The Bulgarian Company Registry failure – What does this mean for you?16 August 2018
Private Clients, Corporate Clients
On 10th August 2018, Bulgaria’s Company Registry stopped being available online. The Register’s website at www.brra.bg was displaying a message explaining this and that efforts to restore access were being made.
By 15th August, partial use of the website has been restored and as of that date searches against the records of registered entities by their registered number (only) are once again possible. All other functions are as yet not usable.
What are the legal implications?
As for all purposes both domestic and foreign not-for-profits and companies and their branches are treated identically by the applicable law, in this note we refer to companies for simplicity, but intend this to apply to all of these entities.
It appears that at least between 10th and 15th August the problem affected both the ability to add information to the Register’s database remotely and the ability (other than perhaps for staff of the Agency) to query that database and receive information. Although at least partial electronic record search and inspection has now been restored, it remains impossible to file via the Company Registry’s website. It is also still quite unclear when full Register access will be in place.
What are the legal duties involved and affected?
- Companies in Bulgaria (as well as the local branches of foreign companies and other entities) have an obligation to notify corporate events and publish certain corporate documents with the Company Registry within, generally, 7 days of their occurrence (ss 4-5 of the Company and Legal Persons with a Not-for-Profit Object Register Act (the Act)).
- The obligation is to apply for the recordal of the corporate events and for the publication of the corporate documents rather than for companies to self-service and make any recordals themselves (s 6).
- The effect of a recordal is to put third parties on deemed notice of the event from the time of recordal (s 7(1)) and make the corporate documents deemed known to these third parties (s 9(2)).
- S 10(2) of the Act is however clearly problematic during the current gap in service. It states that those events which have not been recorded are deemed to not exist as regards third parties acting in good faith, i.e., it purports to impose an assumption of nullity for such unrecorded events.
What are the possible consequences?
The authorities have not disclosed whether the technical failure concerns only the web interface of the Register, i.e., whether there is a fully-functioning database which is continuing in its existence behind the veil of failed website, or whether the failure affects also that database or the ability to interface with it, such that for now no-one is able to change its state. Since the Company Registry is by statutory definition electronic and constitutes a database, the inability to alter the database would mean that no entries can be made in the Register even if all necessary documents are available.
Of course, particularly given that refusals to register a filing on technical legal grounds are extremely common in Bulgarian practice, the lack of ability to check the status of the Register also means that the general public and possibly the filer, may be unclear to whether a filing has been approved by the Company Registry.
Where it comes to the obligations companies have to file corporate documents for publication and to apply for corporate event recordal within 7 days of the relevant event occurring or the relevant document being adopted by a company, these continue to apply. In the absence of a web interface (or other electronic channels), compliance will now need to be accomplished through paper-based applications.
Indeed, it generally continues to be possible for companies to file on paper.
One unfortunate exception to this is in s 17(2) of the Act, which requires that joint-stock companies (those which are equivalent to the UK Plc, German AG and French SA) and limited partnerships with shares (a form similar to the German Kommanditgesellschaft auf Aktien (KGaA), must in all cases make their filings electronically.
In practical terms, although filings can be made at any of the regional offices of the Registry Agency, most international businesses will have their operations in the major cities, where the Registry Agency offices have always had limited capacity to process filings made in person.
Even if a company does not fall foul of its public law obligation to file or apply for recordal, what to make of the inability of third parties to place reliance on corporate events and documents?
This is likely to create issues, particularly given the phrasing of s 10(2) given above. This, as above, appears to state that such events are positively deemed to not have occurred, even if, acting in good faith a party wanted to rely on them.
Some comfort is to be derived from the fact that this relates to third parties. A party to the transaction/corporate event itself will not be prohibited from recognising the event as having occurred even if the corporate event or document remains unregistered, respectively unpublished, and cannot be registered during the continuing technical problems.
The awkward statutory wording in s 10(2) also appears not to affect the filing of corporate documents.
It has been speculated in the Bulgarian press that the failure in the Register may have been due to poor planning and poor data management policies. Be that as it may, where a party’s transaction is affected by the failure, it may wish to explore compensation pursuant to the State Liability Compensation Act.