EHRM, 11-12-2018, nr. 36480/07

This Act entered into force in the former Socialist Federal Republic of Yugoslavia, which at that time included Slovenia, on 1 January 1989. It provided a legal framework for the private ownership of companies: private companies could be instituted by a wide range of investors with a relatively low share capital. This Act remained in force even after Slovenia became independent in 1991 and was repealed only by the Companies Act 1993 (see paragraph 33 below).

Slovenia enacted this Act after it had become independent. It was in force from 10 July 1993 until 4 May 2006. It provided for two main types of companies whose members were, as a rule, not liable to creditors for the obligations of the companies: public limited companies (delniška družba; listed on the stock exchange) and limited liability companies (družba z omejeno odgovornostjo; not listed). The share capital had to be at least SIT 6,000,000 for public limited companies and SIT 2,100,000 for limited liability companies (pursuant to sections 172 and 410 of this Act, respectively)8.As the company under consideration in the present case was converted from a public limited company into a limited liability company in 1995 (see paragraph 13 above), only the legal regime applicable to the latter type of companies is set out below.

As mentioned above, members of limited liability companies were, as a general rule, not liable to creditors for the obligations of the companies (see section 407 of the Act). The lifting of the corporate veil was permitted only in the following circumstances: if members had abused the corporate form in order to attain an objective that was forbidden to them as individuals; if they had abused the corporate form such as to cause damage to their creditors; if they had used the assets of the company, in breach of the law, as their own personal assets; or if they had reduced the assets of the company, for their own benefit or for the benefit of another person, where they knew or should have known that the company would not be capable of meeting its liabilities to third persons (see section 6 of the Act). Such cases are dealt with by the ordinary courts.

In addition, members of a limited liability company were liable for the debts of the company if the competent court had struck off the company of its own motion for failure to align itself with the new rules within approximately a year and a half from the entry into force of the Act (see section 580(6) of the Act). On 9 October 2002 the Constitutional Court amended the provision in part, distinguishing between members who were actively involved in the operation of a company and so-called passive members. In accordance with that decision of the Constitutional Court, only active former members could be held personally liable for debts of a company (see paragraph 51 below).

Pursuant to section 413 of the Act, a company director was required to enter the company in the court register. Sections 47, 48 and 413 of the Act provided that an application for entry in the register had to include, inter alia, a list of members, their contributions and the address of the company's registered office. Furthermore, any change in the data entered in the court register had to be notified to the registry court within three days (for the list of members and their contributions) or within fifteen days (for the company's registered office).

37. Pursuant to section 449 of the Act, a limited liability company had to have at least one director. Certain key decisions regarding the management and operation of a company (such as the appointment of directors or distribution of profits) would be adopted by the company members at a general meeting. In accordance with section 445 of the Act, members whose capital contributions amounted to at least one tenth of the total share capital could demand the convening of a general meeting; if so, they were required to specify the issues on which the general meeting should decide, and the reasons for calling a meeting. Moreover, such members could also request that a specific issue be included on the agenda of a general meeting that had already been convened. In addition, pursuant to section 446 of the Act, a company director had to inform members of the company's affairs at their request, and allow them access to the company's records and files.

The dissolution of companies was regulated by sections 371-98 and 455-56 of the Act. First, a company could resolve by special resolution that it be wound up. In this case, a majority representing at least three-quarters of the share capital was required. Secondly, a company could be wound up by the court, inter alia, if its share capital had been reduced below the statutory limit or if it was unable to pay its debts. Thirdly, any member whose shareholding amounted to at least one tenth of the total share capital could lodge an action with the competent court requesting that the company be wound up, if he or she considered that the company's aims could not be achieved to a sufficient degree, or if there were any other reasonable grounds for the dissolution of the company. In any of those cases, the creditors of the company were entitled to notify their claims to the liquidator and to enforce their claims against the assets of the company. Lastly, the members of a company could dissolve the company, without winding it up, by requesting that it be struck off from the court register and by attaching to their application a statement made by all members in the form of a notary deed to the effect that all the company's obligations had been met, that any disputes with employees had been settled and that the members assumed joint and several liability for any outstanding debts of the company. Unlike the winding-up procedure set out above, creditors were not entitled to enforce their claims in the strike-off procedure. Instead, they were able to enforce their claims against the former members of a struck-off company within one year of the publication of the strike-off notice in the court register.

In accordance with section 436(2) of the Act, any company member could withdraw from the company if there were good reasons for doing so.

This Act was in force from 1 January 1994 until 1 October 2008. In 1997 the legislature responded to the problem of a high number of dormant and insolvent companies by amending this Act. An amendment of 1 July 1997 authorised the courts to start, of their own motion, winding-up proceedings against companies which had failed to pay salaries for three consecutive months, or which, for twelve consecutive months, had been illiquid or had had its accounts blocked. Insolvent companies which themselves initiated winding-up proceedings were required to make an advance payment covering the costs of publishing the winding-up order in the Official Gazette. The provisions on winding-up proceedings initiated of a court's own motion were repealed by another amendment to this Act, which entered into force on 1 July 1999, after it had been established that this process for dealing with dormant companies was not feasible given their large number (more than 6,000 dormant companies at the beginning of 1999) and the high costs of instituting winding-up proceedings which would have to be incurred by the State (around SIT 900,000,00010. according to the preparatory work in respect of the FOCA).

