The mid year passed and the deadline for re-registration all Bulgarian companies is fast approaching. January 2011 will become nightmare for company owners who haven’t reregistered. Their companies will be forced into liquidation by the court and the all company assets will be sold on public tenders. Moreover, the court will appoint a liquidator and the company owner will have to pay their monthly salary. IF the company assets are not enough, the company owners will be liable for both company debts and for liquidator’s salary.

Therefore we strongly urge all foreigners who still haven’t reregistered their company to do it as early as possible.

I just wanted to update all who are still to register/re-register their companies. The Commercial Register now is 18 days behind the normal deadline for application processing. As the end of the year comes closer, the company registration will  take longer. The solution would be that the Commercial Register to hire more people to process the applications.

As of 15  June 2010,  Varna will benefit from the legal services of solicitor Milen Hristov. The Varna office will be fully operational then. All English speaking clients who need  solicitor help regarding company registration,property purchase/sell, visa issues etc. See more details how to find the Varna solicitor office here

The registration, re-registration and changes in the files of the companies is delaying again. The reason is that the Commercial register receives more applications than they can handle. The result is one and a half weeks delay in processing the applications. This is valid for all type of applications, no matter if they are for registration, re-registration of companies or just application for filing changes to the companies files. I wonder what will happen in the end of year 2010, when thousands of companies will file their applications at once. The Commercial register will suffer a lot and most probably the business will suffer too. that’s why they need to change their management and hire more employees who will process the applications and the documents. The lawyers will need to explain the situation to their clients, as the deadline for re-registration is coming and this issue will arise.

We are pleased to announce that as of June 2010, MHlegal will have an office in Varna, Bulgaria. This will ensure easier access to our legal services for the clients residing in Varna and the area around Varna. The contacts will be announced at the day of the official opening.

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.