Category: Bulgaria

Boyanov & Co. Partner Kina Chuturkova highlights progress made in Bulgaria in terms of reforming the judicial system but areas where improvements are still needed remain.

“The most significant current developments, from a dispute resolution perspective, pertain to the progress of the e-Justice initiative,” Chuturkova begins. “First proposed in 2012, it only gained traction during the COVID-19 pandemic, highlighting a long-overdue need for a reform in court procedures,” she posits.

Tackling specific changes impacting Bulgarian judicial procedures, Chuturkova mentions that “between 2020 and 2021, we saw major reforms in the Judicial Power Act and procedural codes–covering civil, administrative, and criminal procedures. These changes are still ongoing to this day and include improvements in how parties are summoned to court and how certain communications are handled,” she explains. “However, we still need substantial upgrades in material and technical capabilities to fully modernize our system,” she stresses.

Further, Chuturkova focuses on upcoming changes to the civil procedure code. “Starting July 1, 2024, amendments to the civil procedure code will take effect, particularly concerning the order for payment proceedings, which will be fully electronically processed. This change aims to expedite debt collection processes, making them quicker and smoother by utilizing a system that randomly assigns cases to regional courts, thus preventing the overload we’ve seen in Sofia and promoting a fairer distribution of cases,” she explains. Until recently, the regional courts in Sofia found themselves as the primary pick for these proceedings, with most claims being steered their way. “This led to a nationwide disbalance in terms of courts’ workloads and an overload of cases in Sofia. While they were able to deal with it, a personnel shortage was becoming evident,” Chuturkova reports.

Still, despite these advancements, there are areas that still require improvements. “For instance, if a party to a court proceeding is physically unable to attend a hearing and prefers to use video conferencing, they still need to travel to the nearest regional court, which is not feasible for everyone,” Chuturkova explains. “This is just one example where the system fails to accommodate all needs, demonstrating that while procedural steps are evolving, they are not yet sufficient.” Furthermore, she reports a “critical need for better material bases and technical equipment in all courts. The procedural reforms are an important first step, but they must be supported by adequate resources to be effective. Since COVID-19, progress has slowed considerably, exacerbated by the ongoing political flux that has been paralyzing legislative developments since late 2022,” she says.

Finally, focusing on politics, Chuturkova shares that “the political instability is severely affecting legislative changes, including those related to the tax framework. This uncertainty is slowing down investments and foreign direct investments, which have been stagnant for a few years,” she says. “Despite Bulgaria’s potential Eurozone membership in 2025, the economic outlook remains bleak, with high consumer prices and median salaries under strain from inflation, but hopefully things will take a turn for the better in the back half of 2024,” she concludes.

The Supreme Court of Cassation of the Republic of Bulgaria recognized under “exceptional circumstances,” the right of an active partner in a limited liability company to act as an ad hoc representative. This decision references to Articles 6 and 13 of the European Convention for the Protection of Human Rights and Fundamental Freedoms (ECPHRFF) and the case law of the European Court of Human Rights (ECHR).

Case summary:

“Avtostakla” Ltd. with UIC 130399595, a company incorporated in Republic of Bulgaria, is represented jointly by its two managers, who are also equal partners. After 30 years of working together, one of the managers started engaging in competitive activity and established other companies, which are competitors to “Avtostakla” Ltd., and through a proxy carried out numerous fictitious deals which served to conduct simulative proceedings against “Avtostakla” Ltd. before a private arbitration court – Court of Arbitration at the World Trade Center Arbitration Court Association, in order to create large liabilities of the company and to “drain” its assets through public sales. Meanwhile, the other partner is effectively denied access to the company’s registered office and its correspondence. Therefore, it was with the announcement of the public sales of the properties of “Avtostakla” Ltd., – the debtor in the enforcement proceedings, that the partner became aware that the company had been condemned and its properties were being sold by a private bailiff,   conducting numerous fictitious deals through a proxy. These deals led to simulative proceedings before the Court of Arbitration at the World Trade Center Arbitration Court Association, creating significant liabilities for “Avtostakla” Ltd. and resulting in public sales of its assets. The other partner, effectively barred from the company’s office and correspondence, only learned of these events through public sales notices.