This Act was in force from 23 July 1999 until 15 January 2008. It introduced new means of dealing with dormant companies. The legislature observed that a great number of private companies were unable to meet their liabilities, thus contributing to poor financial discipline in corporate legal transactions and putting their creditors in a precarious position. Indeed, it would appear from the preparatory work relating to the adoption of the FOCA that on 28 February 1999 6,587 companies had accounts frozen for more than one year; their debts amounted to SIT 84,452,000,00012.; and 6,083 of them (92%) had no employees. Therefore, the Act required companies to conduct their business in such a manner that they were able at all times to fulfil their obligations in due time (section 5). Moreover, they were required to maintain adequate capital in proportion to the volume and type of operations and activities they carried out and to the risks to which they were exposed (section 6). In this connection, the company's management had to ensure that the company conducted its business in accordance with the law and the principles of financial operations (section 8), that it regularly monitored the risks incurred in conducting those operations and that it took appropriate measures to hedge against such risks (section 9).

If a company became illiquid and thus unable to meet its maturing liabilities on time, the management had to adopt the necessary measures to re-establish liquidity and, if those measures did not bring results within the next two months, to make a winding-up petition (section 12). Likewise, if a company became insolvent and its assets were no longer sufficient to meet its liabilities, the management was required to make a winding-up petition within two months at the latest (section 13). If the management failed to comply with those obligations, they could be found personally liable for any damage caused to the company's creditors as a result of such a failure; in addition, under certain conditions, the supervisory board and the members of a company could also be found personally liable for any damage caused to the creditors (sections 19–22).

Companies that failed to follow the prescribed procedures in order to re-establish solvency or terminate their operations in cases of insolvency were to be struck off the court register systematically without a prior winding-up procedure. That allowed companies to be dissolved without their assets being collected and used to pay creditors. Strike-off proceedings were to be initiated if, inter alia, it could be presumed that the company in question had no assets, which was deemed to be the case if a company had made no transactions through its registered account for twelve consecutive months (section 25). Organisations effecting payment transactions for the company were required to inform the competent registry court of the existence of such circumstances within a month from their onset (section 26(2)).

The registry court was to commence strike-off proceedings of its own motion after establishing that the conditions for striking off the company from the register had been met. The decision on the institution of proceedings was served on the company concerned and entered in the court register (section 29). An objection could be lodged within a two-month time-limit by either the company itself, a member of the company or a creditor, on the grounds that (i) the conditions for the strike-off had been erroneously established or were incomplete; (ii) another procedure for the dissolution of the company, notably winding-up, had been initiated; or (iii) a petition for winding-up had been filed on behalf of the company, and advance payment had been made or the petitioner had been relieved from making that payment (section 30).

If no objection was made to a decision to start strike-off proceedings or if such an objection had been dismissed, the registry court was to issue a decision to strike off the company from the court register, which was served on the company concerned and published in the Official Gazette (sections 32 and 33). An appeal against such a decision could be lodged by the company concerned within thirty days of its service on the company or by members or creditors of the company within thirty days of its publication in the Official Gazette (section 34). If no appeal was lodged against a decision to strike off the company or if such an appeal had been dismissed, the strike-off decision became final and the registry court struck off the company from the court register; a notice was published in the Official Gazette (section 35).

In order to ensure that the creditors of struck-off companies were protected, the FOCA provided for personal liability of company members: pursuant to section 27(4) of the FOCA in conjunction with section 394 of the Companies Act 1993, company members were deemed to have agreed to assume joint and several liability for any outstanding debts of the struck-off company. The company's creditors could pursue their claims against the members for up to a year after the publication of the strike-off notice in the Official Gazette.

Due to the wide-reaching consequences of the FOCA, the provisions on measures to be taken in order to ensure that a company had adequate capital and was solvent became operational six months after the Act entered into force. The provisions regulating the strike-off procedure took effect even later. In this regard, the presumption that a company had no assets only took effect when the company had failed to make payments through its bank account for twelve consecutive months after the Act had entered into force (namely, on 23 July 2000).

The regulation introduced by the FOCA was challenged before the Constitutional Court by many former members of struck-off companies. On 9 October 2002 the Constitutional Court dismissed the challenge in part (see decision U-I-135/00), holding that the measure of striking off a dormant company which had no assets was consistent with the Constitution. An economically dormant company did not conduct business operations, nor did it generate income or make payments. At the same time, its financial situation was not known to its creditors, who relied on the presumption that it had at least a minimum amount of assets. For those reasons, non-operating companies posed a threat to the security of corporate legal transactions and to the position of their creditors.

The claimants also alleged that they could not effectively protect their rights in the strike-off proceedings, as the decisions on the initiation of proceedings and on the strike-off had not been served on them personally. In response to that argument, the Constitutional Court held that the service of decisions on the company, together with a notification in the court register or in the Official Gazette, was adequate. It observed that the measure was applicable to different forms of companies, some of which belonged to a multitude of members. The personal service of decisions would be too time-consuming, and in certain cases impossible.

