Category: Turkiye

According to the Turkish Commercial Code [“TCC”], the governing and representative body of a joint stock corporation is the “board of directors” [“Board”]. Board members are obliged to carry out their duties with the due care of a cautious manager and to protect the interests of the corporation in good faith. Board members can be held liable for the damages incurred by the corporation, the shareholders, or creditors in cases where they fail to fulfil their duties arising from the law or the articles of association. [TCC Art.553(1)]

I What are the Statutory Liabilities of Board Members?

Governance and representation of the joint stock corporation is both a right and a responsibility for Board members. Therefore, Board members must partake in the courses of action necessary for the governance of the corporation. In this context, some of the responsibilities of Board members are as follows: participating in Board meetings, giving suggestions, taking part in discussions and dissenting in matters that are contrary to corporate interests.

Board members must act in accordance with the principle of equal treatment in matters regarding shareholders’ rights and positions within the corporation [TCC Art. 357].

Board members must manage and represent the company with care and commitment [TCC Art. 369], This is an objective duty of care. This means that the duty of care expected from the Board member is beyond the care they show in their own work––they must act as if they were a careful and prudent manager in a similar qualified company under the same conditions.

Board members are obliged not to compete with the corporation, as an essential component of their duty of loyalty. Accordingly, Board members cannot carry out a commercial transaction which falls within the scope of the company’s business on behalf of themselves or someone else, without the permission of the general assembly [TCC Art. 396/1].

Board members are under the obligation of confidentiality. This obligation means that a Board member cannot disclose information that is discussed in meetings or acquired outside the meeting as part of their duty. While the obligation of confidentiality is not clearly regulated in the law, it is accepted as a part of the duty of loyalty arising from the relationship between the Board member and the corporation.

Board members cannot perform transactions with the corporations on behalf of themselves or anyone else without the permission of the general assembly. Otherwise, the corporation has the right to invalidate the transaction [TCC Art. 395/1].

Non-shareholder Board members and their non-shareholder relatives are prohibited from borrowing cash from the corporation. The corporation cannot provide security, guarantee or collateral to the aforementioned persons, cannot assume liability, nor can it take over the debts of those persons [TCC Art. 395/2].

Board members cannot attend meetings in certain cases. Accordingly, a Board member cannot attend a meeting on matters where their personal interests or the personal interests of one of their descendants, spouse, or blood relatives up to the third degree, including the third degree, conflict with the interests of the company [TCC Art. 393]. 

Moreover, there are also several special liability cases regulated in various articles of the TCC. These types of responsibility are as follows; [i.] Liability arising from illegality of documents and statements [TCC Art. 549], [ii.] False statements about the capital and knowledge of insolvency [TCC Art. 550], [iii.], Liability for corruption in valuation [TCC Art. 551] and [iv.] Responsibility arising from illegal crowdfunding [TCC Art. 552].

In addition, it is possible to stipulate additional obligations for Board members in the articles of association of the corporation. In such a case, Board members must also act in accordance with these obligations, and any actions to the contrary may lead to legal liability.

II. When does the Legal Liability of the Board Members Arise?

The conditions of legal liability are determined in the Turkish Code of Obligations. Accordingly, the conditions sought for the emergence of legal liability are damage, illegality, fault, and causal link.

Damage must have occurred.

In order for the Board member to be held liable, a damage must have occurred. Damage is a prerequisite for liability. At this point, the concepts of direct and indirect damage should be discussed.

Damage that causes legal liability in joint stock corporations can arise either directly or indirectly:

While direct damage is a decrease in the assets of the company, shareholders and/or creditors, indirect damage is the reflection of the damage in the assets of the company to the assets of the partners and creditors. Turkish law primarily recognizes direct damage. Compensation for indirect damage can only be requested if it is explicitly stated in law.

