JOINT DISSENTING OPINION OF JUDGES TURKOVIĆ AND MOUROU-VIKSTRÖM

(Partial translation)

1. With all due respect we are unable to join the majority in finding that there has been no violation of Article 1 of Protocol No. 1.

A. General background to the application and scope of the FOCA

2. In our opinion, the legislature can freely derogate from the principle of separation between the legal personalities of a company and its shareholders, but it is not entitled to do so retroactively, for debts that were incurred while the corporate veil doctrine was applicable. In such circumstances, shareholders should have a legitimate expectation that the corporate veil will not be lifted and that there will be no interference with their property rights unless or until this is in the public interest; and this interference has to be necessary in a democratic society. We also believe that only the exceptional nature of the circumstances could justify lifting the corporate veil. However, in the present case there were no exceptional circumstances; nor was the proper balancing test provided for by law or exercised by the domestic courts.

3. In enacting the FOCA (Financial Operations of Companies Act), which entered into force on 23 July 1999, the national authorities sought to deal with the problem of the thousands of so-called “dormant” or inactive companies which, having high levels of debt and in most cases (92%) no employees, allegedly represented a threat to the Slovenian economy.

4. However, that new legislation was intended to provide a simple and effective solution to a situation that the State had itself allowed to develop and for which it therefore bore a share of responsibility. The FOCA had been enacted in 1989, two years before Slovenia gained its independence in 1991. Once independent and free from the shackles of the socialist system, Slovenia decided to continue to apply that legislation even though it was not obliged to do so. It was therefore an economic policy decision taken by the newly independent State. In that context it is important to note that the problems created by the legislation appeared, to a significant extent, after independence and had not actually been inherited from the socialist era (majority took a different position, see paragraph 106 of the judgment). By a timely reaction, the Slovenian State could thus have prevented the situation, or at least its consequences could have been significantly curbed.

5. Was the legislature, in any event, implicitly entitled to take the view that the transition to a market economy and the existence (admittedly problematic) of a mass of “living dead” companies – a situation that was actually created by the State itself – could constitute, generally and objectively, without any case-by-case analysis, exceptional circumstances which justified the piercing of the corporate veil?

6. The same situation was faced by other States which were once part of the former Yugoslavia, but they have not introduced such drastic measures at the expense of shareholders and have not suffered severe consequences as a result. Unlike the majority, we do not find the situation in Slovenia to constitute exceptional circumstances that would, if accompanied by specific safeguards, justify lifting the corporate veil (see paragraph 106 in connection with paragraphs 112 and 116 of the judgment). Moreover, the majority have not in any way defined the exceptional circumstances. We believe that the standard established in Agrotexim and Others v. Greece (24 October 1995, § 66, Series A no. 330-A), which was developed in the context of a shareholder’s claims for the purposes of the “victim” requirement under Article 34 of the Convention, to ensure that shareholders could seek protection of their interests before the European Court of Human Rights, cannot be directly transposed to cases where the corporate veil has been lifted in order to impose liability on shareholders.

7. The mechanism introduced by the FOCA provided that “active members” (those having 10% or more of shares in the company) were required to apply for liquidation within one year after the entry into force of the legislation and that otherwise they would be personally liable for any debts. The new scheme was introduced to avoid winding-up proceedings which would be time-consuming and costly to the State (see paragraph 43 of the judgment). Such simplified proceedings for the purpose of striking off dormant companies could, however, have left creditors without any possibility of protecting their interests against the assets of the struck-off company (see paragraph 52 of the judgment). Thus the lifting of the corporate veil was introduced in order to serve the “general interest” of protection of creditors while it should also encompass the interests of shareholders (see paragraph 50 of the judgment). The State thereby gave preference to the protection of the interests of creditors over those of shareholders, and in fact entirely placed the costs of the simplified proceedings on the shoulders of the shareholders, who had done nothing but make corporate decisions within the limits of reasonable business risk, just like the creditors. Shareholders were made to pay for the inadequate policy decisions of the State, and the wrong business decisions of shareholders and creditors alike, or simply for a difficult economic environment that existed in Slovenia at that time. Thus we believe that shareholders were made to bear an excessive burden in the implementation of the simplified striking-off procedure in respect of dormant companies.

8. In our view this is indeed a manifestly unreasonable provision, imposing an excessive burden on certain members of a company solely because they have not triggered the liquidation procedure. Those who have taken the initiative of applying for liquidation are released from any personal liability on their own assets (see paragraph 42 of the judgment). Their property is therefore safe and protected by law solely on account of the fact that they have carried out an administrative formality. This is a harsh and in fact limitless pecuniary punishment, whereas a mere fine and an order to pay for winding-up would have achieved the same aim. There was no need for such a drastic measure to be taken against shareholders who have not taken advantage of the corporate veil in any way (i.e. have not committed any offence, have not evaded a tax liability, have not established a sham company, have not made decisions contrary to public policy, have not used the corporate form to violate human rights, etc.).

