Happy new year to all readers of this blog. I will do my best to inform you of the latest trends and legal changes in the Bulgarian legislation. As a lawyer, I will try to give you best advice for your particular case.

World crisis struck Bulgaria too. Small and medium businesses are struggling for survival. Unfortunately in the same moment banks  are pressing the business too, by increasing the loan interests from 10% and more. This situation,however, is welcomed by the Factoring companies. They study the debtor companies and take advantage of those which has good market reputation and past stability.

Since there are only few Factors acting in Bulgaria, the market is not well developed. There are few more Factors, which buy Debt Portfolios but they are in the grey economy. Non-bank financial institutions are not yet at the Bulgarian Factoring market, although there is a very good perspective for collectable debt portfolios.

This article is aimed to be a short FAQ, explaining the “nuts-and-bolts” of the Bulgarian court proceedings. I’ve been asked these questions thousand times, so I decided to write a brief description of the claim process in Bulgaria.

Q: What are the court expenses?

A: The court expenses are separated in several subcategories:

1. Court fee/State fee - the court fee in Bulgaria is fixed. It is calculated on the basis of the amount you claim. The usual fee is 4% of the claim amount. In rare cases,explicitly stated in the law, the court fee is 2% of the claimed amount. The court fee has to be paid prior filing the claim.

2. Attorney fee – the attorney fee can be negotiated with the particular lawyer who represents in in court. There is no fixed amount for the attorney fee.

3. Experts fees - expert fees can occur only if special expert opinion is needed during the case proceedings. For example, if you need to calculate your interest over the money you are owed by the defendant. Expert opinion may be needed if the court needs to establish the authenticiy of a signature or needs to estimate if the construction plans match the actual building status.

4. Travel costs – if the lawsuit is heard in another city, the clients should cover the lawyer travels expenses e.g. petrol costs, hotels costs etc.

Q: How long a lawsuit will take?

A: It depends where the court proceedings will take place.  If your case is to be heard in Sofia and you claim EUR 15,000 or more, your case will be heard in Sofia City Court.  In this case it’s likely that your “court battle” will last 1-2 years. If the defendant you sue is registered in a city other than Sofia, it’s likely you will get a court resolution wihtin a year.

Q: Can I speed up the court process?

A: A kind of. If you claim part of your money (upto 25,000 levs or about EUR 12,500) you can file a partial claim in the Regional Court (lower court). The advantage is that the Regional Court is working quicker and you will get a court resolution sooner than the Sofia City Court. The disadvantage is that if you get a positive court resolution it will be for the part of your money. The good thing is that you can enclose the old court resolution and file another claim for the rest of teh money.

Q:  How likely is that I get a positive court resolution for my case?

A: Each particular case needs to be reviewed separately. There is no common estimation of that matter.

Q: Will I get my money back?

A: It depends on the debtor. There are several sources you can get your money from. You should seach for property, bank accounts, vehicles, subsidiary companies of the debtor.  If the properties are mortgaged by third party, you cannot benefit from that property.

Q: How about the company managers and partners?  Can I get my money from them?

A: No, you cannot! The legal entity of the Limited Liability Company (LLC) prevents creditors pursuing company managers and owenrs. There are few cases in which the owners are liable for their company’s debts, but I will not get in details here.

Q: Can I do something to prevent the debtor from selling their assets while my case is being heard in court?

A: Yes, you can. You can ask your lawyer to initialte a security procedure. You should ask the court to issue a lien order. This order can be used to “freeze” debtor assest while your case is heard in court. You will be able to benefit those assets after yo uget a positive court resolution.

The lien is not mandatory. It has to be asked for. The judge is not obliget to issue a lien order. The judge estimates the case and decides at its own discretion. If a lien orer is issued, you sill be asked b ythe court to transfer a deposit to the court bank account. This eposit is usually about 5% of the claimed amount. It is used to secure the defendant if  the latter proves damages caused by the lien (and you lose the case).

Additional information

The court process can be described as follows:

1. Filing the claim

2. Sending a copy of the claim to the defendant

3. The defendant sends an answer to the claim

4. Additional documents exchange

5. The judge sets a date for the first court hearing

6. Firts court hearing: collecting evidence (interrogating witneses, presenting documents, requiring documents from state authorities)

7. Second hearing: presenting the paries’ pleads.

8. Depending of the judge, additional hearings can be set.

9. Setting the case for resolution. The judge is obliged to resolve the case within one month after the last court hearing.

The problem points are 2,3 and 4. These are the points that delay the case. The summons are extremely slow to be delivered, as the delivery men don’t do their job dilligently. Moreover, the defendant usually hides and this slows down the process too.

