september march june 2003 - penkov - markov · amendments to the competition protection act —...

2003M A R C H

J U N ES E P T E M B E RD E C E M B E R

Issue 9 – 10• Circulation 2,200w w w . l e g a i n t e r c o n s u l t . c o m

Amendments to the TaxLegislationVladimir Penkov

At the end of 2002, a series ofimportant amendments to theBulgarian tax legislation werepromulgated in the OfficialGazette, which entered into forceon 1 January 2003. More specifi-cally, the amendments concernedthe Corporate Income Tax Act,the Natural Persons Income TaxAct, the Value Added Tax Act, theExcise Tax Act, and the LocalTaxes and Fees Act. In this editionof Lega InterConsult News, weare going to dwell on someamendments to the CorporateIncome Tax Act (CITA) which, inour opinion, are of greater signif-icance:

1. First and foremost, oneshould note the ambition of the legislator to harmonizethe act with the amendmentsto the accountancy legisla-tion and the InternationalAccounting Standardsrespectively. The most tellingexample of this ambition canbe seen in the new regu-lations on transformingfinancial results for tax pur-poses (i.e. of its increase ordecrease with a view ofobtaining the taxable profit).

. . . . . . . . . . . . . continued on page 3

LIVE ISSUE

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PENKOV • MARKOV & PARTNERS èÖçäéÇ • åÄêäéÇ & èÄêíçúéêà

ÄäíìÄãçÄ íÖåÄ Live IssueAmendments to the Tax Legislation —Vladimir Penkov . . . . . . . . . . . . . . . . 1The Tourism Act — an Important steptowards the Liberalisation of theTourist Market in Bulgaria — Pavel Velchev. . . . . . . . . . . . . . . . . . . 6

OpinionsSpecialised Trade Courts — Vladimir Penkov, Milena Gaidarska 10

Rules of commerceAmendments to the CompetitionProtection Act — Svetlin Adrianov .12

LitigationImmediate Execution of Judgments —Dimitar Chorbadjiev . . . . . . . . . . . 14Competing Rights in Cases ofEnforcement under the SpecialPledges Act — Rusin Yordanov . . . . 18

Forthcoming LawsWill foreign lawyers be able to havepractice in Bulgaria? — Lilia Banakieva . . . . . . . . . . . . . . . . 20

Questions and Answers . . . . . . . . 22

Briefly . . . . . . . . . . . . . . . . . . . . . . . 23

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U p d a t e d L e g a l I n f o r m a t i o n & C o m m e n t s

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Dear clients, colleagues and friends,

For the first time our edition is issued in German besidesEnglish and Bulgarian. The large number of clients fromGermany, Austria and Switzerland, as well as the large inter-est in our newsletter in this region, and not on the last placewith regard to the admission of Lega InterConsult PenkovMarkov & Partners Law Offices as a regular member of theArbeitskreis der Deutschen Wirtschaft grounded this deci-sion. This was not the only reason as well for the new look ofthe edition.Live in this issue are the comments on the amendments to thetaxation laws as an important index of the investment cli-mate. We have also reflected the discussions held concerning

the establishment of specializes commercial courts in Bulgaria. Certainly, the article concern-ing the amendments to the Protection of Competition Act will also be of interest. The new reg-ulations are directed mainly against the various forms of abuse of monopoly and dominantmarket position, thus contributing to the significant approximation of Bulgarian legislation tothe acquis communautaire.Very interesting with a view to protection of investments made in good faith are the two liti-gation articles concerning immediate execution of judgements and competition of rights incases of enforcement under the Special Pledges Act.Will foreign lawyers be able to freely have practice in Bulgaria? In this article we are tryingto reflect the current discussion on the relevant bill.As always you will find the Q&A and Briefly, reporting on new laws.We would be glad if we have managed to engage your interest by this issue.In response to the inquiries received we once again confirm the readiness of the editors to pub-lish interesting articles and comments in the spirit and the style of the edition and I invite theinterested colleagues to take part.

Meanwhile we remain looking forward to your always-valuable recommendations and opin-ions,

Sincerely yours,

Vladimir Penkov

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Editorial Board

ChairmanVladimir Penkov

Chief EditorSvetlin Adrianov

MembersMilena GaidarskaPavel VelchevDimitar ChorbadjievRoman Stoyanov

English Translation and Editing

Vera Georgieva

Editorial Office

Bl. 22, Entr. A, Iztok Dstr., 1113 Sofia, BulgariaTel (00 359 2) 9710323, 9710254,

9710261, 9713996, 9713935Fax (00 359 2) 9711191, 9710162 e-mail: [email protected];www.legainterconsult.com

This info bulletin is produced for clientsand proffessional contacts of LegaInterConsult - Penkov, Markov & Partners,as well as for all interested readers. Theinformation and opinions which it containsare not intended to be a comprehensivestudy nor to provide legal advice andshould not be treated as a substitute forspecific professional advice concerningindividual situations.

