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New Balkans Law Office: Bulgarian Lawyers

Opening a bank account in Bulgaria in the name of a foreign business or organisation

In this note, we provide an overview of the requirements an overseas-incorporated business must generally meet to open a bank account in Bulgaria. We restrict our analysis to those organisations or businesses which are structured as companies or corporations in their home jurisdiction. Bulgarian law recognises legal forms originating in other jurisdictions without discriminating in principle, but since non-corporate structures tend to be less similar across borders they call for separate treatment.

opening-bank-account-bulgaria

 

Overview

As of June 2015, there are 22 standalone banking corporations or subsidiaries and 6 branches of overseas banking institutions, which are licensed in Bulgaria. For an up-to-date list, see the Bulgarian National Bank's list of credit institutions.

All these 28 licensed banks (“Bulgarian banks”) as a rule provide current account facilities to businesses, including businesses established overseas, though they vary in the business for which they have appetite.

Regulation 3 of 16 July 2009 of the Bulgarian National Bank (“the Regulation”) sets a general framework of requirements for the opening of bank accounts. The Regulation appears to have been drafted with Bulgarian corporate law and administrative practice at the tops of the draftsmen’s minds, but is generally painlessly applied by analogy when Bulgarian banks open accounts to international businesses or organisations.

Each licensed bank has its own policy on the documents that must be supplied by an applicant and on their substance and form (and indeed this appears to be envisaged by art 5(5) of the Regulation insofar as such requirements can be additional to the list provided in the Regulation).

Eligibility requirements common to all institutions

All banks require a specific set of information about the applicant organisation to be disclosed in the application for an account opening. First and foremost applicant companies need to produce a document proving that the company is properly registered and active at the time of the application. This document is usually in the form of a Certificate of Good Standing issued and certified by the relevant Companies Registrar but there may be other acceptable alternatives (for instance, a recent Certificate of Incorporation or similar document).

Further, corporate applicants must show who are the officers authorised to represent and bind the company and how are they authorised to act according to its Articles of the Association (or other “constitutional” documents, e.g. Charters, Bye-laws, and others). Again, this information can be contained in one of several documents and there is no strict requirement as to its layout. Thirdly, companies must declare the identity of the ultimate beneficial owners who or which control the business (typically, control is defined as a holding of shares above a 10% threshold share in the company’s capital). Each bank requires a Declaration to that effect to be signed by either an officer of the company or an authorised representative.

Finally, banks require the usual know-your-client/customer-due-diligence information about the person(s) authorised to run the proposed account.

Bank-specific requirements

Some banks may require that the applicant company is registered for tax purposes in its country of origin. Other institutions ask for certified incorporation documents and a list of shareholders. Importantly, if an applicant company wishes to instruct a local representative to open and/or manage the account, the applicant should present to the bank a Power of Attorney (PoA). Each bank has its own requirements as to the content of the PoA and usually requires that the PoA is as tailored to that particular bank as possible.

How to approach the application

Given the international element, banks tend to adapt complex international customer identification and verification methods that aim to comply with evolving national and European laws. Accordingly, banks have stringent requirements on the authentication and legalisation of each document supplied in connection with the application. Applicants are well advised to choose one institution and tailor their documents accordingly.

In general, the physical presence of an international business' directors is not required at the time of application or account opening as long as certain identification requirements are met.

For further information, please contact us and we will be happy to assist you.



Single Arbitrator panels at the Bulgarian Chamber of Commerce and Industry Arbitration Court

New Balkans Law Office often advises its clients to include an Arbitration Clause in their contracts, as when it comes to dispute resolution, the arbitration proceedings generally provide more flexibility, save time and could save additional costs. In contexts where one of the parties is  We often rely on the services provided by the Arbitration Court of the Bulgarian Chamber of Commerce and Industry (the “BCCI AC”) under their Arbitration Rules (and using a Bulgarian-based arbitration tribunal is often the main possibility when it comes to relationships involving a Bulgarian party).

The default in the Rules is that BCCI AC arbitration panels will consist of 3 arbitrators. However, Section IV of the Rules provides the option of nominating a single arbitrator to resolve the dispute.

Using one Arbitrator only is usually faster as matter of the time required for the dispute to be decided, compared to three-arbitrator panels, due to the coordination problems that the latter experience which do not affect the single arbitrator panels.

