Since the beginning of 2017 new amendments in the Commercial Code have come into force. They aim to increase security and counteract abuses in the field of company law.

What imposed these amendments?

In the last few years thefts of companies have increased dramatically. The objects of these frauds are usually companies which have property of a significant value – from real estate to assets in bank accounts. By embezzling these companies by inscribing them in the Commercial Register, the frauds managed for a short time to dispose with the properties and to drain the companies’ bank accounts before the real owners could organize their protection against these violations. The deceptions are realized by making and using false documents which imitate the will and the signatures of the real owners. A positive step in the fight against embezzlement was the introduced SMS-notification service which signals when changes in the company’s batch occur in the Property Register or in the Commercial Register. STHS commented this measure in the beginning of 2015. However, this was not enough to prevent company theft, so a new vote for more serious measures was imposed.

What changed in the law?

The amendments in the Commercial Code introduced stricter requirements for the format of a series of decisions from the governing bodies of limited liability companies. The same goes for some often concluded contracts.

This way, for example, contracts transferring commercial enterprises and transferring shares will require а notary certificate of acknowledgement (as it was until now) and authentication of the content. These certifications must be done at the same time by notary. contentAnd these certifications must be done simultaneously.

o far а written protocol was composed for every decision of the Ltd.’s General Assembly (respectively, the decisions of the sole owner of the capital). With the amendments it is now compulsory that there is a notary certificate of acknowledgement and authentication of the content, done at the same time, for some decisions. The decisions include:

  • Decisions with which shareholders are included/excluded and with which consent for transferring company shares to a new shareholder is given
  • Decisions for increasing/decreasing the capital
  • Decisions for appointing a new CEO;
  • Decisions for acquisition or alienation of real estate and other rights over them;

If the provided form for decisions is not followed, then the decisions are void – they do not cause activity and change.

The higher security, of course, has its price. The notary certifications of acknowledgement are connected with additional resource and time expenses of the company owners. But the advantages outweigh these inconveniences.

In order to spare burdens on the business, some amendments in the Law of Notaries and Notarial Activity have been made. The tax for a notary certificate of acknowledgement of documents, for which the Commercial Code requires a simultaneous authentication of the signatures and the content, will be proportionate to the material interest. For the certification of the document content a simple charge will be collected, regardless of the material interest – 10 BGN excluding VAT on the first page and 2 BGN on every following page.

The notarial taxes probably will not pose a problem for the merchants. However, for the majority of merchants it would be a difficult task to gather all their partners at the same time and place. There are two options – either all the partners go to a notary simultaneously or they call a notary at a specific place - a service which costs more than usual, but which will gain more popularity, especially in the light of the mentioned requirements.

How will the increased security be guaranteed?

The introduced changes in the Commercial Register Act obligate the official with new responsibilities – when examining an application for an endorsement or for a proclamation, they have to check whether the presented document (if it requires some kind of notary certificate) is entered into the database of the Notary Public Information System and whether it is with the same content.

For example, if an application for inscription of a new CEO is submitted, the official has to check whether the protocol of the General Assembly, which voted for the new CEO, exists in the Notary Public Information System and whether it is with the same content. It was a common practice for frauds to add a stamp from a notary certification from another document and then copy the protocol multiple times so that no trace of the external interference is left. This will now longer be possible. If the official finds a mismatch with Notary Public Information System, he will ordain a disallowance and thus will prevent the fraud.

Among the potential problems that the new requirements for certification of signature and content may create is the notarial acknowledgement of the document abroad, considering the fact that there are countries that do not have such a certification legally regulated. This could cause difficulties if, for example, a foreign company is the sole owner of a Bulgarian company and its governing bodies are not in Bulgaria. If the notary refuses them an authentication, these persons could visit the Bulgarian embassy/consulate in the corresponding country where the signatures and content will be certified.

The lawmaker has conformed to the dynamics of the commercial turnover and the necessity of expedition in certain circumstances. He has granted the merchants the opportunity to use the old decision-making regime – in a plain written form. If a company does not want to take advantage of the higher security, introduced by the amendments in the Commercial Code, then the General Assembly must change the company`s Statute and indicate the application of the old regime. If the merchant chooses the plain written form regime, the company will not be able to take advantage of the protection, introduced with the requirements for certification of signatures and content in decision-making.

We have yet to see whether the majority of merchants will take advantage of the protection which the new amendments in the Commercial Act introduced or will prefer to return to the old regime.

© Simeon Hinkov, Attorney-at-law

Caricature: Ivan Kutuzov – Kuti

This article was published in the Trud newspaper, issued on 10.01.2017, under the heading “Is Company Theft Coming to an End”.