In most cases, actions of Board members primarily harm the corporation itself. The decrease in the assets of the company may indirectly cause losses for the creditors and shareholders. Such damages are referred to as “indirect damages”. Accordingly, Article 555 of the TCC provides that every shareholder, along with the corporation itself, may request compensation for damages incurred by the corporation, while Article 556 regulates the debtors’ right to request compensation in case of bankruptcy. In a lawsuit filed by shareholders or creditors for indirect damage, the company’s loss is an indispensable condition [conditio sine qua non] of the lawsuit. Thus, the company, the shareholders who are subject to loss by reflection, and the creditors in case of bankruptcy can demand compensation for the loss to the company. In this case, although compensation for the entire loss can be claimed, the payment is made to the company and not to the shareholders or creditors themselves. This constitutes an exception to ordinary civil procedure.

However, in exceptional cases, it is also possible for the creditors or shareholders to incur direct losses even when the corporation itself does not suffer any loss. These types of direct damages occur especially in cases where the preemptive right of the shareholder is violated in the capital increase, the shareholder is not paid appropriate dividends, and the shareholder is prevented from attending the general assembly meeting or voting in the meeting. In these cases, shareholders and creditors may request indemnification for their direct damages. In such cases of direct damage, the release of the Board members does not prevent the shareholders’ and creditors’ right of action.

The Board member must have caused damage by their unlawful act.

Board members can only be held liable due to violations of statutory responsibilities or those arising from the articles of association.

Save for exceptional cases of strict liability designated by law, in order for a Board member to be held liable, they must have caused the damage by fault.

As is clear from the wording of Article 553/1 of the TCC, liability of Board members is dependent on fault. Since the degree of fault is not determined by law, it is commonly accepted that actions in negligence are sufficient for liability to arise. However, the severity of the fault is important in determining the amount of compensation. In this respect, whether Board members have acted in violation of the duty of care and loyalty regulated in Article 369/1 of the TCC should be evaluated.

As explained above, the duty of care and loyalty envisaged here is not a subjective duty, but an objective one determined considering the prudent managerial behaviour set by the legislator.

There must be a causal link between the damage caused and the unlawful act committed by the fault of the Board member.

Existence of a causal link is an indispensable element in liability cases. Even in cases where the action of the Board member is normally suitable to cause damage, if it is understood that the damage was actually caused by another reason, the causal link is deemed to be severed, and the Board member cannot be held liable.

III. Determining Liabilities of the Board Members in Accordance with the Principle of Differentiated Solidarity

Pursuant to the principle of differentiated solidary adopted in Article 557 of the TCC, absolute joint liability accepted in the former Turkish Commercial Code No. 6762 has been abandoned, and a system that foresees the obligation of compensation in proportion to the damage caused separately by each Board member has been adopted. Thus, a Board member does never have to pay compensation exceeding the damage they have caused. Differentiated solidarity provisions are applicable in cases where the loss is caused by the actions of more than one Board member.

The judge hearing the liability case decides on the amount of compensation each responsible Board member has to pay, taking into account the reasons for reduction for each member. Reasons for reduction may be the degree of fault, fault of a third party, fault of the injured party and consent of the injured party. The maximum amount of individual liability determined by the judge for each Board member corresponds to the upper limit of the liability of that particular Board member. Thus, no further amount can be requested from the Board member upon the payment of this upper limit.

IV. Competent Court

Liability cases against Board members can be filed in the commercial court of first instance where the corporation’s headquarters is located.

V. Termination of Liability

Liability of the Board member is terminated in the following cases:

Proof of faultlessness of the Board member as per TCC Art. 369

A Board member may be relieved of liability if they can prove that the damage occurred despite them acting in compliance with the obligation to perform their duties with the care of a prudent manager and to act in the interests of the company in good will, as regulated in Article 369. To learn more about this obligation commonly called the business judgment rule and its importance, please see our article “The Significance of Business Judgment Rule for Board Members in Turkey”.

Expiration of the statute of limitations

According to Art. 560 of the TCC, compensation against the liable parties can be claimed in 2 [two] years following the date the plaintiff becomes aware of the damage and the identity of the liable person, and 5 [five] years at most following occurrence of the damage. However, a separate statute of limitations applies in cases where the Board members have been released from liability by the shareholders. Accordingly, if the general assembly resolved on the release of Board members, shareholders who did not participate in the release decision must raise their claim related to the actions covered by the release decision within 6 [six] months [TCC Art. 558/2-c].