As to the personal liability of former members, the Constitutional Court reiterated that, indeed, in principle they could legitimately expect that their liability for the company's obligations would not exceed the value of their capital contributions. However, companies were required to ensure that they were operating with adequate capital, and that it did not fall below the statutory minimum. Companies which operated with insufficient capital were weaker economically than those which operated in line with the law, and this affected the overall security of legal transactions. The Constitutional Court held:

Nevertheless, the Constitutional Court recognised the variety of legal and factual positions of members of struck-off companies and established a distinction between ‘active members’, who were in a position to influence the operation of a company, and ‘passive members’, who exerted no such influence. It upheld the law in so far as it applied to the former category, but repealed it in respect of passive members. In accordance with that decision of the Constitutional Court, the courts deciding on the personal liability of former members were primarily required to establish whether an individual member had exerted any influence on the operations of the company in issue. They were to base their assessment on a number of criteria, notably the type of company (public limited company or limited liability company), the status of a member (individual or legal entity), and the internal relations between the members. The courts deciding on the issue of personal liability could in addition rely on the general criteria with regard to the lifting of the corporate veil set out in the Companies Act 1993 (see paragraph 34 above). As to the distinction between a public limited company (delniška družba) and a limited liability company (družba z omejeno odgovornostjo), such as L.E., the Constitutional Court held as follows:

Finding that the FOCA constituted an interference with a number of principles of company law and was having far-reaching and adverse effects on the position of former members of struck-off companies, in 2007 the legislature decided to amend the Act and relieve company members of their personal liability for their company's debts. The amendment to the FOCA provided that all pending judicial and administrative proceedings in which creditors of struck-off companies were enforcing their claims against former members of the companies were to be terminated systematically. A number of creditors, whose proceedings against members of struck-off companies were pending and who were thus about to lose all possibility of repayment, lodged a complaint challenging the amendment. The Constitutional Court upheld their complaint and revoked the impugned provisions, finding that they did not afford appropriate protection to creditors (decision U-I-117/07 of 21 June 2007). In particular, it held as follows (§§ 15–17):

This Act has been in force since 15 January 2008. It was enacted to replace the FOCA. It retained the possibility of striking off a company from the register without winding it up, but under slightly different conditions.

The Act has been in force since 17 November 2011. It again relieved former members of struck-off companies from personal liability for debts of the companies. Since the legislative solutions provided for in the Act were similar to those in the amendment to the FOCA (see paragraph 52 above), the Constitutional Court was once again called upon to decide if the Act struck a fair balance between the interests of former members of struck-off companies and the companies' creditors. The Constitutional Court held that in cases where a creditor's claims had been recognised by a judicial decision or where the judicial proceedings were pending, as well as in cases where a creditor had not yet lodged a claim against former members of a struck-off company but had a legitimate expectation to be able to do so, there were no constitutionally admissible reasons for interfering with his or her acquired rights. However, it allowed exoneration for members of companies which had been struck off after the entry into force of this Act.

This Act entered into force on 27 April 2018, staying all proceedings against members of struck-off companies, initiated under the FOCA or the Financial Operations and Insolvency Act 2007, pending the outcome of the present case. If the Court finally decides that there has been no violation of the Convention in the present case, the proceedings will resume.

The Chamber held that the applicant's responsibility for the payment of his company's debts could be regarded as a sanction for his failure, in his capacity as a member with influence on the company's business operations, to comply with the corporate obligations of the company of which he was a member. The impugned measure thus constituted a measure of State control over the operation of the market, corporate practices and the management of corporate property. However, also taking into account the complaint about the strike-off proceedings, the Chamber decided to examine the case in the light of the general rule set out in Article 1 of Protocol No. 1.

As to lawfulness, the Chamber concluded ‘that the regulation introduced by the FOCA and amended by the Constitutional Court was adequately accessible and foreseeable; thus the measure complained of had a sufficient legal basis in Slovenian law to comply with the requirements of Article 1 of Protocol No. 1’. Furthermore, in view of the conclusion that the due diligence required of the applicant would have enabled him to participate effectively in the strike-off proceedings, the Chamber accepted the pragmatic approach of the domestic authorities to the service of documents in strike-off proceedings, especially since service on companies was coupled with relatively long time-limits for appealing against the initiation of strike-off proceedings as well as the strike-off decisions themselves. It found that the strike-off proceedings provided sufficient procedural guarantees to the applicant and were thus lawful within the meaning of Article 1 of Protocol No. 1.

In the Chamber's opinion, the FOCA constituted an attempt to restore stability to the commercial market and thus pursued a legitimate aim.

Turning to the proportionality of the impugned measure, the Chamber held that the disregard of company law on the part of L.E. and the principles of good corporate governance warranted a strong response by the authorities, including the imposition of personal liability on any member who was found to be responsible for irregularities in the operation of the company. In that regard, it referred, inter alia, to inadequate capitalisation, a prolonged state of insolvency and inactivity on the part of the company's management (see, in particular, paragraphs 122-28 of the Chamber judgment). The Chamber further noted that the effect of reducing the capital below the statutory threshold and ultimately exhausting it completely, coupled with prolonged failure to institute winding-up proceedings, had had considerable adverse effects on the position of the company's creditor. It concluded that, ‘given the wide margin of appreciation which the Contracting States enjoy in matters of economic policy systems, … the measure complained of did not represent an excessive individual burden for the applicant in the particular circumstances of the present case.’ Accordingly, there had been no violation of Article 1 of Protocol No. 1.

On 8 October 1992 the applicant acquired a share in L.E., a limited liability company based in Ljubljana. His name was entered in the court register of legal entities (hereinafter ‘the court register’) and he became one of nine equal registered members of the company, each holding an 11.11% share. The share capital of L.E. stood at 2,995,250 Slovenian tolars (SIT) (12,498.96 euros (EUR)).

Two of the founding members withdrew from company L.E. at the beginning of 1993. On 2 February 1993 the applicant, in addition to being a member, was also employed by company L.E. as head of its IT department. In addition, he provided assistance to the finance director.

On 19 February 1993 two key members and managers of company L.E. died in a car accident and two others were seriously injured. As a result, the company's business operations could not be carried out and the company sustained a large financial loss. Moreover, its management was seriously undermined and during the course of 1993 all members except the applicant and another person withdrew from the company's management board. Following those events, the applicant first assumed the role of acting director of company L.E. on 29 April 1993, and then the role of managing director on 23 February 1995. In that capacity he acted as the company's representative.

