INTERNATIONAL BANK FOR COMMERCE AND DEVELOPMENT AD AND OTHERS v. BULGARIA

FOURTH SECTION

Application no. 7031/05
International Bank for Commerce and Development AD and Others
against Bulgaria
lodged on 17 February 2005

STATEMENT OF FACTS

1. The first applicant, International Bank for Commerce and Development AD (“the bank”), was a company formed in 1991 whose registered office was in Sofia, Bulgaria. On 28 May 2005 the Bulgarian National Bank (“BNB”), which has the power to regulate commercial banks, placed the bank under compulsory administration and appointed two special administrators to run it (see paragraph 45 below). On 14 June 2005 the BNB revoked the bank’s licence and extended the mandate of the special administrators pending the appointment of liquidators by the court (see paragraph 48 below).

2. The second applicant, Mr Boni Evlogiev Bonev, is a Bulgarian and Swiss national born in 1960 and living in Sofia. He is a shareholder in the bank. At the relevant time his family – wife and three children – lived in Switzerland.

3. The third and fourth applicants, Mr Svetlozar Venelinov Ivanov and Mr Atanas Radev Radev, are Bulgarian nationals born respectively in 1963 and 1937 and living respectively in Sofia and Varna. They say that on 24 June 2004 they were appointed as members of the bank’s executive board (see paragraphs 13, 14, 15, 35 and 39 below).

4. The fifth applicant, Mr Alexander Stefanov Panev, is a Bulgarian national born in 1961 and living in Sofia. He says that on 24 June 2004 he was appointed as executive director of the bank and chairman of the bank’s executive board (see paragraphs 13, 14, 15, 35 and 39 below).

5. The application was initially introduced also on behalf of twenty companies who had also been shareholders in the bank: Bemahague Investments Ltd, a company registered in Delaware, the United States of America; Briarfield Consultants Limited, a company registered in Belize; Card Transaction Services Ltd, a company registered in Delaware, the United States of America; Carina Consultants Inc, a company registered in Delaware, the United States of America; Flavors, Fragrances and Chemicals (FFCH) Ltd, a company registered in Delaware, the United States of America; General Foods Int’l Corp, a company registered in Delaware, the United States of America; Geneltech Ltd, a company registered in Delaware, the United States of America; Industrial Finance Int’l Corp, a company registered in Delaware, the United States of America; McMaden Securities Limited, a company registered in Belize; Megatours – A New Dimension in Travel – Inc, a company registered in Delaware, the United States of America; Mossview Trade Inc, a company registered in Delaware, the United States of America; Navarro Resources Inc, a company registered in Belize; Navasota Investments Ltd, a company registered in the Turks and Caicos Islands; Ozark Ventures Inc, a company registered in the Turks and Caicos Islands; Parham Investment Services, a company registered in the Turks and Caicos Islands; Petrofinance Ltd, a company registered in Delaware, the United States of America; Potenza Enterprises Ltd, a company registered in Delaware, the United States of America; Shephard Securities Ltd, a company registered in Belize; V.V.V. Holdings Corp, a company registered in Delaware, the United States of America; and Yoakum Trading Inc, a company registered in the Turks and Caicos Islands. In a letter dated 16 November 2005 those companies said that they wished to withdraw their complaints because they had transferred all their shares in the bank to the second applicant, Mr Bonev (see paragraph 36 below), and because the fact that Mr Bonev had not fully paid them the price of those shares had become an internal issue between them following the institution of winding‑up proceedings against the bank.

6. The applicants were initially represented by Ms Z. Kalaydjieva, a lawyer practising in Sofia. On 14 February 2008 she withdrew from the case and the applicants appointed Ms G. Petkova and Mr D. Kanchev, lawyers practising in Sofia, to represent them.

A. The circumstances of the case

7. The facts of the case, as submitted by the applicants, may be summarised as follows.

1. The bank’s shareholders and management

8. The bank was formed and entered in the register of companies in 1991. According to the BNB’s records, the bank’s shareholders on 31 March 2004 were the second applicant, Mr Bonev, who held 4.98% of the shares; his brother, Mr P.E.B., who also held 4.98% of the shares; the twenty companies listed in paragraph 5 above, each of which held between 4.98% and 2.81% of the shares; a Mr B.P., who held 0.19% of the shares; and a Mr P.B., who held 1.20% of the shares (see the attached table).

9. At the material time the bank has a two‑tier management system, consisting of an executive board and a supervisory board. Mr Panev and Mr Ivanov were members of the executive board between 30 May 2003 and 5 April 2004. In May and June 2004 Mr B.P. (see paragraph 8 above) was a member of the bank’s executive board and one of its executive directors.

2. The general meetings of the bank’s shareholders on 24 and 27 June 2004

10. In early 2004 tensions arose among the bank’s shareholders and between some of the shareholders and the bank’s management, apparently on account of loans extended by the bank to companies connected to some of its shareholders and managers. On 18 March 2004 Mr Bonev and Flavors, Fragrances and Chemicals (FFCH) Ltd, acting in their capacity as shareholders holding more than five per cent of the bank’s shares for more than three months, requested the executive board to call a general meeting of shareholders with a view to adopting amendments to the bank’s articles of association, reducing the number of members of the bank’s executive and supervisory boards from five to three, and replacing some of the boards’ members. The same day the executive board agreed to call such a meeting, but on 23 March 2004 the supervisory board set its resolution aside and called a general meeting of shareholders with a different order of business, to be held on 24 June 2004.

