Communicated on 23 May 2018

FIFTH SECTION

Application no. 25207/11 TARGOVSKA BAZA OOD and Dimitar Nikolov POPNIKOLOV against Bulgaria lodged on 23 March 2011

STATEMENT OF FACTS

The first applicant, Targovska baza OOD, is a Bulgarian limited liability company registered in 1993 and having its registered seat in Varna. The second applicant, Mr Dimitar Nikolov Popnikolov , is a Bulgarian national, who was born in 1955 and lives in Varna.

A. The circumstances of the case

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

The first applicant is a company, which took over the assets of a former State-owned enterprise. The process of transformation of such enterprises into companies has been described in the “Relevant domestic law and practice” part below.

Until 1998 the State owned all shares in the first applicant. After the first applicant was offered for privatisation, in October 1998 a third party, company T., bought 70% of its shares. In May 2004, following a further privatisation procedure, the second applicant bought from the State the remaining 30% of the shares.

In July 2004 T. transferred its shares in the first applicant to another company, wholly owned by the second applicant. At that time the second applicant was also the managing director of T . .

In the meantime, in October and December 2002 and in 2004 the Post ‑ Privatisation Control Agency (hereinafter “the Agency”), brought several sets of proceedings against T. seeking payment of the penalties stipulated in the privatisation contract for the latter ’ s delay in paying a part of the sale price and for its failure to fulfil its additional obligations to make investments and maintain a number of jobs. Those claims were allowed by the courts (the applicant company has not submitted the judgments given). In 2005 and 2006 the Agency obtained three writs of execution, ordering T. to pay to it 248,133 Bulgarian levs (BGN, the equivalent of 126,922 euros (EUR)) and 50,000 United States dollars (USD).

In the context of the above proceedings, the Agency sought, as an interim measure, distraint of T. ’ s shares in the first applicant. On 16 September 2004 the Varna Regional Court refused to impose such a measure, pointing out that the shares at issue were no longer in T. ’ s property.

On 28 February and 5 March 2007, upon an application by the Agency on the basis of paragraph 8 of the transitional provisions of the Privatisation and Post-Privatisation Control Act (see “Relevant domestic law and practice” below), a property register official registered a mortgage against several real properties of the first applicant as a security for T. ’ s debt.

On an unspecified date the first applicant brought proceedings against the Agency, seeking that the mortgage be declared null and void and struck off the register. It argued in particular that paragraph 8 of the transitional provisions referred to above was not applicable to already existing privatisation contracts, and that it and its shareholders had not been parties to the privatisation contract entered into by T., which meant that their property rights were being unjustifiably affected.

The action was dismissed on 13 July 2009 in a judgment of the Varna Regional Court, which found, relying on paragraph 8 of the transitional provisions referred to above, that the mortgage was valid, seeing that this provision did not require that the mortgaged property be owned by the defaulting buyer under the privatisation contract. According to the domestic court, paragraph 8 offered “reinforced protection” to the State and allowed it to satisfy its claims in all cases, including

“where the defaulting buyers deliberately and in ill faith have transferred their shares in the privatised companies to third parties ..., thus seeking to put an end to their indirect “connection” with the privatised company ’ s property .”

Upon appeal by the first applicant, on 6 November 2009 the above judgment was upheld by the Varna Court of Appeal. Addressing particularly the applicant ’ s argument that paragraph 8 of the transitional provisions referred to above was being applied retroactively, it pointed out that this was not so, because the failure of T. to meet its obligations under the privatisation contract had continued well after this provision ’ s adoption. It held furthermore that, in acquiring shares which had been the subject of privatisation, subsequent buyers of such shares “took over some rights and obligations” and could not be said to be “unbound” by the privatisation contract.

In a final decision of 24 September 2010 the Supreme Court of Cassation refused to accept for examination the first applicant ’ s appeal on points of law.

On an unspecified date company T. was declared bankrupt and was subject to liquidation proceedings.

B. Relevant domestic law and practice

The process of transformation of State and municipally-owned enterprises into companies in the beginning of the 1990s has been described in Sivova and Koleva v. Bulgaria (no. 30383/03, §§ 45-49, 15 November 2011). Most notably, it involved the dissolution of the enterprise and the creation of a new subject – a commercial company, which became the owner of all assets until then used and managed by the enterprise. This process of transformation and the subsequent process of privatisation were in particular regulated in the 1992 Transformation and Privatisation of State and Municipally-Owned Enterprises Act ( Закон за преобразуване и приватизация на държавни и общински предприятия ). It remained in force until 2002, when it was superseded by the Privatisation and Post ‑ Privatisation Control Act ( Закон за приватизация и следприватизацион e н контрол ). The body competent to exercise post ‑ privatisation control under that act was the Agency,

In 2006 Parliament added paragraph 8 to the transitional provisions of the Privatisation and Post-Privatisation Control Act. Under that provision, in cases where persons who had bought shares in State or municipally-owned companies had not met their obligations under the privatisation contracts, the Agency could seek to have a mortgage registered in its favour ( законна ипотека ) against real properties belonging either to those persons (the buyers in the privatisation procedure) or to the privatised companies. A 2008 amendment to paragraph 8 allowed other security measures against the assets or properties of the privatised companies.

According to media reports, the Agency used this provision to register more than 400 mortgages against the properties of privatised companies. The Agency ’ s director at the time explained to journalists that some of the companies which had participated in the privatisation had been created especially for that purpose and did not have any assets save their shares in the privatised companies. As a result, the properties of the privatised companies in which they had shares were considered “the most reliable” security for their obligations.

In 2010 the national Ombudsman applied to the Constitutional Court to have paragraph 8 of the transitional provisions of the Privatisation and Post ‑ Privatisation Control Act struck down as contrary to the Constitution and international human rights treaties, including the Convention. However, in a decision of 2 December 2010 the Constitutional Court refused to examine the application, finding it inadmissible.

On 21 March 2013 the European Commission delivered a reasoned opinion under Article 258 of the Treaty on the Functioning of the European Union, considering that in introducing paragraph 8 Bulgaria had breached the rules on the free movement of capital and the freedom of establishment (Articles 49 and 63 of the Treaty). The Commission expressed concern that even where only one of the shareholders in a privatised company had breached its obligations under the privatisation contract, paragraph 8 authorised the State to impose mortgages and other security measures not only on the property of that shareholder but also on the property of the privatised company. In its view, this infringed the interests of direct and portfolio investors from the European Union, in particular impeding direct investors with controlling shareholding in a privatised company from managing it effectively.

In 2015 Parliament repealed paragraph 8 of the transitional provisions of the Privatisation and Post-Privatisation Control Act. The explanatory note accompanying the bill reiterated the reasons given in the European Commission ’ s reasoned opinion.

After this amendment, on 24 September 2015 the European Commission closed the infringement case.

COMPLAINTS

The applicants complain under Article 1 of Protocol No. 1 of the liability of the first of them for T. ’ s debts and of the mortgage against properties of its to secure these debts. The applicants contend that the interference with their rights under Article 1 of Protocol No. 1 breached the requirement of legal certainty, and that it imposed on them a disproportionate burden, seeing that they had been third parties to the privatisation contract entered into by T. .

QUESTIONS TO THE PARTIES

1. Has there been an interference with the applicants ’ “possessions” within the meaning of Article 1 of Protocol No. 1? If so, was that interference in compliance with the requirements of that provision?

2. Have there been any new developments after the submission of the application to the Court? In particular, have the first applicant ’ s mortgaged properties been sold?

3. The parties are requested to provide the domestic court judgments establishing the debts of T. as a result of which the properties belonging to the first applicant were mortgaged.