AS SHAREHOLDER, Dan Paul sues "Cemacon"

• UPDATE 15.45 "Cemacon" confirms the lawsuit brought by Dan Paul

"Cemacon" today sent the Bucharest Stock Exchange, a report whereby it confirms the existence of the lawsuit brought by Dan Paul, the president of the Association of Brokers. However, the officials of the company wrote that they have no details about the case.

The report states: "On March 19th, 2018, due to checking the courts web portal, Cemacon SA has acknowledged the existence of case no. 257/1285/2018, filed with the Cluj Specialized County Court, Friday, March 16th, 2018.

The company wants to clarify that it has no further information about the case and its object because by March 19th, 2018 it has not received a subpoena or a communication of the request for a lawsuit, and on the date it holds more information concerning this case, it will inform investors and the institutions of the capital market".

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Dan Paul, the president of the Association of Brokers, has sued "Cemacon" (CEON), acting as shareholder, seeking the annulment of the shareholders' decision of March 24th, 2014, concerning the reduction of the share capital and of the subsequent acts, according to a notification seen by "BURSA".

The decision to reduce the share capital of Cemacon from 26,287,248.6 lei to 525,796 lei was part of the process to restructure the company, following which the Business Capital For Romania Opportunity Fund Cooperatief U.A. (BOF) fund, owned by Erste Bank (83.33%) and Florin Pogonaru, became a shareholder of Cemacon, with 33%, after acquiring some loans which the company had taken out from BCR.

Now, Dan Paul alleges that the decision of the General Shareholder Meeting of March 2014 was made through the flagrant violation of the imperative dispositions of the Law of Companies no. 31/1990 and essentially places in doubt the entire restructuring of Cemacon.

Liviu Stoleru, the CEO of Cemacon, told us the following, Thursday, concerning the issue: "The information you have (ed. note: concerning the existence of a lawsuit to achieve the annulment of the share capital reduction) is completely erroneous.

After checking the portal of the County Court, I can confirm that there is no case with the County Court of Cluj with such a topic concerning Cemacon and the company has received no notification on such a topic".

On Friday, the County Court of Cluj has seen the case no. 257/1285/2018 concerning the action in annulment of the decision of AGA Cemacon, initiated by the president of the Association of Brokers.

Dan Paul argues, in court, that there was no convening notice and no decision of the General Shareholder Meeting, prior to the reduction of the share capital of Cemacon, concerning the dissolution of the company, as stipulated in Article 153^4 of the Law of Companies 31/1990.

This article stipulates: "If the Board of Directors, namely the directorate, finds that following some losses, established through the annual financial statements approved according to the law, the net assets of the company, calculated as the difference between the total assets and their total debts, have diminished to less than half of the subscribed share capital, it will immediately summon the extraordinary general shareholder meeting to decide if the company needs to be dissolved".

Dan Paul says that the financial statements of Cemacon showed no proof that the condition of art. 153^24 concerning the reduction of the net asset below half of the subscribed share capital had been met: "Based on the financial statements and the reports available on the Cemacon website, on December 31st, 2013, the difference between the total assets and the current debts amounted to 41,194,720 lei, and in the report in the first quarter of 2014 the net assets amounted to 7,740,049 lei; the subscribed share capital was 33,424,855 lei (in the annual management report of 2013 and in the report for the first quarter of 2014), even though in the summary of the report for 2013 (of March 13, 2014) it is clearly stipulated that the value of the subscribed and paid-in share capital amounted to 26,287,248.6 lei. It is obvious that there is a discrepancy between the values of the share capital from various reports (even in the same report there are two distinct values of the share capital that are mentioned), meaning that no evidence has been produced that the NAV fell to less than half of the share capital, a condition required by article 153^24. Out of these reports, it could follow that the value of the net asset has not fallen below half of the subscribed share capital (given that there are no official documents according to which, as stipulated in the General Shareholder Meeting which reduced the share capital of Cemacon, the NAV amounts to 10,211,583 lei, and the share capital to 26,287,248.6 lei)".