11. Thereupon Mr Bonev, Card Transaction Services Ltd, Flavors, Fragrances and Chemicals (FFCH) Ltd, Geneltech Ltd, General Foods Int’l Corp, Industrial Finance Int’l Corp, Megatours – A New Dimension in Travel – Inc, Petrofinance Ltd and V.V.V. Holdings Corp, acting in their capacity as shareholders holding more than five per cent of the bank’s shares for more than three months, applied to the Sofia City Court for an order adding the matters that they wished to have included on the general meeting’s order of business. On 14 May 2004 the chairman of the bank’s executive board and one of its executive directors objected to the request, saying that according to the bank’s register of shareholders, the persons who had made the request did not hold enough shares to be entitled to do so, and that the companies which had made the request had not produced proper credentials. On 8 June 2004 the court made an order in the terms sought by the applicants, noting that they had proved that they had held shares for more than three months through notarised declarations.

12. Separately, Mr Bonev and Flavors, Fragrances and Chemicals (FFCH) Ltd, again acting in their capacity as shareholders holding more than five per cent of the bank’s shares for more than three months, requested the Sofia City Court to authorise them to call a separate general meeting of shareholders, with the order of business that they wished to have. To prove their capacity as shareholders, they enclosed with their request provisional share warrants issued in 2003. On 17 May 2004 the Sofia City Court acceded to their request. On 20 and 26 May 2004 the chairman of the bank’s executive board and one of its executive directors, Mr B.P., requested the court to vary its order, arguing that the provisional share warrants had not been registered in the bank’s register of shareholders, and that the documents enclosed with the applicants’ request had not been issued by persons authorised to act on the bank’s behalf. On 20 and 28 May 2004 the court refused to vary its order, saying that it had no constitutive action and could not be varied.

13. On 24 June 2004 the applicants who were shareholders in the bank – Mr Bonev and the twenty companies listed in paragraph 5 above – showed up at the bank’s premises, the companies through proxies, in order to take part in the general meeting of shareholders. The remaining shareholders – Mr P.E.B, Mr B.P. and Mr P.B., who between them held 6.37% of the bank’s shares – were also present. The polling commission entrusted by the bank’s executive board with the task of checking the shareholders’ credentials refused to accept the provisional share warrants issued in 2003 through which the applicants sought to establish their capacity as shareholders. Noting that only 6.37% of the shares were duly represented, the polling commission decided to adjourn the general meeting for another date. A dispute ensued, and the applicants held a parallel general meeting of shareholders in the staircase of the bank’s building. At that meeting they resolved to amend the bank’s articles of association, to reduce the members of its executive and supervisory boards from five to three, to remove four members of the supervisory board and four members of the executive board (including Mr B.P.), and to appoint two new members of the supervisory board and three new members of the executive board, who were also to be executive directors (the applicants Mr Panev, Mr Ivanov and Mr Radev).

14. On 27 June 2004 he applicants who were shareholders in the bank – Mr Bonev and the twenty companies listed in paragraph 5 above – held a general meeting of shareholders at the Sofia Hilton hotel, as authorised by the Sofia City Court (see paragraph 12 above). They adopted the same resolutions as the ones that they had adopted on 24 June 2004. The police showed up at the meeting, trying to seize the applicants’ provisional share warrants. They were acting under orders issued by the prosecuting authorities in connection with criminal proceedings concerning the genuineness of those warrants which they had opened pursuant to complaints by Mr B.P. (see paragraphs 17‑22 below). It is unclear whether the police in fact carried out the seizure.

3. The Sofia City Court’s first registration decision

15. On 16 August 2004 the Sofia City Court, sitting in private, decided to enter the changes resolved upon at the general meeting on 24 June 2004 (see paragraph 13 above) in the register of companies. The court found that the change in the bank’s management and the amendment of its articles of association had been duly made. It registered the amendment to the bank’s articles of association and the reduction of the members of its executive and supervisory boards from five to three. The court also struck out of the register four members of the supervisory board and four members of the executive board (including Mr B.P.), and registered two new members of the supervisory board and three new members of the executive board, who were also to be executive directors (the applicants Mr Panev, Mr Ivanov and Mr Radev). Lastly, the court registered Mr Panev as chairman of the executive board. The court specified that its decision was to be registered in the register of companies and published, and that it was not subject to appeal.

16. The court’s decision was entered in the register of companies the afternoon of the following day, 17 August 2004. In the morning a notary public sent to the register of companies by Mr B.P. certified that the decision had not yet been entered in the register. On the same day the court issued a certificate reflecting the changes in the bank’s registration.

4. The criminal proceedings against some of the bank’s shareholders and managers

17. On 19 May 2004 Mr B.P. wrote to the police and to the Sofia District Prosecutor’s Office, alleging that the provisional share warrants on which Mr Bonev and Flavors, Fragrances and Chemicals (FFCH) Ltd had relied to obtain the court order of 17 May 2004 (see paragraph 12 above) were false and did not correspond to the entries in the bank’s register of shareholders. He pointed out that the warrants had been signed by Mr Panev and Mr Ivanov, and asked the authorities to open criminal proceedings and check whether any offences had been committed in relation to that.

18. On 4 June 2004 the police issued an order for Mr Panev’s arrest for twenty‑four hours under section 70(1)(1) of the Ministry of Internal Affairs Act 1997 (see paragraph 65 below), citing the fact that he had been put up for tracing. He was arrested and released later the same day. It does not seem that he has tried to bring any proceedings in relation to his detention.

19. In the following days Mr Panev and Mr Ivanov were charged with making false private documents, contrary to Article 309 of the Criminal Code 1968. Mr Bonev was, for his part, charged with using a false official document, contrary to Article 318 of the Code. The charges were later amended: Mr Panev and Mr Ivanov were charged with making false official documents, contrary to Article 311 of the Code, and Mr Bonev was charged with knowingly using a false document, contrary to Article 316 of the Code.

20. On 18 June 2004 the police carried out a search and seizure in the home of a lawyer who was the representative of one of the bank’s shareholders, Card Transaction Services Ltd. They were apparently looking for the provisional share warrants.