Moreover, should the act causing the claim is subject to a longer statute of limitations under the Turkish Criminal Code, this longer statute will be applicable to claims for compensation as well.

Release of Board member

In joint stock corporations, the general assembly may release the Board members from liability by approving the transactions made by them during the relevant accounting period in terms of their economic and legal consequences. Essentially, release is the acquittal of the Board members through a resolution adopted by the shareholders at a general assembly meeting. It should be noted that it is not the Board who is released, but each individual Board member.

By Zahide Altunbas Sancak, Partner, Guleryuz & Partners

Interim attachment is a provisional remedy under the Enforcement and Bankruptcy Law No. 2004 [the “EBL”] which individuals or legal entities can request for their monetary claims. Thanks to this institution, the debtor’s assets could be frozen to secure due yet unsecured debts, and as a result, the debtor would be forced to pay its debt.

3 [three] conditions must be in place to get an interim attachment – these are:

1. A monetary claim must be in question

Interim attachment may also be granted for foreign currency debts. In this case, the request should be submitted with the Turkish lira [TRY] amount equivalent to the foreign currency debt.

2. Due debt must not be secured by way of a pledge

As a general rule, an interim attachment may not be requested when the debt in question is secured by a pledge. On the other hand, it can still be sought in cases where it is not mandatory to proceed with the “prior debt collecting proceedings through the liquidation of the pledge” [Article 45 of the EBL].

If only a portion of the debt has been secured by a pledge, it is possible to attain an interim attachment order for the amount receivable exceeding the amount secured by pledge.

3. Debt must be due [save for the exceptions regulated in Article 257/2 of the EBL].

Although an interim attachment order may not be granted for undue debts in principle, there are several statutory exceptions. The first exception arises when there is no specific domicile of the debtor, in which case it must be understood as a lack of communicable address. Another exception occurs when the debtor conducts one of the following actions, as they are deemed to be aimed at avoiding liability: if the debtor is preparing to conceal its assets or to transfer its assets or to flee, or if the debtor has fled or has been performing fraudulent transactions that violate the rights of the creditor. 

Interim Attachment Process Before Court 

Interim attachment claim must be initiated with a pleading submitted to the competent court according to the provisions of the Civil Procedure Law No. 6100 [the “CPL”] and the Articles 50 and 258/1 of the EPL. On the other hand, in case there is a pending lawsuit, the interim attachment could solely be requested from the court hearing the case by the creditor / claimant. The claimant must present evidence indicating the grounds of interim attachment, as well as the essential elements that must be included in the pleading. Determination of plausible proof [what the Court of Cassation seeks regarding “plausible proof” is the creditor proving the rightfulness in their claim of liability to an approximate extent] is deemed to suffice for the

court to award on an interim attachment order. Although, plausibility must be examined on a case-by-case basis, generally any evidence that proves liability along with debt relationship, such as cheque, promissory note and/or documents that contain acknowledgement of debt would be considered valid. On the contrary, documents such as a bill drawn up by one party without proving the consent of the counterparty would be considered to be invalid. 

Interim attachment is subject to simple trial procedure. This means that the parties are only allowed to submit pleading and response petitions and no further can be filed, contrary to the written procedure in which exchange of written submissions [pleading, response, rebuttal, and rejoinder] can be carried out in two rounds. The judge also has the discretion to rule on an order granting interim attachment without hearing the debtor, if s/he believes that doing so may render the purpose of interim attachment futile. 

Security for Possible Damages 

The court generally order the creditor / claimant to provide a security in compensation for the possible damages that the debtor and third parties may incur in case the creditor may be found wrong in its claim.

Accordingly, (i) security will not be required where a receivable is secured by a judgment; (ii) the court enjoys discretion with respect to receivables secured by documents that are considered to possess same characteristics of a court decision; (iii) apart from the aforementioned cases, the court cannot award an interim attachment without imposing a specified amount of security on the creditor / claimant. In practice, security usually corresponds to approximately %15 of the amount in dispute.