After becoming aware of the proceedings, the partner, as natural person, filed multiple claims against the other partner – for his exclusion from the company due to his competitive actions, as well as for the annulment of 18 arbitral awards with a total value of over EUR 7 500 000.

However, under national law, only the company, involved in the proceedings can legitimtly claim for annulment of arbitral awards against “Avtostakla” Ltd (Article 47 of the International Commercial Arbitration Act (ICAA).

The main issue was whether a partner, also a manager but unable to represent the company alone, could bring claims for annulment when the other manager had no interest in doing so. Bulgarian law requires joint representation by both managers (Art. 30, para. 1 of the Code of Civil Procedure in conjunction with Article 141, para. 2 and paragraph 6 of the Commercial Law). This requirement left the company without protection in case of managerial conflict, as national laws do not allow partners to exercise company rights if the managers fail to act together.

The case law of the Supreme Court of Cassation maintained strict adherence to these representation rules, until recently, consistent in regards to the representation of the limited liability company and the mandatory application of the law, not allowing a partner to exercise the rights of a company to set aside enforceable arbitral awards under any circumstances. This stance shifted following numerous lawsuits filed by the aggrieved partner of “Avtostakla” Ltd. seeking to protect both the company and his interests..

The Supreme Court of Cassation, in several of the cases brought by the partner, has held that Articles 6 and 13 of the ECPHRFF and the case law of the ECHR should be applied.

For the first time, the court held that, in the present case, the allegations of the partner and manager of “Avtostakla” Ltd, who brought the claim, in justification of his procedural legitimacy to bring the complaint, as a partner, along with bringing it in the name and on behalf of the company – were based on the need for a mediated protection of his right of “possession”, by protecting the assets of the company in whose capital he had a significant shareholding. The defense is precluded from being exercised by the company itself, through its representative body (when it is jointly represented by its two managers), due to “exceptional circumstances” within the meaning of the ECtHR case law – conflicting interests of “Avtostakla” Ltd. with the interests of the second co-manager and partner. (Established in Ruling № 485/29.02.2024 in pr. comm. case № 1396/2023 of the Supreme Court of Cassation).

It recognized that the partner’s procedural legitimacy to bring claims in the name of the company was justified by the need to protect his “possession” rights via the company’s assets. The court acknowledged “exceptional circumstances” where conflicting interests between managers prevented the company from defending its rights. (Ruling № 485/29.02.2024 in pr. comm. case № 1396/2023).

The court further noted that in the cited Ruling that “the ECtHR has had occasion to make it clear that its judgments serve not only to decide the cases brought before it but, more generally, to clarify, protect and develop the rules laid down by the Convention, thereby contributing to bringing States into compliance with the commitments they have entered into as Contracting Parties (Ireland v. the United Kingdom, § 154, 18 January 1978, Series A no. 25, and, more recently, Jeronovi us. v. Latvia [GC], no. 44898/10, § 109, 5 July 2016). The Court has emphasized the role of the Convention as a “constitutional instrument of European public policy” in the field of human rights (Bosphorus Hava Yollari Turizm ve Ticaret Anonim Şirketi  v. Ireland [GC], no. 45036/98, § 156, ECHR 2005-VI, and, more recently, N.D. and N.T. v. Spain [GC], nos. 8675/15 and 8697/15, § 110, 13 February 2020). Protocol No. 15 to the Convention incorporates the principle of subsidiarity into the Preamble to the Convention, imposing a shared responsibility between the States Parties and the Court with regard to the protection of human rights, given that domestic authorities and courts must interpret and apply domestic law in a way that gives full effect to the rights and freedoms enshrined in the Convention and its Protocols (Grzęda v. Poland, § 324 , §§ 159-165).”

