Compulsory company liquidation procedure to be changed (again!)

company liquidation in Bulgaria, solicitor servicesOctober 2012 has come and there is no sign of the lists containing all un-reregistered companies which had to be produced by the Regional Courts of Bulgaria. The lists were necessary for initiation of the compulsory company liquidation.

As solicitors who actively work in the company law area, we have tried many times to contact the courts and have asked when the lists will be available. Normally the chairman of the court couldn’t tell us anything in particular. In other words they didn't know or even worse -  they haven't started making the lists at all.

Bad legislation delay company liquidation of un-reregistered companies

Beginning of October 2012 our concerns seem to have come true. A bill for amendment of the Commercial Register Act [in Bulgarian] is now being discussed in the Parliament. The amendments basically remove §5 para 4 of the Act, where the term 1 October 2012 has been set. This means that the state "wipes out" the tracks of badly drawn legislation and replaces it with more sensible one. I just wonder - why now? Why the amendments were introduced after the government saw that there were no lists at all?

The new 'improved' procedure for company liquidation

The new regulation provides a relatively clear procedure of how company owners, directors or company creditors can initiate voluntary liquidation before the compulsory one is started automatically. The new procedure is virtually turned in the opposite direction. Instead the courts to provide the lists to the Commercial Register, now the company owners/directors would be able to ask the Register to request the company file from the court. This means that the application for voluntary liquidation has to be submitted to the Commercial Register.

Would that delay the transfer of regulated properties to shareholders' names?

Yes, unfortunately. The bill is not yet effective and the Parliament can introduce different wording for the articles. However it is almost sure that this will come into effect early next month. As we expect creating the application blank form will take a while, so realistically we can start with the voluntary liquidation in the beginning of 2013.

Maintenance companies mislead condominium owners

instruct solicitor for general meeting of condominiumLast week we were instructed by a client to represent him and attend an Annual General Meeting (AGM) of the condominium apartment hotel at the Black Sea. The AGM was convened by the maintenance company, which claimed also to be the Manager of the complex. The invitation didn't indicate any details, such as, who represents the maintenance company in its capacity of Manager or even how a third party, not owner,  can be a Manager at all.

Legislation discrepancies are carefully kept away from condominium owners

After the discussions on the agenda topics began I had to bring the point on whether the condominium was registered with the municipality according to the requirements of COMA. The maintenance company representatives were clearly confused and surprised since nobody has ever challenged the information they have given without backing it up with documents.

It turned out that there are severe breaches of the legislation:

  1. The complex consist of three buildings, but the maintenance company claimed that the all three were registered under a single condominium
  2. The maintenance fees are charged per square metre of the owned apartment, whereas these should be charged per owner/occupier.

Despite making the above points, and quoting the respected articles of COMA I had to meet insults and unprofessional comments, ordering me to keep my comments to myself.  It was clear that the maintenance company didn't want the effective legislation to be known to the owners and thus keep the maintenance fees flowing to the maintenance company.

Ignorance will cost fortune to the condominium owners in the future

Whether is is fear or ignorance, none of the owners paid any serious attention to my words. I have tried to explain that non complying the COMA regulations will lead to illegal AGM decisions. Consequently, any owner will be able to appeal the AGM decisions and request from court refund for any monies illegally collected from the maintenance company. Any owner could instruct a solicitor who will file a claim within one month period after the minutes from the AGM are ready. On the top of that if the AGM decisions are declared as illegal and thus void, by the court all other owners will be ordered to pay the claimant legal expenses (court fee, solicitor fee, petrol costs).

Notary services in Bulgaria

solicitor services in BulgariaThe Economist has a great article about the current role of the notaries all over the world. Their services vary depending on the jurisdiction and the local laws in effect - certification of various documents, exclusive conveyancing services etc. In general, notary role depends on whether the practice is located in common law legal system or in the continental legal system.

Difference between UK and Bulgarian Notary Public

Unlike in the UK, where solicitors can certify documents along with the notaries public, in Bulgaria solicitors registered in the Bar, can not certify documents. Only notaries public has been granted by the state to provide certification services. There is only one exception - solicitors can certify documents that are used in the litigation process only.

The main role of the Bulgarian notary public is to certify and to make all subsequent checks - identity check, ownership and property encumbrances checks etc. Normally notaries are can also be asked by the parties for consultation and preparation of documents, but only if the latter two are connected to the notarial proceedings (ref Art. 22 of the Notary Public and Notarial Practice Act). It is however doubtful whether a notary can provide objective advice to both parties simultaneously. Notaries shouldn’t provide commercial or litigation legal services.