He also added that the legislative article concerns annual financial statements adopted according to the law, meaning adopted in the General Shareholder Meeting, and at Cemacon, there were no financial statements approved by the General Shareholder Meeting for the year 2013, at the time of the decision to reduce the share capital.

The shareholder also specifies, the decision of the General Shareholder Meeting to approve the reduction of the share capital does not stipulate the incorporation of the reserve premiums, prior to reducing the share capital, even though from the financial statements of 2013 (which weren't adopted) it follows that Cemacon had reserves of 26,477,035 lei, and they should have been used, according to the law.

Article 153^24 paragraph 4 of the Law 31 stipulates: "If the General Shareholder Meeting doesn't decide the dissolution of the company, then the company is required, by the latest at the closing of the fiscal year that follows the one when the losses were reported, and subject to the provisions of art. 10, to go through with the reduction of the share capital by an amount at least equal to the losses that could not be covered using reserves, unless during this period the net assets of the company hasn't been rebuilt to an amount at least equal to half of the share capital".

Dan Paul invokes, in the request sent to the County Court of Cluj, similar cases in which the courts have annulled General Shareholder Meeting decisions, amid the failure to comply with the same provisions that he invokes at "Cemacon".

Recently, Dan Paul brought up the case of the restructuring of listed company Cemacon (CEON), as part of the BURSA "Insolvency Code" conference, wondering whether the share capital reduction conducted by the company, approved in 2014, which therefore allowed the company to avoid insolvency, was legal.

He has reminded that Cemacon had accrued loans of 26 million Euros, and he deemed them disproportionately large compared to the capacity of the brick factory, which the company restructured, by having the BOF fund, controlled by creditor bank BCR, become a shareholder.

In November 2013, "Cemacon", its majority shareholders and the Romanian Central Bank signed a principle agreement concerning the restructuring of the loan agreement of approximately 30 million Euros. At the end of 2013, the bank assigned 12 million Euros out of the company's loan to Business Capital For Romania Opportunity Fund Cooperatief U.A. (BOF), headquartered in Holland, a fund in which the bank had a stake of 83.33%, which was subsequently transferred to Erste Bank, while the difference was owned by businessman Florin Pogonaru.

In July 2015, the Business Capital for Romania Opportunity Fund became a shareholder of brick maker "Cemacon", after converting its 12 million Euros receivable into shares.

The non-performing loans of 16.5 million Euros of companies "Cemacon" and "Ambient" were assigned by BCR to BOF in exchange for 2 Euros.

At the time, the transaction was one which led to intense discussion in the market, and some sources said that it even garnered attention from prosecutors. On that aspect, Liviu Stoleru told us, in June 2016: "We do not have such information. From our point of view, the transaction has been fully transparent, it was fair from every point of view. Anyone can look at anything".

In September 2017, "BURSA" reported that those transactions were part of the problems identified by the ANAF, following the audit conducted by BCR, between May 3rd 2016 - June 9th, 2017, which resulted in an additional tax of over 100 million lei levied on the bank, according to market sources.

It seems that the Tax Authority has appraised the transfers of non-performing loans differently than BCR, as well as the sale, in January 2014, of the block of shares held by BCR in Business Capital for Romania Opportunity Fund (BOF) to Erste Bank, for the amount of 15.5 million Euros, based on an evaluation report drawn up by KPMG. It is this particular case that the former finance minister Ionuţ Mişa was talking about. At the time, BCR reported that the sale of the debt of Cemacon for one Euro resulted in the saving of the company from bankruptcy.

Recently, Dedeman became a shareholder of "Cemacon" as well. Last week it reached a concerted holding (together with PIF Industrial, held by the owners of Dedeman, the Pavăl brothers), of 50.09% of the company, following a public mandatory takeover bid.

In the offer, PIF Industrial bought a block of 5.6% of brick maker "Cemacon", at a price of 0.55 lei/share. PIF Industrial made the mandatory takeover bid at the same price that Dedeman bought 11.8% of "Cemacon" from Consultanţa Andrei&Andrei SRL in December.

Prior to the December transaction, Dedeman held 33% of Cemacon.