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2. The amendments have intro-duced a flat tax rate of 23.5 %and the tax is now named“corporate income tax”, asopposed to the previous“profit tax” and “tax formunicipalities” the rates of

which were 15 % and 10 % respectively. Thewhole tax amount will be transferred to thecentral government budget. The amendmentsare aimed at making the administration of thetax easier.It is important to point out that the existing sofar total effective rate of 23.5 % has been pre-served, insofar as the profit tax used to becharged on the taxable profit following thededuction of the tax for the municipalities.

3. The law-maker has explicitly included the feesfor management services in the range of tax-able income. Unlike the previous regulations,the remuneration paid under managementcontracts to foreign persons by local personswill be taxable at the source at a 15 per centrate.

4. There are also changes of the assets deprecia-tion rules. The intention is to ensure the finetuning of depreciation allowances to the spe-cific features of various assets and to thedynamic development of technologies. For thispurpose, the annual depreciation allowanceshave increased for some assets.Computers, software and rights to use soft-ware, for instance, are depreciated for twoyears (instead of the five years provided for bythe previous legislation). Machines, produc-tion equipment and apparatus have currentlyan annual depreciation norm of 30 per cent,i.e. they are depreciated in just over threeyears. This will undoubtedly enhance invest-ment activity in production companies. Thedepreciation norm for vehicles was alsoincreased, amounting currently to 25 per cent.The depreciation norm of 4 per cent in relationto solid buildings remained unchanged whilewith the new amendment the costs for repairsare deducted from the taxable income (cf. item 6).

ÄäíìÄãçÄ íÖåÄLIVE ISSUE

5. In order to prevent tax evasion through reduc-ing taxable profit by the interest charged onbank loans, the new legislation includes explic-it provisions that bank loans and the interestrates thereon will be subject to regulation fortax purposes. The new legislation is aimed atensuring equal treatment of borrowers underfinancial leasing arrangements and bank loans.The new provisions are not applicable to theinterest accrued on loans which were contract-ed between 1 January and 31 December 2002and their repayment has started.

6. Repair and maintenance costs for fixed assetswill be recognised as operational expendituresand they will be deducted from the financialresult. The previous legislation provided foran increase of the financial result with thesecosts for tax purposes.

7. A new feature of the tax legislation is the treat-ment of business trips of persons who are notemployees of the undertaking (partners, soleproprietors, members of managing and super-visory boards, outsourced staff). When suchpersons are sent on business trips in connec-tion with the activities of the undertaking,their travelling and accommodation costs willbe reported as expenditures of the undertak-ing, while their per diem allowances will beregulated for tax purposes only when theyexceed the double amount provided by law.Unfortunately the per diem and accommoda-tion allowances received by persons on busi-ness trips who are not employees of the under-taking are not expressly excluded from the tax-able income (cf. art. 12 of the Natural PersonsIncome Tax Act). That is why we insistentlyrecommend the legislation to be relevantlyamended with a view to avoid the risk of aneconomically and legally unjustified taxationof the overall amounts received by personsassigned on business trips to cover travelexpenses.

8. The final tax rate on costs for celebrations, rep-resentative and entertainment purposes orgifts that do not bear the name or brand of thetaxpayer, and for donations and sponsorship isreduced from 25 % to 20 %.

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When the gift or donation is made to the bene-fit of officially registered religious denomina-tions in the country or not-for-profit legal enti-ties working for public benefit as entered intothe Central Register at the Ministry of Justice,the tax rate is 15 per cent.

9. Some important amendments refer to the reg-ulation of tax payments made upfront and thesharing of the corporate income tax.

10.Other provisions have been amended in orderto improve the taxation regime and to avoidconfusion and contradictory interpretations(for example, now there is an explicit provisionthat persons who do not engage in businessoperations are also required to submit taxreturns).

The latest amendments to the Corporate IncomeTax Act can be given a positive overall assessmentbecause they provide for some concessions to tax-payers, introduce greater clarity in some statutoryprovisions, and bring the domestic tax legislationcloser to the established international standards.

