Communicated on 23 May 2018

FIFTH SECTION

Applications nos. 34655/11 and 33859/12 IZGREV AD and TK-HOLD AD against Bulgaria and AVTOTRANSSERVIZ AD against Bulgaria lodged on 25 May 2011 and 22 May 2012 respectively

STATEMENT OF FACTS

The applicants in the first case, Izgrev AD (“the first applicant”) and TK ‑ Hold AD (“the second applicant” ), are Bulgarian joint-stock companies. The first of them was registered in 1991 and has its seat in Oryahovo . The second applicant was registered in 1996 and has its seat in Sofia. The applicant companies are represented before the Court by Ms S. Margaritova-Vuchkova , a lawyer practising in Sofia.

The applicant company in the second case, Avtotransserviz AD, is a Bulgarian joint-stock company, which was registered in 1990 and has its seat in Sofia. It is represented before the Court by Mr M. Ekimdzhiev and Ms G. Chernicherska , lawyers practising in Plovdiv.

A. The circumstances of the case

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

1. The first case (application no. 34655/11)

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 1997 the State owned all shares in the first applicant. After the first applicant was offered for privatisation, in 1997 the second applicant bought 80% of its shares, and in 1998 a third company, I., bought from the State a further 8% of the shares.

The applicants submit that I. does not participate in the first applicant ’ s management bodies. Moreover, the applicants were not aware whether and how I. had fulfilled its obligations under the privatisation contract.

In 2004 and 2005 the Post-Privatisation Control Agency (hereinafter “the Agency”) brought proceedings against I., seeking payment of different instalments of the price due under the 1998 privatisation contract. Those claims were allowed (the applicants have not submitted the judgments given). In 2005 the Agency obtained a writ of execution against I . . No part of the debt was paid however, and in 2007 the sum due by I., including interest and penalties accrued by that time, totalled 56,393 Bulgarian levs (BGN, the equivalent of 28,845 euros (EUR)). In 2009 the Agency obtained another writ of execution against I., ordering it to pay a further BGN 30,196 (the equivalent of EUR 15,455).

On 15 February 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 belonging to the first applicant as a security for I. ’ s debt. Subsequently a bailiff ordered the public sale of those properties.

On 26 May 2009 the first applicant applied to the Vratsa Regional Court to have the bailiff ’ s actions in preparation of the sale invalidated. The first applicant pointed out that it had never agreed to provide security for I. ’ s debt, that it had not been a party to the 1998 privatisation contract, and that I. owned only 8% of its shares. The first applicant argued that the disputed measures breached its right to property.

In a decision of 19 June 2009 the Vratsa Regional Court found the first applicant ’ s application inadmissible. It pointed out that the bailiff ’ s actions had been based on a mortgage of its properties and that the applicant actually meant to challenge the mortgage, which, however, it had to do in different proceedings. The first applicant did not appeal against this decision.

The first applicant did not bring proceedings to seek to have the mortgage declared null and void and struck off the register. It sent letters to the Agency, complaining of the situation, and on 15 November 2010 received an answer in which the Agency considered its own actions lawful in light of paragraph 8 of the transitional provisions referred to above.

On 25 November 2010 the bailiff held a public sale and sold to a third party two industrial buildings owned by the first applicant. The sale price was sufficient to cover the entirety of I. ’ s debt, which by that time had increased to BGN 120,673 (the equivalent of EUR 61,725) – the sums of the two writs of execution mentioned above, plus additional interest, penalties and costs. By a decision of 4 April 2011 the bailiff transferred that money to the Agency.

2. The second case (application no. 33859/12)

The applicant company 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 applicant company. In 1998, when the applicant company was offered for privatisation, another company, S., bought from the State 67% of its shares.

In 2003 S. transferred its shares in the applicant company to a third party.

In 2001 and 2003 the Agency brought proceedings against S., seeking payment of the penalties stipulated in the privatisation contract for the latter ’ s failure to fulfil some of its obligations under that contract, namely to make investments and maintain a number of jobs. Those claims were allowed by the courts in 2001 and 2005 (the applicant company has not submitted the judgments given). In 2005 the Agency obtained two writs of execution against S. No part of the debt was paid by S., and in 2007 the sum due by it, including interest and costs, totalled BGN 919,286 (the equivalent of EUR 470,223).

On 28 November 2008, upon an application by the Agency on the basis of paragraph 8 of the transitional provisions of the Privatisation and Post ‑ Privatisation Control Act, a property register official registered a mortgage against several real properties of the applicant company as a security for S. ’ s debt. The applicant company was not informed of the mortgage.

