Last Updated on October 3, 2020 by LawEuro
Information Note on the Court’s case-law 224
December 2018
Lekić v. Slovenia [GC] – 36480/07
Judgment 11.12.2018 [GC]
Article 1 of Protocol No. 1
Article 1 para. 1 of Protocol No. 1
Peaceful enjoyment of possessions
Personal liability of a shareholder for the debts of a struck-off company pursuant to special legislation on dormant companies: no violation
Facts – In the 1990s Slovenia had to address the problem of a growing number of dormant and insolvent companies set up under the former Socialist Federal Republic of Yugoslavia. In 1999 the Financial Operations of Companies Act introduced a procedure for the automatic striking-off of such companies and provided that shareholders would be jointly liable, on their personal property, if they failed for a certain time to apply for such companies to be wound up. In 2002 the Constitutional Court declared constitutional this exception to the principle of the corporate veil, but restricted it to the “active” shareholders, i.e. those who had some influence on the running of the company.
Being a shareholder and the last managing director of a limited liability company struck off in 2001 through the automatic procedure, the applicant complained that he had not been informed of the strike-off procedure and that he had then been ordered in 2007 to pay over thirty thousand euros to the company’s main creditor.
In a judgment delivered on 14 February 2017 (see Information Note 204), a Chamber of the Court found Article 1 of Protocol No. 1 to be applicable but held, unanimously, that there had been no violation of that Article. On 18 September 2017 the case was referred to the Grand Chamber at the applicant’s request.
Law – Article 1 of Protocol No. 1
Taking account of the context, and in particular the decision of 2001 to strike off the company in question, the Court examined the case in the light of the first rule of that Article (the “respect for the enjoyment of possessions” principle).
(a) Lawfulness of the interference – The striking-off of the company from the companies register, together with the applicant’s personal liability for the debts of the company, was based on the Financial Operations of Companies Act, which provided that a strike-off procedure had to be initiated if, for example, for twelve consecutive months, the company had not registered any payment transactions in its accounts. The shareholders of such a company were then presumed to have agreed to share joint liability for the company’s debts. That legislation had been accessible to the applicant and sufficiently clear to enable him to foresee that his company would be struck off and that he would be personally liable for any debts.
In his capacity as shareholder and former managing director of the company, the applicant must have been perfectly aware not only of the company’s situation but also of the civil proceedings brought by its creditors. The applicant could thus have been expected to pay some attention to this matter. He should have done what was necessary to collect any letters addressed to the company. In addition, having regard to the reasonably long time-frames afforded to the shareholders in order to challenge the decisions rendered for the striking-off of such companies, the Court found that the notification of the strike-off decisions to the company and alternatively their publication in the Companies Register or Official Gazette had been sufficient.
Moreover, the distinction made by the Constitutional Court between “active shareholders”, capable of influencing the company’s management, and “passive shareholders”, without such authority, had resulted de facto in settled domestic case-law to the effect that personal liability for the debts of the company was attributed to shareholders who held at least 10% of the registered capital. That threshold was not arbitrary, in view of the rights attached to it by law. International organisations which dealt with such matters, such as the OECD or the IMF, had applied a similar test in making a distinction between “direct” investors and ordinary “portfolio” investors.
The Court thus concluded that the interference was lawful.
(b) Aim of the interference – One of the side effects of the transition in the respondent State from a socialist to a free-market economy was the existence of a large number of dormant companies with debts. The main purposes of the Financial Operations of Companies Act were to ensure stability in the commercial market and financial discipline, while protecting the creditors of such companies. In view of the particularly broad margin of appreciation afforded by the domestic authorities in matters of economic and social policy, the Court did not see any reason to doubt that the impugned measure was in the general interest.
