Techno War

Techno War

The owner of Technomarket Delayn Peeveski has found a way to make his company thrive – by not paying its dues

© Nadezhda Chipeva


Hardly ever а litigation between two companies in Bulgaria could be newsworthy for the non-Bulgarian public, but the clash between Technomarket and Glorient Investment BG is a rare exception. It has everything: an aggrieved foreign investor, a hard fought court battle, an attempted unlawful acquisition of property and, of course, Delyan Peevski - an omnipresent member of parliament with a reputation of being a broker between politicians, magistrates and business people.

The battleground is Technomarket, the biggest home appliances and electronics retail chain with €238 mn sales in 2015. Since 2007 the company has gone through a convoluted series of acquisitions that have done little to improve its profitability. Instead of pursuing a good marketing strategy, its owners have been more interested in various tax and legal tricks.

Technomarket was acquired in early 2016 by NSN Investment, which until the middle of last year was directly owned by Mr. Peevski but is now controlled by a Dubai-registered company. Almost immediately, in February 2016, Technomarket stopped paying rent to Glorient, which owns 13 of the retail chain's stores. Glorient acquired them in 2007 as part of the retailer's cost restructuring program.

In May 2016, Glorient requested the termination of the relations between the two companies, eviction of Technomarket from the stores and payment of the outstanding dues.

The technology of the war

The timing of Technomarket's decision to stop paying is a clear indication that Mr. Peevski probably acquired the retailer with a plan to cut costs in an unusual way on his mind. He is well known for his direct influence over various parts of the Bulgarian judicial system.

In July 2015, Nikolay Kitov, one of Technomarket's co-founders, was charged with VAT fraud in Italy. He was a minority shareholder but still had a strong influence in the company and more importantly, he is a major shareholder in the retailer's landlord. By the time Mr. Peevski was negotiating to buy Technomarket, Mr. Kitov was extradited to Italy. It emerged later that the investigation, which is not over yet, was based on a tip from Bulgaria. Later, while the war between Technomarket and Glorient was already raging, Mr. Kitov's son, who worked for Technomarket, was charged with financial offences in Bulgaria.

With one of Glorient's main shareholders removed from the battleground, Technomarket went to court. The retailer claimed that its landlord had never owned the stores and requested that the 2007 deal be declared void. Technomarket contended that the deal was fictitious and had been intended to syphon money out of the company.

Technomarket motion to nullify the deal is based on the price paid, which according to the claimant, was well below the market prices at the time. In addition, Mr. Peevski's lawyers contend that the deal is an example of double dipping, i.e.Glorient first profited from the low purchase price and then took profits as a landlord, which is "contrary to good morals". Technomarket's third argument against Glorient is that the transaction was made between related persons and as a consequence there was no real payment for the acquired property.

The 2007 deal itself is a standard practice for companies to optimize costs - by selling their property they reap a one-off windfall profit, while by paying rent later for the same property they reduce their taxable income. When the ownership of the stores was transferred, Technomarket and Glorient had the same shareholders, which raises questions, but it is for the tax authorities to decide if there was something wrong.

Glorient responded by saying that the price was actually twice the tax value of the acquired properties (valuations used in property tax payments) in 2007. In addition, none of the many owners of Technomarket since 2007 has ever contested the lease terms on such grounds.

As a result, there are now 80 lawsuits launched by both companies in various courts in Bulgaria. At the beginning, it looked like most of them were going to judges sympathetic to Mr. Peeveski. However, a year after the legal spat started it seems that Glorient has got the upper hand.

Desire without evidence

In theory, the deal could be declared void if there are obviously unfavorable consequences for one of the sides, but this would be an exception.

In deciding on one of the motions filed by Technomarket, the Sofia City Court (SCC) concluded that the tax valuations adopted by the authorities are "reasonably objective" and it is illogical for the SCC to accept that there was an unlawful acquisition only on the basis of the seemingly low price of the transaction.

The court concluded that using this logic would mean that any sale that generates a long-term profit could be challenged.