21. The same day, 18 June 2004, the police, relying on Article 153a of the Code of Criminal Procedure 1974 and section 75(3) of the Bulgarian Identity Papers Act 1998 (see paragraph 64 below), decided to take away Mr Panev’s and Mr Ivanov’s international passports. At about the same time they also took away Mr Bonev’s international passport.

22. The preliminary investigation was completed in January 2005 and the prosecuting authorities indicted the three applicants. Finding that the indictment suffered from various defects, on an unspecified later date the Sofia District Court referred it back to the prosecuting authorities. In April 2005 they re‑submitted the indictment, but the court again referred it back. At the time of the latest information from the applicants (16 November 2005), the proceedings were still pending at the preliminary investigation stage.

23. It appears that during that time two of the applicants twice sought and obtained permission to travel abroad on specific occasions, but were unable to benefit from those permissions as they were not transmitted to the border authorities in good time.

5. The service contracts between the bank and Mr Panev, Mr Ivanov and Mr Radev and their attempt to take up office

24. On 16 August 2004 Mr Panev, Mr Ivanov and Mr Radev entered into service contracts with the bank, represented by a member of its supervisory board. They undertook to sit on the bank’s executive board for three years following the registration of the resolutions of the general meeting of shareholders to appoint them as members of that board. In return, each of them was to receive a monthly salary of 10,000 Bulgarian levs (BGN) plus a host of other benefits.

25. The same day Mr Panev and Mr Ivanov tried to take up their duties, but the bank’s former management refused to vacate their offices and called the police, saying that they were not aware of any resolution to remove them. The next day, 17 August 2004, the bank’s former management forced the applicants out of the bank’s building, with help from the police. It appears that the police were acting on orders from the prosecuting authorities (see paragraph 26 below).

6. The proceedings before the prosecuting authorities

26. The same day, 17 August 2004, a prosecutor of the Sofia City Prosecutor’s Office ordered the police to assist Mr B.P. to prevent any changes in the status quo in the bank’s management and operations, and to warn Mr Panev, Mr Ivanov and a newly registered member of the bank’s supervisory board not to take any actions in relation to that until the matter had been duly resolved by the competent authorities. He relied on section 119(1)(6) of the Judiciary Act 1994 (see paragraph 56 below), and reasoned that the Sofia City Court decision of 16 August 2004 (see paragraph 15 above) was being verified by the Sofia District Prosecutor’s Office, that the record drawn up by the notary public (see paragraph 16 above) made it apparent that that decision had not been entered in the register of companies, which meant that it did not in fact exist, that the decision had been challenged by Mr B.P. before the Supreme Court of Cassation, and that by trying to put the decision into effect Mr Panev, Mr Ivanov and the newly registered member of the bank’s supervisory board were interfering with the bank’s normal business. The prosecutor found that, in view of the possibility for them to dispose of the bank’s documents and assets and imperil the interests of the bank’s depositors, this gave rise to a real risk of irreparable damage.

27. Mr Panev, Mr Ivanov and the newly registered member of the bank’s supervisory board appealed to the Sofia Appellate Prosecutor’s Office, arguing that the order was unlawful and arbitrary. They pointed out that the Sofia City Court’s decision was valid and immediately enforceable, that no appeal lay against it to the Supreme Court of Cassation, and that the prosecuting authorities had no power to stay its enforcement. The question whether a judicial decision had been entered in the register of companies was to be established on the basis of official documents issued by the competent court, not of a record drawn up by a notary public outside his competence. The certificate issued by the Sofia City Court (see paragraph 16 above) showed that its decision had in fact been duly entered in the register of companies.

28. On 23 August 2004 a prosecutor of the Sofia Appellate Prosecutor’s Office dismissed the appeal. He reasoned that the Sofia City Prosecutor’s Office had been spurred into action by information, given to it by the Sofia District Prosecutor’s Office, that the Sofia City Court’s decision to make changes in the bank’s registration might have been based on false documents. At the time when the Sofia City Prosecutor’s Office had issued its order, the Sofia City Court’s decision had not yet been entered in the register of companies. Proceedings against that decision were pending before the Supreme Court of Cassation. All of that showed that until the Sofia District Prosecutor’s Office had completed its inquiry into the matter or until the Supreme Court of Cassation had given judgment, there would continue to exist a risk of changes in the status quo and irreparable damage to the bank.

29. Mr Panev, Mr Ivanov and the newly registered member of the bank’s supervisory board appealed to the Supreme Cassation Prosecutor’s Office, reiterating their arguments.

30. On 7 September 2004 a prosecutor of the Supreme Cassation Prosecutor’s Office dismissed the appeal. She reasoned that it was beyond doubt that the prosecuting authorities were faced with a judicial decision under challenge and with evidence that that decision had been obtained through false documents. Moreover, the decision had been issued in spite of a decision staying the registration proceedings and the existence of pending contentious proceedings. The appellants’ argument that the Supreme Court of Cassation had no jurisdiction to hear a legal challenge against the Sofia City Court’s decision was unavailing because the prosecuting authorities were not competent to make pronouncements on such issues. Faced with pending judicial proceedings and a pending criminal investigation, the prosecuting authorities were bound to take measures to prevent changes in the status quo before any judicial resolution of the matter. The appellants’ attempts to change that status quo were premised on rights acquired through a judicial decision based on false documents. It was necessary for the judiciary to check the lawfulness of that decision and for the investigating authorities to gather evidence with a view to uncovering the truth. The bank had to be protected against damage flowing from offences that had already been committed and from the risk of future offences. The prerequisites of section 119(1)(6) of the Judiciary Act 1994 (see paragraph 56 below) were therefore in place.

31. Mr Panev, Mr Ivanov and the newly registered member of the bank’s supervisory board appealed to the Chief Prosecutor, arguing that the prosecuting authorities had acted in a patently unlawful way and in excess of their powers. Their decisions had been based on false findings of fact, and on the finding – not based on a final conviction – that offences had been committed by them.

