SIF Stake Cap Reaches Constitutional Court Again

05.31.2011 ZF English

SIF Transilvania (SIF3.RO) is trying to have the Constitutional Court annul the Government Ordinance of 2005 raising the SIFs' (regional investment funds) stake cap from 0.1% to 1%, as Romanian securities watchdog CNVM does not allow it to include the 5% cap approved in 2009 by shareholders in its corporate charter.

The bill on lifting the SIF stake cap from 1% to 5% has been stuck in the Chamber of Deputies for more than a year.

On June 2, the Constitutional Court will rule whether SIF stake cap, of 1% in the share capital, is constitutional or not, in a suit brought by SIF Transilvania against the National Securities Commission (CNVM) on the raising of the stake cap from 1% to 5%, decided by the fund's shareholders in 2009.

SIF Transilvania argued the unconstitutional exception in a suit pending in the Bucharest Court of Appeal, whereby the fund challenges the dismissal by the CNVM of the amendments to its Articles of Incorporation, raising the stake cap to 5% from the 1% stipulated by the capital market law.

The stake behind the decision the Court's judges will make on June 2 is high.

In case of a decision validating the unconstitutional exception, the SIF cap is likely to revert to the 0.1% value of six years ago, which would force a high number of foreign investment funds and individual shareholders in SIFs to sell their shares up to the limit of 0.1%.

This is the second time the SIF stake cap reaches the Constitutional Court. The first time, in 2009, the Constitutional Court judges validated the cap of 1% in the capital and rejected the unconstitutional exception argued by Comrimet Galati, which was part of businessman Catalin Chelu's group, in a lawsuit with SIF Oltenia (SIF5.RO).

This time, SIF Transilvania is not challenging the stake cap in the Constitutional Court, but the Emergency Ordinance 41 of 2005 through which the Government lifted it from 0.1% to 1% in the capital, which the SIF sees as unconstitutional.

SIF Transilvania's chairman Mihai Fercala says the government is not allowed to set a stake cap for a private company like SIF Transilvania and may not amend the stipulations of an organic law such as the capital market law is.