The court must decide on interim attachment so long as the foregoing conditions have been satisfied. It is possible for the creditor to appeal to the Regional Court of Second Instance in case of refusal of the claim, thereby the Regional Court of Second Instance shall evaluate the appeal with priority and give its final decision.

In addition, due to its non-definitive essence, a new submission can be filed in case of change in circumstances of the interim attachment and the evidence.

Enforcement of the Interim Attachment Decision

The creditor must request from the relevant Enforcement Office the enforcement of the interim attachment within 10 [ten] days as of the decision date. If not, interim attachment order shall automatically cease to have effect. 

Interim attachment poses a “freezing” effect on the debtor’s assets and enables the creditor / claimant to conduct a seizure only, unless it turns into a definite attachment. This means that the creditor / claimant is not entitled to having the respective “frozen” assets sold to recover its debt. In exceptional cases, the enforcement officer may sell the goods – for instance, when the good’s value depreciates rapidly, or it would be too costly to store them. However, in that case, the money collected will not be paid to the creditor / claimant and will be deposited to a credible bank or to the cash desk of the court or the enforcement office.

Objecting to the Interim Attachment Decision

The debtor has the right to object to the interim attachment decision within 7 [seven] days, however, only if s/he was not heard at the hearing of the interim attachment decision. In the objection, the debtor can merely rely on the jurisdiction of the court, the reasons for the interim attachment order and/or the amount of the security to be deposited by the creditor for potential damages [as explained above].

Alternatively, the debtor can ask the court to relinquish the seizure on the asset by providing security sufficient to cover to the sum of the principal and accessories of the debt. In this case, the consent of the creditor is not required.

By M. Tarik Guleryuz, Partner, Guleryuz & Partners

Turunc has advised Lycian Capital Partners on the formation of its regulated private equity fund.

An independently-owned private equity firm, Lycian Capital has announced on July 6, 2021, that it secured approval from the Capital markets Board of Turkey to establish its inaugural private equity fund, targeting investment opportunities in the lower-mid market across Turkey.

It further announced it has a target size of USD 100 million and it aims to build a diversified portfolio consisting of growth capital and buy-out investments in 10-12 companies across sectors, ranging between USD 5-15 million per transaction.

Lycian Capital was founded by Gokhan Arikoc and Gokce Manav, joined by Partners Gokhan Kademlioglu and Pinar Ozbozdoganli.

The Turunc team included Partners Iltem Dokurlar and Kerem Turunc, and Associate Naz Esen.

GKC Partners has advised Hepsiburada.com on its USD 780 million IPO on Nasdaq. Morgan Stanley, JP Morgan Securities, Goldman Sachs, BofA Securities, and UBS Securities acted as the bookrunners. Paksoy advised the banks on Turkish law and Cleary Gottlieb Steen & Hamilton reportedly advised on US law.

Hepsiburada is a Turkish online shopping platform. According to GKC Partners, “this landmark transaction marks several market firsts: first IPO by a Turkish company on Nasdaq, largest Turkish tech IPO in history, and the largest Turkish IPO in over a decade. First-day market capitalization of HEPS reached USD 4 billion. The offering received a strong demand with the order book multiple times oversubscribed throughout the range from a diverse investor base.”

GKC Partners’ team included Partner Derin Altan, Associates Gokcen Durgut, Eren Ayanlar, Irem Kurkcu, Gozde Berkil, Ata Deniz, and Elif Ece Kuregibuyuk, Competition Advisor Sezin Elcin Cengiz, and Legal Interns Sehriban Unlu and Zeynep Ulasan.

Paksoy’s team was led by Partner Omer Collak.

Baker McKenzie and Esin Attorney Partnership have advised Index Ventures on a USD 155 million Series B investment round in mobile gaming company Dream Games. Kinstellar advised Dream Games on the deal.

According to Baker McKenzie, Index co-led the round with Makers Fund, with participation from Balderton Capital, IVP, and Kora. 

Dream Games is an Istanbul-based developer of mobile games, such as Royal Match. According to Kinstellar, the company is valued at USD 1 billion and will use the funding “to create the next generation of casual puzzle games.”

