12 February 2025
roadmap
bulgaria
SPA warranties face a test in Bulgaria
In a share purchase agreement (SPA) governed by Bulgarian law, warranties are often referred to by local practitioners as "declarations and guarantees". Because warranties serve two key functions: they explicitly define the qualities of the asset (the target company) that the buyer expects to acquire, thereby defining the subject matter of the transaction. They also outline the matters for which the sellers expressly accept liability irrespective of their fault.
Bulgarian law does not explicitly regulate the consequences of a warranty breach in a share deal. However, buyers are not without protection. General rules on breach of contract and defective delivery apply. The seller is liable for non-performance, i.e. failure to transfer the asset with the specific (warrantied) qualities that the buyer expected in exchange for the purchase price. The buyer may claim damages for full or partial non-performance.
Bulgarian courts have awarded damages to buyers in share deals even for the losses incurred by the target company and not directly by the buyer (e.g. the target company's cost to repair a facility). Sometimes, the damage cannot be remedied or compensated through a one-off payment, particularly when the loss involves increased costs for an indefinite future period (e.g. higher annual expenses at the target company level to comply with employment laws, despite the seller's warranty of compliance). In such cases, the buyer may seek a reduction in the purchase price, as they have acquired an asset with a defect, contrary to the warranties provided.
At this stage, parties typically aim to settle any disputes. As the local M&A market becomes more sophisticated and complex, we will see legal practices and instruments protecting buyers continue to evolve.
authors: Alexandra Doytchinova, Ventsislav Tomov
Alexandra
Doytchinova
Office Managing Partner
bulgaria