FIFTH SECTION
Application no. 36480/07
Ljubomir LEKIĆ
against Slovenia
lodged on 4 August 2007
STATEMENT OF FACTS
The applicant, Mr Ljubomir Lekić, is a Slovenian national, who was born in 1956 and lives in Ljubljana.
A. The circumstances of the case
The facts of the case, as submitted by the applicant, may be summarised as follows.
1. The background of the case
On 8 October 1992 the applicant became a shareholder in company L.E., a public limited company based in Ljubljana.
On 2 February 1993 the applicant was also employed by company L.E. as head of IT department, in addition to which he provided assistance to the finance director.
On 19 February 1993 two key shareholders and managers of company L.E. died in a car accident and two others were seriously injured. Consequently, the company’s management and business performance was seriously undermined and during 1993 all but two shareholders, the applicant and another shareholder, withdrew from the company management.
Following these events, the applicant first assumed the role of acting director of company L.E. on 29 April 1993, and the role of managing director on 23 February 1995. In this capacity he acted as the company’s representative.
In 1995, company L.E. was converted into a private limited company in accordance with the then newly applicable legislation.
On 6 May 1996 the applicant stepped down as managing director of company L.E. following a decision of the general meeting of the company. The shareholders failed to appoint a new managing director.
On 19 June 1997 the shareholders of company L.E. decided at its general meeting to apply for bankruptcy due to the company’s insolvency. Company L.E. submitted a proposal to the competent court, but it was rejected as it had failed to make an advance payment to cover the costs and expenses incurred in the bankruptcy proceedings.
On 31 July 1997 the applicant stopped working for company L.E.
2. Strike-off proceedings
On 19 January 2001 the District Court of Ljubljana, acting in its capacity as the registration court, ex-officio initiated proceedings to strike company L.E. off the court register of companies due to its lack of assets. The decision on the initiation of proceedings was entered in the court register of companies and an unsuccessful attempt was made to serve it on the company’s registered office.
As no objection was made against the decision to initiate the strike-off proceedings either by company L.E. or its shareholders, on 11 May 2001 the registration court rendered a decision to strike company L.E. off the court register of companies. The decision on the strike-off of company L.E. was published in the Official Gazette, and according to the applicant the court again attempted unsuccessfully to serve it on the company. Neither company L.E. nor any of its shareholders, who were entitled to lodge a complaint against this decision, complained.
On 25 September 2001 the notice of the strike-off of company L.E. from the court register of companies was published in the Official Gazette, whereby company L.E. ceased to exist.
According to the applicant he was not aware of the strike-off of company L.E. from the court register of companies until 22 December 2004, when he was served an enforcement order to seize his property.
3. Enforcement proceedings
Meanwhile, in 1993, the Railway Company of Slovenia had instituted proceedings against company L.E. for unpaid transport services.
On 22 November 2000 the District Court of Ljubljana had rendered a judgment in these proceedings and ordered company L.E. to pay approximately 5,000,000 Slovenian Tolars (approximately 20,000 Euros (EUR)), together with costs and interest.
On 5 June 2002 the Local Court of Ljubljana granted the Railway Company an enforcement order to seize the applicant’s personal possessions, which was later expanded to include his wages. The enforcement order was based on a statutory provision (Article 394 of the Companies Act in conjunction with Article 27 of the Financial Operations of Companies Act – see below, under relevant domestic law and practice), whereby the shareholders of struck-off companies are held jointly and severally liable for the debts of their respective former companies.
On 29 December 2004 the applicant lodged an objection against the enforcement order, stating, inter alia, that the court had failed to establish his actual role in company L.E. and acknowledge his status as an inactive shareholder, which would have exonerated him from the liability for the debts of company L.E. The applicant also applied for a stay of enforcement.
On 12 March 2005 the applicant’s objection was dismissed, the court having held that the applicant failed to prove he had not been an active shareholder in company L.E. The Local Court established that with his 11.11% share in company L.E., the applicant had enjoyed the rights of a minority shareholder, and furthermore, he had been employed by the company and actively involved in its management. In his capacity as acting director and later managing director he had been authorised to act on behalf of company L.E. Moreover, even after the applicant had resigned as managing director, he had still been active in the operations of company L.E. and he had also signed the application for bankruptcy. The Local Court further dismissed the applicant’s request for stay of the enforcement, as he failed to demonstrate that the enforcement would have caused him irreparable or serious damage.