For the first time there is predictability in tax poli-cies development since the government hasannounced it for the next two-three years. So onecould expect a further reduction of corporate taxto 15 per cent and a development of the policies inrelation to increasing depreciation norms.

However, one could recommend additional mea-sures for activating investment taking intoaccount not just foreign investors but alsoBulgarian small and medium-sized enterprises,which are to a large extent de-capitalised, havestarted practically from a very low financial leveland need free development.

Such specific government measures could repre-sent the provision of an opportunity for admis-sion as expenses of up to 50 per cent on all invest-ment with the exception of the ones in real estate(for which the part admitted as expenses to be 33per cent), whereas for the remaining part anoption may be provided for the respective com-panies for an accelerated depreciation of at least

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two years for chattels and three years for realestate respectively.

This would be an adequate solution to the specif-ic needs for investment in this most importantpart of the economy which bears the main bruntand responsibility for economic growth in the country, for creating new jobs and for a successfultransfer of new technologies.

Besides no differentiation should be introducedin relation to the different sectors (manufacturingand services) since their influence on economicgrowth is close and therefore equally important.

The Tourism Act — an Important Step towardsthe Liberalization of the Tourist Market inBulgariaPavel Velchev

As a result of the ongoing nego-tiations for Bulgaria’s accessionto the European Union, it wasfound out that the existingnational regulatory frameworkin the field of tourism is notadequate to the acquis commu-

nautaire. The implementation of the EU legislationcalled for substantial changes in the statutory reg-ulations. Attention had to be paid to the leadingrole that the sector had gained for the last tenyears and the priority attached to it. In this con-text and also with a view to the need for libera-

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ization of licensing arrangements, on the onehand, and the enhancement of the measures forprotection of the consumers of tourist services, onthe other, it became clear that the existing TourismAct could not reflect the dynamic social relationsproperly even with substantial amendmentsthereto. Therefore, an entirely new Tourism Actwas proposed and adopted in Parliament (pro-mulgated in The Official Gazette, No. 56 of 7 June2002; amended, No. 119 of 27 December 2002).

It was for the first time that an attempt was madeto adjust the Tourism Act to the interests of thesector and, for that reason, consultations withrepresentatives of tourist business associationshad been conducted before the law was passed.

The main emphasis in the law is laid on the intro-duction of uniform criteria for the implementa-tion of tourist activities, the protection of tourists,the rights and obligations of the entities existingin the tourist sector, the regulation of control overtourist activities, etc.

From the investors’ perspective, the followingmajor aspects of the new tourist law deserve thegreatest attention:1. The law delimitates the powers of the central

government (the Minister of Economy),regional governors, local governments andmunicipal administrations. Conditions are cre-ated for decentralized management of tourismby delegating rights and obligations to varioustourist business associations (participation inthe categorization of facilities, participation inthe licensing of persons for tourist activities),while observing the professional code ofethics, maintaining the quality of the touristservices, and ensuring fair competition in thetourist industry.

2. A National Tourist Information Centre is estab-lished with the main tasks of implementing thenational promotional programme and coordi-nating the activities of regional and localtourist information centres.

3. Detailed provisions are included to regulatethe conditions for the performance of tourist

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activities, i.e. tourist agency activities, opera-tion of hotels and restaurants, tour operatoractivities in connection with the protection ofconsumers of tourist products.

4. New rules are introduced in connection withthe issuance of licenses for tourist activities,the refusal to issue such licenses, their suspen-sion and withdrawal, as well as the categoriza-tion of tourist facilities, the refusal to assign acategory, and the suspension and withdrawalof the category of tourist facilities. This is away to ensure clarity and transparency in thelicensing process, which is in the best interestsof both the tourist business and the govern-ment.

5. The existing licensing arrangements are liber-alized.Licenses are no longer required for familyhotel operations, hotel operations at catego-rized accommodation facilities, restaurantoperations at categorized catering and enter-tainment establishments located at accommo-dation facilities, and tourist agency activitiesconducted by a licensed tour operator.The new law has expanded the scope of per-sons eligible to apply for tourist licenses.The system for categorization of tourist facili-ties has been made easier.All these features create greater incentives notonly for the development of tourist servicesbut also for the upgrading of their quality.

6. The most recent amendments to the said Acthave introduced mandatory insurance of touroperators to cover the liability for damageoccurring as a result of non-payment to coun-terparts, including cases of insolvency andbankruptcy. Thus the mandatory requirementsset out in Directive No. 90/314 of theEuropean Union on tourist traveling at a com-mon price have been met.