32. On 28 September 2004 the head of the economic crime division of the Supreme Cassation Prosecutor’s Office, to whom the case had been assigned, dismissed the appeal. He reasoned that the prosecuting authorities had acted lawfully and within their powers under section 119(1)(6) of the Judiciary Act 1994 (see paragraph 56 below). The Sofia District Prosecutor’s Office was investigating the making of false documents with a view to obtaining changes in the bank’s registration, and the Sofia City Court’s decision had been challenged before the Supreme Court of Cassation. There had therefore been a need to preserve the status quo with a view to ensuring the normal operation of the bank.

33. The same day, 28 September 2004, a prosecutor of the Sofia District Prosecutor’s Office ordered the police to take all necessary measures to ensure compliance with the Sofia City Prosecutor’s Office’s order of 17 August 2004 (see paragraph 26 above) and ensure preservation of the status quo in the bank. He noted that criminal proceedings had been instituted against members of the bank’s newly appointed management in relation to documentary offences, and that information existed that a group of persons had tried to enter the bank’s premises. Mr B.P. and the applicants Mr Panev and Mr Ivanov had complained to the prosecuting authorities in relation to that. Since the criminal proceedings concerned allegations of using false documents to obtain judicial decisions to make entries in the register of companies, it was appropriate to maintain the status quo pending the resolution of the case. Indeed, this had already been ordered by the higher prosecutor’s offices, whose decisions were mandatory for the Sofia District Prosecutor’s Office. The prosecutor did not point to the legal basis for his decision.

34. In the following months Mr Bonev wrote a number of letters to the Chief Prosecutor and tried to meet him in person with a view to obtaining the quashing or varying of the above prosecutors’ decisions, to no avail. He also lodged complaints with the Minister of Justice and the Supreme Judicial Council.

7. The Sofia City Court’s second registration decision

35. In the meantime, on 24 August 2004 the Sofia City Court, sitting in private, decided to enter the changes and amendments resolved upon at the general meeting on 27 June 2004 (see paragraph 14 above) in the register of companies. The court found that the changes in the bank’s management and the amendment of its articles of association had been duly made. The changes registered by the court were identical to the ones registered in its decision of 16 August 2008 (see paragraph 15 above).

8. The share transfer

36. On 25 August 2004 the twenty companies listed in paragraph 5 above transferred their shares to Mr Bonev by endorsing the provisional share warrants issued in 2003. As a result, he became the owner of 93.63% of the bank’s shares. The applicants submit that Mr Bonev paid part of the shares’ price immediately and undertook to pay the remainder when the transfer would be registered in the bank’s register of shareholders. The applicants submit that they could not obtain the remainder of the price because the bank’s former management, who were de facto running the bank by virtue of the prosecutors’ decisions outlined in paragraphs 26‑33 above, refused to register the transfer.

9. The legal challenges against the two registration decisions of the Sofia City Court

37. On an unspecified date in 2004 Mr B.P. and Mr P.B. requested reopening of the Sofia City Court’s decisions of 16 and 24 August 2004 (see paragraphs 15 and 35 above).

38. On 4 February 2005 a three‑member panel of the Supreme Court of Cassation refused to hear the request. It observed that judicial decisions effecting entries in the register of companies were not subject to reopening. They did not determine disputes between opposing parties and did not have res judicata. The proper way to challenge entries in the register of companies obtained by criminal means was to bring claims under Article 431 § 2 of the Code of Civil Procedure 1952 with a view to having the entries erased under Article 498 of the Code (see paragraph 53 below). Mr B.P. and Mr P.B. appealed. After hearing the appeals on 22 June 2005, on 28 June 2005 a five‑member panel of the Supreme Court of Cassation upheld the three‑member panel’s rulings, fully agreeing with them.

39. In the meantime, Mr B.P. and Mr P.B. brought claims against the bank under section 74 of the Commerce Act 1991 (see paragraph 54 below), requesting the Sofia City Court to annul the resolutions of the general meetings of shareholders held on 24 and 27 June 2004 (see paragraphs 13 and 14 above). On 28 February 2005 the Sofia City Court allowed the claim relating to the general meeting on 24 June 2004, and annulled all resolutions of that meeting. It noted that the meeting, as called by the bank’s board, had been adjourned by the polling commission for lack of quorum and had not taken place. The meeting held by Mr Bonev and the twenty companies listed in paragraph 5 above had not been valid, because it had not been held at the place designated for the holding of the general meeting of shareholders, but in the bank building’s staircase. The court went on to find that at the meeting the companies had not duly established their capacity as shareholders. It concluded that the resolutions of 24 June 2004 had not been duly adopted and were to be annulled. On an unspecified date the Sofia City Court likewise allowed the claim relating to the general meeting on 27 June 2004 and annulled all resolutions of that meeting. The applicants appealed against those two decisions. At the time of the latest information from them on that point (May 2005), the proceedings were still pending.

10. Measures taken by the BNB in relation to the bank

40. Between in September 2004 and April 2005 the applicants repeatedly urged the BNB to exercise its supervisory powers and take measures to resolve the bank’s situation. On 4 October 2004 the BNB wrote to the Chief Prosecutor with a view to elucidating the effect of the prosecutors’ orders outlined in paragraphs 26‑33 above on the bank’s management, but apparently did not receive a reply.

