Bulletin, December 2017

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Substantial statute amendments regarding enhanced pecuniary liability of the managing directors, stake owners and shareholders for public debts of the companies

The amendments to the Tax and Social Insurance Procedure Code which have entered into force have added to the existing regulation on the liability of third parties for outstanding tax and social security contributions of liable legal entities who are liable to tax or compulsory social security contributions or who are required to withhold and pay in taxes or compulsory social security contributions. The introduction of the amendments was necessary in order to clearly define the objective and subjective preconditions that need to be proved in order to engage subsidiary liability of third parties under the procedure of Art. 19 of the TSPC. The adopted amendments extended the circle of persons responsible for the existence of public debts, and in this circle, together with the so far liable legal or authorized representatives of the indebted legal person, are also included those who, by virtue of a power of attorney certified by a notary manage the company’s entire business, as well as the owners of the capital. Majority shareholders are also responsible when actions are taken by their decision, except for those who have not voted and voted against.

Due to the massive cases in the practice of transfer of companies or shares after the commencement of tax proceedings for establishment of public liabilities of legal entities, the amendments in the legislation of August and November 2017 introduced a new range of liable persons and the term "bad faith" was defined. It is assumed that in the investigation of the presence of bad faith, besides the existence of the mandatory prerequisite for knowledge of over-indebtedness or insolvency of the company, it should be determined the exact moment until which the disposition of company shares is deemed performed in bad faith. According to the act amendments bad faith is deemed present when the shareholder is aware that the company is over-indebted or insolvent and has transferred his/her company shares until the earlier of the following two dates: the date of registration in the Commercial Register of the debtor's application for insolvency proceedings or the date of registration of the insolvency court's decision to initiate the insolvency proceedings of the debtor. The adopted amendments extended the scope of the actions to be performed by third parties in order to be considered that the preconditions for their subsidiary liability under Art. 19 of the TIPC are fulfilled, such as transfer of ownership of shares in the capital of the liable entity.

Minority shareholders are also included in the circle of liable persons. In order to eliminate the possibility of avoiding bankruptcy proceedings, liability for minority shareholders is provided where, simultaneously or in succession, in a period of no more than three months, they carry out a series of transactions that change the ownership of the companies, by transferring shares, the amount of which represents a major share of the capital.

In the context of the above, a requirement of proportionality of the liability was also introduced depending on the participation of the persons in the alienated share capital. Minority shareholders of public companies are exempt from such liability.

The adopted amendments also introduce liability for any person who, in the case of silent participation, conceals a commercial activity through an insolvent legal person (Article 609 of the Commerce Act). Liability is imposed also on majority shareholders who have undertaken actions for disposition of company’s assets, with no responsibility for those who have voted against enterprise-damaging transactions, as well in cases where such shareholders have received hidden profit distribution (dividend) and this fact is not stated in the tax returns.

New obligations for performance of cross-border activity in EU countries

In 2017 some EU countries introduced new obligations with regard to nationals of other countries, including Member States, to freely exercise activities within their territory. For example, in Austria, a special new Law regarding wage and social dumping (Lohn- und Sozialdumping-Bekämpfungsgesetz) entered into force. The provisions introduced by this law are of particular importance for employers based in Bulgaria who post their employees to perform certain activities in Austria, for example to provide certain services under a contract for the performance of certain works or in any way to provide a workforce on the territory of Austria. This amendment facilitates wage and social dumping duties to a certain extent, however, there is both increase of administrative fines and of liabilities. Furthermore, breaches of wage and social dumping duties can lead to negative consequences in public procurement procedures.
The new law provides for certain notification proceedings to be undertaken by the Bulgarian (respectively any foreign) employer prior to posting of employees to Austria. A contact person, which can be e.g. one of the posted employees or an attorney at law, has to be appointed. The contact person is responsible inter alia to be informed about the postings of employees, to provide information to Austrian authorities and to receive documents. In addition, the notification has to include the information where the documents in regard to the posting are kept. There are some depositories stated in Law, e.g. a posted employee who is the contact person mentioned above, an attorney at law, a tax consultant, a registered branch in Austria, provided that the company does not only operate occasionally in this branch, an independent subsidiary in Austria or an Austrian parent company. Furthermore it is possible to notify the repeated posting of employees within a period of three months in one registration form (“Rahmenmeldung“) and to mention multiple clients in one registration form, if there is a local and temporal connection (“Sammelmeldung”).
The omission of notifications is subject of administrative fines from EUR 1.000 up to EUR 10.000, in case of recurrence from EUR 2.000 up to EUR 20.000 per employee, per breach. The fines are imposed on the Bulgarian (respectively any foreign) employer, respectively its statute representatives (managing directors, member of the board of directors or the management board). There are also high administrative fines in case of paying wages below the minimum level (up to EUR 50,000 per employee, per breach). Another sanction is the prohibition of service in Austria. Apart from the above mentioned fines, those persons are jointly and severally liable for the reimbursement of procedural costs. The procedure for establishing the administrative offense and imposing the administrative penalty is to be conducted before the competent Austrian authorities, which implies additional high costs for administrative fees and procedural representation. Under certain preconditions and proper planning prior to posting workers to Austria, the responsibility of legal representatives could be reduced.

