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2.2 ACTION LINE 2.2: IMPLEMENTING EXISTING LAWS
AFFECTING SMALL AND MEDIUM SIZE ENTERPRISES
- 2.2.1
BACKGROUND
- 2.2.2
OBJECTIVES
- 2.2.3
ACTIONS
- BANKRUPTCY
LEGISLATION
- REGISTERED PLEDGES
LEGISLATION
- PRIVATIZATION
LEGISLATION
- INTELLECTUAL
PROPERTY RIGHTS ("IPRs") LEGISLATION
- SECURITIES
REGULATION LEGISLATION
- 2.2.4 EXPECTED
RESULTS
2.2.1 BACKGROUND
Bulgarian Parliament has passed a number of laws
relevant to the activity of SMEs that have not been effectively
implemented. Failure to implement the laws has been due to a lack
of relevant experience among implementing officials and
representatives of SMEs (e.g., bankruptcy); the lack of an
institutional framework to support the laws, (e.g., registered
pledges); and legally fixed implementation procedures that slow
down the process (e.g., privatization). In all such cases, SMEs
suffer due to the inability of institutions and the private sector
to implement, or act under, laws that are the result of already
existing political consensus in society. Such laws are national
capital that is being wasted by failure to use, resulting in loss
of thousands of opportunities for SME development.
2.2.2 OBJECTIVES
Appropriate actions should be taken towards
implementing existing and non-implemented legislation. Each sector,
private and public, must do their part to become educated about how
new laws function in order to obtain the desired results. Joint
work needs to be done if interaction among SMEs and public
institutions is to appear and bring to life new social mechanisms
and functions.
2.2.3 ACTIONS
The actions foresee:
- the implementation of bankruptcy legislation
(BANKRUPTCY LEGISLATION);
- the implementation of registered pledges
legislation (REGISTERED PLEDGES LEGISLATION);
- the implementation of privatization legislation
(PRIVATIZATION LEGISLATION);
- the implementation of intellectual properties
rights legislation (IPRs LEGISLATION);
- the implementation of securities regulation
legislation (SECURITIES REGULATION LEGISLATION).
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BANKRUPTCY LEGISLATION
Background
Liquidation and reorganization procedures are common
features of developed market economies and are viewed as essential
to the functioning of an efficient economy. Such procedures can
also be used as methods of privatization. In August 1994, the law
on bankruptcy came into force. The law allows for the restructuring
or liquidating of insolvent companies. Later, because of the severe
banking crisis, bankruptcy-of-banks and conservatorship legislation
was passed.
Although Bulgarian courts and practitioners are
generally experienced in insolvency law, they lack a full
understanding of reorganization and bankruptcy, and conservatorship
of banks. Few reorganization bankruptcy-of-banks cases have been
filed under the new laws (and were not provided for under the old)
and courts, practitioners, creditors and debtors will likely suffer
because of initial inexperience.
Implementation of the law is often hindered by
judicial and practitioner inexperience and government attempts to
save large companies whose liquidation or even reorganization would
boost social discontent and unemployment.
Recommendation
Bankruptcy courts and practitioners need to be
trained in the intricacies of reorganization and
bankruptcy-of-banks law. This training could be accomplished by
traditional seminars and the "hands-on" experience of participating
in test cases. An appropriate company or bank could be identified
and taken through the process with training teams of appropriate
judges, lawyers, trustees, conservators, creditors and debtors.
A large number of expected bankruptcies will most
likely inundate Bulgaria’s fledgling bankruptcy court system. To
prevent the overwhelming of the system, and accompanying delays,
steps should be taken now to develop court technology including
databases to inform courts, practitioners and the public of the
status of pending bankruptcies. If such information is readily
available, courts and practitioners will be able to better perform
their jobs and public resistance to bankruptcy may decrease as some
of its benefits become apparent.