41. On 10 February 2005 the BNB’s deputy‑governor in charge of banking supervision noted that Mr Panev and Mr Ivanov, who had been duly registered as members of the bank’s executive board, were being prevented from carrying out their duties as a result of the orders of the prosecuting authorities. This made it impossible for the bank’s executive board to function. The attempts to approach the Chief Prosecutor with a view to solving the problem had not been fruitful. At the same time, an check of the bank’s finances showed that its credit portfolio was deteriorating, and that the bank was not carrying out proper credit‑risk assessments. All of that seriously affected its stability and the interests of its creditors and depositors. It was therefore necessary to take urgent measures to solve the problem with the bank’s management. The BNB’s deputy‑governor therefore decided to call a meeting of the bank’s supervisory board on 11 February 2005, with a view to taking measures – possibly including changing the members of the bank’s executive board – that could allow the bank to be effectively managed. The BNB specified that its order was immediately enforceable and not subject to judicial review.

42. The next day, 11 February 2005, the bank’s supervisory board held a meeting at which it resolved to relieve Mr Ivanov of his duties as executive director of the bank and member of its executive board, and to appoint a Mr S.S. in his stead. The board noted that Mr Ivanov’s removal was not due to any failure on his part but to factors beyond the bank’s control.

43. On 18 February 2005 Mr Panev and Mr S.S. asked the Sofia City Court to register the supervisory board’s resolution. On 17 March 2005 Mr B.P. and Mr Bonev’s brother, acting in their capacity as shareholders in the bank, requested the court not to proceed with the registration pending the outcome of the proceedings in which Mr B.P. and Mr P.B. had challenged the resolutions of the general meeting of shareholders of 24 and 27 June 2004 (see paragraph 39 above). On 21 March 2005 the court acceded to their request, noting that the general meeting’s resolutions under challenge included the one to appoint the supervisory board whose resolution the court was being asked to enter in the register of companies. That registration was therefore to be adjourned pending the outcome of the proceedings against the general meeting’s resolutions.

44. In the following months the BNB repeatedly instructed the bank to take steps to overcome its difficulties. On 4 May 2005 it asked all persons engaged with running the bank to join efforts to remedy its situation.

45. On 28 May 2005 BNB’s deputy‑governor in charge of banking supervision decided to place the bank under compulsory administration and to appoint two special administrators to run the bank for three months. She noted that it had previously been established that the bank’s financial situation had substantially deteriorated and that its capital was below the amount required by law, which required immediate remedial action (in particular, the collection of some of the loans extended by the bank). Despite instructions to that effect by the BNB and a warning that failure to act would trigger harsher measures, the bank’s management had not taken such action. A report from a BNB inspector showed that the bank’s liquidity was worsening daily. The bank was therefore at risk of insolvency which its shareholders and management had not taken steps to avert. There was uncertainty in relation to the persons running the bank: those actually doing so no longer featured in the register of companies and were not in law entitled to act on the bank’s behalf, whereas those featuring in the register could not in fact do so because of the orders of the prosecuting authorities (see paragraphs 26‑33 above). That threw doubt on the reliability of the reports the bank was submitting to the BNB; there were reasons to believe that its actual financial situation was worse than apparent from those reports. At the same time, the infighting between the bank’s shareholders precluded outside help for the bank. All of that showed that the interests of the bank’s depositors were at serious risk, and the BNB had no choice but to place the bank under compulsory administration and appoint special administrators to run it. The BNB specified that its order was immediately enforceable and not subject to judicial review.

46. In the following days the special administrators invited the bank’s management and shareholders to take steps to resolve the bank’s situation. Mr Bonev entered into settlements with the other shareholders – his brother, Mr B.P. and Mr P.B. – whereby they agreed to resolve the disputes between them. Mr Bonev also tried to find companies which would step into the bad loans extended by the bank. However, on 8 June 2005 the special administrators wrote to Mr Bonev, informing him that the results of an audit that they had ordered showed that the only way to prevent the bank from sliding into insolvency and losing its licence was to sell immediately its risky loans. The administrators went on to say that if Mr Bonev was serious about preventing that from happening, he had to buy those loans before 5 p.m. the next day, 9 June 2005. He could buy them at their amortised value, which was BGN 30,407,000. Otherwise, they would be obliged to notify the BNB that the bank was insolvent.

47. On 14 June 2005 the applicants wrote to BNB’s governor and deputy‑governor, complaining of undue pressure and improper conduct on the part of the special administrators, and saying that one of them was forcing Mr Bonev to sell his shares in the bank at very unfavourable conditions.

48. The same day, 14 June 2005, BNB’s governor, relying on section 21(2) and (5) of the Banks Act 1997 (see paragraph 59 below), and acting on a recommendation by the deputy‑governor in charge of banking supervision, revoked the bank’s licence and extended the mandate of the two special administrators who had been previously appointed to run the bank. He observed that a report by the special administrators filed the previous day and the documents enclosed with it, all of which had been drawn up in line with the BNB’s requirements, showed that the bank’s liabilities exceeded its assets by BGN 19,181,000 and that its capital was negative – minus BGN 19,184,000. It could therefore be found beyond doubt that the bank was insolvent. The BNB was therefore bound to revoke the bank’s licence and petition the courts to open winding‑up proceedings against it. The special administrators previously appointed to run the bank were to continue to carry out their duties pending the appointment of a liquidator by the court. The governor specified that his decision was immediately enforceable and not subject to judicial review.

49. Following its decision to revoke the bank’s licence, the BNB lodged with the Sofia City Court a petition to declare the bank insolvent and to wind it up. As required by law (see paragraph 61 below), in those proceedings the bank was represented by the special administrators previously appointed by the BNB. Mr Bonev tried to intervene in the proceedings, citing concerns that the special administrators would not seek to protect the bank’s best interests; his request was apparently turned down by the court. At the time of the latest information from the applicants (16 November 2005), the Sofia City Court had not yet ruled on BNB’s petition.

50. On 24 June 2005 the BNB informed Mr Panev and Mr Ivanov that following the revocation of the bank’s licence, all their personal banks accounts were being frozen, as required under paragraph 4(1) of the transitional and concluding provisions of the Guaranteeing of Bank Deposits Act 1998 (see paragraph 63 below). The accounts would be unfrozen six months after the BNB had sought the opening of insolvency proceedings against the bank, unless in the meantime Mr Panev and Mr Ivanov had been charged with a criminal offence in relation to that, or unless the bank’s liquidator had brought claims against the two of them.