Index Ventures is an international venture capital firm based in San Francisco and London.

Baker McKenzie’s team included London-based Partner Will Holder, Senior Associate Tom Gastrell, and Associates Grace Blackburn and Georgiana Andrews, and Istanbul-based Esin Attorney Partnership (the Baker McKenzie associated firm) Partners Eren Kursun and Caner Elmas and Associate Mine Sekmen.

Kinstellar’s team was led by Partner Emre Edmund Ozer and included Associates Mert Elcin and Beliz Zorlu as well as Of Counsel (and Sevener Hukuk Partner) Orhan Can Sevener.

Paksoy has advised BNP Paribas, HSBC, and TEB Yatirim on Sasa Polyester Sanayi’s EUR 200 million convertible bond issuance. GKC Partners and White & Case advised Sasa on the deal.

According to Paksoy, “one of the tailor-made features of this landmark transaction is also the guarantee provided by a wholly-owned subsidiary of Sasa. This is the first international convertible bond issued by a Turkish corporate listed on Borsa Istanbul, which is expected to open up equity-linked issuances in Turkey and to give a new impulse to Turkish ECM environment.” According to the firm, “Sasa secured some waivers from the Capital Markets Board of Turkey on several key components such as setting the conversion price and conversion period. Sasa’s main shareholder also entered into a stock lending arrangement with BNP Paribas to facilitate hedging during the life of the bonds and participation of certain investors in the offering. The bonds with a conversion premium of 27,5% will mature in 2026 and the net proceeds of the offering will be used for general corporate purposes and for refinancing of existing debt, financing current and future investments.”

Paksoy’s team included Partners Omer Collak and Sansal Erbacioglu, Counsel Okkes Sahan, Senior Associate Nazli Tonuk Capan, and Associates Elvan Yolcu and Bulent Ozturk.

White & Case’s team included London-based Partner Richard Pogrel and Associates Neha Saran and Hashim Eltumi, Paris-based Partner Philippe Herbelin, and Istanbul-based Derin Altan and Ates Turnaoglu (both Partners at the White & Case associated firm GKC Partners).

Arbitration is usually a more favored dispute resolution mechanism in the international arena compared to national courts for its many advantages, such as cost efficiency, speed, and confidentiality. That being said, an enforcement procedure also needs to be pursued if and when the arbitral award is not performed willingly by the losing party – which is usually the case. Accordingly, if an arbitral award is rendered in a foreign country or it is considered to be “foreign” according to Turkish law [as explained below], a court process will have to be followed for the enforcement of the award in Turkey.[1]

The main Turkish legislation regulating the enforcement of foreign arbitral awards is the Private International Law and Procedure Act No.5718 [“PIL”]. Turkey is also a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards [“Convention”]. Foreign arbitral awards are generally enforced [or recognized] pursuant to the latter, as it is signed and ratified by many countries. Nevertheless, it should be noted that the provisions of PIL are quite similar to those of the Convention regarding the enforcement procedure. 

The Convention is applicable if the award was granted in a signatory country <other than Turkey> or if the award is considered “foreign” according to Turkish law, although it was rendered in Turkey. The latter is the case when in a dispute bearing an element of foreignness, the place of arbitration is Turkey, but the compulsory rules of the International Arbitration Act of Turkey [“MTK”] are not applicable pursuant to the agreement of the parties.

Competent Court[s] to Render the Enforcement Decision

As the Convention refers to the rules of procedure of the territory where the award is relied upon, the competent court will be determined as per the same rules whether the Convention or the PIL provisions are applied.

As per the Law No. 5235 on the Establishment, Duties and Jurisdiction of the Courts of First Instance and Regional Courts of Justice, commercial courts of first instance are authorized to decide on enforcement of the foreign arbitral awards. Pursuant to the PIL, the enforcement of a foreign arbitral award shall be requested [i.] from the commercial court of first instance agreed in writing by the parties, [ii.] if there is no such agreement between the parties, from the court of the place of residence of the party against whom the award is granted, [iii.] if this party has not a place of residence in Turkey, from the court of its place of domicile, or [iv.] in the absence of all these, from the court where the property that is subject to execution is located.

