MJELDE v. NORWAY
Inadmissible
Christos Rozakis
The applicant, Mr Per Harald Mjelde, is a Norwegian national who was born in 1965 and lives in Oslo. He was represented before the Court by Mr V. Strømme, a lawyer practising in Oslo. The Norwegian Government (“the Government”) were represented by their Agent, Mrs F. Platou Amble, Attorney at the Attorney General’s Office (Civil Affairs). The facts of the case, as submitted by the parties, may be summarised as follows. The applicant was the Chief Executive Officer and a member of the Governing Board of the company Næringslivets Innkjøpsorganisasjon Ltd, which was taken into bankruptcy in 1996. In this context, on 25 November 1997, the Oslo Probate and Bankruptcy Court (skifterett) inter alia found (i) that the applicant had failed to operate advance tax deduction through a separate bank account and had been grossly negligent in this respect, in breach of sections 4, 5, 5A and 51 of the Tax Payment Act 1952 (skattebetalingsloven); (ii) that there was reasonable ground for suspecting the applicant of having taken up a loan in the company in breach of sections 12-10 and 17-1 last sub-section of the Limited Liability Companies Act 1997 (aksjeselskapsloven) and (iii) embezzlement of the estate in breach of Articles 281 and 283A of the Penal Code. The Probate and Bankruptcy Court found reasonable ground for suspicion that such criminal acts as mentioned in section 142(1) of the Bankruptcy Act 1984 (konkursloven) had occurred. Moreover, under section 142(2) it found that his business conduct had been inappropriate to such a degree as to make him unsuited to establish a new limited liability company or to take part in such a company. Therefore, under section 142(1) and (2), the court ordered that he be disqualified (konkurskarantene) for a period of 2 years from establishing or taking on responsibilities for the governing board of such a company. In addition, under section 142(4) it extended the order to prohibiting the applicant from continuing existing responsibilities of this nature. The Probate and Bankruptcy Court’s judgment contained the following reasoning: “Pursuant to section 142(1) item 1, see sixth sub-section, item 2, of the Bankruptcy Act, a disqualification order may be imposed on [the applicant] as day-to-day manager of the company if there is ‘reasonable ground’ for suspecting him of a criminal act in connection with the bankruptcy or the activities that led to insolvency. Further, a disqualification order may be imposed pursuant to section 142 (1) item 2 ... if there is reason to presume that, on the ground because of unsound business conduct, the person is unfit to establish a new company, etc. There are sufficient grounds to impose a disqualification order if one of the conditions is fulfilled. The taxation legislation contains provisions requiring separate tax deduction accounts in order to ensure that companies do not make use of funds that belong to the public authorities. Under sections 4, 5 and 5a of the Tax Payment Act, the amounts that are to be paid into tax deduction accounts are the part of taxable remuneration which is not to be retained by persons liable to pay tax (i.e. employees, etc), but which is to be paid as advance tax deductions. The employer has the responsibility for collecting advance tax deductions from employees. In principle, advance tax deductions should not go through a company’s operating accounts, but be paid directly into a tax deduction account, see section 11 of the Tax Payment Act. It is therefore insufficient to argue that there was adequate liquidity in the company both before and after the bankruptcy. The point is not whether the company was in a position to meet its obligations, but whether the amounts in question had in fact been set aside. In this connection, it is important to note that the company never had any formal right to make use of the advance tax deductions. Any exemption from criminal liability would have to be based on the grounds that the amounts that were not set aside were in fact paid at the correct time, see section 51, subsection 3 of the Tax Payment Act. This is not the case here. The requirements for strict criminal liability under section 51 of the Tax Payment Act must be regarded as being fulfilled. With respect to whether [the applicant]’s actions fulfil the subjective requirements for liability, section 51 of the Tax Payment Act lays down intent or gross negligence. It is established that [the applicant], as general manager, was grossly negligent in not ensuring that the payments in question were actually made. The fact that he delegated the task of deducting tax payments in advance does not exempt him from criminal liability. As regards the withdrawal of funds for personal use, the court finds that there is reasonable ground for suspecting that loans were raised in contravention of section 12-10 of the Limited Liability Companies Act. It has been claimed that the loans in question were within the framework of the company’s free equity, but the court cannot see that any security has been provided. This is an offence that is subject to penal sanctions, see section 17, last sub-section, of the Limited Liability Companies Act. The loans were advanced to [the applicant], and the requirements for both strict and subjective criminal liability must be considered to have been fulfilled. Furthermore, the court finds that there is just cause