7. An Integrated Tourist Information System isestablished and the National Tourist Register isincorporated in it. Entries into the Register aremade administratively without any applicationsserved for this purpose. The system is intro-duced for the sake of greater clarity with regardto the entities operating on the tourist market.

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8. The Additional Provisions set out the defini-tions of the terms used in accordance with thedefinitions of the World Tourism Organisationand the legislation of the EU Member States.

The latest amendments to the Value Added TaxAct provide for equal treatment of hotel operatorswho are not licensed tour operators, tour opera-tors and tourist agents. Therefore the effective taxrate of 7 % will be applicable to the tourist ser-vices that the members of the first group offerabroad. Thus the equal tax treatment of theseentities is safeguarded.

All these aspects lead to the conclusion that theTourism Act is a serious step towards fulfillingthe recommendations of the General Directorateon Enlargement of the European Commission forliberalization of the tourist market in Bulgariaand adjustment of the national legislation to theEC Directives, which is in full conformity withthe interests of both foreign investors andtourists.

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9


Specialised Trade CourtsVladimir PenkovMilena Gaidarska

The establishment by law ofspecialised trade courts withcompetences relative to regis-tration proceedings, companylaw claims, commercial casesand bankruptcies is admissiblefrom the perspective of the

Constitution and the Judiciary Act. The argu-ments in favour of such a legislative solutionshould be seen in the expected positive effects ofits application as follows:• Improvement of the administration of justice

as a result of the greater specialization ofjudges in commercial cases and creation ofconditions for uniform judicial practices;

• Introduction of easier procedural rules for thehearing and adjudication of commercial andcompany cases (further on referred to as “com-mercial cases”), ensuring speed and efficiencyin the settlement of disputes between tradersor arising out of commercial transactions. Atpresent, although some regional courts havespecialised trade divisions, the administrationof justice actually follows the general proce-dural rules governing the settlement of civillaw disputes;

• The hearing of commercial cases at the tradedivisions at the general civil courts does notaccommodate all the specific features of com-mercial relations, which, in the final analysis,affects business life negatively. In this sense,the establishment of specialised trade courtswill give a chance for faster introduction of thespecific requirements and approaches in con-nection with the establishment and manage-ment of business undertakings, on the onehand, and disputes in connection with com-mercial transactions, on the other. This is a wayto counteract to the existing inertia in theadministration of justice in commercial cases,which leads to a number of outstanding prob-lems and lack of specific understanding onpart of the judges from the trade divisions at

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åçÖçàüOPINIONS

the general civil courts, moreover that sofaronly 9 of the existing 28 regional courts have established such specialized trade divisions;

• Establishment of specialised judicial adminis-tration and upgrading of the quality of clerkactivities related to the administration of cases;

• Creation of actual opportunities for fastercourt proceedings and possible reduction ofthe time between court sessions on a singlecase.

The development of “the geographical map” ofspecialised trade courts is of paramount impor-tance. It is appropriate for the territory of spe-cialised trade courts to coincide with the territoryof the respective regional courts with high level ofconcentration of registration proceedings andcompany cases. Thus, the administration of com-mercial law will be accessible to legal entities.

The definition of the term “commercial cases” isof particular importance for the identification ofthe range of cases in which specialised tradecourts will be competent. In our opinion, thisterm should include:• The litigation between traders in connection

with their business operations;• The litigation arising out of concluded com-

mercial transactions, including those betweentraders and non-traders;

• The litigation on claims served against tradersor manufacturers by consumers;

• All company law issues.

In closing, we can summarize that we find theintroduction of specialised trade courts to befavourable to the quality of the administration ofcommercial justice. It will enhance the efficiencyof the administration of justice and thus promotecertainty in business operations as a whole.Indeed, the argument for lack of funds should notbe lightly ignored, but still it could be expectedthat even in middle terms the advantages of theestablishment of specialised trade courts wouldshow up.

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11


Amendments to the Competition Protection ActSvetlin Adrianov

The Official Gazette, No. 9 of 31January 2003, promulgatedsome substantial amendments tothe Competition Protection Act.

The amendments are aimed at improving the anti-trust legisla-

tion and harmonizing it with the acquis communau-taire to a greater extent. Their adoption is in con-formity with the commitments of this countryunder Chapter Six of the negotiations on Bulgaria’saccession to the European Union. The law-makerhas also taken into account the practices of theCommission for Protection of Competition (CPC)in the implementation of the law so far.