Grounds of Refusal of the Enforcement Request

According to the Convention, the enforcement of a foreign arbitral award may be refused, if the party against whom it is invoked proves that:

1. The arbitration agreement is not valid,
2. His/her right of defense has been violated [e. s/he was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his/her case],
3. The arbitrator/s exceeded their authority by issuing an award on matters which are beyond the scope of the arbitration agreement or are not in accordance with the parties’ claims [in this case a partial enforcement may be in question, if possible],
4. The composition of the arbitral authority or the arbitral procedure was not in accordance with the arbitration agreement, or, in the absence of such agreement, was not in accordance with the law of the country where the arbitration took place,
5. The award is not or has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which it was made, or

if the Turkish court ex officio finds that:

1. The subject matter is not arbitrable under Turkish law, or
2. The enforcement of the award would be contrary to the public

The grounds of refusal set forth in the PIL are also in line with the above-listed conditions of the Convention. 

Costs That May Incur During the Enforcement Proceedings 

According to the Turkish Act on Fees, if the subject matter of the award is monetary, a proportional fee [68,31 per thousand of the amount awarded] shall be charged. If the subject matter of the award is not monetary, then a fixed fee [around 6 Euros] is charged. Nevertheless, the application of this principle is widely criticized as the Convention and the PPL prohibit révision au fond [the principle which precludes the judge from reviewing the substance of the award].

Furthermore, a certain amount of security to be determined by the Turkish court must be deposited to cover the potential loss or damages of the other party. Although there is no specific provision regarding the amount and form of the security, it is generally determined around 10-15% of the subject matter by the courts. This automatized approach is highly criticized, but it should also be noted that foreign citizens may also be exempted from security on the basis of reciprocity.

Statute of Limitations for Enforcement of a Foreign Arbitral Award

There is no specific statute of limitation for the enforcement of foreign arbitral awards under Turkish law. According to the PIL, legal transactions and relationships are subject to the law applicable to them in terms of statute of limitation. On the other hand, once a decision of enforceability is rendered by a Turkish court, then it must be executed within 10 [ten] years from the finalization of the decision of enforcement. 

[1] In certain cases, especially in a pending case, a foreign arbitral award may need to be recognized as a conclusive evidence, and such recognition is subject to the same conditions as for its enforcement.

By M. Tarik Guleryuz, Partner, and I.Selin Nacar, Associate, Guleryuz & Partners

Former Erdem & Erdem Managing Associate Alper Uzun has been promoted to Partner at the firm.

According to Erdem & Erdem, Uzun joined the team in 2009 and the partnership promotion follows a successful decade of work with the Dispute Resolution Department where he “provides representation and consultancy services to domestic and foreign clients in their daily issues, litigations, and legal disputes.” 

Before joining Erdem & Erdem, he spent over two years with Necdet N. Tarakci Hukuk Burusu and over a year with Sumer Altay Hukuk Burosu.

Uzun graduated from the Istanbul University Faculty of Law in 2005 and completed his LL.M. degree at the Istanbul University Department of Financial Law.

The Turkish Commercial Code No. 6102 [the “TCC”] designates the Board of Directors [the “Board”] as one of the two compulsory executive bodies of the joint stock corporations (in Turkish: anonim şirket) – the other one is the general assembly of shareholders [the “GA”]. Accordingly, the Board is entitled to take all necessary decisions in order to carry out all business and transactions required to perform the company’s scope of activity excluding those falling within the exclusive authority of the GA stipulated by law and the articles of association [the “AoA”] of the company. That is to say, the Board is designated as the main competent body of a joint stock corporation under Turkish law. 

Composition and Appointment of the Board

The Board can be composed of one (1) or more members. It is also possible to determine the number of the Board members on a flexible basis. For instance, the AoA may state that the Board consists of 4 to 7 members; in that case, the shareholders will determine the exact number of the members at the GA meeting. The TCC also enables the legal entities (whether Turkish or foreign) to be appointed as the Board members.