The Economist articles mentioned some of the problems of non-reformed notarial services create - bureaucracy burden, increasing the costs for property deals etc. Of course these are also valid for Bulgaria, especially in connection of couple of typical Bulgarian ones.

Drawbacks of using Bulgarian Notary Public

  • Bulgarian notaries are reluctant to interpret ambiguous legal regulations. They just refuse to act, until "ordered" by the Notary Chambers.
  • Most of the notaries are not updated on the latest changes to the EU regulations. This creates huge problems to EU citizens who want to exercise their EU rights in Bulgaria. The latest example was the problems with buying regulated land directly on buyer's personal name. Despite that the option is available since January 2012, it was needed almost half an year, for the notaries to accept the regulations of the Bulgaria's EU Accession treaty (signed 2007!)

It not all negative though. There quite few good examples of modern thinking notaries in Bulgaria.They work with emails very good, accept different point of view of the solicitors, try to do the work within the legal requirements without being stubborn.

Unfortunately there is no alternative to the notary services in some areas such as conveyancing. With some new high-tech areas such as copyright of software and the dynamically evolving trading parties can use the new electronic certifications/signing methods. I wonder when such online notary will be recognised in Bulgaria?

Owning property on personal name in Bulgaria

Bulstat RegistrationAfter Jan 2012, EU citizens are allowed to own regulated land property on their personal names. I have covered this topic few times in the past months, so I'm not going to enter another useless dispute with yet another notary, scared to apply the law.

The purpose of this post is to inform the property buyers what they are obliged to do after they actually purchase the regulated land and/or house.

Bulstat registration of property owners

The first thing the first-time buyer need to do is to register themselves in the Bulstat Register. Pursuant Art. 3 para 1, point 10 of the Bulstat Register Act:

Every foreigner who doesn't have Bulgarian ( incl. foreign) personal number AND own real estate property on their personal name has to register himself in the Bulstat register.

The above is just an excerpt from the Act. There are other cases in which the Bulstat registration is mandatory, but these are out of the scope of the current blog post.

The obligatory term for Bulstat registration is 7 days as of the moment the title deed is handed by the notary to the property owner or to a proxy. If the registration is not done within the aforesaid therm, the property owner will be sanctioned with a fine by the Bulstat Register.

The Bulstat Register is part of the Registry Agency. The Bulstat registration is done in the local office of the Agency, where the property is located.

Bulstat registration is done only for first time buyers! Once you have bought a property on your name and have registered with Bulstat Register, you don't need to register again. It's a one time procedure.

Bulstat register is a statistics authority which tracks different types of information. In the case I describe here, the main goal is to count and collect information of the EU citizens who have bought real estate property in Bulgaria.

City Council Tax Declaration of property

The second legal actions that a property buyer needs declare in the local municipality that he owns the property. If this is not done, the outstanding taxes would still be assigned to the old property owner.

The declaration has to be done within 2 months after the title deed for the purchase is signed. If this deadline is missed, the municipality will impose sanctions (fines and interest) on the new owner.

The declaration of the property has three main goals:

  1. The municipality is now aware that the property has new owner
  2. The owner declares the type of the property, it's area, construction type etc.
  3. The municipality calculates the tax value of the property based on the declared facts and defines the annual property tax and garbage fee

Having the above information, the local council sends annually (usually in the beginning of the year) letters with the outstanding amounts for local property tax and garbage fee. Some municipalities provide online check ( e.g. Samokov) where the person just have to sign up with his Bulstat number and can see the information without waiting for postal notices or calling the local tax office.

If the  declaration hasn't been done, or the outstanding money hasn't been paid, the municipality charges interest on the unpaid amounts.  A recent trend is that the municipalities use law enforcement agents to collect all these debts. Hiring an enforcement agents increases the amount with legal costs and is a threat to foreigners who don't live in Bulgaria, because the property can be put on public tender and sold in order the council debt to be covered.

Condominium Maintenance and Management Wars

Condominium maintenance solicitor

Summer season is in its peak and property management and maintenance companies are already rubbing their hands for the new season maintenance fees. There is still room to business expansion since there are still apartment complexes in ski and sea resorts which doesn't have a proper maintenance and management company.