Meanwhile, on 24 August 1993, the Railway Company of Slovenia (Slovenske železnice) had applied for an enforcement order against L.E. based on an authentic document for unpaid transport services. L.E. challenged the enforcement order and the parties were directed to settle the issue in contentious proceedings. The Railway Company lodged a civil action, claiming the payment of three sums totalling approximately SIT 5,000,000 (EUR 20,000).

In 1995, L.E. was converted into a limited liability company in accordance with section 580 of the Companies Act, which required companies falling under its jurisdiction to increase their share capital and to align their operations with the provisions of the Act (see paragraph 34 below). However, at the time of the conversion the company was no longer liquid or solvent.

On 6 May 1996 the applicant stepped down as managing director of L.E. following a decision of the general meeting of the company. The members failed to appoint a new managing director and henceforth the company existed without any management. The applicant's resignation from the post of managing director was not entered in the court register of legal entities (hereinafter ‘the court register’).

On 19 June 1997 the members of company L.E. decided at its general meeting to apply for bankruptcy on account of the company's insolvency. L.E. filed a bankruptcy petition with the competent court, but it was rejected as the company had failed to make the required advance payment to cover costs and expenses of the bankruptcy proceedings in the amount of SIT 150,000 (EUR 626). The members established that they could not incur the costs of bankruptcy and thus decided to wait for the courts to liquidate the company proprio motu, in accordance with the then applicable legislation, namely, the Compulsory Composition, Bankruptcy and Winding-Up Act as amended, which entered into force on 1 July 1997. The amendment to the Act authorised the courts to initiate bankruptcy proceedings of their own motion in certain specified circumstances (see paragraph 34 below).

On 31 July 1997 the applicant stopped working for company L.E. Moreover, by the end of 2000, another two members of the company had died.

In the civil proceedings initiated by the Railway Company against L.E. the applicant was summoned to appear at a hearing to be held on 22 November 2000. As he was unable to attend the hearing, he made written submissions explaining that the company had not been solvent for a number of years. On 22 November 2000 the District Court of Ljubljana rendered a judgment ordering L.E. to pay the Railway Company the three sums claimed.

Meanwhile, on 1 July 1999 the Compulsory Composition, Bankruptcy and Winding up Act was again amended, inter alia, to repeal the provisions on bankruptcy proprio motu. Moreover, on 23 July 1999 the Financial Operations of Companies Act (hereinafter ‘the FOCA’) entered into force. It introduced a measure decided proprio motu whereby insolvent and/or inactive companies were struck off from the court register without winding up. Thus those companies could be dissolved without the prior procedure of disposing of their assets and repaying — to the extent possible — their creditors. However, in order to ensure that creditors of struck-off companies were protected, the FOCA provided that the members of those companies would assume joint and several liability for the former companies' debts.

On the basis of a notification from the Agency for Public Legal Records and Related Services that company L.E. had not performed any transactions through its bank account in a period of twelve consecutive months, on 19 January 2001 the Ljubljana District Court, acting in its capacity as the registry court, initiated proceedings to strike off the company from the court register.

On that day, the decision to initiate strike-off proceedings was entered in the court register and an unsuccessful attempt was made to serve it on the company at its registered office. The document was sent to the address of the company, but since no representative of the company was there to receive it, a delivery slip was left in its mailbox, informing the company that the relevant correspondence could be collected at the post office. On 12 February 2001 the document was returned to the registry court with the information that the addressee had failed to collect it. The registry court then served it by posting it on its notice board, as provided for by the Court Register of Legal Entities Act. According to the applicant, company L.E. had ceased to operate at the address of its registered office already in 1997 and had not been present at those or any other premises since. Moreover, there were no mailboxes at the office building at issue and all mail would have been left at the reception desk.

No objection was made to the decision to initiate strike-off proceedings either by company L.E. or by its members. Consequently, on 11 May 2001 the registry court issued a decision to strike off company L.E. from the court register. The decision was published in the Official Gazette on 30 May 2001. The registry court also attempted to serve the decision on company L.E. by sending it to the company's address, but like the previous document it was returned on 4 June 2001 with the information that the addressee had failed to collect it. Again, the decision was posted on the registry court's notice board. Neither company L.E. nor any of its members, who were entitled to lodge an appeal against the strike-off decision, appealed against the decision, so on 17 August 2001 it became final.

On 25 September 2001 company L.E. was struck off from the court register and thus ceased to exist. Notification of the strike-off was published in the Official Gazette on 6 February 2002.

The applicant stated that he had become aware that L.E. had been struck off from the court register on 22 December 2004, when an enforcement order was served on him for seizure of his property.

Meanwhile, based on the judgment ordering L.E. to pay the Railway Company approximately EUR 20,000 (see paragraph 9 above), on 5 April 2002 the creditor lodged an application for enforcement with the Ljubljana Local Court against seven members of the company.

On 5 June 2002 the Ljubljana Local Court granted the creditor an enforcement order to seize the applicant's personal possessions, which was later expanded to include his salary.

On 29 December 2004 the applicant lodged an objection to the enforcement order, arguing that the local court had failed to establish his actual role in company L.E. and to acknowledge his status of an ‘inactive member’ (see paragraphs 48–49 below), which would have exonerated him from liability for the company's debts. He maintained that the creditor's claim against the company had arisen before he had joined it, and that he had only become involved in the management of the company because the two members who had previously performed that role had died. Moreover, the applicant was of the view that the onus rested on the creditor to establish that he had been an active member of the company, and that the matter should be examined in contentious civil proceedings. Lastly, he applied for a stay of enforcement.

