Typically, the security package under acquisition financings contains a pledge over shares, a non-possessory floating charge pledge over the whole enterprise or over a limited pool of assets of the Bulgarian obligor(s), as well as a non-possessory fixed charge pledge over certain valuable assets.
The pledge over shares in different types of corporate entities is governed by different rules imposing formalities depending on the type of entity. The pledge over shares or quotas in a limited liability company must be documented in a notarised agreement and must be registered with the Commercial Register. Materialised shares in a joint stock company are pledged by endorsement and delivery of the paper materialising the shares. The pledge over dematerialised shares in a joint stock company must be documented in a notarised agreement and must be registered with the Central Depository (where dematerialised shares are kept as electronic book entries).
As a market standard, the pledge over shares is combined with a pledge over the dividends and other receivables stemming from the shares where and the respective rules for possessory or non-possessory receivables pledge apply as per the parties’ arrangements.
Another typical security in large-scale financings is the pledge over the whole enterprise of the Bulgarian obligor, which is similar to the English floating charge crystallising over the particular assets within the enterprise on the date when commencement of enforcement is registered (in the same registry where the pledge is registered initially by way of establishment). This pledge must be documented in a notarised agreement and must be registered with the Commercial Register. As an element of the enterprise pledge, a fixed charge may be agreed in the same agreement – over particular valuable assets such as movables, receivables and real estate properties requiring additional secondary registration in a public register that is different for the different assets. Following such secondary registration, the pledgor may not deal with the fixed charge assets. Notably, as the standalone mortgage over real estate property is expensive in large-scale financings (as the registration fee is a proportion of the secured obligation without a cap) banks normally require their corporate borrowers to establish security interest over real estate property only as an element of the enterprise pledge.
Special pledge over claims is also usually included in the security package in acquisition financing transactions. The material terms of the pledge agreement, including a list of claims, must be registered and made public at the Central Register of Special Pledges. The pledged claims may be secured or non-secured. If they are secured, the special pledge extends also over the security (pledge, mortgage, special pledge, financial collateral, personal guarantee, etc.). This practically means that in case of default of the collateral provider, the collateral taker may enforce the collateral together with any securities attached to it to satisfy its claim under the main obligation.
Financial collateral under Directive 2002/47/EC has been transposed in Bulgaria in a manner where it may be used to secure any obligation that may be performed by payment of money or delivery of securities, thus potentially covering loan arrangements as well. However, the requirement for transfer of possession or control may be inappropriate under loan arrangements where the borrower normally retains possession of the asset to use it and generate income, thus repaying the loan. The only type of asset that seems suitable to be used as financial collateral in large-scale acquisition financings seems to be shares in joint-stock companies. However, Directive 2002/47/EC was transposed in Bulgaria with a specific nationality restriction on the eligible counterparties, which – albeit not very clear, may be construed as requiring that the financial institutions (to be eligible counterparties under financial collateral) should be from EEA member states. Therefore, banks and other financial institutions from states such as the United Kingdom, the United States or Japan may be prejudiced to enjoy the benefits of being eligible counterparties under financial collateral when dealing with Bulgarian borrowers.