The enacted amendments have the followingmajor aspects:

They have amended the provisions regulating thecounteraction to vertical and horizontal cartelagreements, the abuse of monopoly and dominantposition and the concentration of business activi-ties. Apparently, the law-maker has tried to bringthe law to the relevant anti-monopoly provisions ofthe EEC Treaty and the Directives and Regulationsof the European Commission and the Council ofthe European Union to the utmost degree.

The amendments refer also to the criteria for eval-uation of the impact of various cartel agreementson the competitive environment. There is a ban

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12

èêÄÇàãÄ áÄ íöêÉéÇàüRULES OF COMMERCE


on the implementation of cartel agreements bythe participants therein pending the decision ofthe Committee. The amendments have intro-duced the new term of “joint dominant position”,which is intended to ensure more serious controlover anti-competitive practices and agreements.

A uniform criterion has been introduced for theexistence of concentration of business activities,i.e. the size of the total turnover of the partici-pants on the relevant market within the territoryof Bulgaria. Thus the alternative criterion, i.e. themarket share of the participants, has been elimi-nated because CPC practices have borne it outthat it is very difficult to identify and prove it inthe process of evaluation of any concentration.

The Commission for Protection of Competition hasbeen granted additional powers as the anti-monopoly regulator. It has obtained some extraor-dinary powers with respect to the collection of evi-dence relevant to its investigations. The CPC isauthorised to search premises and vehicles and toseize documents and electronic information. It istrue that such actions need the permission of therespective regional court. Nevertheless, these pow-ers are a substantial and perhaps even excessiveexpansion of the opportunities for the CPC to col-lect information and evidence in its investigations.

The law-maker has obviously undertaken seriousstructural changes in the regulations concerningthe anti-trust regulatory activities and the protec-tion of fair competition. Of course, the actualeffect of these amendments will take some time tobe seen because the CPC practices need to beadjusted to the new legislation. At the same time,it is equally obvious that the main thrust of theseamendments is to create conditions for theCommission for Protection of Competition toexercise its law enforcement functions in a moreactive and efficient manner.

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13


Immediate Execution of JudgementsDimitar Chorbadjiev

The Civil Procedure Code(CPC) gives an exhaustive list ofthe instruments subject toenforcement, including thejudgements that may be execut-ed immediately.

The examination of this issue is of substantialpractical significance due to the consequences ofthis option for both parties to the proceedings andthe possible defence techniques that will be dis-cussed below.

The specific nature of this option is determined,first and foremost, by the fact that these judge-ments are not enforceable yet, i.e. they are subjectto appeal or an appeal has been lodged within theprescribed time limits. Therefore, one can con-clude that this is rather an exception to the gener-al rule on the enforceability of final judgements,which is admissible only in cases prescribed bylaw. Obviously, the option for immediate execu-tion of judgements provides better protection ofexecution to one of the parties. It is associatedwith the social relations that are regulated by therelevant judgements and with the desire toensure faster meeting of the claim of one of theparties. Nevertheless, the Civil Procedure Codeprovides for the interests of the other party, too,through the option of staying the immediate exe-cution in specific cases prescribed by law.

An important prerequisite for this option is tomake sure that the judgment subject to immediateexecution is enforceable, i.e. approving the claim.

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14

èêéñÖëLITIGATION


In this context, one may conclude that the CPCrefers only to judgements of first-instance courts.

The Civil Procedure Code provides for two sets ofjudgements subject to immediate execution.

In the first place, these are the judgements award-ing labour remuneration or alimony. In suchcases, the court has to adjudicate on immediateexecution ex officio and court practices conform tothis approach.

Next, it should be explained that the term “labourremuneration” should be considered to meanremuneration that has not been paid by theemployer (usually it is not contested by theemployer) and not adjudicated compensation forunlawful dismissal because the latter is calculatedon the basis of the gross remuneration of theemployee in accordance with the Labour Code.

It should be added that these provisions are applic-able only to the immediate execution of judge-ments on the adjudicated alimony rather thanother issues to be resolved in marriage cases (e.g.exercise of parental rights to children under age).

The second set of judgements subject to immedi-ate execution includes the following cases:(a)where the court awards an account receivable

based on an official document (i.e. a documentissued by an official within his or her powersin the form and procedure prescribed by law);

(b)where the court awards an account receivablerecognised by the defendant;

(c) where any delay in the execution may lead tosubstantial and irreparable damage to theclaimant or the enforcement would becomeimpossible or very difficult to achieve.