Let the condominium maintenance war begins

Usually the developer of the building has been "converted" to a property maintenance and management company. That is the normal evolution of the "wannabe" builders. They had one or two developments and after the property market bubble burst, they saw the new business niche of the property maintenance and management of their own buildings.

Another party who saw that opportunity are the apartment owners. Some of them even without seeking legal advice from a qualified Bulgarian solicitor, stared trying to take over the maintenance of the common areas of the condominiums. They neither set up a proper business in Bulgaria, nor they follow the accountancy legislation. For example they sent out invoices to owners for payment of maintenance fees for common parts, but the invoices are invalid because the invoice form doesn't follow the requirements of the Bulgarian Accountancy Act and the Bulgarian VAT Act. Not to mention that they don't have a properly set limited company (or other form of business entity, recognised in Bulgaria). These are just bits of all irregularities in the so called maintenance business.

Often we see the builder and the owners, who want to maintain the common areas to enter into Internet forum arguments and battles. Owners usually are split into two parties, each one of them defending the person they like more. Yes, it's not about business logic and profits/expenses, it's about liking the person. And the bad thing is that owners even haven't met in person both arguing parties.

The legal way to the common areas maintenance

If you own/manage a company that will maintain the common areas of a condominium, you need to follow the Bulgarian laws, that is Condominium Ownership Management Act, Accountancy Act, Commercial Code, Obligations and Contracts Act, Ownership Act etc.

It's not just collecting the money from the owners, but you need to follow the Bulgarian regulations, otherwise you risk to be kicked out of the complex and be sewed for business misconduct and damages.

Instruct a solicitor to prepare your procedures and documents

If the property maintenance company want to do a proper business in Bulgaria, they need to consult/instruct a qualified Bulgarian solicitor. Underestimation of the situation is a bad thing to do. There are always at least one owner who will be well informed about the condominium regulations in Bulgaria and if he sees any irregularities, the matter surely will be brought to the local District Court.

Unpaid health insurance contribution won't influence property deals after all

After the Health Insurance Bill has been passed to the Parliament for voting, the controversial obligation for payment of all health insurance contributions upon selling a property was waived. After discussions in the Bulgarian Parliament, the MPs voted against the suggested amendment. Most of them considered it as unconstitutional and as restraining the right of private property (e.g. freedom of disposing property).

This amendment was suggested by the Ministry of Health as a measure for collection of the unpaid national health insurance contributions. The idea behind this suggestions was to increase the collection of health insurance contributions. However this would have burden the property deals with additional bureaucracy and wasted time for obtaining documents from NRA.

Moving office

We have moved our office to e better location. Our new address is Varna 9000, 12 Konstantin Velichkov Str., floor 1, office 8

[map w="940" z="16" address="Bulgaria, Varna, ulitsa Konstantin Velichkov 12" marker="yes"]

Dangerously ignorant property agents

Property deals during summer increase, so is the greed of property agents. Britons who buy for first time in Bulgaria usually trust property agents as the profession of the property agent is very well regulated in UK. However it is not the same case in Bulgaria.

Legal status of property agents in Bulgaria

Currently anyone can become property agent - they just need a website and an advert on some of the biggest property portals. Enquiries will start coming in a while. In their pursue of more closed deals, property agents shovel the buyers with offers and push them to buy. This is not good for buyers in any case. The agent thinks "that his only job is to connect the buyer and the seller" and possibly hide as much information about the defects of the property as they can. Often they don't explain the conveyancing process, what defect the buyer should watch for etc. The bad thing here is that they often discourage buyers from using solicitors too. The agents want to be self sufficient, as they know that most of the properties sold on the market are full of defects. Involving solicitors would mean thorough property checks and subsequently - less deals.

Why not to trust the property agent 100%

First of all - most of them have limited knowledge of the legal aspect of property purchase/sale. Yes, they follow blindly some conveyancing blank forms (ready made general PoAs, declarations etc.), but if a problem appears most likely they won't be able to spot it and warn the buyer. Notaries also make basic checks (like encumbrances check), but they are not obliged to! Notaries only certify and make sure the will of the parties is to sell/buy and the form of the deed is correct.

Remember that notaries act in nobody's interest. They are not supposed to take any party's side and therefore couldn't defend anybody's interest. They are certification authority only!

