All companies  has to prepare annual financial reports according to the Bulgarian and International Financial Reporting Standards. The reports of companies with turnover above EUR 1,000,000 are subject to compulsory audit.

Pursuant to Article 40 of the Accountancy Act all companies shall announce their financial reports to the Commercial register. You can read the provisions below:

Article 40      (Supplemented, SG No.96/2004, amended SG No. 105/2006)

(1) By 30 June on the following year, enterprises shall publish their annual financial statements and their consolidatedfinancial statements, their annual management report and their annual consolidated management report as adopted by thegeneral meeting of partners/shareholders or by the relevant body as follows:

1. merchants in the meaning of the Commerce Act , by filing and submitting them for the purposes of announcing them in the Commercial Register;

2. non-profit legal persons designated as operating for the public benefit: by filing for recordation and submitting themto the Central Register with the Ministry of Justice under the terms and following the procedure set out in the Non-ProfitLegal Persons Act;

3. the rest of enterprises, through a business publication or in the Internet.

(2) Following the procedure set out in paragraph (1), enterprises referred to in Article 38 shall publish:

1. their financial statements, in the form in which they were certified by a registered auditor;

2. their annual management reports, in the form on the basis of which the registered auditor expressed his/her opinion;

3. the auditor’s report on the statements and reports referred to in items (1) and (2).

(3) Following the procedure set out in paragraph (1), together with their annual financial statements, joint stockcompanies, partnerships limited by shares and limited liability companies shall also publish information on the proposal of themanaging body on the distribution of profit or for covering a previous year’s loss and the decision of the general meeting ofshareholders/partners on the allocation of profit for distribution or for covering a previous year’s loss.

(4) The annual financial statements of an enterprise which prepares consolidated financial statements shall be publishedconcurrently with the consolidated financial statements of the group, together with their respective annual managementreports.

All necessary documents for announcing the annual financial report of your Bulgarian company should be drafter be a professional lawyer .

The financial report DO NOT SHOW any details about your company. It shows only numbers without specifying the sources of your profit or the actual property, owned by your company.

On 10th August 2009 a new record appeared in the Commercial Register. “Interlink BG” Ltd – developer of  Windows to Paradise – has  1/3 of its shares seized by a creditor.

I warned several times that such thing can happen. The creditor is Raiffeisen Bank and they have seized Ivan Stanchev’s (one of the shareholders) shares in the company. Obviously, the reason for the share seizure is that Interlink BG hasn’t paid the mortgage loan (EUR 4 000 000) to Raiffeisen Bank. Therefore the bank sued Interlink BG and won the case.  Studying the court documents, it’s clear that Ivan Stanchev acted as second debtor (a guarantor), since he guaranteed for the loan with his own property.

Now, after the lawsuit is over, Interlink BG has secured the whole loan except EUR 63,818. Consequently the bank sued Ivan Stanchev for that amount as he is the second debtor. He hasn’t paid them right away, so the bank used an enforcement agent to seize Ivan Stanchev’s shares in Interlink BG Ltd.

The documents are not so clear if Interlink has repaid the loan in cash, or the banks took the ownership over some of the apartments in Windows to PAradies. This requires further legal research.

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.

Now’s a good time for buying debt portfolios in Bulgaria. Why is it a good idea? Remember the property baloon in Bulgaria. Yes, the one just like in Spain. Well, the situation is as follows:

Developers got big amounts of mortgage credits so they can build holliday homes. Well, the calculations were wrong and the developers are now short in money. The developments are almost finished but the mortgages are not paid. The result is over 300 hotels in Bulgaria are owned by the banks and are being sold.

Thus, buying a debt potfolio from Bulgarian banks, can bring you a cheap hotel in a ski resort or at the Black Sea coast.

A massive fightback of Bulgarian Dreams is taking place in the Internet. It’s conducted by Robert Jenkin. The failure to complete Windows to Paradise development brought him the BBC Prime attention as well as the buyer’s anger. However now he convinces the same buyers, who he deceived with the completion dates, so they put more money in the “concrete pile” called Windows to Paradise.

In order to backup my words with facts, all of you should know that “Interlink BG” Ltd.’s loans owed to BG banks amount to over EUR 9,000,000. This fact is stated by Interlink BG Ltd. in its own annual financial report, submitted to the Commercial Register. The company’s General Meeting is blocked by the Court, so no convening will take place in the near future. The company is practically inactive. This means that unless major events happen, the company cannot operate and therefore cannot complete the building it has started.