B. Relevant domestic law

1. The register of companies

51. The law governing the register of companies, which was at the material time kept by the territorially competent regional courts (for Sofia, the Sofia City Court), and legal challenges against entries in that register is set out in detail in paragraphs 49‑51 of the Court’s judgment in Shesti Mai Engineering OOD and Others v. Bulgaria (no. 17854/04, 20 September 2011).

52. It should in particular be mentioned that registration decisions were given in non‑contentious proceedings governed by Articles 424‑35 and 489‑501 of the Code of Civil Procedure 1952, in force until the end of February 2008. The proceedings could be initiated only by persons acting on behalf of the company, liquidators, or, in some very specific circumstances not relevant to the present case, by State authorities (Article 494). The procedure as a rule did not require a hearing (Article 496 § 1). Decisions granting a request to make the requested entries were not subject to appeal (Article 431 § 1) and were to be put into effect immediately (Article 497).

53. If a court decision making an entry in the register aggrieved any third parties, they could bring contentious proceedings, directing their claim against the person who benefited from the registration, and seek the annulment of the registration decision (Article 431 § 2). Such claims were examined under the general procedure applicable to civil proceedings through the three levels of the court system. If the courts allowed a claim for a judicial declaration that an entry in the register was inadmissible or void, or that the details registered did not correspond to actions which had in fact been taken, the registering court had to erase the entry of its own motion or pursuant to a request by an interested party (Article 498).

2. The Commerce Act 1991

54. Under section 74(1) of the Commerce Act 1991, any shareholder may apply to the courts to set aside a resolution of the general meeting of shareholders if it is unlawful or in breach of the company’s articles of association. The application must be made no later than three months after the meeting (section 74(2)).

3. Powers of the prosecuting authorities under section 119(1)(6) of the Judiciary Act 1994 and review or prosecutorial decisions under that provision

55. The powers of the prosecuting authorities under section 119(1)(6) of the Judiciary Act 1994 and the review of prosecutorial decisions are set out in paragraphs 38 and 41‑43 of the Court’s judgment in Zlínsat, spol. s r.o. v. Bulgaria (no. 57785/00, 15 June 2006).

56. It should in particular be mentioned that section 119(1)(6) of the Judiciary Act 1994, repealed by the Judiciary Act 2007, provided that in carrying out their duties prosecutors could “take all measures provided for by law, if they ha[d] information that a publicly prosecutable criminal offence or another illegal act [might] be committed”. The wording of that section closely matched that of section 7(1) of the Prosecutor’s Office Act of 1980, repealed in 1994, which provided that in case he or she “had information that a criminal offence or another illegal act might be committed, the prosecutor shall issue a warning and take all legally permissible measures to prevent them”. In 2007 the Judiciary Act 1994 was superseded by the Judiciary Act 2007. Section 145(1)(6) of the 2007 Act is cast in terms that are almost identical to those of section 119(1)(6) of the 1994 Act. There is no reported case‑law under any of those provisions.

57. By section 117 of the 1994 Act, prosecutors were independent of the courts in the performance of their duties. Section 116(1) provided that “all decisions and actions of a prosecutor [could] be appealed before the higher prosecutor’s office, unless they [we]re subject to judicial review”, which was – and is – the case in respect of some of their decisions made in the course of criminal proceedings. The Supreme Administrative Court has held that prosecutors’ decisions are generally not subject to judicial review, because they are not administrative decisions as the prosecuting authorities are part of the judicial branch of government, their task is the defence of legality, they are a centralised structure, and all prosecutors’ decisions may be challenged before higher prosecutors. Unlike decisions of the administrative authorities, which are subject to judicial review unless otherwise provided by law, prosecutors’ decisions may be scrutinised by the courts only if that is expressly provided for by law, which is not the case in respect of decisions under section 119(1)(6) of the Judiciary Act 1994 (опр. № 10697 от 25 ноември 2003 г. по адм. д. 4844/2003 г., ВАС, V о.; опр. № 3815 от 27 април 2005 г. по адм. д. № 3033/2005 г., ВАС, петчл. с‑в; опр. № 5065 от 2 юни 2005 г. по адм. д. № 11114/2004 г., ВАС, петчл. с‑в).

4. BNB’s powers in relation to commercial banks and the rules governing bank insolvency proceedings

58. The provisions of the Banks Act 1997 governing BNB’s supervisory and enforcement powers in relation to commercial banks (in particular, to appoint special administrators and to revoke a bank’s licence), the law governing judicial review of BNB’s decisions, and the provisions of the Banks Act 1997 and other statutes governing bank insolvency proceedings have been set out in detail in paragraphs 46‑67 of the Court’s judgment in Capital Bank AD v. Bulgaria (no. 49429/99, 24 November 2005).

59. It should in particular be mentioned that under section 21(2) of the Banks Act 1997 the BNB was required to revoke a bank’s licence on the ground of insolvency if the bank failed for more than seven working days to repay a debt which had fallen due, or if the sum total of the bank’s liabilities exceeded the sum total of its assets. In deviation from the general rules of administrative procedure, the BNB was not to inform the bank of the opening of the proceedings and did not have to examine or take into account the bank’s representations and objections, if any, and BNB’s decision to revoke the licence was immediately enforceable (section 21(5)). BNB’s decisions to revoke a bank’s licence or to appoint special administrators at a bank were excluded from judicial review (sections 21(5), 65(4) and 69(4)).