The exemption clauses have been extended, therefore it is advisable to check if one of these clauses applies. The liability regulations, especially in regard to the construction sector, are also extended.
Similar (but not identical) regulation was also introduced in the German legislation, with fines reaching EUR 30.000. Especially the sectors of construction, meat production, forestry, passenger transport, building cleaning, etc. are protected. Foreign (including Bulgarian) employers who have been fined more than EUR 2.500 for violating the relevant statutory provisions may also be prohibited from participating in competitive business in the field of public supply, construction or provision of other services.
This information does not claim to be exhaustive and does not constitute a specific legal or other advice. You can send specific inquiries to our legal teams in Sofia or Vienna.

Substantial changes in the Civil Procedural Code

At the end of October 2017 in No. 86 of the State Gazette a considerable number of amendments were adopted in the Civil Procedure Code. Amendments can be grouped as follows:

Changes in the procedure for service of subpoenas and court documents. The most changes impact the cases when the addressee is not found at the address. It is foreseen that the servicing officers shall have to visit the address at least three times within one month, on a non-working day and require information about the persons from the residential manager and the mayor of the relative district. Only then they are entitled to serve the documents by sticking a message on the door or mailbox of the addressee. New changes provide for a duty of the court to verify the address of the addressee ex officio and, after establishing the regularity of the service, to appoint a special representative (attorney) of the addressee summoned as described above, at the expense of the plaintiff.

Changes in the enforcement proceedings. The new changes provide for a mandatory inclusion in the court decisions of the bank accounts of the plaintiffs to enable the debtors to pay voluntarily. In addition, the execution of enforcement cases shall be performed only in the districts where the debtors have their permanent address and the possibilities for conducting enforcement cases from other court regions are strongly reduced. A requirement for the proportionality of the execution measures imposed with the amount of the obligation is introduced. The amounts of non-executable income have also been adjusted and the minimum wage is introduced as a criterion. Amendments have been made to almost all enforcement proceedings against movable property, immovable property, attachments to bank accounts, execuтion on securities, parts of enterprises, etc. The introduction of electronic public auctions is a novelty and a regulation on the rules and activities of online platforms for such auctions should be issued within 12 months.

Changes in the cassation proceedings. The recent legislation defined the Supreme Court of Cassation as "a court of the law and not a court of the facts". The amendments introduce a new ground for allowing a cassation appeal "in the case of a possible nullity or inadmissibility of the court decision and in the case of obvious irregularity". The new Supreme Court practice on this ground should be reviewed carefully in the future, since if it is applied literally, this would mean a significant extension of the scope of the cassation review of cases, which may lead to a multiplicity of cases admitted to cassation.

New bill proposes replacement of bearer shares with registered shares

In November, the Council of Ministers submitted to the National Assembly a Draft Law amending the Commerce Act with regard to the bearer shares issued by the companies. The bill introduces the stipulations of Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or
terrorist financing, amending Regulation (EU) No 648/2012 of the European Parliament and of the
Council, and repealing Directive 2005/60/EC of the European Parliament and of the Council and
Commission Directive 2006/70/EC.

The bill stipulates that the bearer shares issued until the entry into force of this law should be replaced by registered shares. The need for the changes introduced by the bill stems from the fact that the current legal framework does not provide for a legal obligation to disclose information about bearer shares. Holders of such shares may change continuously without any information in the Commercial Register. Partial similar information may be available in the Commercial Register upon the initial registration of the list of persons who have subscribed shares in the constituent meeting, registration of the minutes of the general meeting, and in cases where, after the incorporation of the company, all shares are acquired by one person. In these cases, however, there is no guarantee that the information on the bearer shares is up to date. In addition, shareholders holding bearer shares cannot be identified at any time.

The proposed changes remove the possibility for joint stock companies and limited partnerships to continue to issue bearer shares. Bearer shares issued prior to the entry into force of this Act shall be replaced by registered shares.

Within nine months of the entry into force of the law, the companies issuing bearer shares must amend their statutes, replace the bearer shares with registered shares and start keeping shareholders books, file for the changes, and submit the amended statutes in the Commercial Register.

In the event that a shareholder fails to submit the bearer shares held by him, the company shall cancel them. The companies that do not comply with the above requirements and have no pending proceedings on an application for registration of changes shall be terminated pursuant to art. 252, para. 1, item 4 of the Commercial Act with a decision of the court on a prosecutor's claim.

Within two months after the expiration of the deadline for regiatration of the amendments, the Registry Agency shall draw up a list of the companies that have not acted in accordance with the law and have no pending proceedings on an application for registration of changes. The list shall be sent to the Prosecution Office for filing claims under Art. 252, para. 1, item 4 Commercal Act. The list is to be updated every 6 months and be sent to the prosecutor's office.

The bill is still under discussion.