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Overview
1 January 2008 saw the implementation of the 10% flat rate of income tax, while March 2008 saw the introduction of the new civil procedure code, of great importance to litigators in particular. Yet both changes were eclipsed by other developments. The effect of the economic downturn is evident. Previously bullish attitudes to the strength of the real estate market are being revised. The much-trumpeted developments in Bulgarian capital markets over recent years already appear hollow in the wake of the global freeze in liquidity. The introduction in 2008 of the Market in Financial Instruments Directive (MiFID) is more interesting as an economic anachronism than as a relevant legislative change. Worse, the relationship with the EU has become increasingly strained after it withheld development funds from Bulgaria, cancelling €220m of PHARE money and refusing to release a further €300m earmarked for the country. The sticking point is corruption; the EU feels that Bulgaria has made little or no progress in meeting its pre-accession commitments. The highest levels of Bulgarian government are implicated and the situation has got worse, to the extent that the EU is even considering not recognising Bulgarian court rulings.
However, not everything is doom and gloom. GDP growth is forecast to be – very marginally – positive in 2009. Commentators remain optimistic that Bulgaria’s having entered the international money markets late may prove the economy’s saving grace. Although transactions have been delayed and the flow of new work has stagnated slightly, firms remain buoyant in their outlook. If banking, capital markets, M&A and real estate are to decline as markets – which nearly all firms agree will happen – then the future is in infrastructure work and, unsurprisingly, insolvency. No one imagines that these areas will make up the shortfall in work, but they will go some way to mitigating the economic fallout. Similarly, as western and central European investors find Bulgaria increasingly unattractive, the hope is that regional and leading domestic companies will step up to take a greater role in the economy. Most law firms believe that 2009 will be a period of economic introspection.
If the industry players are relatively sanguine about recession, that calm belies greater internecine tensions in the market place. In early 2008, leading domestic law firms brought a complaint against foreign firms before the competition commission, resulting in (primarily symbolic) fines for Rizova & Partners Law Firm (part of DLA Piper) and CMS Cameron McKenna in cooperation with Petkova & Sirleshtov Law Office in August. The central argument was that foreign entrants to the market were not practising law in accordance with the Bulgarian Advocacy Act, which imposes various conditions that seem arcane to anyone used to more liberal markets. These include requirements that firms must have Bulgarian partners who have been lawyers for three years, and that new entrants to the market must register as new firms, precluding any firm names that include deceased partners. The foreign firms believe that the Bulgarian state ruling contravenes EU law and have appealed their case to Europe. In the interim, the foreign firms continue to operate.
Domestic twin giants Borislav Boyanov & Co and Djingov, Gouginski, Kyutchukov & Velichkov continue unambiguously to dominate the market, although Spasov & Bratanov, Tsvetkova Bebov & Partners (Landwell) and Kambourov & Partners are all seen by international clients as viable alternatives. Despite the tussle with the Bulgarian supreme bar council and local firms, the foreign entrants’ presence has grown. CMS Cameron McKenna in cooperation with Petkova & Sirleshtov Law Office is an undisputed major force and Schönherr goes from strength to strength. 2008 also saw the arguably ill-timed arrival of Wolf Theiss into the market. Whether it is strong enough to weather the dual economic and political storms remains to be seen. Other significant foreign presences include the DLA Piper network’s Rizova & Partners Law Firm (part of DLA Piper), Greek regional player PI Partners, and additional CMS Alliance firm CMS Reich-Rohrwig Hainz and CMS Cameron McKenna in cooperation with Ružička & partners, s.r.o..