On 9 February 2006 the Higher Court of Ljubljana dismissed the applicant’s appeal on essentially the same grounds as the first-instance court. It noted, inter alia, that the measure of piercing the corporate veil under the applicable Financial Operations of Companies Act was found by the Constitutional Court to be in accordance with the Constitution, and in particular with the principle of separation of corporate assets from those of their shareholders.
On 5 May 2006 the applicant lodged two constitutional complaints before the Constitutional Court, one concerning the strike-off proceedings and the other the enforcement proceedings.
On 16 January 2007 the Constitutional Court rejected his complaint regarding the strike-off proceedings. It observed that the applicant lacked legal interest to challenge the decision of the registration court, as company L.E. had already been struck off the court register of companies. Therefore, even a positive outcome of the constitutional complaint could not have improved the applicant’s legal position. As regarded the enforcement proceedings, the Constitutional Court concluded that the applicant’s human rights had manifestly not been violated and refused to accept the case for consideration.
B. Relevant domestic law and practice
1. Legislation preceding the Financial Operations of Companies Act (hereinafter “the FOCA”)
In 1988 the Undertakings Act was adopted in the former Socialist Federal Republic of Yugoslavia, which provided a legal framework for private ownership of undertakings. The Act enabled establishment of private undertakings to a wide range of investors by determining a relatively low capital stock.
After it became independent, Slovenia adopted, in 1993, the Companies Act which replaced the Undertakings Act in its entirety. This Act introduced important changes in the operations of companies and imposed on the existing companies a duty to align themselves with the new, more constricting legislation. Failing that, the companies were to be liquidated and ex-officio struck off from the court register of companies, while their former shareholders were to assume personal liability for their debts. However, it appears that these provisions were not effectively applied.
In 1997 the legislature responded by amending the then applicable Compulsory Composition, Bankruptcy and Liquidation Act, and introduced the ex-officio bankruptcy proceedings against inactive and/or insolvent companies.
2. The FOCA
In 1999, the FOCA was adopted which introduced new means of dealing with inactive and/or insolvent companies. The legislature observed that a great number of private companies were insolvent and unable to meet their liabilities, thus contributing to a poor financial discipline in corporate legal transactions and a precarious position of their creditors. It introduced the ex-officio measure of striking-off the companies from the court register of companies without liquidation (Chapter 3 of the FOCA), whereby they could be dissolved without a prior procedure of disposing of their assets and repaying the creditors. According to Article 25 of the FOCA, a company was to be struck off from the court register of companies if, inter alia, it could be presumed that it had no assets. The latter was deemed to be the case if a company made no payments through its registered account for twelve consecutive months.
In order to ensure protection to the creditors, the FOCA introduced personal liability of shareholders for the debts of the struck-off companies. It included a presumption that the shareholders of inactive companies intended to have their company dissolved, but failed to institute the liquidation or bankruptcy proceedings. According to Article 27 § 4 of the FOCA in conjunction with Article 394 § 1 of the Companies Act (applicable to the simplified procedure of winding up a company without liquidation), the shareholders were presumed to have made a statement to the effect that they assumed joint and several liability for any outstanding debts of the struck-off company. The companies’ creditors could pursue their claims against the shareholders within a year of the publication of the notice of the company’s strike-off from the court register of companies in the Official Gazette.
The decision to commence the strike-off proceedings, which was served on the company concerned and was entered in the court register of companies, could be objected within a two-month time limit by either the company itself, a shareholder of a company or a company’s creditor, on the ground that the reasons for the strike-off were wrongly established or that another procedure for the dissolution of the company, namely a compulsory composition, bankruptcy or liquidation had been initiated or applied for (Article 30 of the FOCA). If no objection was made against the decision to commence the strike-off proceedings or such an objection was dismissed, the registration court adopted a decision to strike the company off the court register of companies, which was served on the company concerned and published in the Official Gazette (Article 32 of the FOCA). An appeal against this decision could be lodged by a person who had lodged an unsuccessful objection, a shareholder of a company or a company’s creditor on the same grounds as the prior objection within 30 days of the service of the decision on a company or its publication in the Official Gazette (Article 34 of the FOCA). If no appeal was lodged against the decision to strike off the company or if such appeal was dismissed, the strike-off decision would become final, and a notice would be published in the Official Gazette (Article 35 of the FOCA).