Using a single Arbitrator is also cheaper, as under the Rules, in such cases only 50% of the arbitration fee is payable.

Nominating a single Arbitrator under the Rules requires the consent of the both parties. This consent can be negotiated upfront.

This can occur either at the time of agreeing the arbitration clause and then can be included in it, or agreed ad hoc between the parties before proceedings start or shortly after. The Chairman of the BCCI AC could also propose this to the parties of his own initiative, but the latter rarely occurs in practice.

Alternatively, when filing its claim, the Claimant can apply to the BCCI AC to nominate a single arbitrator. If this had not been previously agreed between the Claimant and the Respondent, the AC secretariat would notify the Respondent and request it to confirm or reject the proposal. Where the Respondent agrees, it must agree with the nominated Arbitrator or suggest another and ultimately an Arbitrator must either be agreed or appointed by the AC.

Since on filing its claim, the Claimant would have been required to pre-pay the full fee due as if three Arbitrators would have been empanelled in order for the claim to be processed, the fee is reduced to 50% and the overpayment refunded at this point.

We generally recommend a single arbitrator for any relatively low in size potential disputes. Where your potential disputes are likely to be very complex or the size of the claim is likely to be significant, clients typically prefer to keep to the usual three-arbitrators adjudication panels.



English Court of Appeal decides on a Bulgarian TMT dispute

The judgment of the English Court of Appeal in the case of Barbudev -v- Eurocom Cable Management Bulgaria EOOD (reported at [2012] 2 All ER (Comm) 963) has recently revisited the legal treatment of the contractual concept of "agreement to agree" in English law and to that extent has been responsible for making English legal history.

The case pitted the Warburg Pincus private equity group ("WPG") (represented by Freshfields Bruckhaus Deringer and an up-and-coming commercial barrister, Conall Patton of One Essex Court against Mr Georgi Barbudev, who in the words of the Court had "built up a successful cable television and internet business in the Plovdiv area of south central Bulgaria in the years 1995-2004", called Eurocom Plovdiv EOOD ("EP"), which became Bulgaria's second largest cable television business. In November 2005, Mr Barbudev concluded two Term Sheets with WPG which gave the latter approximately 6 months of exclusivity of negotiation for the acquisition of Mr Barbudev's stake in EP. The Term Sheets were said to be governed by English law and other than for the exclusivity clause, were not intended as binding.

The acquisition of EP was part of a strategy for the private equity acquirer of consolidating a number of cable TV assets, and Mr Barbudev became interested in remaining invested in the enlarged business to which EP would have played the role of a bolt-on. The parties discussed his investing some €1.65 million for what was mooted as a 10% stake of the enlarged company.   

In the period up to April 2006, Mr Barbudev and WPG exchanged draft Share Purchase Agreements (SPAs) but the problem for Mr Barbudev was that a clause had been inserted in the draft SPA, under which WPG was to be given the unconditional right to waive the execution of (in the language used between the parties, an Investment and Shareholders' Agreement (ISA)) as a condition precedent to a closing on the SPA.

As, several days before the intended closing date it became clear that an agreed draft of the intended ISA would not be produced by the intended date for signing, the idea emerged in discussions between Mr Barbudev, WPG's representative and WPG's Bulgarian lawyer of a "Side Letter" which would provide some comfort to Mr Barbudev in the intervening period between execution of the SPA and the possible execution of an ISA.

At the date of execution, WPG and Mr Barbudev executed also the Side Letter, which had been drafted at WPG's request by Freshfields. It appears that at the time Mr Barbudev was not represented by a lawyer versed in English law.

In the course of time, Mr Barbudev was disappointed in his expectation that he would be allowed to invest in the consolidated cable TV entity on the terms discussed in November 2005-May 2006 or indeed on any others.
Following an onward sale by WPG of the merged entity, of which Mr Barbudev heard in May 2009, and following also the settlement of various outstanding matters between Purchaser and Seller in a Final Protocol in 2008, which appeared to contain a comprehensive waiver of claims by Mr Barbudev against the WPG entities. It appears that Mr Barbudev was once again not assisted by anyone acquainted with English law, though the question of the effect of the release was not ultimately central to the Court of Appeal decision.

