Newsletter – November 2018

Significant legislative changes affecting bearer shares were made in October this year in Bulgaria These changes were invoked by Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of 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 (hereinafter referred to as Directive 2015/849). According to Article 10 (2) of Directive 2015/849 Member States shall take measures to prevent misuse of bearer shares and bearer share warrants. Concerns in this connection are related to the fact that bearer shares allow ownership to be carried out by physical transmission. This creates the danger that the ownership of the bearer shares may be transferred repeatedly, for which there is no information in the commercial register. As a result, the requirements of the Bulgarian Commerce Act were changed by rescinding the possibility of issuing bearer shares. Accordingly, § 11 of the Commerce Act states that bearer shares issued or bearer share warrants, issued before the entry into force of the Law on the Amendment of the Commerce Act, are replaced by registered shares. As a result of these legislative changes, obligations arise for the companies which issued bearer shares or bearer share warrants in the sense that within 9 months of the entry into force of the Law on Amendment of the Commerce Act, these companies must:

– Amend their statutes by proving that their shares are registered;

– Replace the bearer shares or bearer share warrants with registered shares;

– Commence to keep books for the shareholders;

– Declare the changes and submit the amended statutes in the Commercial Register. The application shall be abided with a certified recent extract from the book of shareholders.

In the event that a shareholder fails to comply with the requirement for exchange of the bearer shares or bearer share warrants in the aforementioned period, the company shall declare them null and void. A shareholder whose bearer shares or bearer share warrants are invalidated shall have the right to claim from the company the equivalent of the contributions made within six months of becoming aware of it but no later than 5 years from the date of the cancellation.

The creditors with a pledge on bearer shares or bearer share warrants shall undertake to replace the bearer shares, respectively e bearer share warrants with registered shares, within 9 months of the entry into force of the Law on the amendment of the Commerce Act. Upon the replacement, the company marks on the registered share the stake according to the pledge creditor’s application and records it in the shareholder book. This regime applies also to the lien of bearer shares or bearer share warrants. The creditor with a pledge or lien is liable for damages caused to a shareholder as a result of the cancellation of the shares or bearer share warrants, as well as for untruthful records in connection with the pledge or lien of the share exchange.

Commercial companies that do not fulfil the above obligations and have no pending proceedings on an application for registration of the changes shall be terminated by a decision of the court upon a prosecutor’s claim. Within two months after the expiration of the 9-month period after the entry into force of the Law on Amendments to the Commerce Act, the Registry Agency compiles a list of commercial companies that have not fulfilled their obligations and have no pending proceedings on an application for registration of the relevant changes. The list is sent to the prosecution office for filing of termination claims of the companies. This list is updated every 6 months and is sent to the prosecutor’s office.