Thus, the Supreme Court of Cassation amended its until recently consistent practice on the procedural legitimacy. It now recognizes the right of the active partner to be an ad hoc representative and to have the right to defend the rights of the company, as derived from the provision of Art. 137, para. 1, item 8 of the Civil Procedure Code. . In similar cases, the Court has identified other effective domestic remedy under Article 13 of ECHR to provide real protection of the right provided under Article 47 of the ICAA in respect of “Avtostakla” Ltd. For example, in Ruling No. 762/27.03.2024 in cass. comm. case No. 20238002900523 of the Supreme Court of Cassation, it was held that “The national regulation in Article 32 (2) of the Property Act provides that where a common property is used by a decision of the majority of co-owners in a manner detrimental to it, or if a majority cannot be formed, the court shall take the necessary measures and, if necessary, appoint a manager of the common property. The provision of Article 29 of the Civil Procedure Code, on the other hand, regulates the appointment of a special representative in court proceedings where a party is unable or hindered in its ability to form a legally valid will. In both cases, the court provides assistance to ensure the effective protection of recognized rights. In the present case, the application of Article 29 of the Civil Procedure Code appears appropriate in view of the need to protect procedural rights, as well as in view of the fact that the two partners have a parity in the capital and in the ability to influence the decisions of “Avtostakla” Ltd.

Thus, the Supreme Court of Cassation of the Republic of Bulgaria has provided pathway for managers in similar situations as “Avtostakla” Ltd. to secure effective access to justice.

By Desislava Kostova, Senior Associate, Gugushev & Partners, PONTES

Kinstellar has advised the United Bulgarian Bank on its merger with UBB Factoring.

According to Kinstellar, this move concentrates all factoring activities of UBB in one legal entity, an “important step in the overall integration of KBC’s operations in the country following the acquisition of Raiffeisenbank Bulgaria.”

The Kinstellar team included Partner Nina Tsifudina, Counsel Svilen Issaev, and Senior Associate Denitsa Kuzeva.

Wolf Theiss has advised Lion’s Head Investments on its acquisition of a significant portion of logistics company BPD in a transaction valued at EUR 71.4 million.

“The deal represents a substantial investment in Bulgaria’s industrial properties market,” the firm reported, and a “significant step in Lion’s Head Investments’ strategic expansion efforts.”

BPD describes itself as the leading owner, operator, and developer of industrial real estate in Bulgaria and offers integrated logistics solutions, among other services.

Back in March, Lion’s Head Investments obtained a EUR 150 million financing from the International Finance Corporation (as reported by CEE Legal Matters on March 8, 2024).

The Wolf Theiss team was led by Partner Radosveta Kojuharova and included Partners Anna Rizova, Richard Clegg, Katerina Kraeva, and Radoslav Mikov, Counsels Hristina Dzhevlekova and Katerina Novakova, Senior Associates Ivelina Atanasova, Jasmina Uzova, Zhulieta Markova, and Staniella Todorova, Associates Nikolay Ilchev, Boryana Filimonova, Boris Barsanov, and Yana Madzharova, and Trainee Evelina Dacheva.

Boyanov & Co, working with Gianni & Origoni, has advised UniCredit Bulbank and the United Bulgarian Bank on their financing for Plastchim-T’s acquisition of Manucor.

According to Boyanov & Co, Bulgarian company Plastchim-T is “one of the leading privately owned European manufacturers of biaxially oriented polypropylene films, cast polypropylene films, and flexible packaging products. Manucor is an Italian company founded in 1987 and has grown to become a major biaxially oriented polypropylene manufacturer. The acquisition will expand the existing joint manufacturing capacity up to 200,000 tons annually, strengthen the logistics and distribution network in Europe, as well as allow film lineup by adding a significant base of loyal clients.”

The Boyanov & Co team included Partners Damian Simeonov and Nickolay Nickolov and Principal Associate Ralitsa Nedkova.

Boyanov & Co did not respond to our inquiry on the matter.

Historically and statistically, most joint ventures and business combinations have short and difficult lives. Lawyers can assist with preparation and negotiation of best of class, workable and practical corporate and legal structures and agreements. But only the parties, the would-be partners, can make the combined business work and succeed.