Once Mr Barbudev had found of the intended disposal by WPG of their Bulgarian asset, and that he was accordingly not likely to have the opportunity to treat further with the group and hope on a possible commercial advantage, he perhaps felt that he had nothing more to lose since he issued proceedings in the English High Court, alleging that the Side Letter had created a valid contractual agreement, and that its breach had resulted in compensable losses to him.   

Following a 7 day Commercial Court hearing before Mr Justice Blair at which Mr Barbudev testified and was found to be a mostly reliable witness, a judgment followed in favour of WPG.

On appeal, the Court of Appeal (in the speech of Lord Justice Aikens, at para [28], summarised the issues before it as follows:

Logically the first issue is whether the judge erred in concluding that Mr Feuer did not give Mr Barbudev an oral assurance before Mr Barbudev signed the Side Letter. The appellant's case was that this assurance was to the effect that the Side Letter was a solution to Mr Barbudev's concerns about clause 6.5 of the SPA terms and that the Side Letter was like a separate contract to protect his right to invest in the new merged business. If that issue succeeds, then it would amount to a collateral contract and could be relied on by Mr Barbudev. If it fails then the second issue is whether the parties intended to create legal relations by virtue of the Side Letter, set in its commercial surroundings. The third issue concerns the nature of the Side Letter, in its context: was it an "agreement to agree" or was it an enforceable contract giving Mr Barbudev rights to purchase a stake in the merged ECMB? Fourthly, if the Side Letter was, in principle, a binding contract giving Mr Barbudev such rights, was it nevertheless unenforceable because of uncertainty of terms?

Unfortunately for Mr Barbudev, he failed on the first issue. The Court of Appeal found that the question of whether there had been an oral assurance and therefore a collateral contract had been a matter of a primary finding of fact and that none of the possible grounds for overturning the finding of the trial judge had been established ("To overturn it the appellant has to demonstrate that the judge's conclusion resulted from a fundamental error concerning the evidence; that his conclusion was not possible on the evidence or that it was unreasonable." (paragraph [35]).

However, the Court also disagreed with Blair J. in part: the parties had intended to create legal relations through the Side Letter (this was an overall conclusion based on the existence of clauses both parties clearly intended as binding (eg, the confidentiality provisions); the hiring of a law firm to draft; the use of the language of legal relations and the dealing with specific legal questions which would be typical of a binding contract (rights of third parties and choice of law language) (para. [37]).

However, at the same time, the Side Letter's core terms had been phrased in such a way that Mr Barbudev had obtained no more than a mere agreement to agree, which English law had long taken to be unenforceable. Its operative clauses, cited at para.[43] of the Court of Appeal judgment referred to "...terms to be agreed between us...", "...we agree to [...] negotiate in good faith with you..." and "...agree to invest an aggregate amount of not less than..." fatally undermined Mr Barbudev's position.

Although the Court of Appeal had no doubt that the commercial context and Mr Barbudev's aims were such that he had intended to extract from WPG a binding promise to be allowed to invest, he had failed to and had instead signed up to a document of no effective legal value. This was somewhat strange given the finding that the parties had intended contractual relations: it would seem to follow that they had intended contractual legal relations but not (or at least not both parties) ones which could take the form of a form of contract recognisable in English law (ie, an "agreement to negotiate in good faith" or an "agreement to agree"). It is difficult to conceive what other form of legal relations the parties might have intended and if they had intended no specific species recognisable by the law, what they had intended.

Nevertheless, it is clear that the Court of Appeal felt constrained by the House of Lords authority (in Walford -v- Miles [1992] 2 AC 128) and related cases, and by the need to maintain certainty in the relations between commercial parties.

It also seems clear that Mr Barbudev would have done well to draft in appropriate legal advice at the time of negotiation. The law in the area which was eventually litigated is well-established, and the Court of Appeal was merely confirming and restating the position. 

Had he been advised, Mr Barbudev (whose surname's Bulgarian etymology, as fate would have it, appears to derive from the name of a game of chance involving dice), probably would not have engaged in quite such a leap of faith. On the other hand, and even though one may feel sorry for Mr Barbudev who may have been outgunned, it seems that he had engaged in an exercise of wishful thinking to have attributed the force of a binding and meaningful agreement to a text which on its face merely promised negotiations (without, as the Court went on to find, fixing even some of the key goalposts, of which only the share Mr Barbudev was to hold and the minimum price he was to pay for it, were likely agreed).