9. At the same time, the lifting of the corporate veil was a measure of protection for creditors in the simplified striking-off proceedings. Such protection could have been potentially greater than that available in winding–up proceedings, since the shareholders concerned were liable for debts up to the value of their entire property, while dormant companies often had no assets. Thus the FOCA created an advantageous position for creditors at the expense of shareholders, in respect of debts incurred before the FOCA was enacted.

10. Moreover, once the company was struck off from the court registry the shareholders no longer had any means of evading personal liability. Their personal liability for company debts was automatic once it was established that they held at least a 10% share. There was no possibility of taking any personal circumstances into consideration and nor was there any limit placed on the amount that could be claimed from them. No balancing exercise was called for or made possible by law. The FOCA thus drastically departed from the principle that the burden of proof is on the creditors as regards the piercing of the corporate veil.

11. The Government did not succeed in establishing, in a satisfactory manner, the general interest said to justify the enactment of the legislation. In calling into question the protection of shareholders who believed they were sheltered by the very structure of a limited liability company, can this measure be regarded as serving the common interest? Can the unconditional protection of creditors be seen as an “overriding reason of general interest” (see paragraph 50 of the judgment)? This cannot be so, especially as any analysis of the proportionality of the measure was not a statutory requirement and was not carried out at the domestic level, where the case was considered only in terms of Article 6, without it being examined under Article 1 of Protocol No. 1. As we have already said, there were far less drastic measures at the State’s disposal in order to “force” bona fide shareholders to wind up dormant companies or to punish them in a proportionate manner for not doing so.

12. We take the view, unlike the majority, that the FOCA failed to meet the requirements of proportionality. It led to an undermining of stakeholders in the economy, particularly small investors. The legislature set up a system which created an imbalance in the protection of the interests of creditors and bona fide shareholders at the expense of the latter. This was recognised by the legislature itself. The FOCA was a short-lived Act, enforced over a limited time-frame. It was already repealed by 2011, since it was regarded as being unfair for the shareholders concerned and in the long run detrimental to the economy (see paragraph 54 of the judgment). As such it was not in fact in the public interest, or at least it did not strike a proper balance between the public interest and the interest of the shareholders.

13. Its consequences for the assets of the shareholders thus affected were clearly disproportionate.

B. Application of the law to the applicant

14. The conditions in which the applicant rose to a position of responsibility in the company L.E. are particularly revealing. Having acquired a modest share of 11.11% of the capital in 1992, he was employed in 1993 in the company’s I.T. department. He only became acting director on 23 February 1993, and managing director on 23 February 1995, on account of a serious accident in which the two main directors had died and two other shareholders had been injured. Thus the applicant found himself occupying a managerial position, almost “against his will”, through those dramatic circumstances.

15. In the light of the conditions in which the applicant had taken on responsibilities in the company L.E., and his personal profile, we do not believe, contrary to the majority’s analysis, that the applicant may be regarded as a well-informed businessman, aware of the rules of a company’s economic management and of commercial law procedure, even though it is true that he could have kept himself informed of the applicable rules and of his personal responsibilities by seeking advice from a lawyer. However, since the company was not making any money, it is questionable whether he had the resources to do so.

16. In 1993 the Slovenian Railways brought a civil action against the company L.E. for the payment of a debt that had been incurred well before the applicant’s arrival in the company.

17. In 1996 the applicant took the decision to resign from his position as managing director, even though the company had been a limited liability company since 1995. He had thus clearly expressed his wish to leave the company, even though he could legitimately have believed that he was protected by the corporate veil. His intention was not to conceal any improper conduct or to commit any wrongdoing, but to remove himself from a management role. A clerical error in the company’s registers led to his remaining as managing director.

18. In 1997 he initiated, on behalf of the company L.E., a liquidation procedure, as any minority shareholder was entitled to do under sections 445 and 455 of the Companies Act 1993. However, the fee for publication in the Official Gazette remained unpaid, and this was because the other shareholders refused to pay up, according to the applicant. In view of that explanation, which has not been denied by the Government, is it reasonable to expect him to have borne those expenses on his own? Can he be considered personally at fault? We do not believe so, since the obligation to pay must lie on all the shareholders, even though, legally speaking the applicant could have paid himself. The collective responsibility of the various components of the limited liability company must be engaged, and not only that of a single shareholder, who had, moreover, been seeking to resign since 1995.

19. Moreover, the decision to strike off the company L.E. was not notified in person to the applicant, nor to any of the other shareholders, even though he should have been kept informed in view of the significant repercussions that this decision would have for his property. The serving of notice solely at the head office of the company L.E. cannot be regarded as placing the applicant in a position where he was informed and was able to challenge the measure.

20. The piercing of the veil to reach the personal assets of a shareholder in a limited liability company serves as a sanction against any abuse, fraudulent acts, or reprehensible conduct on the part of a shareholder who might hide behind the protection to conceal wrongdoing. However, it has not been shown, or even alleged, that the applicant in the present case acted unlawfully. The lifting of the veil was thus only intended as a means of trying to recover a debt which had nothing to do with him, because he had not held shares in the company at the time when the debt had been registered. He had not had any influence over the decision which had given rise to the debt owed to the Slovenian Railways, and found himself having to reimburse the sum of 32,795 euros, there being no maximum statutory limit to the amount that he could be asked to pay. If the debt had been 10 times or 100 times higher, he would have been required to reimburse the full amount, on the same basis, without his personal situation being taken into account.

