RIGA - Latvia’s Constitutional Court has ruled that part of a credit-institution law violates property protection rights, thereby helping a claim by Parex Bank investors who complain that their holdings were diluted in the bank’s split-up, reports Bloomberg. Investors including Amber Trust SCA, Firebird, KJK Capital and East Capital lodged an appeal to the court after their stakes were diluted and left in the so-called ‘bad’ bank.
The investors saw their 8 percent stake in Parex reduced to 2 percent after the institution required a state rescue in 2008 - the bank essentially went bankrupt, forcing a state bailout - and turned to the court, since they were not allowed to purchase new shares or participate in capital increases.
“We do understand that you can’t go back in time and make the capital increases void,” said Antti Partanen, who represents the investors, in an interview. “We need to wait for the [new] government to form properly. When that is done we expect a person or persons or a team that can work constructively with us in ways to resolve the dispute.”
Latvia poured 1.1 billion lats (1.5 billion euros) of state guarantees, capital and liquidity support into Parex after the state rescue, much of which will not be recovered, and which forced the country to turn to a group led by the European Commission and the International Monetary Fund for a 7.5 billion euro loan package.
Initially Latvia took a 51 percent stake in the lender, later increasing it to 85 percent before splitting the lender and re-capitalizing it.
The Court ruled that a provision in the Credit Institutions Law, contested by the Parex Bank minority shareholders, is not in line with the Constitution’s Article 105, reports LETA. The provision, therefore, has been ruled void as of Oct. 19.
The seven Parex Bank minority shareholders had turned to the Constitutional Court claiming that the provision, which deals with increasing a credit institution’s equity capital, be lifted. In their petition, they said that this provision did not conform to the Constitution’s Article 1: “Latvia is an independent democratic republic,” and Article 105: “Everyone has the right to own property.”
The contested Credit Institutions Law provision says that if the Cabinet of Ministers, at a given credit institution board’s request, has taken a decision on the acquisition or increasing of qualifying holdings in the credit institution, the council of the credit institution has the right to, without calling a shareholders’ meeting and on behalf of the shareholders, take a decision on increasing the credit institution’s equity capital, and approve regulations on the equity capital increase. The existing shareholders in the credit institution have no priority rights over the new emission shares. If the equity capital is increased this way, the necessary amendments to the credit institution’s charter are passed by the council. If the nominal value of all the newly emitted shares is not paid up by the term provided for in the equity capital increase regulations, the increase in the equity capital is considered void, as are amendments to the credit institution’s charter.
The Constitutional Court began to review the case on Sept. 6. During the review of the case, the Constitutional Court interviewed, besides the attorneys for the plaintiffs, representatives from the Saeima Budget and Finance Committee, the Legal Affairs Bureau, the Cabinet of Ministers, Finance Ministry, the Latvian Commercial Banks Association, and the Financial and Capital Market Commission.