On 12 March 2005 the applicant's objection was dismissed. The Local Court found that the onus of proving his inactive status was on the applicant, and that he had failed to prove that he had not been an active member of L.E. The Local Court established that with his 11.11% share in the company, the applicant had enjoyed the rights of a minority member, and furthermore, he had been employed by the company and actively involved in its management since April 1993. In his capacity as acting director and later managing director, he had been authorised to act on behalf of the company. Moreover, even after the applicant had resigned as managing director, he had still been active in the operations of the company and had also signed the bankruptcy petition. The Local Court further dismissed the applicant's request for a stay of enforcement, as he had failed to demonstrate that the enforcement would have caused him irreparable or serious damage. The applicant appealed against that decision, reiterating the arguments he had raised in the objection to the enforcement order.

On 6 May 2005 the applicant attended a hearing with regard to an objection to the enforcement order raised by D.P., another member of company L.E.

On 9 February 2006 the Higher Court of Ljubljana dismissed the applicant's appeal on essentially the same grounds as the first-instance court, and the enforcement order thus became final. The court noted, inter alia, that the Constitutional Court had found the measure of ‘lifting the corporate veil’ under the applicable Financial Operations of Companies Act to be in accordance with the principle of separation of a company's assets from those of its member, and thus consistent with the Constitution. The Higher Court considered it irrelevant whether the applicant had become a member of L.E. before or after the creditor's claim had arisen. Having joined the company, he had assumed its assets as well as its liabilities, and moreover, he had had the rights of a minority member. The Higher Court placed considerable emphasis on the fact that the applicant had been actively involved in the management of the company. It explained that the reasons for lifting the corporate veil under the FOCA were not identical to those provided for in the Companies Act. The FOCA established a non-rebuttable presumption that members of inactive companies intended to have the companies dissolved and, to that end, made it clear that they assumed joint and several liability for their outstanding debts (see paragraph 41 below).

On 5 May 2006 the applicant lodged two constitutional complaints before the Constitutional Court, one concerning the strike-off proceedings and the other the enforcement proceedings.

On 31 January 2007 the Constitutional Court rejected the applicant's complaint regarding the strike-off proceedings. The decision was served on the applicant on 5 February 2007. The court observed that the applicant lacked legal interest in challenging the decision of the registry court, as company L.E. had already been struck off from the court register. Therefore, even a positive outcome of the constitutional complaint could not improve the applicant's legal position. On 9 July 2007 the Constitutional Court rejected also the complaint regarding the enforcement proceedings, finding that the applicant's human rights had manifestly not been violated. Reiterating that only active members of struck-off companies could be held liable for the companies' debts, the Constitutional Court found that the lower courts had correctly established that the applicant's active involvement in the management of company L.E. could not exempt him from personal liability for the latter's debts.

In 2010 the enforcement order against the applicant's salary was executed and part of each of the applicant's monthly salaries was seized to pay off his debt. On 23 September 2011 the applicant reached an out-of-court settlement with the Railway Company and paid the agreed amount, and the application for enforcement against him was withdrawn. The proceedings against the applicant were terminated on 28 September 2011. In total, the applicant paid EUR 32,795 to his creditor.

In 1988 the Undertakings Act entered into force in the former Socialist Federal Republic of Yugoslavia, providing a legal framework for the private ownership of undertakings (businesses). The Act provided that private businesses could be established by a wide range of investors with a relatively low share capital.

After it became independent, Slovenia enacted, in 1993, the Companies Act which replaced the Undertakings Act in its entirety. Under that Act, a limited liability company is a company whose share capital is comprised of the subscribed contributions of its members. A company may have a maximum of fifty members and is established by a contract concluded by the members in the form of a notarial deed. Each member obtains his or her business share in proportion to his or her stake in the total share capital. Members are not liable for the obligations of the limited liability company. A company director is required to enter the company in the court register. An application for entry in the register must include, inter alia, a list of members and their shares, the company's name, activity and registered office. Any change in the data entered in the court register must be notified to the registry court within three days.

A limited liability company has one or more directors who are responsible for managing the operations of the company and representing the company. However, several important decisions regarding the management and operation of the company (such as the appointment of directors or distribution of profits) are adopted at a general meeting. Members whose business shares comprise at least one tenth of the total share capital may demand the convocation of a general meeting; in this regard, they are required to specify the issues on which the general meeting should decide, and the reasons for calling a general meeting. Moreover, such members may also request that a specific issue be included on the agenda of a general meeting that has already been called. Also, a company director is required to inform a member immediately of the company's affairs at his or her request, and allow the member access to the company's records and files.

With regard to the dissolution of a company, the Companies Act provides that a limited liability company must be dissolved, inter alia, if it goes bankrupt or if the company's share capital is reduced below the statutory limit or if the members decide to wind it up. Any member whose business share amounts to at least one tenth of the total share capital may lodge an action before the competent court requesting that the company be dissolved, if he or she considers that the company's aims cannot be achieved to a sufficient degree, or if there are any other reasonable grounds for the dissolution of the company. Moreover, the members of a limited liability company may decide to dissolve the company in the so-called summary proceedings, without the winding up, if all members of the company request the registry court to strike off the company from the court register. In this event, they must attach to the application a resolution on dissolving the company by summary procedure and a statement made by all members in the form of a notary deed to the effect that all the company's obligations have been fulfilled, that any disputes with the employees have been settled and that the members assume joint and several liability for any potential outstanding obligations of the company. Any claims against the struck-off company can be enforced against its members within one year of the publication of the strike-off notice in the court register.

