Cross-border mergers & acquisitions – move an EU company to Bulgaria

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EU limited liability companies are free move from one Member State and establish themselves in another EU Member State and EU laws provide 3 legal options such cross-border merger – by registering a branch, by registering a subsidiary or by one of the forms of company transformation (merger, consolidation). The subject of this article is the merger (by acquisition or formation of a new company) between foreign and Bulgarian companies – reorganisation and the related transfer of an EU company’s seat and activities from one EU country to Bulgaria – which procedure is regulated by Bulgarian Commercial Act and by Directive (EU) 2017/1132 of the European Parliament and of the Council of 14 June 2017 on certain aspects of company law, which replaced the old Directive 2005/56/EC.

First of all, only mergers and consolidations can be used as forms of transformation. Next, at least one of the companies being merged or consolidated must have its registered office in a Member State of the European Union or another State party to the Agreement on the European Economic Area (EEA), and the Bulgarian company involved must necessarily be an equity company (LLC or JSC). There is also a restriction under Bulgarian Commercial Act for a company with its registered office in Bulgaria that is to merge into or consolidate with a company with its registered office in another Member State – it must not own land.

The first step in the transformation procedure is the preparation and announcement of a so-called General Transformation Plan (GTP). This is done at the earliest one month prior to the adoption of the resolution on the transformation by the acquiring (or newly formed) and the transforming companies. It must be in writing and signed by all the representatives of the transforming companies. This plan shall contain information on the manner in which the transformation will take place. The requisites concerning the general plan are contained in Bulgarian Commercial Act. The GTP must be accompanied by a report on the transformation drawn up by the management body of each of the transforming companies, a draft memorandum or articles of association of the newly established company (in the case of a merger) or amended or supplemented memorandum or articles of association of the receiving company (in the case of a consolidation), as well as the annual accounts, the balance sheet and a detailed list of the companies involved in the transformation, containing basic information about them and the rules for the protection of their creditors in their country. The reorganisation report shall contain the legal and economic justification for the overall plan as well as the impact that the reorganisation will have on the shareholders of the companies. The report shall also be made available to the employees of the companies being transformed.

The second step in the transformation procedure is the appointment, by decision of the management bodies of the transforming companies, of a so-called special auditor, who draws up a report following the audit of the transformation. This step could be omitted if there is a written agreement to that effect by all the partners or shareholders.

The most important point in the whole procedure is the adoption of the resolution to transform by the General Meeting of each of the transforming companies – i.e. we have several (two or more) separate resolutions. These resolutions also approve the overall plan of transformation. An interesting stage in the procedure for registration of the company transformation is the point at which a certificate of the legality of the transformation in respect of the foreign company (or companies) is requested from the Commercial Register (or its equivalent) in another Member State.

Where a Bulgarian company is merged into or consolidated with a foreign company, once the relevant foreign registry enters this fact and issues the relevant notification, the deletion of the relevant company in Bulgarian Commercial Register shall also take place. A characteristic feature of the transformations is that after the actual entry of the transformation in the relevant register, all rights and obligations of the transforming companies automatically pass to the newly established legal entity or the receiving company.

The registration of the transformation may be challenged by any shareholder or member of the companies involved in the transformation if certain material and expressly provided for breaches of the legislation have occurred, such as: there is no contract, draft contract or plan of transformation, or even if they are present they are invalid at the time of the transformation, or the resolution on transformation contravenes a mandatory legal provision or the articles of association of the transforming companies, etc. The challenge can only be made before the registration of the transformation.

After registration, a claim for invalidity of the newly established company may be filed under Article 70 of Bulgarian Commercial Act. Another option for shareholders or partners who feel aggrieved in some way is the claim for monetary compensation provided for in Article 263p, in the event that the exchange ratio adopted in the contract or plan of transformation is not equivalent. Where it cannot be defended also by way of an action, the shareholder aggrieved by the transformation shall have the right to leave the company and the right to be paid the monetary equivalent of the shares or company shares held by him before the date of transformation. The shareholder may do so within 3 months of the registration of the transformation by written notice to the company.

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