Bulgarian Public Acquisition Finance: A Guide to Financing Transactions
In a market where public acquisition finance is increasingly important, understanding the intricacies of financing transactions in Bulgaria can be a crucial step for companies looking to expand their operations or complete mergers and acquisitions.
Overview of Financing Transactions in Bulgaria
According to recent research, Bulgarian law does not recognize the concept of “certain funds” with respect to public or private acquisition transactions. However, parties may choose to apply this concept to ensure that they possess sufficient funds to complete a transaction.
In cases where a transaction exceeds certain thresholds, the tender offer of the purchaser, prospectus and appraisal of shares must be made available on a specific platform. The purchaser must then demonstrate that it has the necessary funds to pay for all outstanding company shares subject to the tender offer or squeeze-out procedure.
Documentation Requirements
The type of documentation used in financing transactions can vary depending on the magnitude of the transaction and the involved parties. In smaller local transactions, banks may use standardized documentation for granting a loan for acquisition. Larger transactions often require more complex documentation that follows London Loan Market Association models and standards.
Recent Developments
Despite recent sanctions imposed by the UN and EU related to the war in Ukraine, there have been no significant legal or commercial developments that have required changes in financing documentation.
Usury Laws
Bulgarian law does not provide for any rules limiting the amount of interest rates or amounts in the business sector. Interest over interest (anatocism) is permitted if agreed upon by the parties. There are, however, specific restrictions on determining the upper limit of interest rates or amounts under the Civil Code.
Disclosure Requirements
Bulgarian law does not impose any specific disclosure requirements for financial contracts. However, public companies, banks, insurance companies and pension funds are required to report certain information to regulatory authorities when executing specific transactions.
- The Bulgarian Anti-Money Laundering legislation imposes certain thresholds above which a declarative regime applies, requiring parties to provide declarations and supporting documentation proving the source of income.
- Parties involved in financial transactions are also subject to reporting requirements under the EU’s Fourth Anti-Money Laundering Directive.
Tax Considerations
- Payments of principal and interest under domestic loans in Bulgaria are not subject to withholding tax. However, such payments may be considered for corporate income tax purposes by the lender.
- Local companies are subject to corporate tax on their worldwide income and capital gains.
- Foreign companies carrying out business activities in Bulgaria are also liable to tax on income arising in Bulgaria.
- Transactions involving financial instruments are exempt from Value Added Tax (VAT). In some cases, state charges and notary fees may apply when providing a mortgage as security under a loan agreement.
Guarantees and Security
Commonly used security packages in Bulgarian lending and M& A transactions include:
- Pledges over shares
- Non-possessory pledges over the whole or part of the going concern of a target company
- Special pledges over specific assets or bank accounts of the target company
- Pledging quotas (equity stakes) in limited liability companies
In terms of pledging quotas (equity stakes) in limited liability companies, a written agreement executed in notarial form must be registered with the Commercial Register. Materialized shares in joint-stock companies may be pledged by endorsement on the reverse side of the share certificate or delivery of the shares.
The special pledge over receivables from dividends and liquidation quotas is often combined with pledges over shares or quotas (equity stakes). These agreements should be concluded in simple written form and registered with the Central Register of Special Pledges.