THE FERCALA WAY SIF Transilvania Shareholders Approve Holding Threshold Increase to 5%

• Mihai Fercala: "If CNVM does not approve this decision, we will go to court and file for unconstitutionality"

Shareholders in financial investment firm (SIF) 3 Transilvania convened for a General Meeting late last week and, with an overwhelming majority of 89.95%, approved the increase of the holding threshold to 5% in the firm, but kept the voting right threshold at 1% of the share capital. This decision has the potential to spark an open conflict between SIF Transilvania and the National Securities Commission (CNVM), who already warned SIF3 Transilvania in mid-February that a unilateral modification of the act of incorporation of SIF3 by raising the holding threshold to 5% was a violation of the applicable legislation, which fixed the threshold at 1% of the share capital of an S­IF.

The management of SIF Transilvania seem to have foreseen potential opposition from CNVM and announced they were ready to go to court to defend the decision. "I am aware that this decision will not be approved by the National Securities Commission (CNVM)," SIF3 Transilvania CEO Mihai Fercala told BURSA. "If so, we are determined to start an administrative litigation and file for unconstitutionality on Article 286 (1) of Law 297/2004. I want the shareholders to be the ones to decide how they change the act of incorporation, and not anyone else," Fercala added.

Another solution would be for the SIF to file a lawsuit against the delegate judge, if he or she refuses to register the increase in the holding threshold without CNVM"s approval. SIF Transilvania CEO Mihai Fercala said it was nonsense to allow authorities to limit the holding in a SIF, as only shareholders should be able to do so. He explained that the 1% threshold had been imposed by former Finance Minister Ionut Popescu, who was also a shareholder in SIF Transilvania at the time, and who set the limit through an emergency ordinance during a Parliament recess three years before, although the Government did not have the authority to regulate the capital market.

The SIF3 Board of Directors wanted to increase the holding threshold to 5% in order to allow capital concentration and facilitate the adoption of decisions by the Board, Fercala explained. "It is hilarious to attend a General Meeting where 10% of the shareholders decide for all of the shareholders. Moreover, this is a time of crisis. No institutional investor will put their money in a SIF, if the holding is limited to 1%. Some of these investors are compelled by their act of incorporation to invest a minimum sum in a company, but the holding threshold prevents them from doing so."

An increase in the holding threshold concurrent with a limitation of the voting rights to 1% of the SIF share capital is a fairly controversial measure, considering that more shares would not necessarily mean more voting power. "It is possible that some of the shareholders holding up to 5% in SIF3 may file a motion for raising the threshold on voting rights later," Fercala added. "I, too, did not exclude such measure from the beginning. It is included in a letter I sent to the shareholders before the General Meeting. I explained, however, that we could make this change gradually," he added.

Fercala further told BURSA that "other essential changes" would be made within the SIF, considering that financial investment firms could not survive the crisis without strategy changes. He stressed that he would resign, should the threshold increase not be completed, because he did not want "to retire burying the SIF."

• Cocor - SIF3 scandal during General Meeting

The SIF3 General Meeting did not end without troubles, as it was attended by representatives of minority shareholders Cocor SA and Daniel Stoica, with whom the financial investment firm has been in court for two years since they contested the two-fold increase in the firm"s share capital.

"We have found that some courts decided to rule in favour of Cocor SA or Daniel Stoica because they believed that, if it is not stipulated in the act of incorporation, the quorum is the same as it was 11 years ago," Fercala explained the decision to propose the amendment of the act of incorporation to define the quorum "as defined by law."

The meeting was attended by only one third of the voting power, which Cocor SA representatives did not appreciate. They explained that a General Meeting without a quorum can be challenged and nullified in court, because the quorum was supposed to be 75%.

• "We fight till the end"

Fercala explained that the reason why Cocor SA was opposing the capital increase was simply blackmail as the representatives of SIF Transilvania in Cocor Turism and Euxin Constanta - where Cocor SA is the majority shareholder - had opposed decisions made by Cocor in the General Meetings of the respective companies. Moreover, Fercala said that Cocor SA had even proposed to trade SIF 3 shares in the two companies for the shares held by Cocor and Daniel Stoica in SIF Transilvania after "they rushed to the National Securities Commission to denounce Fercala for having manipulated the market." "These are people you cannot deal with, people without common sense," Fercala added. Under these circumstances, Fercala announced he would buy more shares in Cocor "and harass them just as they harass us."