The SCC also rejected the claims of Technomarket's lawyers who argued that the deal is fictitious because the transfer was made between related persons. It concluded that if this is not forbidden by law, it can't be used as grounds to seek the nullification of the deal. "The lack of proof for real payment between the contracting parties is not evidence related to the validity of the deal, but rather to its execution, which is a different matter", the court said.

As of end-February Glorient has not lost a case and six eviction orders have been issued. But the SCC didn't allow the preliminary execution of the judgment. This means that Glorient will have to wait until the cases are won in higher courts before it takes control over its property.

In several cases, however, the SCC didn't even consider the eviction requests, saying that ownership issues need to be resolved first. Which in legal terms is weird - the law does not require the landlord to own the leased property.

The battle between Technomarket and Glorient is probably the first setback for Mr. Peevski in the Bulgarian judicial system. Earlier, he easily won court cases, bullied competitors who were investigated by the prosecutor's office over alleged threats against Mr. Peevski's life and the origin of his funds has never been looked into. This turn in events also shows that the Bulgarian judicial system, which is rightly criticized for its ineffectiveness and susceptibility to undue influences, has some resilience. Of course, in order to demonstrate it, there is a need for a foreign investor (who could cause an international scandal), huge publicity, or some arrogant effrontery.

1992-1996

Nikolay Kitov and Hristo Kusev founded K&K Electronics in 1992. Two years later they opened their first store under the Music World brand. In 1996 the company built its first own store on Tsarigradsko Shosse boulevard in Sofia, which later became its headquarters.

1999

The first Technomarket hypermarket was opened

2006

Equest Investment Balkans, part of Equest Partners, became majority shareholder in Technomarket. Later the same year, Glorient Investment BG, owned by Mr. Kusev, Mr. Kitov and another Equest subsidiary (Equest Balkan Properties), acquired more than 20 stores from Technomarket and then rented them to the retailer.

2007 Equest bought a stake in Romania's Domo. TechnmarketDomo was registered in the Netherlands combining the Bulgarian and the Romanian business. Equest was majority shareholder, Mr.Kitov and Mr. Kusev held a stake of 26%, their Romanian partners had 12%.

2010

Equest (which is now called Trans Balkan Investment Limited) began to sell assets in Bulgaria and the region, looking for a buyer of its 62% stake in TechnomarketDomo. Technomarket already had 61 stores in Bulgaria.

2012

Liechtenstein-registered Domtech Holding AG, related to Bulgaria's Corporate Commercial Bank (KTB) became majority shareholder in Technomarket. Mr. Kusev and Mr. Kitov remained minority shareholders but their stake gradually decreased.

2014

After the bankruptcy of KTB Mr. Kitov returned as majority shareholder in the chain of stores. Together with board chairman Evegniy Galabov and Angel Velev, Mr. Kitov took control over Domtech Holding. Mr. Kusev and Mr. Kitov continued to hold shares in Glorient.

2014

Edoardo Miroglio, a Italian businessman with a Bulgarian passport acquired 50% stake in Technomarket . Mr. Mirogilo took control over the company, exchanging his blocked deposit in bankrupt KTB for shares in Technomarket controlled by the bank. Mr. Kitov, Mr. Galabov and Mr. Velev retained stakes of around 11% each.

2016

NSN Investment owned by Delyan Peevski became majority shareholder with 72.65% interest in Technomarket by acquiring Edoardo Miroglio's 50% stake and the shares of Angel Velev and Evgeni Galabov. Mr. Kitov remains a shareholder in the company but has no control over it.


Hardly ever а litigation between two companies in Bulgaria could be newsworthy for the non-Bulgarian public, but the clash between Technomarket and Glorient Investment BG is a rare exception. It has everything: an aggrieved foreign investor, a hard fought court battle, an attempted unlawful acquisition of property and, of course, Delyan Peevski - an omnipresent member of parliament with a reputation of being a broker between politicians, magistrates and business people.

The battleground is Technomarket, the biggest home appliances and electronics retail chain with €238 mn sales in 2015. Since 2007 the company has gone through a convoluted series of acquisitions that have done little to improve its profitability. Instead of pursuing a good marketing strategy, its owners have been more interested in various tax and legal tricks.

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