Information Note on the Court’s case-law 47

November 2002

Olczak v. Poland (dec.) - 30417/96

Decision 7.11.2002 [Section III]

Article 1 of Protocol No. 1

Article 1 para. 1 of Protocol No. 1

Deprivation of property

Drastic reduction in value of shareholding in bank: inadmissible

In November 1990, authorisation was granted for the establishment of the Lublin First Commercial Bank, a public company with foreig n capital. The bank was registered in January 1991. 97.5% of the shares were owned by one person, D.B. In April 1992, the applicant purchased 40% of the bank's equity capital from D.B.. The parties agreed to rescind this sale in June 1992. That same month, the bank took over some of D.B.'s shares following his failure to repay sums owed. The applicant subsequently deposited 307 shares purchased from D.B. The bank sought permission from the President of the National Bank to re-transfer ownership from the app licant to D.B. The President refused permission, citing the National Bank's duty to ensure that savings and investments entrusted to Polish banks were duly protected. D.B. had been extradited in the meantime to the USA and there convicted of financial frau d. There could be no guarantee of customers' interests if he remained the majority shareholder. Furthermore, there was a serious conflict of interest in that a number of companies owned by D.B. had received and defaulted on loans from the bank. In a second letter in August 1992, the President of the National Bank stressed the need to adopt a recovery and restructuring programme. The bank's losses for that year exceeded its capital resources. In February 1993, the National Bank appointed a Board of Receivers for 6 months, in view of the bank's continuing deterioration and the danger of insolvency and in order to improve its financial standing and preserve the assets deposited with it. An external auditors' report to the Board indicated that in 1992 the bank h ad been run in an unprofessional manner. The Board's original mandate was extended to November 1993 and subsequently renewed again. In October 1993, the Board amended the bank's memorandum of association. The nominal value of its share capital was reduced from 50 billion PLZ to just over 1 billion PLZ through the cancellation of more than half of the shares and very considerable reduction in the value of the remainder. The funds generated were used to cover the bank's losses. The bank's share capital was th en increased to 250 billion PLZ through the issue of 6.25 million new shares with extra voting rights. All of these were paid for by the National Bank and were allocated to it. Existing shareholders were prevented from acquiring new shares. The effect of t hese operations was to reduce the applicant's shareholding from approximately 45% to 0.4%. The Board further amended the bank's memorandum of association so as to permit the cancellation of shares by reducing share capital.

The applicant was involved in va rious sets of proceedings arising out of the reduction of his shareholding and sought to have the Board of Receivers' resolutions set aside. In July 1994, the Supreme Court ruled that the Board was empowered under the Banking Act to adopt resolutions on ma tters that were normally reserved by law or by the memorandum of association to the general meeting of shareholders. In October 1994, the action brought by another shareholder was dismissed by the Lublin Regional Court. The applicant joined these proceedin gs on appeal and contended that the Board's actions were illegal since it had deliberately harmed the interests of shareholders within the meaning of Article 414 of the Commercial Code. In June 1995, the Lublin Court of Appeal ruled that the National Bank had appointed the Board of Receivers in light of the very serious financial situation of the bank and in order to avoid insolvency and protect the assets of clients. The Supreme Court had found the actions of the Board to be lawful. The applicant had not e stablished that there was a deliberate intention to harm shareholders' interests.

Inadmissible under Article 1 of Protocol No. 1 – The Court considered that the applicant's joinder with the other shareholder in November 1994, leading to a final decision i n June 1995 that settled the applicant's situation, meant that it was competent ratione temporis to examine the complaint (Poland having accepted Protocol No. 1 in October 1994). As to the applicant's victim status, the Court recalled the considerable prob lems that would flow from recognising the locus standi of a shareholder to bring an action for damages in respect of prejudice to the company. A company's legal personality may be disregarded only in exceptional circumstances. The present case could be dis tinguished from previous cases in that  the shareholders' interests were directly affected. In addition, the very measures that negatively affected the shareholders were in the interests of the bank. Having regard to their economic value, company shares ar e “possessions” within the meaning of Article 1 of Protocol No. 1. The serious reduction in the value of the applicant's shares amounted to a loss of property and the applicant could therefore claim victim status.

Regarding the substance of the complaint, although the applicant was not technically divested of his shares, the reduction in their economic value constituted a deprivation of property. The interference had been found by the Supreme Court to be in accordance with domestic law. It was also in the p ublic interest, given the very serious financial situation of the bank, its ill-advised transactions and poor management, which failed to pay adequate attention to the interests of it clients and the security of its deposits. The bank had failed to take an y action to resolve its situation following the National Bank's warning in August 1992, apart from an unrealistic proposal to seek a commercial investor. Accordingly, the measures complained of did not upset the fair balance between the requirements of the general interests and the protection of the applicant's property rights. They were therefore not disproportionate to the legitimate purpose they pursued: inadmissible.

© Council of Europe/European Court of Human Rights This summary by the Registry does not bind the Court.

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