Recently I’ve been asked  about how can one obtain details on the financial status of a Bulgarian company. This is not an easy task to do because of the following:

• Companies don’t give away details on their financial status willingly
• Banks don’t reveal details neither if certain company possesses bank accounts, nor the status of these bank accounts. Bank secret can be revealed only by court order
• Police will present information on whether there are any vehicles registered to a company only upon presenting a court order for that
• Due to decentralization of the Land Registry in Bulgaria, if you want to check whether a company owns properties, you have to check in each local Land Registry office (more than 40 offices)

Of course you can check the annual financial statement of the company in the Commercial Register, but usually you will not find any details there, just numbers. Moreover, if the company has good accountant the annual financial report will be useless for you.

During the past few years, construction development boosted the economy of Bulgaria. Many companies were registered and trading not only in Bulgaria but within the EU too. Factor financing began to make its niche in Bulgaria. Several banks opened their factoring subsidiary companies, and taking their share of this undeveloped marked. UniCredit Group (Italy) shows:

The factoring market in Central and Eastern Europe is growing in annual increments ranging between 20% to 40% from country to country and should maintain this pace over the next couple of years.

That numbers should ring the bell in most enterprising investment companies and funds. Usually Bulgaria is underestimated due to the small market. However, remember, that most of big Western European companies have subsidiaries, here, in Bulgaria. this means that the financial opportunity may not be as small as it looks at first glance.

Moreover, as now Bulgaria joined EU, invoices issued by Bulgarian companies, can be easily processed by western accountant offices. Consulting factor funding in Bulgaria, is one of our leading legal consulting areas. Having in mind the legal specifics of contractual and debt collection law, our lawyers are able to provide any foreign investor with the right answers to their questions.

There are improvements in the Registry Agency at last. The company registration takes now up to one day! This is a huge improvement in the paper processing since the beginning of 2008. The Ministry of Justice seems to have understood that Bulgarian business needs faster Commercial Register.

Nevertheless, you have to submit the registration documents online, in order to benefit the shorter registration term. If you submit the company registration documents by hand to the office of the Commercial Register, it will take about several days to have your company set up and running. The delay is cause by the clerks who scan you papers and input them into the digital Commercial Register.

Why should you bother ordering a due diligence report? Let’s say you want to buy a whole business (part of your M&A strategy to acquire a competitive company). You would not want to buy a business with debts, would you? The due diligence report is the legal service you need. It clears the “big picture” about what you are actually buying. The due diligence report, as you can see from it’s name, is a detailed report about the good standing of the company, in terms of company status, contractual relations, lawsuit status etc.

The lawyer will review the whole documentation, which includes all types of contracts, agreements, licenses, trade marks, claim papers etc. All current and pending legal relations between the business and its partners/creditors/debtors/state institutions.

The final result will be a professional legal evaluation of what exactly you want to buy. Does it have any defaults in terms of bad contracts, expired licenses, problems with state authorities etc. You will get a professional advice whether it is a good investment, what can benefit you and what can cause future trouble.

The legal due diligence report is usually structured on chapters. You will see the good legal standing of the company. All the contracts that have been signed will be sorted according to the legal area. They will be summarized if they are similar, evaluation of their stability will be made. Each legal due diligence report differs, according to the particular business, which is being researched. The size of the due diligence report may vary according to the size of the company.

Finally, you will receive independent legal advice on each part of the researched matter. Then you will be able to get the evaluation of the particular business you always wanted.

The new amendments in the Commercial Register Act allow easy and less cumbersome re-registration of your company. Now, a Bulgarian lawyer, who is registered in a Bar Association, can sign the application for you. You only need to provide scanned copies of few documents. Your presence in Bulgaria is not required, everything can be done via email, no notary certifications needed. If you need easy re-registration contact me and I’ll save you the hassle.

If you have already re-registered your company, make sure you don’t forget to publish your accounts for the past years in the Commercial register. The accounts report is usually done by your company’s accountant. However it is preferable not to rely only on your accountant for publishing the report in the Commercial register. Usually accountants are not familiar with the Trade Act in details and you might receive a rejection for publishing the report from the Registry Agency.

Along with the company accounts report, you have to present certain formal company documents as well as a properly filled application. Make sure you take advantage of the services of a good lawyer. Otherwise you might miss the deadline for publishing the annual accounts report, because of a rejection of the application.

The Council of Ministers of Bulgaria has to adopt an amendment to the Tariff of the Commercial Register, in connection to the new changes to the Commercial Register Act. According to the recent changes, when you register a company online, the state fee is at least 25% less than the one paid when submitting a hard a copy of the application.

This amendment is to encourage people to submit their documents online and not to stay at the long queues at the Commercial Register’s office.

UPDATED [29.07.2008] As from 22.07.2008, the new fees for e-services are available. As expected, they are 25% less than the usual fees.