The techniques for mergers and acquisitions in Bulgaria are set forth in the Commerce Act which distinguishes the following types of business transformations:
- Spinning off
- Transformation by change of the legal form
- Transformation by transfer of property onto the sole owner
With all mergers and acquisitions in Bulgaria, receiving and the newly-established companies may differ in their type, unless otherwise provided by law.
Upon transformation, the partners or the shareholders in the transforming companies become partners or shareholders in the newly-established or receiving companies by acquiring shares (interests) or stock in the latter. Subsequently, the acquired shares (interests) or stock must be equivalent to the fair price of the securities that have been owned prior to the company transformation.
Steps towards effecting the transformation
The companies participating into a merger and acquisition transaction in Bulgaria shall enter into a transformation contract prior to the adoption of the resolution to transform. The transformation contract may be also concluded after the resolution has been adopted. In this case the transforming and receiving companies shall prepare a draft of the contract to which all rules concerning the actual transformation contract shall be applicable as well.
In case of splitting by establishment, spinning off by establishment and spinning off of a sole-owner company, no transformation contract needs to be concluded. In this case, the transforming company shall prepare a transformation plan.
Form of the transformation contract or the transformation plan
The transformation contract or plan must be in writing, and it shall be signed before a notary public by the official representatives of the participating companies. The content of the latter must comply with all mandatory requirement set forth in the Bulgarian Commerce Act.
Effect of the Transformation Agreement
The transformation contract shall take effect as from the time of its execution for each of the transforming and receiving companies. If the contract is not adopted under the resolution to transform by one of the transforming companies then the contract shall be terminated and no liability for damages can be claimed in the particular case.
Transformation report by a registered auditor
The transformation contract or plan shall be examined by a registered auditor who is appointed collectively from the managing bodies of the transforming companies. The auditor shall be independent from the merging entities which is effected through explicit requirements of the Bulgarian Commerce Act.
The auditor shall draft a report which contains assessment of whether the exchange ratio envisaged in the transformation agreement or plan is adequate and reasonable and indicate:
- methods used in determining the exchange ratio
- the extent to which the use of these methods is appropriate and proper in that particular case;
- the values obtained when using each method, and the relative significance of each method in determining the value of the shares or interest stakes
- particular difficulties in the evaluation, if any
Transformation report by the managing bodies
The managing bodies of each of the transforming entities shall draft a report on the transformation. The report shall contain, inter alia, well-founded economic and legal arguments on the terms and conditions of the transformation, as specified by the transformation contract or plan.
Disclosure of information
After being examined by the auditor and before the adoption of the transformation resolution, the transformation agreement or plan must be approved by the General Meeting of Shareholder and/or the General Meeting of partners depending on the entities involved in the transformation. Moreover, the shareholders and/or partners shall be provided with a number of documents prior to adopting the resolution for transformation.
Adoption of the Transformation Resolution
A transformation of a general partnership or a limited partnership company shall be done upon the agreement of all partners given in writing with notarization of the signatures.
The decision to transform a limited liability company shall be taken by the General Meeting of the partners by a majority vote of the capital.
The decision to transform a joint-stock company shall be taken by the General Meeting of the shareholders by a majority vote of the represented shares with voting power. In case of shares from different classes, the decision shall be taken by the shareholders from each class.
Registration of the Transformation
The transformation enter into force from its registration with the Bulgarian Company Register.