BULGARIA Law and Practice Contributed by: Yordan Naydenov, Mihail Vishanin and Hristian Gueorguiev, Boyanov & Co.
8. Duties of Directors 8.1 Principal Directors’ Duties
vent the occurrence of considerable damages, pro - vided those actions were not in breach of an explicit legal prohibition, complied with modern scientific and technical achievements and experience, and did not endanger the life and health of another, and provided the director or manager did everything within his/her capacity to avert the occurrence of harmful conse - quences. In deciding whether the risk was justified, the court must take into consideration the correlation between the expected positive result and the eventual negative consequences, as well as the probability of their occurrence. This concept aims at protecting the directors from criminal prosecution and to encourage them to use reasonable business judgement. Direc - tors in Bulgaria may have a more active and impor - tant role in the case of a tender offer where they are expected to issue a reasoned opinion on certain aspects of the tender offer and have the right to seek a competitive tender offer. In those cases, they will be expected to exercise their reasonable business judge - ment on the basis of proper information and following the required procedures. The Commerce Act regulates so-called “companies with variable capital” which are expected to become suitable platforms for small start- up businesses. There the law introduces some basic elements of the “business judgement rule” by requir - ing the members of the management bodies of such companies to perform their duties with the care of a good trader, taking into account the risk of the activ - ity alongside the expected income for the company. 8.4 Independent Outside Advice The directors in a business combination may seek advice from outside consultants relating to the per - formance of their duties towards the shareholders and the target company. Quite often, in deals involving pri - vate equity funds as buyers, for example, the directors are offered continuation of their directorship, various incentive schemes, participation in the target/acquirer, etc, so in those cases it is quite typical to see them using lawyers, employment advisers and tax advisers. 8.5 Conflicts of Interest The law provides for obligations for the directors to avoid or mitigate conflict of interest situations. As a rule, should a conflict occur, the director is required to report it to the joint-stock company’s competent managerial body (Board of Directors or Management
Bulgarian directors have a fiduciary duty to both the company and its shareholders (although in some cas - es they may have conflicting interests). In the con - text of an M&A deal, the directors of the target would most often be required to prepare the disclosure of the information during the due diligence process (of par - ticular importance when the seller is a private equity fund). Furthermore, the directors could be required in such context to give some representations and war - ranties, including against compensation. During the acquisition process, they are to continue managing the company in the ordinary course of business and with the diligence and loyalty to the target company and its shareholders as required by the law. In pub - lic M&A transactions, upon receipt of the tender offer and until publication of the results of the tender offer, or until closing of the said offer, as the case may be, the management body of the target company may not perform any acts, save for seeking a competitive tender offer, that aim at frustration of the acceptance of the tender offer or infliction of material difficulties or material additional expenses on the bidder, such as issue of shares or conclusion of transactions, which would result in a significant change in the property of the target company, unless said acts are performed with the prior approval of the General Meeting of the offeree company. 8.2 Special or Ad Hoc Committees It is not common in Bulgaria for the joint-stock compa - ny’s competent managerial body (Board of Directors or Management Board, as the case may be) to estab - lish special or ad hoc committees in business combi - nations or in case of a conflict of interest. Conflicted members of the Board must at all times timely and exhaustively disclose any direct or indirect conflict of interest, and refrain from voting or even participating in the meeting. 8.3 Business Judgement Rule A concept similar to the “business judgement rule” is introduced in the Bulgarian criminal law – the concept of justified business risk. Thus, a director or manager shall not be prosecuted if his/her actions were aimed at achieving a substantially positive result or to pre -
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