With Decision No. U-I-151/24-14 of 20 March 2025, the Constitutional Court of the Republic of Slovenia reviewed insolvency legislation (ZFPPIPP). It found that the legal provision excluding the possibility for a shareholder of a limited liability company to appeal against the decision initiating bankruptcy proceedings based on the debtor’s proposal is inconsistent with Article 25 of the Constitution. The decision not only expands the procedural rights of shareholders but also reaffirms the importance of the right to legal remedy as a fundamental constitutional category.

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Factual and Legal Background of the Case (ZFPPIPP)

The Higher Court in Ljubljana, in ruling on an appeal by a shareholder of the company Lipis, d. o. o. – in bankruptcy, against the decision to initiate bankruptcy proceedings filed by the company’s management, found that the third and fourth paragraphs of Article 234 of the Financial Operations, Insolvency Proceedings and Compulsory Dissolution Act (ZFPPIPP) unjustifiably deny the shareholder the right to appeal. The court emphasized that the decision represents a direct and final interference with the shareholders’ managerial and property rights, and that the legislation does not provide effective judicial protection.

The contested provision reads:

(1) If the debtor files for the initiation of bankruptcy proceedings, it is presumed, unless proven otherwise, that the debtor is insolvent.

(3) The presumption of insolvency from the first paragraph of this article may only be challenged by a personally liable shareholder of the debtor or by the debtor if the proposal for the initiation of bankruptcy proceedings was submitted by its personally liable shareholder.

(4) A personally liable shareholder of the debtor or the debtor, if the proposal for the initiation of bankruptcy proceedings was submitted by its personally liable shareholder, may challenge the presumption of insolvency from the first paragraph of this article through an appeal against the decision to initiate bankruptcy proceedings, which must include evidence that the debtor is not insolvent.

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Constitutional Legal Foundations

Loss of Business Share and Shareholder Rights

The Constitutional Court found that, upon the initiation of bankruptcy proceedings, a shareholder loses both the managerial and property rights associated with the business share in a limited liability company. After the commencement of the proceedings, the shareholder becomes merely a creditor in the distribution estate, and their legal position is significantly impaired. This constitutes an interference with constitutionally protected rights under Articles 33 and 74 of the Constitution.

The Right to Appeal as a Fundamental Procedural Right

In line with established constitutional case law, the right to legal remedy under Article 25 of the Constitution guarantees a substantive appellate review of a judicial decision. The Constitutional Court emphasized that the decision to initiate bankruptcy proceedings is a decision on the rights of shareholders and must therefore be subject to two-tier judicial protection.

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Assessment of the Constitutional Legitimacy of the Interference under ZFPPIPP

Application of the Strict Proportionality Test

The Court applied a strict proportionality test, as the interference concerns a fundamental right. It assessed whether the interference was appropriate, necessary, and proportionate in the narrower sense. It found that the aim—ensuring the speed of proceedings—does not justify the exclusion of the appeal, as an appeal under ZFPPIPP does not have a suspensive effect and does not significantly affect the duration of the proceedings.

Unfounded Reliance on Comparative Law

The Court rejected the legislator’s arguments referring to German and Croatian insolvency regulations. It noted that under German and Croatian law, the insolvency of the debtor is not presumed but must be demonstrated, and that these legal systems do not recognize the constitutional right to appeal in the same form as the Slovenian Constitution. Comparative legal arrangements, therefore, do not justify the existing legal regulation.

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Constitutional Consequences and Execution of the Decision

The Constitutional Court found that the third and fourth paragraphs of Article 234 of ZFPPIPP are inconsistent with the Constitution and gave the National Assembly a one-year deadline to eliminate the unconstitutionality. Until then, a shareholder of a limited liability company may also file an appeal against the decision to initiate bankruptcy proceedings when the proposal is submitted based on Article 38 of ZFPPIPP. Furthermore, the court must serve such a decision on all shareholders.

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Conclusion

The decision of the Constitutional Court represents an important affirmation of the right to appeal as a constitutionally protected category also within insolvency law. It emphasizes that the legislator may not, without constitutionally permissible reasons, exclude two-tier judicial protection when fundamental rights are at stake. With this decision, the Constitutional Court has further strengthened the position of shareholders.

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