In these cases, the law-maker has decided thatone of the parties to the litigation needs greaterprotection in the enforcement of its grantedclaims but here the protection is not so uncondi-tional as it is in the first set of judgements. Thisconclusion is determined, first and foremost, bythe fact that in the second set of judgements the

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15


court will not rule on the immediate execution exofficio. There should be an application by theclaimant and the court should be given the oppo-tunity to judge the need for such a measure.Secondly, the court is authorised to ask theclaimant to give appropriate security in advance.The purpose of this security is to satisfy the defen-dant for possible damage caused by the immedi-ate execution (e.g. when the first-instance judge-ment is reversed).

Another way to protect the defendant againstpossible adverse effect of immediate execution isto rule out the possibility for immediate executioneven where security is given. These are the caseswhen the execution may cause irreparable harmto the defendant or damage that is not subject toaccurate evaluation in pecuniary terms. Thisexception is not applicable to judgements, forwhich the court allows immediate execution exofficio (judgements on alimony or labour remu-neration).

Furthermore, a judgement that is not enforceableyet is not subject to immediate execution, where itis ruled against government institutions and localgovernments or health establishments fundedfrom the central and/or local budgets. As is seenfrom the wording of these provisions, the cen-tral/local government interest and, hence, thequality of the party, against which the enforce-ment would be directed, are decisive in suchcases.

The immediate execution of judgements isallowed or refused with a special instrumentissued by the first-instance court. The ruling thatallows or refuses immediate execution of thejudgement may be appealed with a private peti-tion to the higher-standing court, which is a wayof protecting the defendant against immediateexecution.

Another possible defence against immediate exe-cution is the opportunity for staying the executionby giving security for the claimant. This option isinapplicable to the cases of immediate execution

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16


of judgements on alimony or labour remunera-tion. The execution is stayed also when theappealed judgement allowed to be executedimmediately is reversed by a higher-standingcourt.

If, after the ruling on the immediate execution, theclaim is rejected with an enforceable judgement,the immediate execution is discontinued. In suchcases, the court that has issued the ruling willissue a writ of execution to the defendant againstthe claimant for refunding or return of the prop-erty received on the basis of the allowed immedi-ate execution of the reversed judgement.Obviously, such developments will require a lotof complicated and time-consuming efforts of thedefendant to collect the amounts paid. Therefore,in order to avoid these undesired actions, wewould recommend that the actual immediate exe-cution of the first-instance judgement be thwart-ed, whenever the law allows to do so, throughguarantee given on part of the defendant.

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17


Competing Rights in Cases of Enforcementunder the Special Pledges ActRusin Yordanov

An interesting case in practice isrelated to the risks and legaleffects for the buyer of assetssold by a secured creditor in anenforcement procedure underthe Special Pledges Act, wherebankruptcy proceedings are

opened with regard to the debtor.

It should be noted, first and foremost, that pur-suant to Art. 43 of the Special Pledges Act, bank-ruptcy proceedings opened with regard to thedebtor cannot stay the enforcement procedureconcerning the special pledge, i.e. the enforce-ment has priority over bankruptcy and developsindependently of the latter.

Still, if such proceedings start, the bankruptcycourt will rule not only on the opening of bank-ruptcy proceedings but also on the commencingdate of the debtor’s insolvency. This date maywell be some years earlier than the date of open-ing of bankruptcy proceedings. If the specialpledge turns out to have been given after thecommencing date of the insolvency (during theso-called “doubtful period”), this security is verylikely to be deemed null and void with regard tothe creditors of the pledgor pursuant to Art. 646,para 2 of the Commercial Act.

As a result, these creditors may consider null andvoid also the sale of assets by a secured creditor inenforcement proceedings under the SpecialPledges Act because the sale will have been con-cluded on the basis of frustrated legal grounds.

Another interesting case is the distress on some ofthe debtor’s assets pledged and sold by thesecured creditor under the Special Pledges Act.

Pursuant to Art. 346, para 1 of the Civil ProcedureCode, any disposal of encumbered assets on partof their owner is deemed null and void with

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18


regard to the creditors who have petitioned thedistress measures to the court of law.

On the other hand, by virtue of Art. 354 of theCivil Procedure Code, beneficiaries to distressmeasures are considered adjoined to the creditorwho has started enforcement proceedings incourt. Adjoined creditors are entitled to receivepart of the proceeds from the sale of the assetsdistressed to their benefit in proportion to theirproven claims. In this case, the distress measurescannot have any impact on the validity of the saleunder the Special Pledges Act or continue itseffect after the sale.