In 2007, the legislature, having established that the Financial Operations of Companies Act constituted an interference with a number of principles of corporate law and had wide-reaching and adverse effects on the position of shareholders of the struck-off companies, decided to amend the Act and relieve the latter of their personal liability for the companies’ debts. The amendment provided that all proceedings related to the issue would ex-officio be terminated. A number of creditors, whose proceedings against former shareholders of struck-off companies were pending and were thus about to lose all possibility of repayment, lodged a constitutional petition and challenged the new regulation. The Constitutional Court consequently upheld their petition and annulled the challenged provisions, which in its view did not afford any protection to the creditors.
3. Financial Operations, Insolvency Proceedings and Compulsory Dissolution Act
On 15 January 2008 the Financial Operations, Insolvency Proceedings and Compulsory Dissolution Act was adopted to replace the Financial Operations of Companies Act. The new Act included similar provisions on personal liability of shareholders for the debts of the companies.
However, the Act on Proceedings for the Enforcement or Exoneration of the Shareholders’ Liability for Corporate Obligations, adopted on 19 October 2011, again relieved the shareholders from personal liability for the debts of the struck-off companies. This Act has been challenged before the Constitutional Court, where the proceedings are currently pending. Until the delivery of its final decision, the Constitutional Court has suspended the implementation of most of the provisions of the Act.
4. The Constitutional Court’s decision regarding the establishment of shareholders’ personal liability for the debts of a company
The regulation introduced by the FOCA (which provided for the personal liability of shareholders) was challenged before the Constitutional Court by a number of former shareholders of the struck-off companies. On 9 October 2002, the Constitutional Court dismissed the petition in part (Decision No. U-I-135/00), as it held that the measure of striking off an inactive company, which does not have assets, was not inconsistent with the Constitution. Such an economically inactive company, whose economic reality is however not known to its creditors, posed a threat to legal security of corporate legal transactions and the position of creditors.
The petitioners had also alleged that they could not effectively protect their rights in the strike-off proceedings, as the decisions on the commencement of proceedings as well as on the strike-off were not served on them personally. In response to this argument, the Constitutional Court held that the service of documents on the company, together with a public notification in the court register of companies or in the Official Gazette, was adequate. It observed that the measure was applicable to various forms of companies, some of them belonging to a multitude of shareholders. Personal service of documents would have been too time-consuming, and in certain cases impossible.
Nevertheless, as regards personal liability of the former shareholders, the Constitutional Court recognised the variety of legal and factual positions of shareholders of the struck-off companies and established a distinction between the so-called “active shareholders”, who were in a position to influence the operation of a company, and the so-called “inactive shareholders”, who exerted no such influence. It upheld the regulation insofar as it applied to the former category, but annulled it with respect to the inactive shareholders. In its reasoning the Constitutional Court established the criteria which the regular courts were required to consider in deciding on the position of the former shareholders. Those criteria were based on the subjective conduct of the shareholders and the extent of consequences that such conduct could have on the operation of the company. The courts deciding on the personal liability of shareholders were therefore required to consider, inter alia, their influence on the companies’ operations, their knowledge and involvement in the management of the company, the internal relations between the shareholders and the status of individual shareholders (whether they were individuals or legal entities).
COMPLAINTS
1. The applicant complains under Article 6 of the Convention that he was denied the right to a fair trial because he could not participate in the strike-off proceedings, as the decisions rendered in these proceedings were not served on him.
2. Relying on Article 1 of Protocol No. 1 to the Convention, the applicant complains that the strike-off of company L.E. constituted a disproportionate interference with his right to peaceful enjoyment of possessions, as the company in which he was a shareholder ceased to exist. He further complains under the same provision that his consequential personal liability for the company’s debts also constituted a disproportionate interference with his right to peaceful enjoyment of possessions.
3. The applicant also claims that he was denied an effective remedy under Article 13 of the Convention with respect to the strike-off proceedings, as he was unable to obtain redress for the violation of his right to participate in the proceedings and had no effective remedy against the decision to strike company L.E. off the court register of companies.
QUESTIONS
1. Did the applicant’s share in the company L.E., which had not been operating for approximately four years prior to the strike-off and at the time of its striking-off had no assets, constitute a “possession” within the meaning of Article 1 of Protocol No. 1?
2. Assuming that the applicant had a “possession”, did the termination of his share strike a “fair balance” between his right to peaceful enjoyment of his possessions and the general interest? Further, was a “fair balance” struck between these two competing interests in so far as the applicant became personally liable for the debts of company L.E.?
3. Having regard to the fact that the documents pertaining to the strike-off proceedings were not served on the applicant, was he given a fair possibility of having access to the said proceedings within the meaning of Article 6 § 1 of the Convention and could he have therefore effectively prevented the termination of his share in company L.E.?
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