60. In relation to bank insolvency proceedings, it should be mentioned that only the BNB, not creditors or the bank itself, could petition for a winding‑up order against a bank (section 79(2) of the same Act). The BNB had a statutory obligation to lodge such a petition after revoking a bank’s licence on the ground of insolvency (section 79(1) of the Act). The petition needed only specify the formal grounds on which the bank’s licence had been revoked (section 79(3) of the Act).

61. On 28 December 2002 the provisions of the Banks Act 1997 governing bank insolvency were superseded by the Bank Insolvency Act 2002. Section 9(2) of the 2002 Act is almost identical to section 79(3) of the 1997 Act. Section 11(3) of the 2002 Act, as originally enacted, provided that in proceedings in which the court was to decide whether to grant BNB’s petition to open insolvency proceedings against a bank, a bank was to be represented by the BNB-appointed special administrators. A new subsection (4), added in 2006, now provides that shareholders who at the time of revoking of the bank’s licence hold more than five per cent of its shares are entitled to take part in the proceedings. However, section 16(1) provides that only the BNB, the special administrators appointed by it, and the public prosecutor may appeal the court ruling on the winding‑up petition against the bank.

62. On 1 January 2007 the remainder of the Banks Act 1997 was superseded by the Credit Institutions Act 2006. Section 103(3) and (4) of the 2006 Act are almost identical to section 21(5) of the 1997 Act (see paragraph 59 above), but section 151(3) provides that BNB’s decision to revoke a bank’s licence is subject to review by the Supreme Administrative Court.

63. Under paragraph 4(1) of the transitional and concluding provisions of the Guaranteeing of Bank Deposits Act 1998, when seeking the opening of insolvency proceedings against a bank BNB’s governor must request the investigating authorities to check whether the members of the bank’s executive and supervisory boards have committed offences, and must freeze their bank accounts and their immovable property. They are to be unfrozen unless within six months after the request for the opening of insolvency proceedings the investigating or prosecuting authorities inform the BNB that they have instituted criminal proceedings or unless the bank’s liquidator informs the BNB that he or she has brought a claim against the boards’ members (paragraph 4(3)).

5. International travel bans imposed in connection with pending criminal proceedings

64. The law governing international travel bans imposed in connection with pending criminal proceedings has been set out in detail in paragraphs 17-21, 23-24 and 26 of the Court’s judgment in Nalbantski v. Bulgaria (no. 30943/04, 10 February 2011) and paragraphs 43‑46 of the Court’s judgment in Pfeifer v. Bulgaria (no. 24733/04, 17 February 2011).

6. Police detention under the Ministry of Internal Affairs Act 1997

65. Under the Ministry of Internal Affairs Act 1997, as in force at the relevant time, the police could, on the basis of a written order to that effect (section 72(1)), arrest an individual who had committed a criminal offence (section 70(1)(1)). An individual taken in police custody was entitled to be assisted by counsel and seek judicial review of his detention (section 70(3) and (4)). The application had to be examined immediately (section 70(3) in fine). Police detention under section 70(1)(1) and (1)(2) could not exceed twenty‑four hours (section 71 in fine).

COMPLAINTS

66. In their introductory letter, postmarked 17 February 2005, and their application form, postmarked 5 May 2005, the applicants raise the following complaints:

(a) The bank complains under Article 1 of Protocol No. 1 that the prosecuting authorities prevented its management appointed in June 2004 from taking up its duties. The bank submits that the prosecuting authorities acted arbitrarily, whereas the BNB failed duly to exercise its supervisory powers and put an end to an unlawful situation, with the result that the bank’s financial situation was irretrievably prejudiced.

(b) The bank also complains under Article 13 of the Convention that it did not have effective remedies in that respect.

(c) The applicants who are shareholders in the bank complain under Article 1 of Protocol No. 1 that the actions of the prosecuting authorities interfered with the peaceful exercise of their rights in the bank. They also complain under that provision of the refusal of the bank’s de facto management to register the 25 August 2004 share transfer, which allegedly prevented Mr Bonev from fully exercising his rights under the shares that he had acquired by virtue of that transfer.

(d) The applicants who say that in June 2004 they were appointed as members of the bank’s executive board – Mr Panev, Mr Ivanov and Mr Radev – complain under Article 1 of Protocol No. 1 that as a result of the prosecuting authorities’ actions they were unable to take up and carry out their duties and accordingly receive remuneration for their services.

(e) All applicants complain under Article 6 § 1 of the Convention that the Sofia City Court’s decision of 16 August 2004 to register the resolutions of the general meeting of the bank’s shareholders to amend the bank’s articles of association and appoint a new management was not put into effect.

(f) All applicants further complain under Article 13 of the Convention that they did not have effective remedies in that respect.

(g) Mr Bonev, Mr Panev and Mr Ivanov complain under Article 6 § 1 of the Convention of the institution of criminal proceedings against them – which they say was done for the purpose of bringing pressure to bear on Mr Bonev to sell his shares in the bank and of legitimising the prosecuting authorities’ interference with the bank’s internal affairs – and of the length of those proceedings.

(h) The same three applicants complain under Article 13 of the Convention that they did not have effective remedies in those respects.

(i) They further complain under Article 8 of the Convention that the “lengthy” and “unfair” criminal proceedings against them tarnished their reputations.

(j) They go on to complain under Article 2 of Protocol No. 4 of the international travel ban to which they were subjected. Mr Bonev also complains under Article 8 of the Convention that the ban prevented him from maintaining normal contacts with his family in Switzerland and from attending his annual medical check‑up in Switzerland.

(k) They also complain under Article 13 of the Convention that they did not have effective remedies in respect of the travel ban.

(l) Mr Panev complains under Article 5 §§ 1 (c) and 3 of the Convention of his detention on 4 June 2004.