for suspecting criminal withholding of assets from the estate pursuant to Article 281 of the Penal Code. Under Article 281, an attempt to withhold assets is sufficient to incur criminal liability. The court finds that there is reasonable ground for suspecting [the applicant] of attempting to withhold assets from the estate, since it is a fact that the computer equipment has not been transferred to the estate as required. Here too, the requirements for both strict and subjective liability are found to be fulfilled. As regards the question of embezzlement of funds paid to the company by Stavanger Energi, the court notes that this has been reported to the police by their letter of 6 November 1997. This letter indicates that the police consider there to be reasonable ground for suspecting [the applicant] of criminal acts. As regards whether the company operated at the creditors’ expense and how this relates to Article 283 A of the Penal Code, the court finds that in retrospect, it can be established that the company did operate at the creditors’ expense. However, the court does not have sufficient information to state with certainty whether there is reasonable ground for suspecting that the requirements for subjective criminal liability for violation of Article 283 A of the Penal Code are fulfilled. However, the court has found that there is reasonable ground for suspecting a number of other offences, and therefore does not consider it necessary to make a final decision on this question in order to determine whether or not a disqualification order should be imposed. Another question is whether this type of short trading in electricity can be considered to be sound business practice. In this connection, we cannot set such strict standards for documentation of [the applicant]’s subjective view of the matter. The court will return to this question below. The court finds that there is reasonable ground for suspecting [the applicant] of offences such as are mentioned in section 142(1) item 1, of the Bankruptcy Act. It finds that the balance of probability is that [the applicant] is liable to punishment for one or more of the acts to which the Administrators has called attention. Thus, the conditions for imposing a disqualification order on [the applicant] pursuant to section 142(1) item 1, of the Bankruptcy Act are fulfilled. The court finds that business conduct in this case has been so unsound that [the applicant] must be considered unfit to form or take part in the management of a new company, see section 142 (1) item 2, of the Bankruptcy Act. Particular importance is attached in this respect to the general disregard shown for companies legislation. This applies in particular to the provisions of the Limited Liability Companies Act relating to withdrawal of funds for personal use and borrowing from one’s own company. Furthermore, a number of the financial transactions made in the company’s name appear to have been carried out in [the applicant]’s personal interest. These include the purchase of a number of vehicles not conventionally used by a limited liability company of this type. For example, expensive motorcycles, sports cars and pleasure boats were purchased. In connection with an evaluation of business conduct, it is of little importance whether these were intended for use by [the applicant] himself or by his employees. In the court’s opinion, such transactions do not give a more favourable impression of the way the company was managed. Despite the way the power market developed in 1996, [the applicant] allowed Næringslivets Innkjøpsorganisasjon to continue trading in electricity, even though the company did not have contracts for purchases of electricity to cover its sales. The company did not have sufficient funds for these transactions. The transactions thus became speculation at the purchaser’s risk, and in the final analysis at the purchaser’s expense. The company sold goods that it knew or should have known could not be delivered to the purchaser if electricity prices continued to rise. Short trading of this kind is acceptable if the company is in a strong enough financial position, which was not the case here. If the company does not have sufficient funds, its customers incur losses because they have to go out on the market and buy electricity at a higher price. In the court’s opinion, this cannot be in accordance with sound business practice. [The applicant] has a history of several bankruptcies and is involved in several bankruptcy proceedings at present. He can therefore be described as a serial bankrupt, so that he belongs to the category which disqualification is specifically intended to deal with. The court has found no circumstances indicating that it would be unreasonable to impose a disqualification order. In the assessment of reasonableness it is important that the conditions of both item 1 and item 2 of section 142 (1) of the Bankruptcy Act are deemed to be fulfilled. Nor can the court see that disqualification would be particularly unreasonable for [the applicant] on the grounds that he considers himself to be an entrepreneur and claims that disqualification would deprive him of the right to work. A disqualification order does not prohibit a person from working. [The applicant] could take up employment in a company or establish a company with unlimited liability to its creditors. The reason for issuing a disqualification order is