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2.1 ACTION LINE 2.1: IMPROVING THE INSTITUTIONAL
FRAMEWORK FOR SMALL AND MEDIUM SIZE ENTERPRISES
- 2.1.1
BACKGROUND
- 2.1.2
OBJECTIVES
- 2.1.3
ACTIONS
- COURT
SYSTEM
- NOTARY
SYSTEM
- COMMERCIAL REGISTRY
SYSTEM
- COMMITTEE ON
PROTECTION OF COMPETITION POWERS
- 2.1.4 EXPECTED
RESULTS
2.1.1 BACKGROUND
Bulgaria has completed, by and large, building the
institutional framework to implement laws affecting small and
medium size enterprises (SMEs). Many government institutions were
in place before 1989. Others, such as the Constitutional Court, the
Supreme Judicial Council and the Committee on Protection of
Competition, have been created in the last several years and are
now functioning. Still, there still remain many gaps which directly
affect SMEs.
2.1.2 OBJECTIVES
The objective of this action line is to facilitate
the process of institution building and operation so that a better
institutional framework for SMEs can be put in place as quickly as
possible. Lack of institutions, such as a fully developed court
system, a functioning notary public system and a nationwide
commercial registry system, has a great negative impact on the
functioning of SMEs.
2.1.3 ACTIONS
The actions foresee:
- the completion of the structuring of the court
system (COURT SYSTEM);
- the creation of a private notary system (NOTARY
SYSTEM);
- the creation of a nationwide commercial registry
system (COMMERCIAL REGISTRY SYSTEM);
- improvement of the Committee on protection of
Competition efficiency (COMMITTEE ON PROTECTION OF COMPETITION
POWERS).
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COURT SYSTEM
Background
The Law on the Structure of the Judicial System was
passed in 1994. Pursuant to this law, Bulgaria must establish a
four-tier system of courts to implement a three-instance procedure
(that is, four different courts that guarantee a trail and two
appellate reviews). The Bulgarian Constitution required the courts
to be established by July 1992.
Recommendation
Politicians are responsible for implementing
existing court structure legislation. Creation of the Courts of
Appeal should take place as soon as possible. SMEs suffer greater
consequences relative to large corporations from the inoperable
court system. Implementation of the courts should be preceded,
however, by the development of procedural rules (administrative,
civil and criminal) tailored to meet the requirements of the new
system. Experts from academia, the SME sector, NGOs, and practicing
judges and lawyers could assist court administrators in the
development of procedural rules.
NOTARY SYSTEM
Background
As in most countries, Bulgarian legislation requires
that real estate and automobile transactions, mortgage executions
and other transactions to be witnessed by a notary public. In many
cases, the law requires signatures to be notarized, dates or
contents of documents to be verified, or copies of documents to be
certified. Absent the notary’s seal when required, transactions are
usually invalid.
Although standard international practice operates
under privatized notary systems, Bulgaria currently relies on a
very limited number of notaries who function as state officials. It
is not uncommon to wait weeks to execute a mortgage or buy real
estate, and the otherwise simple signature notarization process
usually takes over an hour. The inoperable and uncertain notary
system has a stifling effect on SMEs because of its time and
monetary costs.
To remedy this situation, Parliament recently passed
a Law on Notaries. The law follows the model of Austria, Germany
and other European countries and provides for the development of a
private notary system.
Recommendation
The private notary system will reduce transaction
costs, further develop the private administration system, and free
the government from the burdensome notary responsibility. Now that
the law has been passed, the government should work with experts
from academia, the SME sector, NGOs, and practicing notaries and
lawyers to expedite the implementation of the law and educate
notaries about working under a private notary system.
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COMMERCIAL REGISTRY
SYSTEM
Background
Property registries are created to provide a
publicly available record of the ownership of property, its type,
size or shape, and whether or not it is encumbered. As in most
countries, Bulgarian legislation requires that properties and
information about them be registered. While registries exist in
Bulgaria, there is no central system.
Information on real estate, for example, can be
found in any of over 100 registries located throughout Bulgaria. To
locate the property of a bankrupt debtor or the property owned and
encumbered by a prospective borrower, creditors must check each
registry by physically visiting each location.
There are also 29 commercial registries located
throughout the country. To conduct due diligence on the legal
standing of a prospective partner or purchase, one might be
required to visit a registry in Varna, Blagoevgrad, Russe, or
almost anywhere else. Such inconvenience is not necessary in a
country the size of Bulgaria and in a modern era of computer
technology.
Recently, Parliament passed the Law on Registered
Pledges which provides for a central pledges registry with the
Ministry of Justice. Creating the registry institution is critical
for putting the new law in operation. Through the central registry
both debtors and creditors will be able to make security interests
public, secure priority of security interests and safeguard against
relying on property already encumbered by third party security
interests.
In general, registry information is difficult to
obtain. Officials do not have proper understanding of the concepts
of freedom of information and often create (voluntarily, or not)
obstacles to free access to information. Such obstacles seriously
encumber SMEs who often lack the resources to hire lawyers and
consultants and have to fight the bureaucratic impediments
themselves.
Recommendation
Ultimately, a system of computerized central
registries needs to be created. Focus should be placed first on
creating a computerized central pledges registry with a central
database and numerous terminals, and operating under a simplified
administrative procedure. The experience from creating and
operating this registry should be studied carefully and carried
over to other existing or future registries.
One action that can be taken in the short term,
however, is to create uniform formats for national computer
databases. When such formats are developed, they can be made
available to local registries that can begin recording information
according to the standardized national form. When a national
computer system is developed, the locally produced information
should be easily transferred to the national system.
In general, free access to information should be
adequately provided for by law, so that looking for and finding
publicly available information is an efficient process. The EU
First Council Directive of 9 March, 1968, regarding public
availability of commercial registry information needs to be
observed.
COMMITTEE ON PROTECTION OF
COMPETITION POWERS
Background
The Committee on protection of Competition has been
in existence for over five years. Unfortunately, the powers
provided to it by law are insufficient to tackle problems such as
the counterfeiting of goods, monopoly positions and intellectual
property rights infringements.
Recommendation
The Committee on Protection of Competition must be
provided with clear-cut powers which would allow it to take direct
action against agents of unfair competition practices. The current
approach, where the Committee is only authorized to take court
action against violators, must be abandoned and substituted with
direct administrative powers. Thus, SMEs will be better protected
against strong monopolies remaining from the communist economic
period and against the producers and importers of counterfeited
goods.
2.1.4 EXPECTED RESULTS
Implementing institutional reform will have a
boosting effect on the development of SMEs. The cost of running a
business will be significantly decreased by reducing the time and
effort necessary to resolve legal disputes or to perform routine
operations, such as notarizations and due diligence on registry
information.
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