The case did nothing to undermine the reputation which the English Court of Appeal has with commercial parties as a forum which gives a fair chance at having one's case heard and examined on its merits, but on the contrary - only strengthens it, including presumably with Bulgarian businesses. It does however underscore the importance of receiving appropriate professional advice which at its best can help commercial parties account properly for the implications of at least those - the majority - of legal issues which are well-settled in English commercial law.

The case is also reviewed for instance here and here.



Information and Disclosure Rights in Bulgarian Public (or Joint-Stock) Companies

Minority shareholders in all types of corporations often wish to exercise rights to obtain information, for instance:

  • on the financial and non-financial performance of the company in which they hold an interest;
  • on the remuneration of its management by means of salary, shares or other incentives; and
  • on transactions the management or the company has undertaken with related parties.

In this respect, minority shareholders are not, without else in a good position, since they generally do not have the right to control management, appoint any directors or board members or use the General Meeting of the company to adopt resolutions which may allow them the type of access that they may need. They need additional legal rights to enable them to achieve such objectives. 

Bulgarian law distinguishes quite clearly the rights to information which the shareholders in private, closely-held, companies have from those of the shareholders of public (joint-stock) companies. In this note, we deal with the rights incident to shareholding in a public (whether listed or unlisted) company. Private (or limited liability) company shareholders are in general in a more advantageous position, but it is also one which is differently structured and should therefore be properly the subject of special treatment elsewhere.

We look below at several contexts in which information or disclosure rights arise in favour of minority shareholders:

As participants in a company's General Meeting ("GM"), minority shareholders have the right to receive information related to the agenda of each session of the GM, and more specifically, they can require copies of the written materials related to each session of a GM (whether extraordinary or regular annual). Such written materials should in principle be provided or made available to them (perhaps by posting on an accessible internet page) by the date of announcement of the invitation for the GM in the Company Registry. The agenda ought in principle to be prepared by the Board to a certain level of detail, and to be supported by documentation, including but not only where items on the agenda include proposed shareholder resolutions.

A second way in which shareholders may exercise rights to access information is In the context of corporate events (eg, information to be provided to shareholders - but not to others - at times of reorganisation, conversion to a private company, liquidation, or at the times of other key changes and the associated votes).

Thirdly, there may be in Bulgarian law a possible general right of shareholders to ask the Board questions connected with the management of the company and to receive answers to them (arguably this right is constrained  within certain reasonable limits, and applies only where it is not against the interests of the company). Such a right exists for instance in German law in relation to Aktiengesellschaft companies (AkzG §131(1)) (only during GMs), and may be applicable in a nascent form in Bulgarian law which is otherwise very receptive in corporate matters to the influence of German private law.

Fourthly, any rights to information or disclosure that may realistically follow from a court order in the context of proceedings by a shareholder against the company, in which the shareholder claims for a protection of its interests may also assist the disclosure-seeking shareholder.

All of the above would be enforceable ultimately by court orders via Arts. 71 and 74 of the Commerce Act (shareholders’ rights to bring proceedings to defend their interests or have decisions cancelled - eg, a decision for which a shareholder claims that insufficient information was provided).

In addition to information/disclosure rights, shareholders have a general entitlement to acting to defend their interests, pursuant to the same statutory provisions.

Disclosure and information rights are a very important instrument in establishing corporate value and performance and may potentially serve in substantiating and supporting legal action by shareholders designed to police the interests of the company and the avoidance of dissipation of value. It should be noted that on its face, Bulgarian law requires a shareholding of 10% or for the initiation of legal proceedings by or on behalf of a company against one or more of its director(s). This threshold may not be crossed by many shareholders in Bulgarian companies, particularly in listed ones, which have historically had very low free floats. It is nevertheless a highly useful tool because of the legitimate check-and-balance mechanisms (including regulatory and reputational ones) which it opens up, and shareholders should be encouraged to use it.

We regularly advise on the application of the related legal principles and would be pleased to assist on the topic.



Recent work:

Acquisition of City Center Sofia by Heitman Investment fund for €101.5m Acquisition of CCS

NBLO advised the investment fund Heitman European Property III on the €101.5m acquisition from Equest of the 'City Center Sofia', the most established and profitable urban shopping centre in Bulgaria. Since then, NBLO has been the sole provider of ongoing legal services to the Center, involving a variety of largely commercial property issues.

© New Balkans Law Office 2017