On October 23, 2018, the Law on amendment of the Commerce Act1 (LACA) was promulgated in issue 88 of the State Gazette. The law transposes the requirements 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 financing2 – more particularly those of Article 10, paragraph 2 requiring Member States to take measures to prevent misuse of bearer stocks (shares). Bulgaria’s legislative decision, as implemented through the amendment of the Commerce Act, is complete prohibition on bearer stocks and elimination of the possibility of issuing such stocks.
The need to introduce the said legal amendments stems from the existing risk in terms of the transparency of the information about individuals holding bearer stocks – given the lack of any obligation under law to disclose such information. It is typical of bearer stocks that the individual in physical possession of such stocks is also the one holding the rights pertaining to them – that makes the change of ownership over the stocks very easy because the transfer of the stocks may be effected simply by their physical delivery. That is why stockholders owning bearer stocks may not be identified at any given moment, nor there is any guarantee as to whether or not the available for them information is current and accurate.
Not being able to identify the holder of the bearer stocks is also a possible barrier to the effective exchange of information for tax purposes and the fight against tax evasion (which is usually typical of non-transparent, offshore jurisdictions)3.
The Law on amendment of the Commerce Act is aimed to eliminate the future possibility of issuing bearer stocks (including the registration of joint-stock companies with such stocks), as well as to regulate the replacement of already issued bearer stocks with registered ones. For such purposes both amendments to already existing provisions of the Commerce Act (about ten in number) and new provisions as part of the Transitional and Final Provisions of LACA relating to the replacement of already issued bearer stocks with registered ones have been introduced.
Among the main amendments to the Commerce Act are those to Articles 178, 180 and 185 – provisions regulating the types of stocks, the exchange and transactions of/with stocks. Other provisions relating to bearer stocks have also been amended – for example, provisions regulating the convening of the General Meeting of Stockholders, the receipt/exchange of stocks in the process of increasing the capital or transformation, etc. All these provisions have been amended in an appropriate manner corresponding to the main objective, namely the elimination of the possibility of issuing bearer stocks.
The Transitional and Final Provisions of LACA impose some very important from practical point of view deadlines and obligations on joint-stock companies which have issued bearer stocks and their stockholders – owners of such stocks.
Within nine months of the entry into force of LACA companies which have issued bearer stocks or substitute interim certificates are obligated to: amend their By-Laws by providing that their stocks are registered; replace the bearer stocks or the substitute interim certificates with registered stocks; begin to keep book of stockholders; request the changes for registration and submit the amended By-Laws to the Commercial Register for announcement (a certified current excerpt from the book of stockholders is to be attached to the application).
In the event that a stockholder fails to present for replacement his bearer stocks or substitute interim certificates within the term under the previous paragraph, the company is to invalidate such stocks. A stockholder, whose bearer stocks or substitute interim certificates have been invalidated, has the right to request the company to pay to him the equivalence of the contributions made in relation to the invalidated stocks within six months of the knowledge but not later than five years of the date of the invalidation.
A strict control mechanism has been put in place to ensure that the new regime for cancellation of bearer stocks is effectively adhered to.
Companies which do not fulfill their obligations and have no pending proceedings on application for registering changes are to be terminated pursuant to Art. 252, par. 1, it. 4 of the Commerce Act, namely: by a ruling of the court upon an action brought by the public prosecutor. Within two months after the expiration of the above-mentioned nine months term the Registry Agency is to draw up a list of all companies which have not fulfilled their obligations and have no pending proceedings on application for registering changes – the said list is to be then forwarded to the Prosecutor’s Office for filing claims for termination of the respective companies.
LACA enters into force on the day of its promulgation in the State Gazette, except for the amendment to Art. 223, par. 3 of the Commerce Act which enters into force on June 1, 2019.
1 See the Law on amendment of the Commerce Act on the website of the State Gazette
2 The requirements of Directive (EU) 2015/849 have been transposed through other laws as well – for more information, please read News article New law puts companies under the obligation to declare their beneficial owners.
3 For more related information, please read News article Offshore companies subject to legal regulation.