Some of the more experienced co-investors apply (and constantly upgrade) reverse due diligence processes and checklists to assess alignment, compatibility and feasibility of the intended cooperation.

They would specifically review and assess, among others, questions/aspects like:

• track record with previous joint ventures, mergers, acquisitions (add-ons), business combinations, aborted deals
• capacity/resources, ability and knowledge to support both organic and inorganic growth – and value creation
• industry reputation, good standing and network – to amplify/facilitate marketing and sales of the existing products and services, or product development, and expansion, – to attract talent
• operations / integration team, resumes, qualification, track record, availability
• any disputes with partners in the past, how they’ve been resolved
• group structure, org chart, decision-making verticals, reporting lines and routines
• debt financing, lender/s, type of debt, type of security (e.g. current or future assets of the JV, negative pledges, etc.)
• merger, foreign investment and/or regulatory approvals – in the current environment, even the best matches from a business perspective may fall victim to regulatory scrutiny.

By Pavel Hristov, Partner, Hristov & Partners

Komarevski Dimitrov & Partners has advised Witte Automotive on its accelerated buy-out of the minority stake in Witte Injection Molding Bulgaria – previously operating as Forez BG – from FH holding. PwC Legal reportedly advised FH Holding.

Witte Automotive is a tier 1 automotive supplier in the field of mechatronic locking systems, while Witte Injection Molding Bulgaria was a joint venture between Witte Automotive and FH Holding.

Six months earlier, KDP and PwC Legal also advised on Witte Automotive’s initial acquisition of a majority stake in Ruse-based Forez BG from FH Holding (as reported by CEE Legal Matters on October 11, 2023).

The KDP team was led by Partner Venelin Dimitrov and Managing Associate Iva Georgieva.

Following the development of the EU legislation and reflecting market needs and increasing interest in trading with guarantees of origin, the Bulgaria’s Ministry of Energy adopted new Ordinance No. Е-РД-04-2 of 2 April 2024 on guarantees of origin of energy from renewable sources. The new Ordinance was promulgated in State Gazette No. 32 on 9 April 2024.

This new Ordinance repeals Ordinance No. РД-16-1117 of 14.10.2011, which until now regulated the conditions and procedure for creating, maintaining, and using a system for issuing guarantees of origin.

By definition, the guarantee of origin is an electronic document that serves as proof to the final consumer (i.e. purchaser for own consumption) that a certain share or quantity of the energy supplied is produced from renewable sources, including that a certain share of the energy or quantity of energy in the total energy composition of the supplier and in the energy supplied to consumer under agreements marketed as such with energy from renewable sources included.

The guarantees of origin are issued to a producer for a standard amount of energy produced of 1 MWh and their issuance, transfer, cancellation, and recognition of guarantees of origin is carried out electronically by entry in a single electronic register of guarantees of origin (i.e. the Register) maintained by the Sustainable Energy Development Agency (SEDA).

The guarantees of origin are issued based on an application from the producer and they may be issued for one or more calendar months, but no later than one calendar month after the end date of the period in which the respective energy from renewable sources was produced by facilities with installed 30 kW and above.

New features

Different from the previous Ordinance, the new Ordinance on guarantees of origin regulates the possibility of international trading guarantees of origin issued from Bulgaria.

The Ordinance provides that the guarantees of origin of energy from renewable sources may be transferred to:

• purchasers under an agreement for the purchase and sale of energy from renewable sources;
• purchasers under an agreement for the purchase and sale of guarantees of origin; and
• under an agreement on the transfer of guarantees of origin.

However, according to the stipulations of the new Ordinance on guarantees of origin, the following points must be noted:

• the guarantees of origin issued for the amount of electricity purchased at Feed-In-Tariffs is transferred from the producer to the public supplier (i.e. the final supplier);
• the guarantees of origin issued for the amount of electricity for which premiums are paid to the producer is transferred to the Electricity System Security Fund (ESSF);
• the ESSF transfers guarantees of origin to traders, producers, the operator of an organised exchange market, the supplier of last resort, and the final supplier that transacts with end customers connected to the electricity system – the guarantees of origin must be for the relevant month in proportion to the amount of the funds from the price and/or the fee related to the public service obligations payable by the relevant market participant for the same month.