Any promises that the developments will be finishes shall be seriously estimated. The fresh flow of money can ONLY fill RJ’s pockets with cash and please his offshore bankers. All buyer who put their trust in this man for second time, will have no second chance for getting out of the situation. The will only regret their decision.

Today I was passing through Bansko and decided to take some pictures of the Orchard Development. This is to show to the public what they should expect out of their investment:

•   This is the mandatory sign for each construction work in progress. Circled in red, is the deadline for finishing the development:

• Building of the Orchard (probably only phase I). This is the scenery around the developments. Note that there is no suitable road. You can access the place only with off-road capable vehicle:

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.

If you are reading this, you are probably one of the many English people who think that they’ve lost their life savings in off-plan properties, offered by “Bulgarian Dreams” in the UK. I guess it will be interesting for you to know some facts and tips about the “Bulgarian Dreams” saga in Bulgaria. I’ve acquired all that information during the preparation of several claims against Bulgarian developers.

Here are some legal remarks on Bulgarian Dreams’ commercial strategy:

FIRST, you’ve got the “Bulgarian Dreams” office in the UK – a middle-man (a property agent) who sells off-plan properties in Bulgaria, mostly to English people. All payments (property installments) are being made through that middle-man. That is probably due to specific tax issues. Please pay attention to the fact that the actual name of the company is “Berkely Square Trading Ltd.” and Bulgarian Dreams is just a “trading as” name.

If it ever happens that you have to pay property installments to Bulgarian Dreams, always keep your bank transfer excerpts. You may need them later. Make sure you’ve got them stamped by the bank too. I strongly recommend that you DON’T use cheques or cash. However if you do so, make sure you get a proper receipt (original signature by the manager of BD).

SECOND, always remember that you have in fact signed an agreement with a Bulgarian developer company and NOT with Bulgarian Dreams. This means that if you have to sue somebody, it will be the Bulgarian developer and NOT Bulgarian Dreams.

THIRD, always consult a lawyer. Don’t sign any annexes or additional agreements with BD or the Bulgarian developer. Usually Bulgarian Dreams and the Bulgarian developer put a clause in the annex which guards their position of a defaulting party – they mislead you to sign a clause on which ground you agree not to have any future claims based on their construction delay. Read your annex or additional agreement EXTREMELY CAREFULLY.

FOURTH, Bulgarian Dreams works with many Bulgarian developers (about 4-5 companies) building in Kavarna, Bansko, Pamporovo, Sofia. Some of the delayed  developments are “Windows to Paradise”, “the Orchard”, “Cedar Heights”, “Cedar Lodge” etc.

FIFTH, the preliminary purchase agreements are just “preliminary”, which means that you don’t have any actual rights over the property descried in the agreement. The only right you have is to claim your money back and to claim reimbursement (compensation, interest, penalty).

SIXTH, remember that the developer might have possibly misled you. I mean that most of my clients think that “apartment completion” means all furniture installed. This is TOTALLY WRONG UNDERSTANDING. If you read carefully your preliminary agreement, you will see that the furniture has to be provided by a different company (usually registered in the UK). Te ONLY obligation the developer has is TO BUILD YOUR APARTMENT.

SEVENTH, another misleading issue is the stage at which ownership has to be transferred to you. Bulgarian Dreams’ sample preliminary agreements usually state that you are obliged to accept ownership transfer at the stage of Act 15. I bet  that 99% of you have not paid attention to that issue. You should consult a lawyer before signing under such a clause. I’ve got a great explanatory post about what exactly each number of the “construction Acts” means. You should know that you cannot live or reside in you apartment before the building has obtained Act 16 (habitation certificate / completion certificate). Once you’ve got the property transferred at stage Act 15, the developer has no reason to hurry and obtain Act 16 for you. That’s why you may have troubles, getting a lawful status of your apartment.

EIGHT, most buyers are now growing suspicious because no adequate feedback is provided to them. The developers are hiding like rats. They refuse to talk, to provide construction documents (although they are obliged to do it), they cannot be found at their registered company address. It’s a fact and nobody can dispute it! Lots of buyers are afraid that they might lose their life savings invested in the above said developments.

NINTH, think of filing a lawsuit as soon as possible. You never know how much money is left in the developer’s bank accounts. Moreover, if you hire an experienced lawyer, who is aware of BD’s scheme in details, you may be lucky to get all of your money back.

and TENTH don’t let yourself be fooled about the judicial system of Bulgaria. Judges in Bulgaria don’t defend fraudulent companies, that’s for sure!

So what’s the best way to go? You have two options:

1. You just wait and see how your money disappears into a suspicious Bulgarian construction developer and you do nothing about it.
2. You sue the developer and have the chance to get your money back.

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.