Submitted by:
BESCO – Bulgarian Startup Association
UIC: 177239971
Regarding the Draft Act Amending and Supplementing the Public Offering of Securities Act
On behalf of the Bulgarian Startup Association (BESCO), we hereby submit our opinion as part of the ongoing public consultation regarding the Draft Act Amending and Supplementing the Public Offering of Securities Act (POSA).
The Bulgarian Startup Association is an employers' organization representing more than 500 member companies, including a significant number of private equity and venture capital funds, as well as startup and scaleup companies that are directly interested in the opportunities for public offerings of securities as a natural stage in the development of their businesses.
Many of the proposed amendments relate to the entirely new approach introduced in Bulgaria for distinguishing between public and non-public offerings.
The objective criterion based on the minimum number of offerees required for an offering to qualify as public is being abolished. Instead, the assessment will depend on the "sufficiency" of the information made available to investors.
Under the proposed framework, it appears to be irrelevant:
Potentially, this could result in a much broader range of offerings being classified as public offerings, even where no genuine public element exists.
Since, under the current legal framework, carrying out a public offering is also linked to acquiring the legal status of an issuer or public company, together with the obligations arising from such status, the Draft Act proposes amendments to numerous provisions of the Public Offering of Securities Act.
We welcome this overall legislative approach. Nevertheless, we would like to propose several additional amendments to ensure its consistent implementation.
Article 3 imposes restrictions on the public offering of:
Given the broader definition of a public offering introduced by the Draft Act, together with the possibilities provided under the Commerce Act for issuing certificated securities (which, in fact, remains common market practice), as well as securities subject to transfer restrictions (also a common occurrence), amendments to this provision are necessary.
One possible approach would be to provide that the prohibition applies not to public offerings, but only to the admission of securities to trading.
This would be consistent with the policy underlying Regulation (EU) No. 909/2014, which requires dematerialized securities primarily to facilitate transfers and ensure legal certainty regarding ownership.
Likewise, the requirement that securities be freely transferable is intended to safeguard the smooth functioning of regulated markets, rather than to govern public offerings as such.
An alternative solution would be to introduce specific exceptions permitting public offerings of certificated or transfer-restricted securities.
For example, such offerings could be permitted where they are addressed to a limited number of persons consistent with the typical shareholder structure of private companies—for instance, up to 150 investors. Beyond this threshold, an offering could potentially result in the company acquiring public company status.
Although the proposed Article 100k(2), item 5 introduces a revised definition of an issuer linked to the admission of securities to trading on a regulated market, no corresponding amendment has been proposed to Article 100k(1), which determines the persons obliged to disclose regulated information.
The current wording still extends these disclosure obligations to entities that have merely carried out a public offering of securities, regardless of whether those securities have been admitted to trading on a regulated market.
Accordingly, Article 100k(1) should be amended by deleting the following wording:
"...as well as issuers that have carried out a public offering of securities in the Republic of Bulgaria whose securities have not been admitted to trading on a regulated market in a Member State."
The Draft Act proposes that a prospectus will be required for public offerings of securities where the total value of the offering, calculated over a 12-month period, exceeds the BGN equivalent of EUR 3,000,000.
This threshold is significantly lower than the EUR 8,000,000 threshold permitted under Regulation (EU) 2017/1129, Article 3(2).
As a result, Bulgarian issuers would be placed at a considerable competitive disadvantage compared with issuers operating in other EU Member States, particularly given Bulgaria's continuing need to close the economic gap with the rest of the European Union.
By way of illustration, even under the current practice in another segment of Bulgaria's financial market—the banking sector—the management bodies of Bulgarian banks owned by foreign banking groups are typically authorized to approve lending exposures of up to the BGN equivalent of EUR 8,000,000 without requiring higher-level approval.
We therefore believe that Bulgaria should adopt the maximum threshold permitted under the Prospectus Regulation rather than introducing a substantially lower national threshold.
The proposed provisions establish specific rules for public offerings where the preparation and approval of a prospectus is not required, but where another disclosure document must instead be prepared.
Different procedural requirements apply depending on whether:
However, the relationship between these two situations is not sufficiently clear.
In particular, it cannot be determined with certainty whether a public offering that is intended to be followed by admission of the securities to trading on an MTF falls within the scope of Article 89v, or whether—because admission to trading is not yet guaranteed at the time of the offering—the procedure under the proposed Article 89g would instead apply.
It is equally unclear whether the disclosure document referred to in Article 89v would also be required where securities are admitted to trading without any preceding public offering.
Furthermore, with respect to the scope of application of both Articles 89v and 89g, it remains unclear whether such disclosure documents would also be required where an exemption from the prospectus requirement exists on grounds other than the new national exemption introduced by Article 89b(3) of the Draft Act.
Greater legal certainty is therefore required regarding the circumstances in which each of these provisions is intended to apply.
The proposed provision extends the liability regime applicable to prospectuses to situations in which no prospectus has actually been prepared.
Since no limitation is placed on the scope of this provision, it could theoretically apply even to cases such as a capital increase in a private company involving only two shareholders.
The Draft Act should therefore clearly specify the situations in which this liability regime is intended to apply.
The proposed provisions establish procedural requirements applicable to subscription offerings and public offerings of securities.
However, it is unclear whether these provisions apply only to public offerings conducted on the basis of an approved prospectus.
Since the proposed new section also regulates public offerings for which no prospectus is required, it is uncertain whether these provisions are intended to apply:
The Draft Act should clearly specify the circumstances in which each of these provisions applies.
Since carrying out an initial public offering (IPO) will no longer, in itself, result in a company acquiring the status of a public company, it is theoretically possible that certain companies currently possess public company status solely on that basis.
In order to protect investors in such companies, an explicit transitional provision should be introduced stating that companies which acquired public company status prior to the entry into force of these amendments shall retain that status.
Although the following proposals are not directly related to the new concept of public offerings introduced by the Draft Act, we believe they would significantly improve the regulatory framework and strengthen investor protection.
The first provision regulates the point in time until which funds raised during a subscription offering must remain blocked (although it is unclear whether this applies only to share issues, given the reference to the registration of a capital increase).
Article 89s will regulate the right of withdrawal.
However, a capital increase may be registered while the relevant securities issue has not yet been registered. Moreover, funds may be raised not only through the issuance of shares, but also through other financial instruments such as bondsand warrants.
Investors should receive equivalent protection in all such situations.
Furthermore, where an investor exercises the right of withdrawal, the Draft Act contains no rules governing the return of the invested funds, unlike the existing rules applicable where a capital increase is unsuccessful.
To adequately safeguard investors purchasing dematerialized securities, the relevant moment for releasing the subscription proceeds should be the issuance of the securities themselves, rather than the registration of the capital increase.
Likewise, where an investor validly exercises the right of withdrawal, the legislation should expressly guarantee the repayment of the invested funds.
The requirement that subscription rights be transferable exclusively on a regulated market lacks sufficient justification.
On the one hand, there appears to be no reason why subscription rights should be the only financial instruments subject to such a restriction.
On the other hand, if the provision pursues another legislative objective, that objective is not apparent from its wording.
Moreover, subscription rights—like any other financial instruments—may legitimately be the subject of negotiated transactions. They may also be encumbered by specifically created rights, such as options.
For these reasons, we propose amending Article 112b(7) by deleting its first sentence.
Dobromir Ivanov
Tel.: +359 889 289 710
Email: d@besco.bg
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