A FIRST: Court repeals the compensation of former owners using stock in the "Proprietatea Fund" instead of cash

• The Court of Appeal of Bucharest ruled, for the first time, that a former owner whose assets were seized by the Communist government can opt to be compensated with cash instead of receiving shares of the Proprietatea Fund

• The court ruled that former owners who received stock in the Proprietatea Fund were not fairly compensated, as they would be forced to sell the shares in the fund at a price far below their official value

For the first time, a Romanian court decided that an owner whose assets were seized by the Communist regime needs to be compensated using cash instead of shares of the Proprietatea Fund.

At the end of last week, the Bucharest Court of Appeal ruled that Ilie Nicolae was entitled to receive EUR 972,000 in compensation, for the building owned by his family which was seized by the communist regime before 1989.

Ilie Nicolae last year sued the Mayoralty of Bucharest for failing to solve on time his request to receive compensation for the building in question. The Court of Bucharest ruled in favor of the plaintiff, and the Mayoralty appealed the decision.

Gheorghe Piperea, the lawyer that represented the rightful owner, said that he had requested for compensation in cash or in the form of shares in the Proprietatea Fund.

"The Court of Appeal ruled that offering shares in the Proprietatea Fund was an unfair method of compensation, and ruled that the owner is entitled to receive compensation in cash - the equivalent of EUR 972,000", Gheorghe Piperea said.

The decision of the Court of Appeal is definitive, but not irrevocable; it can be challenged with a supervisory appeal, within 15 days.

For the moment the ruling of the court is enforceable. Meaning Ilie Nicolae can foreclose on the Mayoralty to receive his compensation.

The European Court for Human Rights (ECHR) issued several rulings over the course of the last years, stating that the "Proprietatea Fund" does not represent a workable solution for compensating the owners whose assets were seized by the communist regime before 1989.

The Court of Appeal mentions that CEDO ruled when the restitution in kind of a building was not possible, the state was required to compensate the owner of the restitution right, by covering the full prejudice suffered.

The Court of Appeal considers that neither the amendment of the law by which the Proprietatea Fund was set up, which stipulated that owners could receive up to 500,000 lei in cash, and stock in the Proprietatea fund for damages which exceeded that amount, nor the fact that the trading of shares of the Proprietatea Fund was allowed starting with March 2008, were enough to compensate former owners.

Quite the opposite.

The position of the Court of Appeal is rather stern: "However, because the Fund has not yet been registered with the Romanian Securities Commission, which violates the obligations provided by the Law 247/2005, the owners that were compensated with shares in this investment fund, can only obtain money by selling those shares on the black market, thus receiving a price far below their official value. The price difference is the risk that buyers are taking, since they don"t know what the value of those shares will be once they begin trading on a regulated market".

The judges claim that this state of things was also acknowledged by the European Court of Human Rights, through its ruling of July 20, 1996, issued in the case Radu vs. Romania: "The European Court of Human Rights has noted, mostly, that the Proprietatea Fund does not operate in a manner that would provide compensation to its shareholders. One of the arguments in favor of this conclusion is the fact that, for the fund to be effectively functional, several operations are required which have not yet been completed, in order to allow its listing on the stock exchange".

The main aspect noted by the Bucharest Court of Appeal was the fact that the fund has not yet been registered with the Romanian Securities Commission (CNVM) as "another type of collective investment organism" (AOPC).

Coincidentally, on the same day that Ilie Nicolae received the notification from the court of appeal about the ruling in his favor, the decision announcing the registration of the Proprietatea Fund with the Romanian Securities Commission was published in the Official Gazette.

Even so, it is unlikely the Fund will get listed on the stock exchange this year, five years after its creation.

That is why, the decision of the Court of Appeal essentially states that the Proprietatea Fund is not a viable solution for compensating former owners whose assets were seized by the Communist regime.

Which means that, legally speaking, the Proprietatea fund has not yet found its purpose, five years after its creation, even though it was created in an extreme haste, by circumventing the Parliament.

Who"s going to take the blame for the fact that so many years later, we are also paying for the shares of the Proprietatea fund, as well as damages in cash?

And on top of that, we are paying millions of Euros in severance packages to the former managers of the Proprietatea Fund, who were abusively let go...