Legal duty of the CEO and shareholder to pay the company’s debts. No violation of the right to property protection

JUDGMENT OF THE GRAND CHAMBER

Lekić v. Slovenia  11.12.2018 (no. 36480/07)

see here  

SUMMARY

The case concerned striking a company off a court register and the subsequent liability of its
managing director for its debts. The strike off procedure was used against the applicant’s company
under new legislation introduced in 1999, which gave courts the power to strike off dormant
companies without having to wind them up. It resulted in him having to pay 32,795 euros to one of
the company’s creditors, the Railway Company of Slovenia.

The Court found in particular that making the applicant liable for his company’s debt had not been
disproportionate, bearing in mind that he had been actively involved in running the company. The
amount of debt he had had to pay was relatively modest, as he had not been the only focus of the
Railway Company’s claims. He had not therefore been made to assume an excessive and individual
burden.

The Court took into account the public interest in having the legislation and the national context,
which was the need to ensure financial stability during the transition from a socialist to a freemarket economy. Thousands of companies created under the former Socialist Federal Republic of Yugoslavia were dormant in the 1990s and “lifting the corporate veil” to make their members liable for the companies’ debts was intended to avoid the courts being inundated with years of winding-up proceedings.

PROVISION

Article 1 of the First Additional Protocol

PRINCIPAL FACTS 

The applicant, Ljubomir Lekić, is a Slovenian national who was born in 1956 and lives in Ljubljana.
During the 1990s, Mr Lekić was a member of the company L.E., holding an 11.11% share. He also
became an employee and eventually the managing director. Following the death or serious injury of
four key members and managers in 1993, the company experienced financial difficulties. It faced a
civil claim for 5,000,000 Slovenian tolars (approximately 20,000 euros) from the Railway Company of
Slovenia for unpaid bills for transport services. By 1995 the company was no longer liquid or solvent
and it eventually became dormant.

In 1997 the company’s remaining members applied for bankruptcy. However, the competent court
rejected the application as there had been no advance payment of costs. The members then decided
to wait for the court to decide of its own motion to liquidate L.E., which was possible under the law
at the time.

Slovenian company legislation was changed in 1999. The power of the courts to wind up and
liquidate companies of their own motion was repealed, and they were instead granted the power to
strike dormant companies off the court register without them being wound up. That allowed companies to be dissolved without their assets being collected and used to pay creditors. The members of struck-off companies would assume joint and several liability for companies’ debts.

In 2001, the new procedure was used on L.E., however, the strike-off decision could not be served
on the company as it was no longer at its registered address, or any other. According to Mr Lekić, he
had learned of the strike-off only in December 2004.

In the meantime, in 2000, the Railway Company had obtained a judgment for L.E. to pay it the
outstanding sum. The Railway Company subsequently applied for an enforcement order against the
seven members of L.E. for the judgment debt of about 20,000 euros with statutory interest. It was
granted an order to seize Mr Lekić’s personal possessions, which was served on him in December
2004.

Mr Lekić lodged an objection in court and applied for a stay. He argued that he had not been an
active member of L.E., which exonerated him from the debt. The Ljubljana Local Court found that he
had failed to prove his argument. With his 11.11% share in the company, the applicant had enjoyed
the rights of a minority member and, moreover, had been involved in the company’s management
since 1993. The court therefore upheld the order and refused to grant a stay of enforcement.
Appeals by Mr Lekić were rejected. In particular, the Constitutional Court of Slovenia held that the
measure of “lifting the corporate veil” in the case had been consistent with the Constitution.

In 2010 part of Mr Lekić’s monthly salary payments were seized to pay off the debt. He reached a
settlement with the Railway Company the following year. In total, he paid EUR 32,795 to his creditor.

THE DECISION OF THE COURT 

First, there was no dispute that the decision to hold Mr Lekić personally liable for a debt owed by
L.E. had amounted to an interference with the peaceful enjoyment of his possessions.

The Court found that that interference had been lawful within the meaning of Article 1 of Protocol
No. 1. It had been based on the new legislation introduced in 1999, which was accessible, precise
and foreseeable in its application.

In particular, the legislation, made public in the Official Gazette in July 1999, had to have made it
clear to Mr Lekić that his company ran the risk of being struck off and that he himself faced being
held liable for its debts. As a minority member of L.E. and its former managing director, he must
have been well aware of his company’s status and the proceedings brought against it by its creditor,
as well as the pertaining domestic law, particularly with regard to insolvent companies.

He could therefore have been expected to address any outstanding issues facing the company, and
also ensured some basic management such as collecting any letters addressed to it. The Court thus
dismissed his complaint about the failure to serve personally on him the decisions handed down in
the strike-off proceedings, and considered that their service on L.E., together with notification in the
court register or in the Official Gazette, was an adequate method.

Moreover, the Court found that the main purpose of interfering with Mr Lekić’s rights had been in
the public interest, namely to ensure stability in the commercial market and financial discipline in
the period of transition from a socialist to a free-market economy. By the end of the 1990s no less
than 6,500 companies created under the legislation of the former Socialist Federal Republic of
Yugoslavia existed only on paper, had large debts and no assets. Lifting the corporate veil so as to
make members of dormant companies liable for the companies’ debts had been intended to avoid
the courts being inundated with years of winding-up proceedings under the former legislation, with
significant financial implications for the State. Such liability was confined to those members who
were able to actively influence the operation of a company.

As concerned the applicant himself and the proceedings against him, the Court saw no cause to
disagree with the domestic courts’ reasoning concluding that he had been actively involved in the
running of the company and was therefore liable under the new legislation. Indeed, an amendment
to the legislation in 2002 had led to clear and consistent domestic case-law that members of struckoff companies holding at least a 10% share in a company, such as Mr Lekić, were personally liable for
their companies’ debts.

Furthermore, under the 1999 legislation L.E. and its members had had ample time – one year –
before the relevant law entered into force to institute proceedings to have the company dissolved,
which would have avoided the strike off and personal liability for the companies’ debts. Instead,
they had perpetuated the company’s existence even though it was unable to pay its debts or perform the activities for which it had been established. The Court set this conduct against the considerable adverse affects on the company’s creditor, Slovenian Railways, of being in a prolonged state of uncertainty as to whether the debt to it would be paid.

Lastly, the Court found that the amount of debt paid by the applicant had been relatively modest,
Slovenian Railways having pursued claims against other members of L.E. as well as against the
applicant. In any event he had not argued or provided any substantiation that he had suffered any
serious consequences because of it. If he considered that he had paid more than other active
members of L.E., he could have lodged a civil action against them seeking to be reimbursed.
Finding Mr Lekić liable for his company’s debt had not therefore been disproportionate and he had
not suffered an individual and excessive burden.

There had therefore been no violation of Article 1 of Protocol No. 1.

Separate opinions

Judges Raimondi, Nussberger, Lemmens, Ravarani, Paczolay and Zalar expressed a joint concurring
opinion, and Judges Turković and Mourou-Vikström a joint dissenting opinion. These opinions are
annexed to the judgment(echrcaselaw.com editing). 


ECHRCaseLaw

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