The Companies Act introduced important changes in the operation of companies and, inter alia, increased the minimum share capital required for the operation of limited liability companies. Existing companies were required to align themselves with the new, more constricting legislation within approximately a year and a half of the entry into force of the Act. Failing that, pursuant to section 580 of the Act companies were to be wound up and struck off the court register proprio motu, while their former members were to assume personal liability for the former companies' debts. Subsequently, the Constitutional Court annulled the provision in part, distinguishing between members who were actively involved in the operation of a company and so-called ‘passive members’ (decision no. U-I-135/00). In accordance with the decision of the Constitutional Court, only active former members could be held personally liable for a company's debts (see paragraph 49 below).

In 1997 the legislature responded to the problem of a high number of inactive and insolvent companies by amending the then applicable Compulsory Composition, Bankruptcy and Winding Up Act. An amendment of 1 July 1997 authorised the courts to initiate of their own motion bankruptcy proceedings against companies which had failed to pay salaries for three consecutive months, or had blocked bank accounts, or which had been illiquid (lacking liquid assets) for the preceding twelve months. Insolvent companies which themselves filed for bankruptcy were required to make an advance payment covering the costs of publishing the notice of commencement of bankruptcy proceedings in the Official Gazette. The remaining costs of bankruptcy proceedings were paid from the bankruptcy estate; if the assets constituting the bankruptcy estate were not even sufficient to cover the costs of the proceedings, the bankruptcy panel initiated bankruptcy proceedings and concluded them immediately. The provisions on bankruptcy proceedings initiated proprio motu were repealed by another amendment to the Act, which entered into force on 1 July 1999, after it had been established that such manner of dealing with inactive companies was not a feasible solution given their large number (approximately 6,000 inactive companies at the beginning of 1998) and the high costs of instituting bankruptcy proceedings which was being incurred by the State.

The FOCA was enacted on 24 June 1999 and published in the Official Gazette no. 54/99 of 8 July 1999. The Act entered into force on 23 July 1999 and introduced new means of dealing with inactive and/or insolvent companies. The legislature observed that a great number of private companies were unable to meet their liabilities, thus contributing to poor financial discipline in corporate legal transactions and putting their creditors in a precarious position. Thus, the Act required companies to conduct their business in such a manner that they were able at all times to fulfil their obligations in due time (section 5). Moreover, they were required to maintain adequate capital in proportion to the volume and type of operations and activities they carried out and to the risks to which they were exposed (section 6). In this connection, the company's management had to ensure that the company conducted its business in accordance with the law and the principles of financial operations (section 8), that it regularly monitored the risks incurred in conducting those operations and that it took appropriate measures to hedge against such risks (section 9).

If a company became illiquid and thus unable to meet its maturing liabilities on time, the management had to adopt the necessary measures to re-establish liquidity and, if those measures did not bring results within the next two months, to file for bankruptcy or compulsory composition (section 12). Likewise, if a company became insolvent and its assets were no longer sufficient to meet its liabilities, the management was required to file for bankruptcy or compulsory composition within two months at the latest (section 13). If the management failed to comply with those obligations, they could be found personally liable for any damage caused to the company's creditors as a result of such a failure. Moreover, under certain conditions, the supervisory board and the members of a company could also be found personally liable for any damage caused to the creditors.

Companies that failed to follow the prescribed procedures in order to re-establish solvency or terminate their operations in cases of insolvency were to be struck off the court register proprio motu without a prior winding-up procedure, pursuant to the provisions of Chapter 3 of the FOCA. Under section 25, strike-off proceedings would be initiated if, inter alia, it could be presumed that the company in question had no assets. That was deemed to be the case if a company had made no transactions through its registered bank account for twelve consecutive months. Organisations effecting payment transactions for the company were required to inform the court responsible for maintaining the court register (the registry court) of the existence of such circumstances within a month of their onset (section 26(2)).

The registry court was to commence strike-off proceedings of its own motion after establishing that the conditions for striking off the company from the register had been met. The decision on the institution of proceedings was served on the company concerned and entered in the court register (section 29). An objection could be lodged within a two-month time-limit by either the company itself, a member of the company or a creditor, on the grounds that

If no objection was made to the decision to commence strike-off proceedings or if such an objection had been dismissed, the registry court issued a decision to strike off the company from the court register, which was served on the company concerned and published in the Official Gazette (sections 32 and 33). An appeal against such a decision could be lodged within thirty days of its service on the company concerned or its publication in the Official Gazette by a person who had lodged an unsuccessful objection to the initiation of the strike-off proceedings, a member of the company or its creditor on the same grounds as the prior objection (section 34). If no appeal was lodged against the decision to strike off the company or if such an appeal was dismissed, the strike-off decision became final and the registry court struck off the company from the court register; a notice thereof was published in the Official Gazette (section 35).

In order to ensure that the creditors of struck-off companies were protected, the FOCA provided that company members would be personally liable for outstanding debts. The Act included a non-rebuttable presumption that members of inactive and/or insolvent companies intended to have their companies dissolved, but had failed to initiate winding-up or bankruptcy proceedings. Under the applicable provisions (section 27(4) of the FOCA in conjunction with section 394(1) of the Companies Act), company members were deemed to have agreed to assuming joint and several liability for any outstanding debts of the struck-off company. The company's creditors could pursue their claims against the members for up to a year after the publication of the strike-off notice in the Official Gazette.

