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Liquidation of Bulgarian limited company

The biggest issue with the compulsory liquidation of the Bulgarian limited companies is the communication with the state appointed liquidator. Since the Registry Agency appoints liquidators from their liquidators lists, no one considers whether the company owner is foreigner or does he speaks Bulgarian. Some liquidators are not diligent enough when they see that the company owner is not Bulgarian. Sometimes they will not make efforts to contact the latter. One a separate note, this is difficult because the company owner address is spelled in Cyrillic letters and it is very difficult to restore the right English spelling.

Normally the the newly appointed liquidator will try to contact the capital owner(s) and request all company documentation i.e. contracts, bank account balance, court papers (if any), past years accounting reports etc. These will be needed to find out if the company has any outstanding debts and to repay them. Only then the rest of the company assets will be cashed and distributed among the company capital owners. Upon request of the capital owners and if available, any property left can be transferred to the company owner(s) without being cashed.

The latter is an exemption rather than a normal procedure. Therefore the company owners need explicitly and formally to request this transfer from the liquidator. If this request is not made in a formal way, the liquidator will sell the property on public tender/auction. As solicitors, we ensure that the formal request is submitted to the liquidator on time and no foreigner loses their property just because a formal request hasn’t been made to the liquidator.

Having said the above, I strongly encourage all Britons and Irish who still haven’t re-registered their companies – you still can keep your properties! The only effort you need to make is contact us with details of your Bulgarian limited company. We will take care of the rest.

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Bulgarian courts should accepts/send papers online

This week we have achieved a small victory. We are representatives of a client on a case, heard in Stara Zagora District Court. We have asked the judge to send by email copies of the latest hearing minutes. The judge refused, grounding her decision with “the court doesn’t have that practice”. We’ll that was not quite true. Art. 42 para 4 of the Civil Proceedings Code allows the court to send notices and subpoenas by email. We claimed that the court can use that to send copies of court documents too.

We have lodged an application to the Chairperson of Stara Zagora District Court, requesting the Chairman to “create such practice”. The court Chairperson accepted our arguments and ordered the judge to apply directly the aforesaid article. Yesterday we have received the requested documents by email.

I’m writing about this since that a major breakthrough in how the Bulgarian court operates. As I’ve said before, one of the major reasons of why lawsuits  take so long to be tried is the notice/subpoena problem. Electronic means solve this problem, but the the judges are reluctant to use them. There’s no explanation why.

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Smartpartners-BG Ltd. declared bankrupt by Sofia City Court

Smartpartners-BG Ltd. – the developer of The Orchard, Bansko- have been declared bankrupt by Sofia City Court on 18.01.2012. The court resolution is sent by the court to the Commercial Register for announcing. It will be officially announced probably next week.

You can download the court decision in Bulgarian language from this link [PDF -1.1 MB].

As from the moment of announcing the court resolution, all creditors will have 1 month to present their claims to the administrator (through court). The court will review and decide whether to join the creditors or not. If they are allowed to join, they will benefit from all assets that are cashed by the administrator.

 

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Balchik Golf Heights woes

  • 01.11.2011
    • , by 
  • by Milen Hristov
  •   2 Comments

[NB]: Please read Mike’s comment below for more accurate information.

Since the developer of Balchik Golf Heights was forced to insolvency procedure, the developer continues to struggle. It turns out that even the sole owner of the capital of Varna Estates Ltd. – KMB Best of Bulgaria Properties and Services Ltd. (company No 131280900) – has also entered bankruptcy procedure. This makes collection of any creditor’s money difficult since the court fees for the bankruptcy administrator for both companies has to be paid by its creditors. Both procedures have been stalled because neither the insolvent companies, nor the creditors are able to pay the court and administrator fees. The proceedings will be stalled for 1 year. If they  are not renewed accordingly, the companies will be dissolved automatically by the court and nobody will get refund. Unfortunately this is just the beginning of mass bankruptcy wave of property developers that will follow.

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Developer of Balchik Golf Heights enters bankruptcy procedure

The developer of “Balchik Golf Heights” apart complex – Varna Estates Ltd- has been declared insolvent by Varna District Court. The proceedings have been initiated by a group of apartment buyers whose title deeds hasn’t been transfered to them. The procedure is in its beginning because the creditors need to pay the court fee. The case is suspended for indefinite period of time, but all Varna Estates Ltd assets has been seized and cannot be disposed. Creditors are encouraged to hire a solicitor and join the insolvency procedure in order to get a refund from the current assets of the company.

“Balchik Golf Heights” is one of the many unfortunate developments which hasn’t been finished in full. The property bubble has popped for Varna Estates Ltd too. Now it’s up  to the bankruptcy administrator to collect and sell as much as they can from Varna Estates Ltd assets in order to refund the buyers.

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Benefits of joining a property Owners Association

First, I need to say some words about why Owners association is so important. If you read this you have probably bought at least one property in Bulgaria. May be 80% of you have communication problems and other legal difficulties with the seller of your property. Since the property bubble was quite huge, almost every “construction entrepreneur” in Bulgaria got greedy when they saw the cashflow. Construction quality got poor, client-seller relation got poor. The result is angry property owners constantly opposed by the developer.

