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Bulgaria Steps Out of a Legislative Backlog

Bulgaria Steps Out of a Legislative Backlog

Issue 11.2
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In September 2022, CEE Legal Matters reported on Bulgaria’s outstanding legislative packages caused by three parliamentary elections being held in the span of eight months. Nearly two years later, Hristov & Partners Partner Dragomir Stefanov, Kambourov & Partners Partner Veronika Hadjieva, Penkov, Markov & Partners Associated Partner Nikolay Voynov, Peterka & Partners Partner Plamen Peev, and Schoenherr Bulgaria Co-Head of Real Estate Elena Todorova discuss the progress made after the extended legislative hiatus.

The 18-Month Recap: Then and Now

Back in 2022, there was a significant backlog of pending legislation. “The conversation revolved around the need to adopt 22 legislative amendments in the Bulgarian anti-corruption legislation, public procurement, energy legislation, and the Bulgarian Commerce Act, which in one way or another are related to the implementation of the European Green Deal and the admission of Bulgaria to the Eurozone,” Todorova points out.

“Following four unsuccessful attempts of four different national assemblies between 2021 and 2023 to elect a new regular government, finally, in June 2023, the 49th National Assembly voted on a new government,” Voynov adds. “The parliamentary majority is a mix of the first and second political parties – the GERB and We Continue for Change.” This collaboration, however, has been full of challenges, Voynov says. “The mix of the two most significant political rivalries into one ruling quasi coalition has proved to be extremely difficult to manage and has resulted in more than few political rows on very important domestic topics.”

Consequently, almost two years later, there seems to be progress on the legislative front. “Despite public frictions and quarrels, the ruling majority was relatively united in adopting key legislative initiatives in 2023 and managed to address concerns,” Stefanov notes. “In the past six months, there was a proactive effort to pass legislation aimed at aligning the legal framework with the needs of the rapidly evolving economy,” Hadjieva agrees.

According to Peev, “While the agenda has been predominantly set to address requirements under the Recovery and Resilience Plan, many other amendments have been pushed through, with even more underway.”

First and Foremost: The Constitution

Among the recently adopted laws, “perhaps the most anticipated changes – those in the country’s Constitution – were adopted shortly before Christmas 2023,” Todorova says. “Some of the changes in the Constitution focus on the functions of the Supreme Judicial Council and on limiting the powers of the Chief General Prosecutor.” This change, according to her, is rather positive, as “Bulgaria has been criticized by the European institutions for years because the position of the Chief General Prosecutor was practically ‘uncontrolled,’ and prosecutors were subordinate to them.” 

For Peev, a major constitutional change is related to “the entitlement of all courts to address the Constitutional Court in the course of pending disputes. Plenty of further rules at the legislative level are expected to ensure the functionality of the constitutional changes.”

“While it remains to be seen whether in practice the constitutional amendments will improve the judicial climate in the country,” Stefanov says, “some of them are undoubtedly a positive sign.” 

Streamlining Business Dynamics: Commerce Act Updates

Stefanov also highlights the amendments in the Commerce Act. “Major amendments to the Commerce Act often concern the rules regarding insolvency and 2023 made no difference,” Stefanov says. “Along with key changes in the general rules on insolvency, a completely new insolvency procedure for physical persons (entrepreneurs) was adopted.”

“Furthermore, a new type of capital company was instituted – the so-called ‘variable capital company,’” Todorova adds, highlighting that “it blends a limited liability company and joint stock company and, to a certain extent, resembles the UK’s open-ended investment company – OEICs.” Like an OEIC, “a variable capital company can issue shares at any time, and its capital may vary,” Todorova notes, but at the same time, the latter is not regulated or supervised by the financial supervision authorities. “This new vehicle aims to provide start-up technology companies with a more practical approach, reducing some of the bureaucratic obstacles,” she stresses.

Hadjieva emphasizes that there is still a need for amendments to the Commercial Act to be expedited: “The voluntary liquidation of a business in Bulgaria is a long and expensive procedure, which leads to a large number of ‘dormant’ companies that have never been active or have ceased their activity, the result being legal uncertainty as to the actual economic status of entities listed in the Commercial Register.”

Bulgaria’s Energy Future

Voynov highlights other severe delays of much-needed reforms, “most notably in the energy sector, some of which also related to the successful implementation of the projects in the Recovery and Resilience Plan.” According to him, “until now, the implementation of the European Green Deal in Bulgaria has required the adoption of an action plan for the timely transformation of the Bulgarian economy, which is among the least developed among the EU Member States in terms of GDP per capita, and is one of the most carbon-intensive economies in the union.”

“Renewable energy legislation has undergone important amendments,” Peev adds, noting that it includes “shorter terms for permit issuance for certain projects, facilitation of connectivity also through temporary access to grids schemes, and the introduction of an obligation for the maintenance of e-registers with up-to-date information on connection applications.”

According to Todorova, the energy storage facilities’ legislation is also rapidly developing: “The so-called ‘Connection Ordinance’ will be adopted by the end of February 2024. However, the connection of storage facilities to the grid is already legally possible under the Energy Act following the connection procedure stipulated for the energy generators. These amendments are paving the path for Bulgarian energy independence.”

Preparing for the Eurozone

Peev additionally reports that “a new act on the Bulgarian National Bank has also recently been passed.” This, according to him, is “a precondition for the country’s targeted joining of the Eurozone from January 1, 2025.”

“Bulgaria is not yet a member of the Eurozone,” Todorova adds. “The Bulgarian lev, however, has been part of the exchange rate mechanism (ERM II) since July 10, 2020, maintaining a fixed central rate of 1.95583 to the euro. Bulgaria currently meets all Maastricht criteria except for inflation, which is decreasing by the month and already approximates the reference level. It is expected that the country will meet the technical criteria and can join the Eurozone on January 1, 2025.”

Moving Forward

Despite the rapid pace of legislative activity, there is still work ahead. “There’s plenty of work to be done locally in relation to EU legislation, including areas like data governance, renewable energy, minimum wage, etc.,” Peev notes. “Special attention should be paid to the suggested rules on the screening of foreign investments,” he adds. “The draft is rightly criticized for reaching far beyond the EU Regulation, and it raises serious concerns as to the dramatic effects it may have on investment flows into the country.”

“On a separate note, the division of the Territorial Planning Act into two separate acts would significantly contribute not only to the day-to-day administrative procedures for the realization of buildings but also to the development of the infrastructure projects, such as energy, transport, and manufacturing,” Voynov adds. “This will improve the investment climate in Bulgaria, which has been severely impacted by the COVID-19 crisis and galloping inflation.”

Finally, Peev notes that “it’s important to address Bulgaria’s inclusion in October 2023 in the grey list of countries subject to increased monitoring of the FATF resulting from the country’s deficiencies with countering money laundering and terrorist financing.”

This article was originally published in Issue 11.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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