that [the applicant] is considered unfit to establish a limited liability company. Since the conditions of section 142(2) item 1, are fulfilled, the court further finds that, pursuant to section 142(4) of the Bankruptcy Act, [the applicant] should be removed from any existing offices in the management of companies, and he is therefore obliged to withdraw from any positions such as those mentioned in section 142 (3) and (5) of the Bankruptcy Act.” This was the third time a disqualification order had been imposed on the applicant, who had been involved in several bankruptcies in the past. On 4 March 1998 the Borgarting High Court (lagmannsrett) rejected an appeal by the applicant against the Probate and Bankruptcy Court’s judgment and upheld the latter’s findings under section 142(1) and (2) and, apparently also under (4), of the Bankruptcy Act. The High Court stated: “The High Court does not find it established that the Probate and Bankruptcy Court has based its decision on erroneous facts or that the decision suffered from other errors that could lead to it being quashed. Against the background of what emerges from the Administrators’ report, the High Court agrees with the Probate and Bankruptcy Court that there is reasonable ground for suspecting [the applicant] of breach of several penal provisions. It relates to breach of Articles 283A(2) item 2 and 281 of the Penal Code, section 51 of the Tax Payment Act and the taking up of loan in breach of section 12-10, see 17-1 last sub-section, the Limited Liability Companies Act. The conditions for disqualification under section 142(1) item 1 are therefore present, as the criminal offences refer to the bankruptcy and the activities that led to insolvency. The High Court further agrees with the Probate and Bankruptcy Court that the management of the company at issue can be characterised as so indefensible that [the applicant] must be deemed unsuited to form a new liability company and take part in such a company, with the meaning of section 142 (1) item 2. Having regard to the debtor’s conduct and the circumstances as a whole, the High Court finds that it seems reasonable, under section 142 (2), to subject him to a disqualification order. Reference is made to the Probate and Bankruptcy Court’s extensive reasoning, with which the High Court agrees in the main, and to the fact that [the applicant], according to the Administrators’ report, has been insolvent in also connection with a number of bankruptcies in the past and has also previously been subjected to disqualification. Therefore the Probate and Bankruptcy Court’s decision is upheld.” The applicant did not appeal against the above judgment by the High Court which became final. Subsequently, on 8 September 1999, the applicant was charged on four counts of aggravated embezzlement inter alia in breach of Articles 255, 256, 281 and 288 of the Penal Code; section 2(2) of the Value Added Tax (VAT) Act 1969 (merverdiavgiftsloven); and section 51 of the Tax Payment Act. On 16 November 2000 he was in addition charged of aggravated breach of confidence (grovt utroskap) under Articles 275 and 276 of the Penal Code. On 27 April 2001, the Oslo City Court (byrett) acquitted the applicant of all but one of the charges mentioned above, namely a charge of aggravated embezzlement, and sentenced him to 2 years’ imprisonment and to loss for 5 years of his right to run a business or to occupy a leading position in a company or be a member of a company board (Article 29(2) of the Penal Code). On appeal by both the prosecution and the defence, the High Court, by a judgment of 11 October 2002, increased the sentence to 3 years, finding the applicant guilty also on the additional count of aggravated breach of confidence. In his appeal to the Supreme Court the applicant requested, firstly, that the case be dismissed (avvist), arguing with reference to Article 4 of Protocol No. 7 to the Convention that the disqualification order barred the subsequent prosecution in relation to the same matters. Secondly, the applicant appealed against his conviction for aggravated embezzlement under Articles 255 and 256 of the Penal Code, challenging the High Court’s interpretation of the law and reasoning. On 23 September 2003 the Supreme Court rejected both of his appeal grounds. In so far as the submission under Article 4 of Protocol No. 7 was concerned the Supreme Court, referring to the reasoning in its judgment pronounced in a similar case on the same date, that the imposition of the disqualification order under sections 142(1), (2) and (4) did not bar subsequent prosecution and conviction. The parallel judgment became the subject of an application (no. 12277/04) lodged under the Convention by Mr Yngvar Storbråten against Norway, which is being dealt with simultaneously with the present case. An English translation of the Supreme Court’s reasoning is reproduced in the Court’s decision in the case of Mr Storbråten, delivered on the same date as the present decision. In so far as relevant, section 142 of the Debt Reorganisation and Bankruptcy Act of 8 June 1984 No. 58 (the Bankruptcy Act) read: Section 142 -Conditions for imposing a disqualification order “If a debtor’s estate is the subject of bankruptcy proceedings, the district court may impose a disqualification order on the debtor if 1) there is reasonable ground for suspecting the person concerned of a criminal act in connection with