over the operational agreement with the Republic of Bulgaria in connection with the management of JESSICA Holding Fund and the operational agreement with the financial intermediaries initiative as well as on the structuring of relationship between the management authorities of Republic of Bulgaria and the newly set up Funds of Funds entrusted with the management of all EU financial instruments resources to be made available to Republic Bulgaria during the 2014-2020 programing period.”

    DGKV’s team on the project was led by Partner Georgi Tzvetkov and included Senior Associate Gergana Monovska and Associates Ivan Punev and Lora Aleksandrova.   

    Editor’s Note: After this article was published, DGKV contacted CEE Legal Matters to clarify that, “since the EIF has so far allocated resources only to LAUNCHub Ventures and another fund (BlackPeak Capital) we might change the first sentence [of the second paragraph] as follows: ‘Launch Hub Co-Invest KDA – will be one of the first second wave private equity funds financed by the EIF.’” We apologize for the error.

  • DGKV Advises Export-Import Bank of China on Shipping Financing for Navigation Maritime Bulgare

    DGKV Advises Export-Import Bank of China on Shipping Financing for Navigation Maritime Bulgare

    Djingov, Gouginski, Kyutchukov & Velichkov Law Firm has provided local Bulgarian counsel to the Export-Import Bank of China (CEXIM) in relation to USD 102 million shipping financing extended to certain subsidiaries of Navigation Maritime Bulgare AD – the largest shipping operator in Bulgaria.

    The financing relates to the purchase of six new shipping vessels by the Navigation Maritime Bulgare Group. Navigation Maritime Bulgare AD is the successor to a shipping company established in 1892. 

    DGKV advised on matters of Bulgarian law related to the loan agreement and various securities thereunder, including the guarantee and the share charges governed by English law provided by Navigation Maritime Bulgare AD and the accounts pledges governed by Bulgarian law provided by the borrowers.

    DGKV’s team was led by Partner Georgi Tzvetkov, assisted by Associate Lora Aleksandrova. 

  • DGKV Successful for Glorient Investment in Real Estate Ownership Disputes

    DGKV Successful for Glorient Investment in Real Estate Ownership Disputes

    DGKV is reporting that, after trials lasting several months, three of 27 cases between firm client Glorient Investment BG Ltd. and Technomarket Bulgaria AD involving ownership of retail stores and an office building in Bulgaria have concluded with verdicts in Glorient’s favor. The verdicts resolve the disputes over three of the 13 stores, with 24 cases involving the remaining 10 stores still ongoing.

    In its decision of December 6, 2016, the Sofia City Court ordered Technomarket – a home appliance chain – to transfer the commercial storage complexes in the Bulgarian cities of Pazardzhik and Sevlievo to Glorient. In an earlier decision, on November 21, 2016, the Court also reached a similar decision for disputed real estate in the city of Kardzhali. According to DGKV, “besides being obliged to return the ownership of the complexes, Technomarket shall have to pay and the costs of the cases.” Technomarket may still appeal the decisions.

    According to DGKV, “this is another chapter in a saga of 27 cases which started in early 2016 and turned out to be one of the biggest disputes in the real estate sector in Bulgaria. Until February, Glorient Investment Bulgaria, a local affiliate of East Balkan Properties, a UK-based company that specializes in building retail premises, was receiving rent regularly from 22 outlets of Technomarket, a Bulgarian electrical goods retailer from whom it bought the properties 10 years ago. But now Glorient says NSN Investment, a company that acquired Technomarket early this year, is suing Glorient claiming its deals with the retailer are invalid and the properties still belong to Technomarket. Rents on the outlets have not been paid since the dispute began.”

    DKGV’s team is led by Partner Angel Ganev and includes Senior Associates Elena Ivanova and Mariya Hristova and Associates Vlada Tsenova, Nikola Minchev, and Tsvetelina Bayraktarova. 

  • DGKV Settles Claim for Mosaico+

    DGKV Settles Claim for Mosaico+

    Djingov, Gouginski, Kyutchukov & Velichkov is reporting that it reached an out-of-court settlement for Italy’s Mosaico+ Srl., in a commercial dispute over collection of outstanding receivables with Bulgaria’s Temena LTD EOOD, which specializes in spa and wellness equipment.