The guarantees of origin may be transferred regardless of the actual quantity renewable energy for which they were issued, but only once per final consumer. According to the Ordinance, the guarantees of origin can also be transferred to a respective register of another EU member state or to an end consumer in an EU member state.

From procedural perspective, the transfer of the guarantee is carried out by means of an application in a form approved by the SEDA, which must be submitted by the holder of the guarantee of origin of energy from renewable sources. The application can be submitted either electronically or on paper.

After consideration of the submitted application, the executive director of SEDA will issues an order for approval within 14 days upon its submission by which the guarantee subject to transfer will be entered into the Register.

The persons to whom guarantees of origin are transferred are also required to submit a request for registration for the guarantees transfer. This request must contain the data of the legal entity of the natural person and its address for correspondence.

The Bulgarian SEDA also recognises the guarantees of origin issued by the competent authorities in other EU member states and their recognition is done by means of application, followed by issuance of an order for approval or refusal to recognise. In case of refusal, SEDA is obliged to immediately notify the Minister of Energy for the refusal and provide additional information when requested. For his competences, the Minister of Energy is also obliged to notify the European Commission of each effective refusal.

From a market perspective, the Bulgarian Energy Exchange IBEX is obliged under the Energy Act to organise the exchange market for the issued guarantees of origin.

For more information on how this new Ordinance will affect your business in or expedite business with Bulgaria, contact your CMS client partner or these CMS experts: Kostadin Sirleshtov, Borislava Piperkova and Viktoriya Dimitrova.

By Kostadin Sirleshtov, Managing Partner, Borislava Piperkova, Counsel, and Viktoriya Dimitrova, Associate, CMS

Djingov Gouginski Kyutchukov & Velichkov has advised Bulgarian Stock Exchange-listed Bianor Holding on a capital increase through a share issuance that attracted 199 investors, including several institutional investors.

Bianor Holding brings together a group of companies providing specialized software development services related to data streaming, machine learning, artificial intelligence, transition to the cloud, and digital transformation across Europe and North America.

According to DGKV, “the company placed 99% of the newly issued shares resulting in a capital raise of over BGN 20 million. This is the second investment secured by Bianor in the last 12 months. The investment will support Bianor’s organic growth and further accelerate its expansion through mergers and acquisitions following several successful acquisitions of IT businesses Bianor completed during the last 12 months.”

Back in 2023, DGKV advised Bianor Holding on the acquisition of Itido Technologies and Databreathe (as reported by CEE Legal Matters on March 24, 2023).

The DGKV team was led by Partners Georgi Tzvetkov and Gergana Monovska.

CMS has advised Greenvolt Power Solar Poland on its acquisition of an 80-megawatt photovoltaic project – including a battery energy storage system capable of storing electricity up to 25 megawatts per four hours – from AES Global Power Holdings. Spasov & Bratanov, working with Bracewell, advised the seller.

Greenvolt Power is an international wind and solar developer.

AES Global Power Holdings is an American utility and power generation company.

According to CMS, the project “represents a transformative shift towards renewable energy in the region, specifically near the Bulgarian town of Galabovo. The Galabovo region, traditionally known for its reliance on coal power plants, is witnessing a paradigm shift towards cleaner energy solutions.”

The CMS team included Managing Partner Kostadin Sirleshtov, Partner Atanas Bangachev, Counsel Borislava Piperkova, Senior Associate Vaska Solakova, and Associates Diyan Georgiev, Viktoriya Dimitrova, and Dian Boev.

The Spasov & Bratanov team included Partner Vassil Hadjov and Associate Vladimir Tashev.

The Bracewell team included London-based Partner Ronen Lazarovitch and Senior Associate Adam Waszkiewicz.

Editor’s Note: This article was updated on April 17, 2024, to update team compositions.