- Access to Finance
- Capital Markets
- Contract Enforcement and Judicial Capacity
- Corporate Governance
- Debt restructuring and bankruptcy
- Electronic Communications
- Energy and resource efficiency
- Energy legal and regulatory reform
- Public Procurement
Access to Finance
The legal framework for secured transactions in Bulgaria has been one of the most advanced in the region since the enactment of the 1997 Law on Registered Pledges and its subsequent amendments. This law allows for security interests to be taken over a wide range of movable (tangible and intangible) assets. It can be granted by a "merchant", as defined in article 1 of the Commerce Act (natural or legal person engaged by occupation in any of the commercial transactions listed in the article), or any of the persons listed in article 2 Commerce Act (that is mainly farmers, artisans and members of the professions). As the law on registered pledges is generally seen to be modern and efficient, the main recommendations for reform involve the law relating to mortgages, which could be updated. Specifically, the basic legal function of a mortgage law is not met because enforcement is uncertain and proceeds on realisation are significantly below market value. The mortgage creation procedure could be simplified by relaxing onerous documentation requirements and further improvements to the land registration system will improve the certainty of the mortgage framework.
In 2014 the EBRD conducted an assessment on secured transactions which examined the availability of collateralising different types of assets regardless of the underlying legal instruments used to achieve the establishment of secured creditor’s rights. In addition to the classic security interests (pledges and mortgages the assessment also covered usual types of quasi security, such as sale and lease back transactions. The assessment also covered related issues such as enforcement and syndicated lending. The links below take you to the assessment results for Bulgaria.
Following the adoption of the EU acquis communautaire securities market
legislation complies with high international standards. The securities market regulator is considered highly effective in pursuing complex cases. The domestic equity market is reasonably well capitalised and liquid to provide a viable funding source in conducive market conditions. The financial crisis resulted in a major decrease in the market capitalisation on the Bulgarian stock exchange though the market infrastructure remains in place and functioning. Government bond markets are well developed, with regular and frequent issuance of government securities, although secondary market liquidity remains lacking.
Contract Enforcement and Judicial Capacity
The EBRD Judicial Decisions Assessment found court judgments in commercial law matters in Bulgaria to be generally predictable and of reasonable technical quality. Case law is accessible to the public through a centralised online system for the publication of judgments of all courts. Guidance notes issued by the superior courts are mandatory for all lower courts, which contributes to a certain degree of uniformity of jurisprudence. The ability of practitioners to request such guidance through the Bar Association allows the guidance to tackle on controversial practical matters. Enforcement of court judgments has improved recently, however the rates of enforcement remain quite low, particularly in relation to disputes with government authorities, which are within the exclusive competence of the state agents. The speed of justice remains a concern, although improvements have been achieved, in particular through introducing a “fast track” procedure for relatively simple cases.
The Commercial Act enacted in 1991 (and amended several times thereafter) is the main legal text setting forth the rules on the establishment and operation of companies. In addition, a National Corporate Governance Code was enacted in October 2007 and amended in February 2012. The Code contains recommendations to Bulgarian companies on the application of good corporate governance practices and principles. The Code is to be implemented according to the so-called “comply or explain” principle.
The most recent EBRD assessment on corporate governance showed Bulgaria being in “Medium Compliance” with the OECD Principles of Corporate Governance. The assessment revealed challenges especially in the “responsibilities of the board” sector. The framework has been improved by the progressive transposition of the Acquis Communautaire. At 18 January 2012 (last data available online), Bulgaria appears to have duly transposed 90% of all Acquis in the field of company law. However, while the legal framework “on the books” has improved, still some gaps exist. In particular, the regulator may wish to be more vigilant on how companies “comply or explain” with the national corporate governance code and should develop a model corporate governance disclosure template that companies can adopt for their “comply or explain” disclosure.
(2013 Assessment of Corporate Governance of Companies – country report)
Debt restructuring and bankruptcy
The Commercial Act is also the main source of legislation for insolvency matters. There is one bankruptcy procedure, which can, in theory, result in either the liquidation of a business or in its rescue pursuant to a reorganisation plan. In practice, the bankruptcy framework is overwhelmingly liquidation focused and very few reorganisation plans are proposed and/or succeed. Judicial reorganisation under the bankruptcy provisions of the Commercial Act is only available for businesses that are technically insolvent and is not, as is common now in other jurisdictions, available also for businesses that are at risk of insolvency. The law provides that the creditors’ committee may vote on a reorganisation plan. Nevertheless the formulation of the reorganisation plan is debtor driven and occurs late in the bankruptcy proceedings, once the date of the initial insolvency has been determined and creditors’ claims have been submitted. There is no mechanism for agreement of an accelerated or pre-packaged reorganisation plan under the Commercial Act. A recent European Commission recommendation on insolvency, issued in March 2014, sets out a number of principles to be reflected by Member States, including Bulgaria, in their national insolvency/ bankruptcy legislation. An accompanying press release from the Commission cited Bulgaria as one of the EU countries that currently fail to promote the early judicial reorganisation of businesses.
The Commercial Act was reformed in 2013 to limit the previously open-ended claw back provisions, which had caused significant legal and commercial uncertainty for local creditors. Both the EBRD and the IMF contributed their views and international experience to the reform debate and advocated the importance of clearer, more balanced provisions.
Provisions on insolvency office holders (IOHs) are found in the CA and are supplemented by Regulation no. 3 dated 27 June 2005 (the Regulation) issued by the Minister of Justice, the Minister of Economy and the Minister of Finance, which sets out certain admission criteria for the profession and continuing training requirements for IOHs. Based on the results of the assessment, a developed legal framework appears to exist for the IOH profession in Bulgaria, which prima facie, displays a number of strengths. Nevertheless, such framework would benefit from further improvements to address certain important areas of weaknesses and thus improve IOH capacity and performance.