    DGKV describes Mosaico+ as “a prominent Italian mosaics producer [that is] part of the Mapei group, a worldwide producer of adhesives, thinsets, and sealants for buildings.”

    According to DGKV, as a result of the settlement, “Mosaico received the full amount of the outstanding principal under its contract with Temena LTD EOOD, thus saving further time and costs associated with initiation of litigation proceedings.” According to the firm, it “protected Mosaico’s legal interests in the best possible way demonstrating thorough knowledge of international sale purchase law, including Vienna Convention for International Sale of Goods and best-of-class professional skills and persistency in out-of-court dispute resolution.”

    The DGKV team included Partner Angel Ganev and Associate Vlada Tsenova.

  • Legal Aspects of the OTC Derivatives Market in Bulgaria

    Over the counter (OTC) derivative transactions – mainly plain vanilla FX and interest rates derivatives and to a lesser extent commodity derivatives – are becoming increasingly popular on the Bulgarian market.

    Market practice when only Bulgarian parties are involved is to use various local master agreements governed by Bulgarian law. Such local agreements often follow the key principles and standards of international financial documentation, such as the 2002 ISDA Master Agreement (the “ISDA MA”), which governs all legal, operational, and credit risk aspects. For cross-border transactions, market participants normally use the ISDA MA, while taking into account certain specific aspects of Bulgarian law. The most important issue for banks in both local and cross-border OTC derivative transactions is to receive a clean opinion on the enforceability of the close-out-netting mechanism under Section 6 (e) of the ISDA MA, since the ability to net allows the banks to allocate capital only against the net figure they would have to pay on close-out rather than the gross amount under the transaction.

    In this respect the International Swaps and Derivatives Association (ISDA) has obtained legal opinions (on which its members may rely) from various jurisdictions confirming the effectiveness of close-out netting in such jurisdictions updated on an annual basis. So far, however, there is no such ISDA opinion concerning close-out netting in Bulgaria. Indeed, apart from some special legislation protecting netting when the counterparty is a bank, Bulgaria has neither general netting-friendly legislation nor Supreme Court case law confirming the enforceability of close-out netting.

    Nevertheless, market participants have found several methods to make their close-out netting arrangements effective. In one such method, participants in Bulgaria request the provision of financial collateral (linked to the derivative transaction), thus bringing into play the netting mechanism under the EU Financial Collateral Directive as transposed in Bulgaria. That netting mechanism may be negotiated as being applicable to any mutual obligations of the counterparties, including their obligations under the derivative with respect to which a financial collateral arrangement has been entered into. Thus, the mutual obligations under a derivative may be effectively netted in case of a termination event under the relevant derivatives agreement.

    In this respect we believe it is sufficient to grant a small fixed amount as financial collateral to secure the potential (and thus uncertain) future obligation of a bank’s counterparty to pay amounts (if any) under a derivative. The parties may agree that the financial collateral will be updated on certain dates to take into account fluctuations in the underlying assets (e.g., interest rates or foreign currency exchange rates) which would require the counterparty to provide additional financial collateral if necessary. Alternatively, the parties may agree that the collateral will secure only a portion of the bank’s exposure under the derivative (up to the amount of the collateral that was effectively provided) in which case there would be no need to update the amount of the financial collateral in the future.

    The idea that provision of financial collateral under a derivative may effectively protect a netting arrangement is not expressly confirmed by case law. However it enjoys widespread support among Bulgarian law firms and local banks, and a growing number of derivative transactions are made in reliance on the mechanism. Especially active in this respect are the large local banks that are subsidiaries of financial institutions from other EU Member States. 

    Nevertheless, legislation expressly protecting the enforceability of close-out netting in case of insolvency of the banks’ counterparties would certainly give more comfort to the banks. As derivatives are often used by such counterparties to hedge against important financial risks like interest rate and currency rate risks, a general statutory protection of netting, supporting the derivatives transactions, may prove beneficial for the credit and financial industry as a whole.

    By Tsvetan Krumov, Attorney-at-law, Schoenherr Bulgaria 
    This Article was originally published in Issue 3.5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.