The Board members are elected for a maximum term of three (3) years. Their term of office may be specified in the AoA or by the shareholders at the GA meeting. A member whose term of office expires can be re-elected.

The Board members can be appointed pursuant to the following principles:

1. At the time of incorporation of the company: The Board will be unanimously appointed by the founders under the AoA.
2. Following the establishment of the company: As a general rule, the Board members will be appointed by the shareholders at a GA meeting through a resolution adopted by the required quorum – unless the AoA sets an aggravated quorum, the GA will be convened with at least 1/4 (one-quarter) of the shareholders or their representatives, and the decision quorum is the majority of the
3. Exceptional appointment of the Board member [the so-called “Co-option”]: In case of a vacancy on the Board for any reason, the Board may adopt a resolution for the appointment of a new member on a temporary basis to be submitted for the approval of the shareholders at the next GA

Vacancy on the Board

Under the related provisions of the TCC, a vacancy may occur on the Board in various circumstances. Accordingly, the Board membership would automatically terminate in the following events: (i) the bankruptcy of the member, (ii) if the member loses requirements and the qualifications for the membership stipulated in the AoA and the TCC, (iii) if the member is subject to an interdiction order as stipulated in the Turkish Civil Code No.4721, and (iv) death of the respective member.

A vacancy may also occur by the resignation of the Board member. In any case, the GA is authorized to dismiss any member of the Board, provided that there is either (i) a related item in the agenda of the relevant GA meeting (agenda item regarding discussions of the financial statements is also considered sufficient), or (ii) a just cause for the dismissal of such member.

The vacancy on the Board may prevent the company to carry out its daily business and transactions. That being said, in case of a vacancy on the Board for any reason, the Board is obliged to either (i) adopt a resolution calling for a GA meeting where the appointment of new member will be discussed, or (ii) adopt a resolution for the appointment of a new member by itself.

Co-option

Appointment of a member in case of a vacancy by the Board itself – the so-called “Co-option” – is an exception to the general rule that the Board members to be appointed by the GA.

Co-option right enables the Board members to appoint a new member to the Board on a temporary basis. Accordingly, the co- opted member needs to be submitted to the next GA meeting for approval. Hence, s/he will perform his/her duty as a Board member until the next GA meeting, and the resolutions adopted by affirmative vote of that member until the GA meeting would be valid and binding on the company.

However, the GA has the sole power to approve or refuse the appointment of the co-opted member. If it refuses, the membership of that member will cease, and the GA will appoint a new Board member to fill the vacancy. The validity of the resolutions adopted in the meantime would not be affected due to the disapproval of the co-opted member by the GA. 

Co-option in Shareholders Agreements

In shareholders agreements, it is very common for the parties to agree on that a certain number of Board members to be selected by a group of shareholders whereas the remaining members to be selected by the other group of shareholders. Under Turkish law, such arrangements are (and need to be) reflected into the AoA by creating share classes and granting privileges to those classes in respect of nomination of the Board members. If this is the case, the GA will have to appoint among the members selected by the relevant class of shareholders to the Board, unless there is just cause for the refusal of the appointment.

Accordingly, if the membership of a Board member nominated by a class of shareholders ceases, then the Board should appoint the new member among the individuals designated by the same class of shareholders in order to prevent any prejudice to their right to be represented on the Board.

Conclusion

Turkish law recognizes the co-option at the Board level in joint stock corporations. It is an exception to the non-transferrable authority of the shareholders for the appointment of the Board members, and basically enables the Board members to appoint a new member to the Board for a temporary term.

By Zahide Altunbas Sancak, Partner, and Sevinc Jafarova, Associate, Guleryuz & Partners

Egemenoglu has advised shareholders Yasar Kucukcalik and Yilmaz Kucukcalik on the sale of a minority stake of Kucukcalik Tekstil to American textile company Standard Textile. Herguner Bilgen Ozeke reportedly advised the buyer.

The parties have not disclosed the purchase price.

Egemenoglu’s team included Partner Egemen Egemenoglu, Senior Associate Efra Aydin Can, and Associates Mucahit Ozdemir, Buse Yonat, and Erman Eralp.