REGISTERED PLEDGES
LEGISLATION
Background
In early November, Parliament passed a new Law on
Registered Pledges. Undoubtedly, this Law will greatly enhance the
development of bank financing and other credit which will, in turn,
positively affect SMEs. The implementation of this Law, however,
requires hard and extensive preparatory work: designing of a
registry institution; designing of a fully computerized, paperless
registry system; implementing a reliable telecommunications system
connecting the central database with local terminals; training
registry officials into the implementation of a registry system run
by administrators, not by judges. In this effort, the government
will have to rely on private businesses in the fields of
telecommunications, computers, information technologies, personnel
management and others. The successful implementation of the central
pledges registry will not only enable the implementation of the Law
on Registered Pledges, but it will also serve as a pattern in
designing future registries and reforming existing registries. The
central pledges registry might become the core institution of a
future merged registry for registering real estate transactions,
commercial companies and other elements of a healthy SME legal
environment.
Recommendation
The Government, under the Ministry of Justice,
should invite proposals from relevant experts from business and
academia, in order for it to design a modern and workable registry
which could also serve as a model in reforming the registry system
of Bulgaria. Legal experts drafting the secondary legislation that
will govern the registry institution and procedures must work
closely with technical experts. Once the technical facilities and
the proper legal framework are in place, future registry officials
and staff must be trained into running the registry. SMEs, banks
and other private entities possibly to be affected by the new
system should be educated, as well. The efforts of the Government,
the SME sector and NGOs need to be coordinated to achieve a maximum
effect of training.
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PRIVATIZATION
LEGISLATION
Background
Bulgarian officials adopted a system of mass
privatization in June 1994, which supplemented a market
privatization scheme adopted in April 1992. However, Bulgaria has
become known internationally for its slow and insufficient progress
towards privatizing its industry. Obviously, an efficient
privatization system will increase opportunities for SME creation
and development. The undergoing first round of mass privatization
demonstrated what a potential there is in converting existing state
owned medium and small businesses into private SMEs. Market
privatization holds the same potential. Successful implementation
of privatization legislation will result in a big step towards
creating a strong and significant SME sector in Bulgaria.
Recommendation
As stated in Action Line 1.1, Bulgarian authorities
must pursue all privatization options including mass privatization,
market privatization, combinations of the two and other methods
such as bankruptcy liquidation. In addition, special attention
needs to paid to implementing secondary legislation which has often
stalled the privatization process. Special rules need to be
designed for shortening the duration of privatization transactions
development and completion. An open public dialogue needs to be
initiated where SMEs, lawyers and economists from the private
sector can discuss expedition techniques with the government.
INTELLECTUAL PROPERTY RIGHTS
("IPRs") LEGISLATION
Background
Bulgaria had become known for its lack of support
and protection of IPRs. However, the government took quick and
adequate action and currently Bulgaria is among the countries with
most modern and complete legal framework for the protection of
IPRs. Despite new legislation, the rate of IPRs violation still
continues to be high.
Recommendations
IPRs legislation needs proper enforcement. Officials
in IPRs enforcement agencies need to be trained to act in a more
efficient manner against violators. Owners of IPRs need to be
educated in the field of applying protection measures against
violators. Better protection of IPRs will help the SME sector in
two ways: SME owners of IPRs will receive strengthened protection
creating greater incentives to pursue innovation and the
unfavorable image of the Bulgaria’s SME sector as a generator of
IPR violation will radically improve.
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SECURITIES REGULATION
LEGISLATION
Background
New securities regulation legislation has been
passed. Its first year of implementation demonstrates that the
greatest hardships were derivec from the lack of proper capital
market infrastructure.
Recommendation
As stated in Action Line 1.1, Bulgarian authorities
must work to create a proper capital market infrastructure. Of
critical importance is the creation and proper provision for a
central depository for securities to serve as a single central
locus for all securities transactions record keeping The SME sector
will benefit significantly from a developed capital market which
includes well working securities exchanges.
2.2.4 EXPECTED RESULTS
A lot of time, public energy and capital has been
invested in creating new modern legislation. This investment
continues to stay dormant while the Bulgarian SME sector suffers
from lack of appropriate legal framework. This results in a
multiplication of the loss to society as a whole. Bringing to life
newly passed legislation as soon as possible will utilize a lot of
investment that has been made by Bulgarian society and will sharply
improve the legal conditions for SMEs and will increase the size
and vitality of the emerging SME sector.
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