(c) “Fair balance” between the interests at stake – There could be no doubt that the Financial Operations of Companies Act entailed extensive consequences for many individuals, who became personally liable for their respective companies’ debts. However, the exceptional character of the circumstances that might warrant the lifting of the corporate veil essentially came down to the nature of the issues to be decided by the competent national court, not to the frequency of such situations. In other words, it did not mean that this kind of measure might be justified only in rare cases.
The impugned Act had admittedly undergone at least two series of legislative amendments and appeals to the Constitutional Court. However, it could be seen from the relevant considerations in the preparatory work and the reasoning of the Constitutional Court that genuine efforts had been made by the competent authorities to achieve a fair balance between the interests of the creditors of struck-off companies and those of the members of such companies. The quality of the parliamentary and judicial review of the necessity of that legislation and of the measures adopted was such as to warrant a wide margin of appreciation as regards the legislative and judicial choices made. The divergence of views expressed in the legislature, on the one hand, and the Constitutional Court, on the other, had to be regarded as falling within that margin of appreciation.
In the present case, in order to declare him personally liable for the debt of the company of which he was a minority shareholder, the courts found that the applicant had not provided the evidence that he had had no “active” role in its management. The applicant had held more than 10% of the company’s capital and had enjoyed the rights of a minority member, and in his capacity as managing director he had been authorised to act on behalf of the company. Furthermore, it was irrelevant that he had resigned as managing director, as was the question whether or not he had become a member of the company before or after the creditor’s claim had arisen, or whether he had actually applied for winding-up, as the fees payable in advance had not been paid.
The Court saw no cause to disagree with the reasoning of the national courts and it was not persuaded that the domestic courts should have attached more weight to other factors that he had adduced and absolved him from his personal liability. As presumptions of fact or of law operated in every legal system, including in the area of criminal law, presumptions could a fortiori be accepted in the area of company law, where the right to respect for possessions might be at stake. There was nothing to indicate that the manner of the application of the relevant burden of proof in the applicant’s case had overstepped the admissible limits.
Regarding the specific situation of the company in issue, it had been converted from a public limited company into a limited liability company, in which shareholders played a greater role, in 1995. At the time, the company was already inadequately capitalised and had acted in breach of the applicable rules of company law. Moreover, it had not applied for winding-up until two years later, when it was evidently lacking any assets whatsoever. It had also failed to make the required advance payment for the costs of the proceedings and instead decided to wait until such proceedings were instituted of the court’s own motion.
While it was true that the legislature, in introducing rules for the striking-off of companies from the register, had abolished the possibility of a company being wound up of the court’s own motion, the application of the change had been deferred by one year – a time that was sufficient for those concerned to avoid personal liability, provided they paid the fees for the winding-up procedure. Instead of that, although the company was not able to pay its debts or to perform the activities for which it had been established, it perpetuated its existence. The Court saw no grounds for calling into doubt the fact that such companies posed a threat to the proper functioning of the market.
In addition, the effect of reducing the capital below the statutory limit and eventually exhausting it completely, coupled with prolonged failure to institute winding-up proceedings, had had considerable adverse effects on the position of the company’s creditor. The latter had been subjected to prolonged uncertainty as to whether its debt would be repaid. Such a lengthy course of proceedings could have been avoided if the company had applied for winding-up in a timely manner.
Lastly, the applicant had not shown that he had suffered a significant disadvantage. The amount of the debt paid by the applicant was relatively modest and the creditor had also pursued its claim against other shareholders. Therefore, the Court had no factual grounds to establish that the impugned measure, which was based on the statutory rule of unlimited liability of the applicant for the outstanding debts of the company, was disproportionate. Lastly, if the applicant had considered that he had paid more than other active members of the company, he could have lodged a civil action against them seeking to be reimbursed.
In the light, in particular, of the applicant’s involvement in the running of the company, the amount of the debt paid by him and the national context at the relevant time, the Court found that the impugned measure had not entailed the imposition of an individual and excessive burden on the applicant. The State’s wide margin of appreciation in this field had not therefore been overstepped.
Conclusion: no violation (fifteen votes to two).
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