After the Agency initiated enforcement proceedings, in 2011 the same properties were placed by a bailiff under an injunction. On 1 June 2011 the applicant company applied to the Plovdiv Regional Court to have this measure invalidated. It argued that it was a “third party” whose rights had been affected by the enforcement proceedings and pointed out that it owed nothing to the State. It noted moreover that S. had never been the owner of the mortgaged properties and that in 2003 it had terminated its shareholding in the applicant company.

In a decision of 1 July 2011 the Plovdiv Regional Court found the application inadmissible. Relying on paragraph 8 of the transitional provisions referred to above, it found that the applicant company had to be considered a “debtor” in the enforcement proceedings, which meant that it was not entitled to challenge the bailiff ’ s actions claiming to be an affected “third party”. Upon an appeal by the applicant company, on 2 November 2011 the Plovdiv Court of Appeal upheld that decision.

The applicant company did not bring proceedings to seek to have the mortgage declared null and void and struck off the register. It has not informed the Court of any events following the lodging of its application and, in particular, whether its mortgaged properties have since been sold.

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 ).

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.

Many affected privatised companies brought proceedings against the Agency, seeking to have the mortgages against their properties declared null and void and struck off the property register, on the grounds that they had been third parties to the privatisation contracts. The constant practice of the national courts was to dismiss such actions, finding that paragraph 8 of the transitional provisions referred to above constituted a sufficient legal basis for the contested measures and, on some occasions, that they were not competent to examine its alleged incompatibility with provisions of the Constitution ( Решение № 865 от 14.01.2008 г. по гр. д. № 529/2007 г., РС-Ловеч ; Решение № 102 от 27.05.2008 г. по в. гр. д. № 109/2008 г., ОС-Ловеч ; Решение № 212 от 10.11.2010 г. по гр. т. д. № 73/2010 г., АС-Велико Търново ; Решение № 258 от 1 3 .0 7 .200 9 г. по т. д. № 258/2009 г., ОС-Варна ; Решение № 212 от 06.11.2011 г. по в. т. д. № 464/2009 г., АС-Варна ).

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

1. In the first case (application no. 34655/11) the applicants, relying on Article 1 of Protocol No. 1 and Articles 13 and 14 of the Convention, complain of the mortgage and the public sale of properties of the first applicant. The second applicant argues that, holding the majority of the shares of the first applicant, it is also affected by these measures.

The applicants argue that the measures against the first of them breached the requirement of legal certainty and that the State unjustifiably introduced privileges for itself in the post-privatisation process. They consider the interference with their rights disproportionate, seeing that they had in no way breached the law or failed to fulfil their obligations vis-à-vis the State, but were instead of that being punished for failures of a third party, which, moreover, held only 8% of the first applicant ’ s shares. Additionally, the applicants reproach the State ’ s failure for many years to claim the sums due to it by I., which resulted in the accumulation of substantial interest and penalties. Lastly, the applicants point out that the mortgage and public sale concerned properties which were vital for the first applicant ’ s economic activity, which meant that after that its bankruptcy was, in their view, inevitable.

2. In the second case (application no. 33859/12) the applicant company, relying on Article 1 of Protocol No. 1 and Article 6 § 1 and Article 13 of the Convention, complains of the measures taken against it. It argues that it should not be held liable for obligations of one of its former shareholders, and points out that it was not a party to the judicial proceedings in which S. ’ s liability was determined. It contends that, in adopting paragraph 8 of the transitional provisions of the Privatisation and Post-Privatisation Control Act, the State “readjusted” its own rights and obligations under the privatisation contract, which was in breach of the principle of legal certainty.

QUESTIONS TO THE PARTIES

1. Was an action against the Post-Privatisation Control Agency whereby the applicants could seek to have the mortgages against their properties declared null and void and struck off the property register an effective domestic remedy, and were the applicants required under Article 35 § 1 of the Convention to exhaust that remedy?

Concerning the first case, does the first applicant ’ s failure to appeal against the Vratsa Regional Court ’ s decision of 19 June 2009 mean that it has failed to exhaust an effective domestic remedy?

2. Which were the “final decisions” for the purposes of Article 35 § 1 of the Convention in the circumstances of the present cases? Have the applications been submitted within six months from the respective dates of these decisions?

3. 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?

4. Concerning the second case, have there been any new developments after the submission of the application to the Court? In particular, have the applicant company ’ s mortgaged properties been sold?

5. The parties are requested to provide the domestic court judgments establishing the debts of I. and S. as a result of which the properties belonging to the applicants were mortgaged.