Due to the wide-reaching consequences of the FOCA, the provisions on measures to be taken in order to ensure that a company had adequate capital and was solvent became operational six months after the Act entered into force. The provisions of Chapter 3 regulating the strike-off procedure took effect even later. In this regard, the presumption that the company had no assets only took effect when a company had failed to make payments through its bank account for twelve consecutive months after the FOCA had entered into force, that is on 23 July 2000.

In 2007, the legislature, finding that the FOCA constituted an interference with a number of principles of corporate law and was having wide-reaching and adverse effects on the position of members of struck-off companies, decided to amend the Act and relieve company members of their personal liability for their company's debts. The Amendment to the FOCA provided that all pending judicial and administrative proceedings in which creditors of struck-off companies were enforcing their claims against members of the companies were to be terminated proprio motu. A number of creditors, whose proceedings against former members of struck-off companies were pending and who were thus about to lose all possibility of repayment, lodged a constitutional complaint challenging the new regulation. The Constitutional Court, in decision no. U-I-117/07, upheld their complaint and annulled the challenged provisions, finding that they did not afford appropriate protection to creditors.

On 15 January 2008 the Financial Operations, Insolvency Proceedings and Compulsory Dissolution Act was enacted to replace the Financial Operations of Companies Act. The new Act retained the possibility of striking off a company from the court register without a prior winding-up procedure, but under slightly different conditions.

Subsequently, the Act on Proceedings for the Enforcement or Exoneration of Shareholders' Liability for Corporate Obligations (hereinafter ‘the Shareholders' Liability for Corporate Obligations Act’), enacted on 19 October 2011, again relieved company members from personal liability for the debts of struck-off companies. Since the legislative solutions provided for in the Act were similar to those in the Amendment to the FOCA (see paragraph 43 above), the Constitutional Court was once again called upon to decide whether the Act struck a fair balance between the interests of members of struck-off companies and the companies' creditors. The Constitutional Court reiterated that in cases where a creditor's claims had been recognised by a judicial decision or where the judicial proceedings were pending, as well as in cases where a creditor had not yet lodged a claim against the former members of a struck-off company but had a legitimate expectation to do so, there were no constitutionally admissible reasons for interfering with the creditor's acquired rights. However, the court allowed exoneration for former members of companies which had been struck off from the court register after the entry into force of the Act.

The regulation introduced by the 1999 FOCA had been challenged before the Constitutional Court by a number of former members of struck-off companies. On 9 October 2002, the Constitutional Court had dismissed the challenge in part (Decision No. U-I-135/00), holding that the measure of striking off an inactive company that had no assets was not inconsistent with the Constitution. An economically inactive company did not conduct any business operations, nor did it generate income or make payments. At the same time, its financial situation was not known to its creditors, who relied on the presumption that it had at least a minimum amount of assets. For those reasons, non-operating companies posed a threat to the security of corporate legal transactions and to the position of their creditors.

The claimants had also alleged that they could not effectively protect their rights in the strike-off proceedings, as the documents on the initiation of proceedings as well as on the strike-off had not been served on them personally. In response to that argument, the Constitutional Court held that the service of documents on the company, together with a public notification in the court register of companies or in the Official Gazette, was adequate. It observed that the measure was applicable to various forms of companies, some of which belonged to a multitude of shareholders. The personal service of documents would be too time-consuming, and in certain cases impossible.

As regards the personal liability of former members or shareholders, the Constitutional Court emphasised that, indeed, in principle they could legitimately expect that their liability for the company's obligations would not exceed the value of their share. However, companies were required to ensure that they were operating with adequate share capital, and that it did not fall below the statutory minimum. Companies which operated with insufficient share capital were considerably weaker economically than those which operated in accordance with the law, which affected the security of legal transactions as a whole. Nevertheless, the Constitutional Court recognised the variety of legal and factual positions of shareholders of struck-off companies and established a distinction between so-called ‘active shareholders’, who were in a position to influence the operation of a company, and ‘passive shareholders’, who exerted no such influence. It upheld the regulation insofar as it applied to the former category, but annulled it with respect to passive shareholders. In its reasoning the Constitutional Court established the criteria which the regular courts were required to consider in deciding on the position of former shareholders. Those criteria were based on the subjective conduct of shareholders and the extent of the consequences that such conduct could have on the operation of the company, that is on their knowledge of and involvement in the management of the company.

The courts deciding on the personal liability of shareholders were therefore primarily required to establish whether an individual member or shareholder had exerted influence on the respective company's operations. They were to base their assessment on a number of criteria, notably the type of company (public limited company or a limited liability company), the status of individual shareholders (individuals or legal entities), and the internal relations between the shareholders. According to the Constitutional Court, the courts deciding on the issue of personal liability could in addition rely on the general criteria that the Companies Act determined with regard to the rule of disregarding a company's legal personality, namely whether

The Government objected that the present application was inadmissible, arguing that, as regards the part referring to the strike-off procedure, the applicant had failed to comply with the six-month time-limit for lodging the application. Company L.E. was struck off from the court register in 2001 and both the decision to initiate strike-off proceedings (see paragraph 16 above) and the decision to strike off the company from the court register (see paragraph 18 above) had been executed some years before the applicant lodged a constitutional complaint challenging the strike-off. Accordingly, the Constitutional Court found that the applicant's legal position could not be improved by quashing the impugned decisions and therefore concluded that the applicant had no legal interest in challenging them (see paragraph 28 above). In the view of the Government, the six-month time-limit for lodging an application before the Court had started to run on the day on which the decision striking off the company from the court register had become final, and the fact that the applicant had lodged a constitutional complaint some years later did not extend that time-limit.