Since property agents only "connect parties" and some do conveyancing on behalf of their clients, it is not serious to think that they defend buyer's interest. Their benefit is to close the deal and get their commission, not to defend buyer's interest. Often in our practise we see the consequences of such negligent property agents' work - people buy joint property, which they thought it was a full ownership, the property has illegal construction on it etc. In such cases, the property gets devalued immediately, even more - it causes financial damages to the buyer.

Since the property agent profession is not regulated, there is not indemnification. Agents are not obliged to be insured for damages caused to third parties during their professional work. Agents even hide themselves or leave the country. Court proceedings won't do any good too, since the agent companies are often "hollow" entities - there are no assets.

Our advice to new property buyers in Bulgaria is to hire a solicitor when they chose which property to buy. They will pay solicitor's fee, but this is well invested money and it will save them a lot of troubles and lost money in the future.

Notaries in Bulgaria not aware of the regulation on buying land by EU citizens

It has been half an year since EU citizens are allowed to buy regulated land on their personal names. Initially notaries in Bulgaria, refused to certify deals at all. Their fear was of how one can interpret the EU Accession Treaty if there is no explicit article in the law. By "explicit", I mean one that a 1st grade child could understand and explain. Well, there were no such thing, so notaries were very cautious (groundlessly). I've heard people complaining that notaries have denied certification of regulated land deals even after 1st Jan 2012.

Notaries get instructions

Slowly but firmly, the Notary Chamber have circulated instructions that the notaries shouldn't be afraid to apply the law. Backed up by their professional organisation notaries proceeded and the deals were "unleashed". Nevertheless I still meet notaries who put ridiculous requirements like "the foreigner should declare that the property is his/her second home". It doesn't make any sense. The "second home" rule was bound to the limitation of buying regulated property. Now since the limitation doesn't exist, there is no need to require any information connected to a "second home".

[2016 update] Notaries in Bulgaria now watch for farm land restricted purchases

It appears now the notaries in Bulgaria have established a normal practice to certify title deeds for buying regulated properties by EU nationals. However a very controversial bill has been passed by the government and adopted by the Bulgarian parliament. It basically contradicts Bulgaria's obligation to open its forestry and farm land for buying by EU nationals. There are current restrictions on buying farm land in Bulgaria by EU nationals and even by limited companies established by Eu nationals. All notaries are strictly watching about such facts when they certify title deeds in Bulgaria.. There is a legal loophole to go around this restriction and if you are interested, please email Milen Hristov, our principal lawyer.

Paid health insurance (NHS) contributions will be required upon selling personal property

Restriction to selling property and vehicles

ceretificate from NRA for property deals

A bill, adding new bureaucracy requirements to selling property, has been voted on first hearing in the Bulgarian Parliament. The amendments to the Health Insurance Act and Tax and Insurance Proceedings Code set a requirement that the seller of a real estate property and/or vehicles needs to present to the notary public a certificate from the National Revenue Agency, proving that all outstanding NHS contributions have been paid. If such certificate is not presented or it contains evidence of unpaid NHS contributions, the notary can refuse to certify the deal.

There has been discussions going on in the parliament on this matter. The opposition said that it is a restriction of private property and promised that they will bring the matter to the Constitutional Court for declaring these articles as unconstitutional.

Why (un)paid health insurance is a problem?

Generally speaking it is not a problem. It's the additional document that needs to be presented to the notaries upon selling the property which can complicate the procedure. I have two things in mind that surely will become a problem:

  1. Foreigners are not health insured in Bulgaria, unless they are employed here or they are managers of active trading Bulgarian companies.
  2. Every foreigner who is health insured in Bulgaria has been granted a state number (not personal number of foreigner, but a special number in NRA systems). This is how NRA identifies foreigners. The other way is through their Bulstat numbers.

Ok, so NRA can use the Bulstat numbers to issue certificates. Fair enough. Many foreigners still don't have Bulstat numbers since the agents, who sold them the properties didn't tell them this obligation. If the property has been bough recently, there could be a small fine for missing the deadline. If the period is longer, there might not be a fine.

 Complicating the property sale process

It's understandable that the government what to increase the collection of NHS contribution, but complicating the property sale process is not the way forwards. As a friend of mine pointed out "soon if you don't have a vignette sticker (road tax), they won't allow you to sale your house".

Having in mind the current term for issuing certificates from NRA (e.g. certificate for lack of outstanding taxes), I'd say the property purchase/sale process will be extended with a week or two.