Position on the Draft Law Amending and Supplementing the Public Offering of Securities Act

On behalf of the Bulgarian Startup Association, we present our position as part of the ongoing public consultation regarding the Draft Law amending and supplementing the Public Offering of Securities Act. The Bulgarian Startup Association is an employer organization with over 500 member companies, including a large number of private equity and venture capital funds, as well as startup and scaleup companies that are directly заинтересовани from the opportunities for public offering of securities as a natural part of their business development.

A significant portion of the proposed changes relates to a completely new approach for Bulgaria in distinguishing between public and non-public offerings. The objective criterion regarding the minimum number of addressees for an offering to be considered public is being removed, and instead the “sufficiency” of the information provided will need to be assessed. It appears that the number of persons to whom the information is provided will no longer be relevant, nor whether the offering is limited to existing shareholders (e.g. in a capital increase), nor on whose initiative the information is provided.

Since this could potentially lead to a much larger portion of offerings being classified as public (even where there is no real public element), and given that under the current regime public offerings are linked to acquiring a specific status (issuer or public company) with corresponding obligations, amendments to a number of provisions of the Act have been proposed. We welcome this approach and have additional proposals to ensure its consistent implementation.

1. Article 3 of the Public Offering of Securities Act

The text introduces restrictions on the public offering of certificated securities and dematerialized securities with transfer restrictions. Given the broader definition of public offering and the possibilities provided by the Commercial Act for issuing certificated securities (which is in fact common practice), as well as securities with transfer restrictions (also a frequent case), amendments are necessary.

One option is to provide that the prohibition applies not to public offering, but to admission to trading. This aligns with the concept in Regulation (EU) 909/2014 (regarding the requirement for dematerialized form to facilitate transfer and ensure title to securities), as free transferability is intended to ensure smooth circulation relevant to trading on regulated markets, not to public offerings in general.

Another possible approach is to introduce specific exceptions allowing the public offering of certificated or restricted (vinculated) securities—for example, in offerings addressed to a limited number of persons, consistent with the typical shareholder structure of non-public companies (up to 150 persons, since beyond that threshold a public company status could potentially arise).

2. Article 100k of the Act

Despite the definition of “issuer” introduced in Article 2, item 5 (linked to admission of securities to trading on a regulated market), no corresponding amendment has been proposed to Article 100k(1), which defines the entities obliged to disclose information—including those that have carried out a public offering of securities.

It is necessary to delete the words:
“as well as issuers that have conducted a public offering of securities in the Republic of Bulgaria which are not admitted to trading on a regulated market in a Member State.”

3. New Section IIa of Chapter Six – Article 89b(3)

The proposed threshold for the obligation to publish a prospectus in case of public offering of securities—where the total value of the issue over a 12-month period exceeds the equivalent of EUR 2,000,000—is significantly lower than the EUR 8,000,000 threshold under Regulation (EU) 2017/1129.

This places Bulgarian issuers at a serious disadvantage compared to issuers in other EU markets, especially considering Bulgaria’s need to catch up economically. For example, current practice in the banking sector allows management of local credit institutions (foreign-owned in Bulgaria) to approve credit exposures up to the equivalent of EUR 5,000,000.

4. New Section IIa – Articles 89v and 89g

These provisions introduce specific rules for public offerings where a prospectus is not required, but another document is. Different rules apply depending on whether the public offering is linked to admission to trading on a multilateral trading facility (MTF) or not.

However, it is unclear:

  • whether there is a defined relationship between the offering and admission to trading;
  • whether an offering with a stated intention for subsequent admission to trading on an MTF would fall under Article 89v or Article 89g;
  • whether a document under Article 89v is required in cases of admission without offering;
  • whether a document under Article 89v/89g is required when another exemption from the prospectus requirement applies beyond Article 89b(3).

Clarification is necessary.

5. Article 89d(7)

The provision applies liability rules related to prospectuses even in cases where no prospectus is issued, without limiting the applicable scenarios. This could include, for example, capital increases in non-public companies with only two participants.

It is necessary to clearly specify the cases in which this requirement applies.

6. Articles 89k, 89l, 89m, 89o, 89t

These provisions introduce requirements related to subscription/public offering procedures. It is unclear whether they apply:

  • only in offerings based on a prospectus;
  • in offerings with a prospectus and also under Articles 89v and 89g;
  • or in all cases of subscription/public offering regardless of the applicable framework.

The applicable scope should be clearly defined.

7. Status of Public Companies

Since an initial public offering will no longer automatically result in acquiring public company status, it is theoretically possible that some companies have obtained this status solely on that basis.

In the interest of investors, an explicit rule should be introduced stating that companies which acquired public status prior to the entry into force of the amendments retain that status.

Additional Proposals (not directly related to the new concept)

1. Articles 89m(2) and 89s

These provisions regulate:

  • the point at which funds raised during subscription may be released;
  • the withdrawal regime.

However:

  • capital increases may be registered without the issue being registered;
  • funds may be raised not only via shares but also via other securities (bonds, warrants);
  • there are no clear rules for refunding funds in case of withdrawal (unlike in unsuccessful capital increases).

To protect investors:

  • funds should be released only upon issuance of the securities;
  • withdrawal rights should guarantee the return of funds.

2. Article 112b(7)

The requirement that rights must be transferred on a regulated market is unclear:

  • there is no reason why such a restriction should apply only to rights;
  • the purpose of the provision is unclear;
  • rights, like any financial instruments, can be subject to negotiated transactions or specific arrangements (e.g. options).

Therefore, we propose deleting the first sentence of Article 112b(7).

Respectfully,
The BESCO Team – Bulgarian Startup Association

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