The Ombudsman to the Ministry of Finance: The Rights of Nearly 2.5 Million Bulgarians with Dormant Shares Are Threatened
The ombudsman Diana Kovacheva sent her opinion to the Ministry of Finance on the bill for the so-called "dormant shares ", proposed by the ministry for public discussion by June 15 this year. It goes about a draft law on the settlement of relations regarding personal accounts for book-entry securities kept in the central security register by Central Depository AD, which the ombudsman does not support. The reason is that according to Assoc. Prof. Kovacheva, the bill affects the rights of nearly 2.5 million Bulgarians - shareholders, threatened to lose securities with a nominal value of about BGN 2 billion, acquired through mass privatization.
The project proposes overcoming the negatives for the capital market from the fragmentation of the book entry securities from the mass privatization by merging the shares traded on a regulated market into an investment fund and for the shares of non-public companies - by creating a portfolio. It is envisaged that the investment fund, respectively the portfolio will be managed by management companies, selected through a competition by a special body - management committee.
"Without denying the existence of a problem with the so-called " dormant shares "and the need to resolve it, I believe that a solution must be found that does not violate the rights of citizens, " the ombudsman wrote and set out her views.
The proposed project does not comply with: 1) the constitutional standard for protection of property and the international legal standards for peaceful use of property according to Art. 1 of Protocol No. 1 to the Convention for the Protection of Human Rights and Fundamental Freedoms; 2) the interests of the shareholders - the mass privatization minority shareholders.
The project proposes the rights of the citizens, turned by the state into "dormant shares " holders in the mass case without profitability in the securities market creation, left isolated from the financial system for more than 20 years, to become not only subject to restrictions but also to be taken away without compensation.
The proposed draft creates an opportunity for minority shareholders to be permanently removed from participation in the BG financial system, because their nominal existence as holders of "dormant shares " is an obstacle to Bulgarian financial system’s effective development. "I support the introduction of incentives to identify shareholders' rights, including by inheritance, the elimination of related financial costs exceeding the value of the shares, which often dissuade shareholders to take any action to 'awaken' them. " writes Assoc. Prof. Kovacheva and suggests: In the first place, the incentives should be aimed at eliminating the nominal / silent presence of "dormant " shares owners, motivating their holders to wake them up by easing the share management regime. But at the same time, complex measures are necessary to allow minority shareholders an access to the financial benefits of their shares, which would be a stimulus for their activation. Therefore, the solution to the problem of dormant shares should be sought not in the exclusion of minority shareholders from the capital market, but through appropriate forms of inclusion in it, in particular by institutional support and a broad information campaign to exercise the rights of the owners.
The Ombudsman also emphasized that the draft does not comply with the Law on Regulations (LR) - there is a forwarding for settling significant issues on the implementation of this law by issuing an ordinance by the Financial Supervision Commission. In addition, there is a reference to other laws, which does not contribute to the clarity of the legislation and creates preconditions for legal uncertainty for the holders of "dormant shares ".
"I find that the approach used in regulating relations by redirecting to a by-law or expert regulation level of significant issues of the shareholders rights and their transformation does not comply with the requirements of the LR. It stipulates that the regulation of important public relations should be carried out by law as the highest normative act in the legal hierarchy ", Kovacheva is categorical.