- Assessment of Insolvency Office Holders 2014 – Country profile - Bulgaria
- Assessment of Insolvency Office Holders 2014 – Country report - Bulgaria
The electronic communications sector (the ‘Sector’) is governed mainly by the Electronic Communications Act 2007 (the “2007 Act”), together with applicable amendments and subordinate legislation. The 2007 Act largely harmonised Bulgaria’s electronic communications legislation with that of the European Union (EU) framework as part of Bulgaria accession to the EU in 2007. The Act was substantially amended in 2009 to keep up with developments at a European level and implement changes to the sector institutional structure. The amendments were adopted in 2011.
The 2012 report presents the results of an assessment of the legal and regulatory frameworks for the electronic communications markets in 31 current and prospective countries of operation of the European Bank for Reconstruction and Development (EBRD). The results indicate that the legal and regulatory risk associated in investing in the sector varies considerably from country to country. This investment risk is higher in some countries than others largely because they have not yet implemented many of the components of legal and regulatory best practice for the electronic communications sector that are now common features in lower risk countries.
The EBRD commenced a project in May 2008 to assess the communications sector in each of the Bank’s countries of operation. The communications sector in this context refers to the market for the supply of telecommunications services, principally fixed line, mobile and broadband services.
Energy and resource efficiency
The Law on Energy Sector provides the general conditions for efficient use of energy
and use of combined heat and power and renewable energy. The Minister for
Economy and Energy is responsible for preparing and presenting, for adoption by the Council of Ministers, national long-term and short-term programmes for encouraging the use of renewable energy sources and national indicative objectives for prevention of climate changes, and also for preparing annual implementation reports indicating the level of compliance of undertaken measures with the obligations for prevention of climate changes, as well as measures taken to ensure reliability of the certificates of origin. The Minister is required to prepare an analysis of the national potential for high-efficiency cogeneration and every four years evaluates the progress made toward increasing the share of high-efficiency cogeneration into the gross electricity demand.
A Law on the Renewable and Alternative Sources of Energy and Biofuels entered into force in 2008 and is the primary legislation that addresses renewable energy in
Bulgaria. The law promotes energy efficiency, renewable and combined heat and
power. A Law on Energy Efficiency was adopted in 2004 and last amended in 2007.
Energy legal and regulatory reform
The Council of Ministers is responsible for developing Bulgaria’s Energy Strategy,
upon proposal of the Minister of Economy and Energy, the primary policy-making
body. Regulatory implementation is the responsibility of the State Energy and Water
Regulatory Commission (SEWRC). SEWRC is an autonomous regulatory agency
responsible for electricity, heat, natural gas, water and sewerage. Established in 1999 as an energy regulator, SEWRC gained regulatory authority in the water sector in 2005.
Bulgarian PPP/Concessions legislation is centred on the Concessions Act of 2006 (the “Concessions Act”) and the recent Public-Private Partnership Act of 2012 (the “PPP Act”), supported by a number of implementing regulations.
The Concessions Act regulates various forms of concessions such as BOT (Build-Operate-Transfer) and some of the derived models, including BOO (Build-Own-Operate) and BOOT (Build-Own-Operate-Transfer). Concessions can be granted for the majority of sectors, through a competitive procedure and in a flexible project agreement framework. Application of fair and transparent tender selection process is mandatory under the law, as well as proper remedies for breach are available.
The EBRD 2008 Concessions Sector Assessment revealed that the security and support issues need to be revised in order to be in compliance with international standards. In particular, the Law is quite restrictive on the possibility to create security interest on the assets of the concession. Furthermore, the Law does not provide for the possibility of the public authorities to provide support to the contracting authority and guarantee for the proper implementation of concessions by the contracting authority. In addition, the Law does not provide for the possibility for the lenders to substitute a qualified new concessionaire in case of concessionaire defaults.
EBRD Legal reform projects
Accounting Skills for Judges Hearing Insolvency Matters
The project involves the development of a module of training on accounting skills for judges hearing insolvency matters. Insolvency cases in Bulgaria have doubled in number since 2008, and are becoming increasingly complex. Whilst taking into account the particular circumstances of the Bulgarian market, the training module will be designed as far as possible as a prototype, such that it is amenable to adaptation in other countries in the region. The project was launched in February 2012 at a meeting in Sofia. First training activities commenced in Sofia in July; training in other cities to take place later in 2013. Creation of an e-learning platform for the module was completed at the end of 2012.
Review of Concessions Act
The EBRD reviewed the Concessions Act for Bulgaria and provided a draft report on the legislation, outlining the main concerns in relation to the granting of concessions over mineral and subsoil resources, identifying major omissions and shortcomings, and suggesting amendments and additions
The current Public Procurement Act was adopted in 2004 and has undergone 25 amendments since. The Bulgarian legislation follows principles of EU public procurement directives and covers all public contracts in state and utilities sector. In the EBRD 2010 assessment Bulgarian law and practice scored medium-to-high compliance with international standards and it was found that several transparency safeguards and efficiency instruments were not incorporated in legislation. The 2010 assessment revealed that local procurement practice is outdated and bureaucratic, electronic communication is not mandatory by law and in not used in practice and frequent changes to the public procurement laws cause severe implementation problems. Some improvements to the public procurement legislation were recorded by the EBRD review completed in 2012, but overall Bulgarian public procurement framework is in a need of reform to meet standards of the 2014 EU public procurement directives.
[Link to Country overview from EBRD/UNCITRAL microsite]