Unfortunately, although the provisions of theSpecial Pledges Act are special with respect tothose of the Civil Procedure Code, the said Actdoes not contain explicit provisions on which ofthe above rules will be applicable to the sale ofpledged property under the Special Pledges Act,where this property is the subject of some distressmeasures. In our opinion and in conformity withthe rules for interpretation of statutory provi-sions, the provisions of Art. 354 of the CivilProcedure Code should be applicable in suchcases, as the enforcement on special pledges is akind of execution on property of the debtor, eventhough it is an out-of-court procedure.Unfortunately, since the Special Pledges Act israther recent (it entered into force in 1997), theseis no relevant judicial practice to support either ofthese cases.

In order to resolve the disputes and confusionsthat occur in practice in connection with theenforcement procedures under the SpecialPledges Act, including the cases with bankruptcyproceedings opened with regard to the pledgor orwith distress on property pledged under theSpecial Pledges Act, it is necessary to undertakelegislative measures to give explicit statutory pro-visions filling in the existing gaps.

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19


Will foreign lawyers be able to have practice inBulgaria?Lilia Banakieva

On 29 July 2002, the Council ofMinisters submitted an amend-ing bill to the Bar Act. The draftenvisions a new chapter to beincluded in the Act so that toallow foreign lawyers to appearand plead before Bulgarian

courts. This amendment is necessitated byBulgaria’s commitments under the EuropeAgreement of 1995 to adjust the national legisla-tion, the legal provisions concerning the legalprofession in particular, to the acquis communau-taire and to transpose Directives 77/249/EC and98/5/EC into the domestic legislation.

If the amendments are enacted by Parliament, for-eign lawyers who are nationals of a EU MemberState and who are authorised to practise the legalprofession under its laws will be able to perform,within the territory of the country, the activitiesenumerated in Art. 8 of the existing Bar Act (togive oral and written advice; to draft requests, peti-tions, complaints, applications and other docu-ments of the persons seeking defence and assis-tance; to represent and defend their clients incourt, before the pre-trial authorities and all juris-dictions, etc.). They will exercise their legal profe-

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20


éóÄäÇÄçà áÄäéçàFORTHCOMING LAWS

sion under the name of the profession in their owncountry or under its name adopted in Bulgaria.

For this purpose, foreign lawyers will have tosubmit an application to the Chairperson of theSupreme Bar Council, stating the cases and files,on which they will provide legal assistance oroffer legal defence in judicial proceedings.

In order to exercise the legal profession under itsname in the state of registration of the respectivelawyer, the latter will have to submit an applica-tion to the Supreme Bar Council with a documentattached to certify the authorization to engage inlegal practice in the EU Member State. If thelawyer obtains a permit to practise his or her pro-fession in Bulgaria, such a certificate is to be sub-mitted on an annual basis. Applications will haveto specify the professional organisation that hasrecognised their right to practise the profession ora membership document. Any withdrawal of thecertificate of membership will lead to suspensionof the permit or ban on practising the legal pro-fession in Bulgaria.

The bill reads that when the lawyer is authorisedto appear and plead before the supreme courts ofthe country, where he or she has been certified,the lawyer will be able to work as a defendantbefore the courts of appeal or supreme courtstogether with a Bulgarian lawyer. However, it isstill unclear what will happen to those lawyerswho are not entitled yet to appear and pleadbefore the supreme courts of the respective EUMember State.

It is particularly interesting to note the opportu-nity provided in the bill for foreign lawyers toapply for equal treatment with the Bulgarianlawyers and to be granted the right to exercisetheir profession under its name in Bulgaria. Insuch cases, the applicant should be a citizen of aEU Member State, to have practised the legal pro-fession in Bulgaria under its name in his owncountry, and to have at least three years of actualand continuous practice under the Bulgarian lawsor the acquis communautaire.

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21


Of course, there are certain opinions that the for-eign lawyers should prove their knowledge ofBulgarian law in advance or to appear before thecourts only together with Bulgarian lawyers. Thefinal regulation of this issue could be expected inmiddle terms.

1. Do the branches of Bulgarian not-for-profit legal entitieshave the obligation to keep separate accounting? The review of the existing legislation leads to the con-clusion that branches of not-for-profit legal entitiesshould keep separate accounting. Furthermore, pur-suant to the imperative provisions of Art. 19 of theCommercial Act, they are required to draw up a separatebalance sheet. However, the branch of a not-for-profitlegal entity is not an independent tax liable person but ithas to submit to its head office the data needed for thetax return concerning the respective tax period.

