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On March 14, 2018 the Grand Chamber of the European Court of Human Rights will hear oral arguments in the matter of Lekic v. Slovenia (application No. 36480/07).
The case concerns the adverse effects of the Financial Operations of Companies Act (so-called FOCA), passed by the Slovenian Parliament in 1999, on the rights of a former minority shareholder of a limited liability company. Notably, the FOCA introduced the unparalleled measure that purportedly inactive companies incorporated under Slovenian law were to be struck off the register of companies by the registry courts on their own motion. The striking off resulted into the former shareholders’ personal, joint and severe liability for the struck off company’s outstanding debt.
Mr Lekic, as a former shareholder who was forced to surrender his personal assets to cover the outstanding debt of the company in which he once held 11.11% share, complains that the implementation of the FOCA breached his rights under the European Convention of Human Rights. Namely, under Article 6 of the Convention, it is claimed that the proceedings which resulted in the striking off of the company did not measure up to the fair trial guarantees. Under Article 1 of Protocol No. 1 to the Convention, it is submitted that the implementation of the former shareholders’ personal and unlimited liability for the outstanding debt of the struck off company amounted to an interference with the right to property which lacked the necessary procedural safeguards in terms of foreseeability and proportionality.
These complaints have been rejected by the Fourth Section of the European Court of Human Rights with a judgment of February 14, 2017.
On September 18, 2017, however, a panel of five judges of the European Court accepted the request to refer the case to the Grand Chamber, that was submitted, on behalf of the applicant, by Professor Andrea Saccucci, member of Doughty Street International, together with two Italian attorneys, Giulia Borgna and Matteo Zamboni, who act for the applicant before the Grand Chamber.
In the request for referral, as well as in the procedure before the Grand Chamber, the applicant’s representatives point to the extraordinary nature of the measure. Indeed, such a blanket implementation of the shareholders’ personal and unlimited liability for the company’s debt is unknown to any other State party to the Council of Europe. It contradicts the universal principle of company law of the strict distinction between a company and its shareholders.
They also point to the systemic implications of the FOCA. As a matter of fact, according to the data published by the Slovenian Ministry of Economy, from 1999 to 2007 more than 24,000 limited liability companies have been struck off. As a result, tens of thousands of former shareholders have been forced to pay the outstanding debt of these companies out of their pockets.
For this reason, the hearing of March 14, 2018, will have a crucial impact on the future of the Country entrepreneurship, and it will be of great concern for as much as 2.5% of the entire population of Slovenia.