the bankruptcy or the activities that led to insolvency, or 2) if it must be presumed that for reasons of unsound business conduct, the person in question is unfit to establish a new company or to serve as a director or general manager (managing director) of such a company. In taking a decision on this matter, importance shall be attached to whether, having regard to the debtor’s conduct and the circumstances as a whole, it appears reasonable to impose a disqualification order. The imposition of a disqualification order means that, for a period of two years from the opening of bankruptcy proceedings, the debtor may not establish such a company as mentioned in the fifth sub-section, or undertake the office or de facto exercise the powers of a member or deputy member of a board of directors or managing director of such a company. The district court may decide that the two-year period shall start from the date when the court takes its decision. In cases mentioned in the first sub-section, item 1, the district court may decide that disqualification shall also entail that the debtor shall be removed from any such offices as mentioned in the third sub-section held in such companies as mentioned in the fifth sub-section. The term company in sub-sections 3 and 4 means a limited liability company, a public limited liability company, a branch office of a foreign company, a business foundation, a housing construction cooperative, a housing co-operative, a company aimed at promoting its members’ consumer interests (consumer co-operative), a mutual insurance company or a State company.” For a summary of the legislative history of the provisions on disqualification under Norwegian law, reference is made to paragraphs 21 to 31 of the Supreme Court’s judgment quoted in the above-mentioned decision in the parallel Storbråten case. The Government provided some additional information, inter alia what is summarised here below. In the individual assessment of reasonableness to be carried out under section 142(2), account was to be had to such factors as the cause of the bankruptcy, the debtor’s conduct during the bankruptcy proceedings and the time element. In the event of a significant and unwarranted delay from the opening of the bankruptcy proceedings until the submission of a request for a disqualification order, the court might conclude that it would be unreasonable to impose a disqualification order. In the preparatory works to the Bankruptcy Act 1984, the Ministry of Justice had stressed that the rules would make it possible to stop persons who repeatedly were involved in limited liability companies which went bankrupt, and where there was reason to suspect improper business conduct. It had also been emphasised that disqualification orders should function as a supplement to loss of entitlement (rettighetstap), a form of punishment pursuant to Article 29 of the Penal Code. In this context, the Ministry had pointed to the advantages of the fact that a disqualification order could be imposed shortly after the opening of the bankruptcy proceedings, whilst it normally would take longer to investigate and prosecute possible criminal offences. The possibility of swift action was necessary to achieve the preventive purpose of the measure. The duration of disqualification period, ordinarily two years, could be extended if the public prosecutor in a criminal case had requested or was contemplating requesting the trial court to sentence the person in question to a loss of entitlement pursuant to the Article 29 of the Penal Code. The disqualification period could then be extended until the court had decided the criminal case. The competent court could remit a disqualification order if any of the parties so requested and there was relevant new information. If a person subjected to a disqualification order was later acquitted in criminal proceedings for an offence which constituted the basis for a disqualification order, or further investigation showed that no such criminal offence had been committed, the public prosecutor was to request that the disqualification order be lifted (Norsk Retstidende 2002-789, Appeals Leave Committee of the Supreme Court). A disqualification order could be imposed by a court of first instance (tingretten) or by the probate and bankruptcy courts (skifteretten). Such a measure was usually taken on the basis of written proceedings. However, the parties had the right to request an oral hearing. In his or her report to the probate and bankruptcy court, the liquidator was to provide information on whether, in his or her opinion, there were circumstances suggesting that a disqualification order should be imposed. Both the bankruptcy estate (represented by the liquidator) and the prosecuting authority had a right to intervene as parties in the proceedings concerning the disqualification order. The opposing party would be the debtor, board member etc. against whom the order would apply. It was rare that the prosecution or the bankruptcy estate intervened as a party to the proceedings. The court’s decision would, accordingly, normally be taken only on the basis of the information and recommendation in the liquidator’s report, and the information and objections provided by the defendant. Under section 143A of the Bankruptcy Act, a failure to comply with a disqualification order was a criminal offence punishable by up to four months’ imprisonment and/or fines.