Post-Closing & Integration

Commercial Register registration and transfer of control

Under Bulgarian law, the moment of transfer of control depends on the structure of the transaction:

Share deal (LLC)

The change of ownership of equity interests takes effect vis-a-vis third parties from the moment of registration in the Commercial Register (Art. 129, para. 2 of the Commerce Act). This means that even if the sale agreement is signed and notarially certified, control effectively passes only after registration. Filing Form A4 with the CR is critically important and must be done immediately after closing.

Share deal (JSC)

For private JSCs with registered shares — from entry in the shareholder register. For public JSCs — from registration of the transfer in the Central Depository. Additionally, changes to the management bodies are registered in the CR.

Reorganisations (merger/acquisition by merger)

The reorganisation takes effect from the moment of registration in the Commercial Register. For a merger — from the registration of the newly established company; for an acquisition by merger — from the registration of the acquisition under the file of the acquiring company. The dissolution of the transforming companies occurs by operation of law, without liquidation.

Immediate post-closing actions

• Filing registration applications with the CR (change of partners, manager, registered office and address, if applicable)
• Notifying the NRA of changes in circumstances subject to tax registration
• Notifying servicing banks and changing account signatories
• Changing representation in electronic systems (NRA e-services, UPEJ, e-justice)
• Notifying insurers (change of beneficiary under insurance policies)

Employment transition

The transition of employment relationships is one of the most regulated areas in M&A transactions in Bulgaria, with numerous mandatory rules for the protection of employees.

Automatic transfer in reorganisations and going concern

In a merger, acquisition by merger, de-merger, spin-off and transfer of a business (or a distinct part thereof), employment relationships automatically transfer to the acquirer by virtue of Art. 123 of the Labour Code, transposing Directive 2001/23/EC. Employees retain:

• All rights under the employment contract (position, remuneration, additional payments)
• Length of service and seniority
• Right to paid leave (accrued and unused)
• Collective bargaining agreement (CBA) — continues in effect until its expiry or the conclusion of a new one, but for no more than 1 year
• Trade union membership and representation

Information and consultation

The transferor and the acquirer are obliged to inform the employee representatives (trade union organisations or elected representatives under Art. 7a of the Labour Code) at least 2 months before the planned change (Art. 130a-130c of the Labour Code). The information includes:

• The date of the transfer
• The reasons for the transfer
• The legal, economic and social consequences for employees
• The measures envisaged with respect to employees

Non-compliance with the information and consultation obligation does not affect the validity of the transfer, but may result in administrative sanctions and litigation by employees.

Joint and several liability

In the transfer of a business (going concern), the transferor and the acquirer are jointly and severally liable for obligations to employees arising before the transfer — due remuneration, compensation, social security contributions (Art. 123, para. 4 of the Labour Code). This joint and several liability is mandatory and cannot be excluded by contractual clauses between the parties to the transaction.

Share deal

In a share deal, employment relationships are formally unaffected — the employer (the company) remains the same, only the owner changes. However, in practice, changes in management, restructuring and optimisation are often carried out, which may affect employees. It is important that changes follow the Labour Code procedures (including for redundancies — selection under Art. 329 of the Labour Code and notice).

Regulatory notifications and compliance

Following the closing of the transaction, it may be necessary to fulfil conditions imposed by regulatory authorities:

CPC conditions

If the CPC cleared the concentration subject to conditions (commitments), they must be fulfilled within the specified deadlines. Structural conditions (divestiture of assets/business) typically have a deadline of 6-12 months. Behavioural conditions (e.g. obligation to provide access to infrastructure) may be in effect for several years. The CPC conducts monitoring and may impose fines for non-compliance.

Notifications to clients and suppliers

In a business transfer or change of control, contracts with change of control clauses require notification (and sometimes consent) from the counterparty. Failure to notify may trigger automatic termination clauses, undermining the value of the acquired business.

Financial consolidation

The acquiring company must include the target company in its consolidated financial statements from the acquisition date. Under IFRS — in accordance with IFRS 3 (Business Combinations), including determination of the fair value of acquired assets and liabilities, recognition of goodwill and impairment testing.

Consequences of euro adoption

With Bulgaria's expected accession to the Eurozone (planned for 2026), all M&A transactions must take into account the following aspects:

Amendment of constitutional documents

Within 12 months of euro adoption, companies must align their constitutional documents — converting the capital value from BGN to EUR, updating the par value of shares/equity interests. The change is made at the next amendment of the constitutional document, but no later than 12 months.