67. In a letter postmarked 6 July 2005 the applicants additionally complain under Article 1 of Protocol No. 1 and under Article 6 § 1 of the Convention of (a) BNB’s decision to revoke the bank’s licence, of (b) the fact that none of the other applicants could take part in the ensuing winding‑up proceedings against the bank, and of (c) the limited scope of the courts’ jurisdiction in such proceedings. Mr Panev and Mr Ivanov also complain of the freezing of their personal bank accounts as a result of the opening of winding‑up proceedings against the bank.

68. In a letter postmarked 16 November 2005 the applicants raise further complaints:

(a) They complain under Article 6 § 1 of the Convention of the length of the proceedings in which Mr B.P. and Mr P.B. sought reopening of the Sofia City Court’s two registration decisions.

(b) Mr Bonev, Mr Panev and Mr Ivanov raise further complaints in relation to the criminal proceedings against them. In particular, they complain that in view of the vagueness of the charges against them they were not duly informed of the accusation against them, and reiterated that those criminal proceedings – which according to them were not based on a reasonable suspicion that they had committed criminal offences – were being used for improper purposes.

(c) Mr Panev and Mr Ivanov also complain under Article 6 § 1 of the Convention and under Article 1 of Protocol No. 1 that they could not challenge the freezing of their personal bank accounts.

Shareholders in the bank on 31 March 2004,
according to information held by the BNB

Name of the shareholder

Percentage of shares

Mr Boni Evlogiev Bonev

4.98%

Mr P.E.B.

4.98%

Mr P.B.

1.20%

Mr B.P.

0.19%

Bemahague Investments Ltd

3.99%

Briarfield Consultants Limited

4.75%

Card Transaction Services Ltd

4.97%

Carina Consultants Inc

4.89%

Flavors, Fragrances and Chemicals (FFCH) Ltd

4.98%

General Foods Int’l Corp

4.92%

Geneltech Ltd

4.88%

Industrial Finance Int’l Corp

4.91%

McMaden Securities Limited

4.64%

Megatours – A New Dimension in Travel – Inc

4.01%

Mossview Trade Inc

4.03%

Navarro Resources Inc

3.95%

Navasota Investments Ltd

4.75%

Ozark Ventures Inc

2.81%

Parham Investment Services

3.99%

Petrofinance Ltd

4.38%

Potenza Enterprises Ltd

4.86%

Shephard Securities Ltd

3.97%

V.V.V. Holdings Corp

4.98%

Yoakum Trading Inc

3.99%

QUESTIONS TO THE PARTIES

1. How did the proceedings in which two of the bank’s shareholders, Mr B.P. and Mr P.B., challenged under section 74 of the Commerce Act 1991 the resolutions of the general meetings of shareholders of 24 and 27 June 2004 unfold? The parties are requested to provide copies of all judicial decisions in those proceedings, and specify whether those decisions led to changes in the bank’s registration under Article 498 of the Code of Civil Procedure 1952 or the provisions which replaced that Article.

2. Were the prosecuting authorities’ decisions ordering the maintaining of the status quo in the management and operations of the bank lawful within the meaning of Article 1 of Protocol No. 1? In particular, did section 119(1)(6) of the Judiciary Act 1994, which served as a legal basis for those decisions, contain sufficient safeguards against arbitrariness (see Zlínsat, spol. s r.o. v. Bulgaria, no. 57785/00, § 99, 15 June 2006)? Did the applicants have effective remedies in that respect, as required under Article 13 of the Convention? Was the resulting impossibility to put into effect the Sofia City Court’s decision of 16 August 2004 in breach of Article 6 § 1 of the Convention?

3. Was the decision of the Bulgarian National Bank (“BNB”) to revoke the bank’s licence lawful within the meaning of Article 1 of Protocol No. 1? In particular, was that decision surrounded by sufficient guarantees against arbitrariness (see Capital Bank AD v. Bulgaria, no. 49429/99, §§ 130‑40, 24 November 2005)?

4. Were the courts dealing with BNB’s petition to declare the bank insolvent competent to examine all issues relevant to determining whether the bank was in fact insolvent, as required by Article 6 § 1 of the Convention (see Capital Bank AD, cited above, §§ 98‑116)? Did the fact that in the winding‑up proceedings before the Sofia City Court the bank was represented by BNB‑appointed special administrators, and later on by court‑appointed liquidators, impinge on the fairness of the proceedings, in breach of Article 6 § 1 of the Convention (see Capital Bank AD, cited above, §§ 117‑19)? The parties are requested to provide copies of all judicial decisions in those proceedings.

5. Was the freezing of Mr Panev’s and Mr Ivanov’s personal bank accounts as a result of the opening of winding‑up proceedings against the bank in breach of the requirements of Article 1 of Protocol No. 1? Were they able to challenge that measure before a court, as required by Article 6 § 1 of the Convention? Did they have effective remedies in respect of it, as required by Article 13 of the Convention?

6. Was the length of the criminal proceedings against Mr Bonev, Mr Panev and Mr Ivanov reasonable, as required by Article 6 § 1 of the Convention? Did they have effective remedies in that respect, as required by Article 13 of the Convention? Did the length of the proceedings unduly interfere with their private lives, in breach of Article 8 of the Convention? The parties are requested to provide a comprehensive chronology of those proceedings and submit copies of all relevant documents.

7. Was the international travel ban imposed on Mr Bonev, Mr Panev and Mr Ivanov necessary in a democratic society, as required by Article 2 § 3 of Protocol No. 4 (see Pfeifer v. Bulgaria, no. 24733/04, §§ 55‑57, 17 February 2011)? Did the ban disproportionately interfere with Mr Bonev’s private and family life, in breach of Article 8 of the Convention (see Pfeifer, cited above, § 62)? Did the applicants have at their disposal, as required by Article 13 of the Convention – and avail themselves of, as required under Article 35 § 1 of the Convention – effective remedies in respect of the ban (see Nalbantski v. Bulgaria, no. 30943/04, § 54, 10 February 2011)?

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