2. Is it possible for the collective management body of alegal entity to make decisions by collecting signatures with-out holding a meeting, where such decisions are of materialsignificance for the activities of the undertaking?Generally, this issue is on the agenda of joint-stockcompanies (AD) among all business undertakingsbecause they are the only ones to have collective man-agement bodies, as well as charity associations andfoundations.

To answer the question, one may refer to both theCommercial Act and the Not-for-profit Legal EntitiesAct, which provide for such a method of decision-making. The requirements set out in the CommercialAct for such cases are as follows: (i) the opportunity formaking decisions by collecting signatures should bespelled out in the Articles of Association of the respec-


22

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g�� , ��,��*�� , ��*�� -�� . &�� *�� .

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Çöèêéëà à éíÉéÇéêàQUESTIONS AND ANSWERS

tive joint-stock company; and (ii) all the members ofthe Board of Directors or the Managing Board respe-tively should have given their consent with the pro-posed draft decision in writing. The Not-for-profitLegal Entities Act, in its turn, does not contain anyrequirement for this option of making decisions by col-lecting signatures to be included in the Articles ofAssociation (or the Memorandum of Association). Theonly requirement under the said Act is to have theminutes for the decision made by collecting signaturessigned by all members of the Managing Board withoutany dissenting opinion or remarks.

3. May a branch of an undertaking be a party to litigationor contracts?Judicial practices unequivocally show that the branchof an undertaking is not an independent legal entitybut it is part and parcel of the undertaking with somelevel of distinction. For this reason, a branch cannot bea party to litigation in court. It is always the principalthat will be a litigant. However, the law provides forsome concessions to claimants who maintain directrelationships with the branch, i.e. they may serve theirclaims against the principal also at the registered officeof the branch.

Similar is the treatment in practice of the opportunityfor a branch to be a party to a contract. Even when thecontract is concluded with the branch, i.e. with thebranch manager, the principal of the branch is assumedto be a party to the contract.

1. The Official Gazette, No. 13 of 11 February 2003,promulgated the Regulations on the Requirements tothe Contents of the Justification of the Price of Sharesof Public Companies, including the evaluation meth-ods in the cases of re-organisation, the joint ventureagreements, and the public offering of shares.

2. Decree No. 13 dated 24 January 2003 of the Councilof Ministers has introduced the Regulations on theOwn Resources and the Solvency Thresholds ofInsurers and Health Insurance Companies. TheRegulations specify the elements used to calculate theamount of own resources and the solvency thresholdsof insurers and health insurance companies and themethods applied to this calculation. The requirements

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23

Çöèêéëà à éíÉéÇéêàQUESTIONS AND ANSWERS

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Lega InterConsult Penkov, Markov & Partners is a private law office established in 1990.We provide consultations and comprehensive legal service to Bulgarian and foreign enterprises in all major spheres of law

related to the economy. The team approach of 45 Partners, associated members and consultants multiplicates the knowledge and experience to find the best solutions for our clients.

Lega InterConsult has offices in Sofia, Bourgas, Rousse, Lovetch, Dobritch, Varna, Pleven, Stara Zagora, Targoviste and Vratzacovering the whole country.

Lega InterConsult is Exclusive Member for Bulgaria of Lex Mundi (The World’s Leading Association of Independent Law Firms) and Associated Member of Eurojuris Germany.

Cooperation partners: Lansky, Ganzger & Partner - Vienna, Austria; Niebaum, Kohler, Punge, So

..der - Dortmund, Germany.

Associated Member of Exclusive Member for Bulgaria of

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P E N K O V • M A R K O V & P A R T N E R SL A W O F F I C E S

laid down in the Regulations are applicable also to for-eign insurers engaging in insurance operations underthe Insurance Act through a branch within the territo-ry of the Republic of Bulgaria. The total amount of theown resources of insurers and health insurance com-panies, net of the intangible assets, is envisioned to beequal to at least the solvency threshold calculated inaccordance with the Regulations.

3. The Official Gazette, No. 9 of 31 January 2003, pro-mulgated the Mandatory Oil and Oil ProductStockpiles Act. This law regulates the establishment,storage, use and replenishment of mandatory stock-piles of oil and oil products for the purposes of ensur-ing the supply of liquid fuels in case of difficulties inthe deliveries of oil and oil products to the country.The law contains provisions on the establishment, stor-age, use and replenishment of mandatory stockpiles ofautomobile and aviation gasoline, industrial fuel (gasoil), jet fuels of the kerosene type and diesel fuel, fuel(black) oil, and propane gas.

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september march june 2003 - penkov - markov · amendments to the competition protection act —...

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