Commercial Legal And Institutional Reform (CLIR) - Economic Growth

COMMERCIAL LEGAL AND INSTITUTIONAL REFORM
Diagnostic Assessment Report for the Republic of Bulgaria March 2002
will reduce the costs and obviate the need for specialized filing services in the near
future.
Specialized publishing needs are, for the most part, being provided through the registry
itself. Forms are currently available for registration and soon will be put online.
Standardized agreements should be developed over time. Already a professor is working
with lawyers and judges to create standardized forms and agreements in the commercial
contract area, and this group could help develop similar forms for pledges. In the end,
however, development of such forms should be driven by the banks, leasing companies,
and other financial institutions that will rely on them for their own profitability and
security.
THE MARKET FOR COLLATERAL LAW REFORM
In a market economy, three groups normally lead demand for development of a collateral
lending system: lenders and lessors, vendors of movable property, and purchasers of
movable property. Banks generally take the lead, but the system is supported by an
inherent demand for credit to obtain capital and equipment for investment in commercial
activity and consumer products. The lack of a developed credit market is generally an
indication of a defect in supply, although it can also indicate unfocused demand due to
lack of understanding of the link between secured transactions and the availability of
credit. 10
1. Legislative Reform. Demand for reform of the Law on Special Pledges is not high.
The new law will need to be refined, as noted, and those groups most interested in those
reforms can be expected to lead the effort and engage appropriate government ministries
and agencies in the change. The active supporting institutions are already involved in
lobbying efforts, in what appears to be a comparatively healthy system of public
involvement in the legislative process.
On the supply side, most of the expertise needed for legal reforms is available locally.
Expatriate assistance might be useful in some cases to ensure harmonization with
international best practices and European Union requirements, but most problems were
noted by stakeholders who are already involved in supplying solutions. More
sophisticated areas, such as commercial paper based on collateralized loans, may need
expatriate technical assistance, but a substantial layer of well-developed, internationally
trained local resources can address most needs.
The major area requiring legislative reform is enforcement as set forth in the Code of
Civil Procedure. As previously noted, the law is highly deficient. A task force led by a
respected commercial court judge, a reformist professor, and other legal professionals is
10 Secured financing and collateral law are not generally well understood even by legal professionals,
especially with respect to their impact upon economic growth. Farmers who complain that they cannot
obtain financing will seldom also understand that this may be due to the lack of an enforceable system of
secured credit, in which lenders can hedge the risk of non-payment through a number of secured financing
tools. Public education, therefore, is essential in any program to improve or reform the collateral lending
regime.
Booz Allen Hamilton
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