As a short initial summary (for those who doesn’t like to read long texts), here are the benefits of having registered Owners Association:

  1. All state and local authorities take the owners seriously if represented by registered legal entity
  2. Everybody has good attitude towards Nonprofit organizations, which protect civil rights.
  3. The rights of the association members can be legally defended by OA’s representatives. Regulation authorities which respect OA litigation actions are courts, Commission for Consumer protection etc.
  4. Joint actions against developer bad practices can be performed by OAs

Normally, in almost every investment property  project there are more than one premises, sold to different individuals. These individuals join informal associations, mainly in web forums and discussion boards. They share the bad experience they had with the seller/developer and talk about maintenance woes. Talking and sharing information is good, but action is better.

Bulgaria is a country where bureaucracy is blossoming. Every authority will ask you for some kind of identification, whether it is a document (signed and stamped of course!!) or some reference from other authority. Many state and local employees won’t even talk to you until you introduce yourself as representative of something that is formally existing in their entity records. Even the developer/seller is not recognizing representatives of informal owners groups (or action groups, as often called)

In our solicitor practice in Bulgaria, we found that this authority behavior can be opposed by simply forming a NonProfit association. This is a formal legal entity, registered in the District court. It has company file number, registered address, management bodies etc. The management basically follows the rules of a company management, but the association is not a trading entity. It is used only to protect its members rights and not to gain profit.

As a case study on the benefits of having a legitimate Owners Association I can provide some examples from our practice. Our law office was helping owners of villas in one particular investment project. The developer has constant conflicts with the local cityhall and the only victims of this fight are the owners. They have addressed the issues to different authorities, but only as individuals, or in their capacity of  informal web formed association. No authority took the problems seriously. As their solicitors, we suggested that all owners formally register a legal entity in Sofia City Court. This would have made the association formal with all legal attributes.

The Owners association was formed successfully. It is managed by Management Committee and represented by the Chairman of the management. The representative addressed several letters regarding the problem to different authorities, such as the SofiaDistrict Governor, the National Construction Audit Directorate, Bulgaria Investment Agency etc. All of the said authorities have not only responded to the official correspondence, but even have agreed to meet the Owners association representative and discuss the problems of its members.

Another successful story is the formation of couple of Owners Associations of owners in Bansko apartment complexes. The developer is virtually “blackmailing” the foreign owners, but forging the common parts percentage and voting for his own company to be the maintenance company of the complexes. Of course no accountability whatsoever is provided by both the maintenance company and the developer. The owners association have been acting as intermediary between the developer and the owners in order to resolve the problems without any complications.

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Preliminary agreement for purchase of property

This type of contract has been singed by almost 80% of all Britons and Irish who have bought properties(mainly apartments) in Bulgaria. Many of them think that once they have signed such agreement, they own the property. This is a common misunderstanding among the foreign property investors in Bulgaria. The preliminary contract is regulated by only one article in the entire  Bulgarian legislation(Art 19 of Obligations and Contracts Act):

Art 19. A preliminary contract preceding the conclusion of a final contract for which a notarial deed or notarial certification is required shall be concluded in writing.

A preliminary contract shall contain provisions concerning the material terms of the final contract.

Either party to a preliminary contract may bring an action for conclusion of the final contract. In this case the contract shall be deemed concluded as of the moment of entry into force of the ruling of the court.

As you can see, and as the judicial theory defines, this type of contract is “just a promise to conclude a final contract”. It binds the parties, but as every contract it can be breached i.e. one of the parties may decide not to fulfill its obligations. Applied to the property purchase, this means that the builder promises to transfer the ownership of the property to the buyer within a certain term. It doesn’t mean that the ownership has been transfered upon signing the preliminary agreement. On the contrary, often there is nothing to be transfered at that point since the property doesn’t exists at that time. Even if the purchase price has been paid in full, this doesn’t mean the buyer is an owner. In the latter case, the buyer becomes a creditor and the seller becomes a debtor, until the full ownership has been transfered. i.e. the title deed for ownership transfer has been signed.

Many buyers of apartments and houses in Bulgaria are in dead-end position: they have paid all moneis, but haven’t got the deeds transfered to them. In this case, it is very difficult to make the seller sign the deed willingly.  As lawyers, we advice those people to take advantage of para 3 of art 19 above i.e. to announce the preliminary agreement as final one. Applied to the case of buying a property, this is done by initiating a court procedure.

In order to get everything right, you should provide all relevant information to your solicitor, namely:

  1. Original of the preliminary purchase agreement, signed by both parties
  2. Evidence that the purchase price has been paid in full: this could be bank statements, receipts, signed by the seller etc.

In addition to the above, the judge will need to see all other documents,m which you otherwise need to show to the notary, namely:

  1. Tax evaluation certificate of the property. This can be obtained by tje local municipality, where the property is located
  2. Plan of the property or the so called “skitsa“. This documents shows the plans of the property, the area, the neighbouring properties. Again this can be obtained by the local municipality
  3. Proof that you have paid the local tax. This is a special local tax, that is paid just once, upon buying a property. The rate varies between 1.5% and 3% of the purchase price and depends on the municipality.
  4. You need to be ready to pay the transfer fees i.e. the notary fees. Again, this should be calculated for you by your solicitor

When you get idea of all of the above, ask your solicitor to prepare the claim application and submit it to the court. Generally the timescale of the proceedings depend on the court. Different courts in Bulgaria have different workload. The typical term for closing the proceedings is 3-4 months.

The result of the court case proceedings is that you will have the ownership of the property transfered to your name i.e. the same as signing before a notary. This is a way to force the ownership transfer if the seller rejects your requests.

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