21. The lifting of the corporate veil thus had disproportionate consequences for the applicant’s property.

22. In the light of the foregoing, we take the view that there has been a violation of Article 1 of Protocol No. 1 to the Convention.

[1] . On 8 October 1992 this was approximately ECU 32,500. The European Currency Unit (ECU) was used as the unit of account of the European Community before being replaced by the euro (EUR) on 1 January 1999, at parity. On 11 July 2006 the ministers of finance of the EU adopted a decision allowing Slovenia to join the euro area from 1 January 2007 and fixing the conversion rate for the changeover from the old currency at 239.64 Slovenian tolars to the euro. According to that fixed rate, this amounts to approximately EUR 12,500.

[2] . According to the current conversion rate (see footnote no. 1 above), this is EUR 1,389.

[3] . According to the current conversion rate (see footnote no. 1 above), this is EUR 626.

[4] . See Official Gazette no. 42/2001.

[5] . See Official Gazette no. 10/2002.

[6] . Zakon o podjetjih ; published in the Official Gazette of the Socialist Federal Republic of Yugoslavia no. 77/88 of 31 December 1988; amendments published in the Official Gazette of the Socialist Federal Republic of Yugoslavia nos. 40/89, 46/90 and 61/90.

[7] . Zakon o gospodarskih družbah ; published in the Official Gazette of the Republic of Slovenia no. 30/93 of 10 June 1993; a consolidated version thereof published in the Official Gazette of the Republic of Slovenia no. 15/05 of 17 February 2005.

[8] . According to the current conversion rate (see footnote no. 1 above), this is EUR 25,038 and EUR 8,763, respectively.

[9] . Zakon o prisilni poravnavi, stečaju in likvidaciji ; published in the Official Gazette of the Republic of Slovenia no. 67/93 of 17 December 1993; amendments published in the Official Gazette of the Republic of Slovenia nos. 39/97 and 52/99.

[10] . According to the current conversion rate (see footnote no. 1 above), this is approximately EUR 3,756,000.

[11] . Zakon o finančnem poslovanju podjetij ; published in the Official Gazette of the Republic of Slovenia no. 54/99 of 8 July 1999; amendments published in the Official Gazette of the Republic of Slovenia nos. 110/99 and 31/07.

[12] . According to the current conversion rate (see footnote no. 1 above), this is approximately EUR 352,412,000.

[13] . Zakon o finančnem poslovanju, postopkih zaradi insolventnosti in prisilnem prenehanju ; published in the Official Gazette of the Republic of Slovenia no. 126/07 of 31 December 2007; a consolidated version thereof published in the Official Gazette of the Republic of Slovenia no. 13/14; subsequent amendments published in the Official Gazette nos. 10/15 and 27/16.

[14] . Zakon o postopkih za uveljavitev ali odpustitev odgovornosti družbenikov za obveznosti izbrisanih gospodarskih družb ; published in the Official Gazette no. 87/11 of 2 November 2011.

[15] . Zakon o prekinitvi postopkov proti družbenikom izbrisanih družb ; published in the Official Gazette no. 30/18 of 26 April 2018.

[16] . The former Socialist Federal Republic of Yugoslavia consisted of six Republics – Bosnia and Herzegovina, Croatia, Macedonia, Montenegro, Serbia and Slovenia – as well as two Autonomous Provinces – Kosovo and Vojvodina. The dissolution of the SFRY took place in 1991/92 (see Opinion No. 11 of the Arbitration Commission of the International Conference on the Former Yugoslavia – “the Badinter Commission”).

[17] . Section 37(3) of the FOCA concerned the striking-off of companies which failed to align themselves with the Companies Act 1993. However, the relevant provision in the present case is section 40(3) of the FOCA which provided for a one-year vacatio legis in respect of the striking-off of dormant companies.

[18] . The Chamber of Commerce and Industry of Slovenia (CCIS) was founded more than 160 years ago and now has 7,000 member companies of all sizes and from all regions. It is a non-profit, non-governmental, independent business organisation representing the interests of its members and is Slovenia’s most influential business association.

[19] . See also IMF “Balance of Payments and International Investment Position Manual”, Sixth Edition (BPM6), 2009.

[20] . We do not express an opinion on the extent to which, in the absence of an explicit statutory rule , a general principle of law allows for the lifting of the corporate veil in the interest of third parties, such as the corporation’s creditors. This question was briefly treated in Barcelona Traction (ibid., p. 40, § 56, in fine ), but is as such not relevant for the present case.

[21] . We say “in principle” because the legislature is limited by the requirement to achieve a fair balance between the rights and interests involved (see paragraph 5, below).

[22] . We arrive at this conclusion despite the fact that the Constitutional Court decided that the contested measure of the FOCA did not constitute an interference with the rights of shareholders as guaranteed by Article 1 of Protocol No. 1 (see paragraph 38 of decision U-I-135/00 of the Constitutional Court of 9 October 2002, mentioned in paragraphs 48-52 of the present judgment).