Moreover, the Government observed that in the enforcement proceedings the applicant had reached an out-of-court settlement with the creditor (see paragraph 29 above). Noting that he had acknowledged the debt and paid it, the Government argued that he was no longer entitled to raise any objection to the statutory regulation imposing personal liability for the obligations of struck-off companies on their members.

In their further observations, however, the Government pointed out that the complaints related to the enforcement proceedings were not part of the present application, but must have been addressed in another application referred to by the applicant of which they had not been given notice.

The applicant argued out that the six-month time-limit for lodging an application before the Court ran from the date of the final decision of the domestic authorities. He was convinced that he had legitimately lodged two constitutional complaints challenging the strike-off decision and the enforcement order, respectively, at the time when he had become aware of both sets of proceedings. He emphasised that he could not have applied to the Court before he had acquired knowledge of the strike-off and his consequent personal liability, both of which had occurred three years after the strike-off. Given that one of his main complaints referred to lack of opportunity to participate in the strike-off proceedings owing to the domestic authorities' failure to serve the relevant decisions on him, he was convinced that the Government's objection of failure to observe the six-month time-limit could only be resolved by examining the merits of the case. As for enforcement, it was an integral part of the proceedings, and it was thus necessary to consider the strike-off and the enforcement proceedings as a whole.

Moreover, as regards the out-of-court settlement, the applicant pointed out that he had not himself created the obligation to pay the creditor, but had become liable for payment as a result of the strike-off. Having regard to the fact that the creditor could seize up to two thirds of the applicant's monthly salary, the applicant had preferred to reach a settlement agreement whereby he had paid only a share of the company's debt proportionate to his share in the former company in the form of a lump sum. Considering that he — as well as all other members of the company — had been jointly and severally liable to pay the entire sum owed by company L.E. to the Railway Company, the applicant considered the terms of the settlement to have been favourable to him. In sum, the settlement had been merely a means of avoiding greater damage to his property.

As regards the applicant's compliance with the six-month time-limit for lodging the application, the Court reiterates that the six-month period starts running from the date on which the applicant has sufficient knowledge of the final domestic decision (see Baghli v. France, no. 34374/97, § 31, ECHR 1999-VIII, and A.N. v. Lithuania, no. 17280/08, § 77, 31 May 2016). In the present case, the Constitutional court's decision rejecting the applicant's constitutional complaint was rendered on 31 January 2007 and served on the applicant on 5 February 2007. The applicant lodged his application with the Court on 4 August 2007, that is within six months from the service of the Constitutional court's decision.

However, according to the Government, the date from which the six-month time-limit should be calculated was 17 August 2001, the day on which the decision striking off the company from the court register became final. The Court, noting that in many cases finality in the sense of res judicata does not correspond with the final domestic decision in the temporal sense, reiterates that, as regards applications against Slovenia, applicants are in principle required to lodge a constitutional complaint before applying to the Court (see Kurić and Others v. Slovenia [GC], no. 26828/06, § 296, ECHR 2012 (extracts), and the references cited therein). Also, although the Constitutional Court took the view that even if a positive decision were rendered in the applicant's case, his legal position could not be improved (see paragraph 28 above), his constitutional complaint was not rejected as having been lodged out of time.

The Government's argument implies that a constitutional complaint should not be regarded as an effective remedy in the circumstances of the present case. However, considering that, as a rule, a constitutional complaint is regarded as an effective remedy which has to be exhausted, in the absence of clear arguments as to what alternative legal avenues, if any, the applicant had at his disposal once he had learnt of the strike-off, the Court cannot accept that the constitutional complaint should be disregarded for the purpose of calculating the six-month time-limit for lodging the application. The Court thus finds that the applicant complied with the six-month time-limit.

Moreover, as regards the Government's argument that the out-of-court settlement precluded the applicant from making any complaints with regard to his personal liability for the debts of company L.E., the Court observes that the course of action chosen by the applicant cannot be interpreted as an acknowledgment that the debt he paid was legitimately owed by him. Moreover, prior to the settlement, the applicant had used what appear to be all the domestic legal avenues available to him for the purpose of challenging his liability for the payment of the debt in question. In addition, he had lodged the present application before the Court. As explained by the applicant, the terms of the settlement were more favourable to him than the liability imposed on him by virtue of the law, and he accepted the settlement solely to avoid incurring greater damage. The Court finds that the mere fact that the applicant discharged the duty imposed on him by one of the challenged decisions does not deprive him of his victim status within the meaning of Article 34 of the Convention. Nor does it lead to the conclusion that the matter was resolved or that it is no longer justified to continue the examination of the application within the meaning of Article 37 § 1 (b) and (c) of the Convention.

Lastly, as regards the scope of the application, the Court observes that, in response to the applicant's complaint regarding personal liability for debts, the parties were invited to submit their observations on the question of whether that liability had struck a fair balance between his rights protected under Article 1 of Protocol No. 1 and the public interest. It is noted that in their observations on the admissibility and merits of the application, the Government made several references to the enforcement proceedings with regard to the facts as well as the law. Arguing that the applicant had legitimately been designated as an ‘active member’ of the company, the Government also referred to the decisions that the domestic courts had delivered in the enforcement proceedings. Therefore, the Court will consider the enforcement proceedings in its assessment of the alleged violations in so far as the applicant's personal liability was established in those proceedings.

Given the foregoing considerations, the preliminary objections of the Government must thus be rejected.