Automatic capital conversion

Company capital will be automatically converted at the fixed exchange rate. Rounding differences may arise during the conversion, which should be reflected in the accounts. For companies where the minimum par value of shares/equity interests is BGN 1, the conversion may require a capital increase or decrease to achieve whole numbers.

Consequences for SPAs and earn-out

Active share purchase agreements (SPAs) containing values in BGN will be automatically converted. Earn-out clauses with BGN-denominated thresholds should be recalculated. New SPAs should contain clauses addressing euro adoption — payment currency, threshold recalculation and adjustment mechanisms.

Earn-out clauses

Earn-out is a mechanism in which part of the purchase price is contingent and depends on the future financial performance of the target company. Earn-out is widely used in Bulgarian M&A practice, especially in transactions involving technology companies and businesses with high growth potential.

Structure

In Bulgarian practice, cash earn-out payments predominate (unlike some jurisdictions where share-based earn-out is also common). The typical structure includes:

• Earn-out period — typically 1-3 years after closing
• Financial metrics — most commonly EBITDA, less frequently revenue or net profit
• Thresholds and scale — minimum activation threshold, linear or stepped scale, maximum value (cap)
• Measurement period — typically the financial year, with a calculation and verification deadline

Accounting standards — NAS vs IFRS

One of the most common sources of dispute in earn-out is the choice of accounting standards for calculating financial metrics. National Accounting Standards (NAS) and International Financial Reporting Standards (IFRS) may produce significantly different results for the same indicator. The SPA should clearly specify:

• Which accounting standards apply (NAS or IFRS)
• Whether they will be applied consistently with the company's historical practice
• Which items are included/excluded from EBITDA (normalising adjustments)
• Dispute resolution mechanism (typically an independent auditor)

Operational protections during the earn-out period

The seller (as earn-out beneficiary) has an interest in the business being managed in a way that maximises earn-out metrics. The buyer, on the other hand, may have broader strategic interests. To balance these interests, the SPA typically contains:

• Ordinary course of business covenant — the business must be managed consistently with prior practice
• Prohibited actions — actions that would reduce earn-out may not be taken without the seller's consent (e.g. transferring clients, changing pricing policy, excessive management fees)
• Good faith obligation — the buyer must make reasonable efforts to achieve the earn-out targets
• Right of access to information — the seller retains the right to review the financial statements and challenge the calculation

Leaver provisions

When the seller remains in the company as a manager or key employee, earn-out clauses typically contain leaver provisions:

• Bad leaver — upon voluntary departure or dismissal for cause, earn-out is forfeited (or significantly reduced)
• Good leaver — upon departure for objective reasons (illness, disability, retirement, dismissal without cause) — earn-out is retained pro rata or in full
• Intermediate leaver — an intermediate category with partial retention, depending on the reasons and timing of departure

Post-closing adjustments and claims

Most SPAs contain mechanisms for adjusting the purchase price after closing:

Completion accounts

Under a completion accounts mechanism, the final price is determined based on the financial position of the target company at the closing date. Completion accounts are typically prepared within 60-90 days after closing, adjusting for net debt and net working capital. The difference from pre-agreed target values is settled by an additional payment or refund.

Warranty claims

Warranties (representations & warranties) in the SPA create a legal basis for claims in case of breach. Typical limitations include:

• De minimis — minimum threshold for an individual claim (typically 0.1-0.5% of the price)
• Basket (tipping/deductible) — aggregate threshold for activating claims (typically 1-2% of the price)
• Cap — maximum aggregate liability (typically 15-30% of the price for general warranties, 100% for fundamental)
• Limitation periods — 12-24 months for general warranties, 5-7 years for tax and fundamental

Escrow and holdback

Part of the purchase price (typically 10-15%) may be retained in an escrow account for a specified period (12-24 months) as security for warranty claims and post-closing adjustments. The escrow agent (typically a bank or notary) releases the funds upon expiry of the period or settlement of claims.

Integration planning

Successful integration requires planning that begins during due diligence. The main areas include:

• Operational integration — merging processes, systems and suppliers; defining a Day 1 plan for critical functions
• IT integration — migration of systems, email domains, ERP, CRM; cybersecurity in connecting networks
• HR integration — harmonisation of remuneration, benefit packages and internal policies; retention of key employees (retention bonuses)
• Legal integration — review and harmonisation of contracts, internal rules, compliance programmes; replacement of powers of attorney and certificates
• Branding and communication — decision to retain or change the brand; communication strategy towards clients, suppliers and employees
• Regulatory integration — changes to licences, permits and registrations; notifications to sector regulators

Frequently asked questions