INTRODUCTION
Joint stock companies are represented and managed by the board of directors. In this respect, since the board of directors is the legal representative of the joint stock company, the will of the board of directors binds the company. In this context, Article 553 of the Turkish Commercial Code 6102 (“TCC”) stipulates the liability of the members of the board of directors, and this article will examine the liability actions that may be brought against the members of the board of directors.
LIABILITY AND CONDITIONS OF A MEMBER OF THE BOARD OF DIRECTORS OF A JOINT STOCK COMPANY
Pursuant to Article 359 of the TCC, these elected or appointed members of the board of directors have obligations to protect the joint stock company and shareholders arising from “the law or the articles of association”, and breach of these obligations by the members of the board of directors gives rise to liability.
The conditions of legal liability are defined in Article 49 of the Turkish Code of Obligations numbered 6098 (“TCO”), and Article 114/2 of the same Code states that this provision may be applied in cases of contractual liability. According to the TCO, four conditions must be present for legal liability to arise. These conditions are damage, illegality, fault and causal link. (1) Article 553 of the TCC, which regulates the liability of the members of the board of directors, is regulated by the principle of Article 49 of the TCO, which defines legal liability. Therefore, the conditions of damage, illegality, fault and causal link must be fulfilled in order for legal liability to be imposed against the members of the board of directors.
Although damage is legally defined as a decrease in the assets of a person against his/her will, it is necessary to explain direct and indirect damage in terms of this subject. This is because the direct or indirect damages, especially for the shareholders and creditors, lead to quite different results regarding the claims. (2) While direct damage is the decrease in the assets of the company, shareholders and/or creditors, indirect damage means the reflection of the damage on the assets of the shareholders and (in case of bankruptcy) creditors. However, in case of indirect damage, the shareholder or (in case of insolvency) the creditor will file a lawsuit for the compensation of the damage of the company and therefore, compensation will be awarded in favour of the company. In this case, the amount of the compensation to be claimed by the creditor shall be the amount covering all direct damages suffered by the partnership. (3)
Pursuant to the provisions of the Former TCC and the New TCC, there is a difference in the presumption of fault. Pursuant to the provisions of the Former TCC, the presumption of fault was accepted, and the member of the board of directors who was sued could be released from liability if he/she proved that he/she was at fault.
However, pursuant to the provisions of the New TCC, as a result of the objectification of fault, the member of the board of directors cannot escape liability by proving that he/she exercised due care in his/her own work. (4)
In order to impose liability on the members of the board of directors, in accordance with the general provisions, the burden of proof belongs to the person claiming to have suffered damage. As a matter of fact, in the decision of the 11th Civil Chamber of the Court of Cassation dated 15.04.2019 and numbered 2018/1173 E. and 2019/2948 K., it is clearly stated that the burden of proof in the liability lawsuit filed by the plaintiff belongs to the plaintiff.
ACTIVE HOSTILITY AND LITIGATION REQUIREMENT IN THE LIABILITY LAWSUIT TO BE FILED AGAINST THE MEMBERS OF THE BOARD OF DIRECTORS
- PERSONS WHO CAN FILE A LAWSUIT OTHER THAN THE BANKRUPTCY OF THE COMPANY
The persons who can file a lawsuit in the event of bankruptcy of the company differ according to the direct damage and indirect damage incurred.
- PERSONS WHO MAY FILE A LAWSUIT FOR DIRECT DAMAGES OTHER THAN THE BANKRUPTCY OF THE COMPANY
Pursuant to Article 553 of the TCC, the company, shareholders and creditors may file a lawsuit against direct damages incurred by the company. The important issue in the lawsuit to be filed by the company against the member of the board of directors is whether the general assembly resolution is a condition for filing a liability lawsuit. There is no explicit provision in the TCC stipulating that a general assembly resolution is a condition for filing a liability lawsuit. However, Article 479/3 of the TCC implies that a general assembly resolution may be adopted for the filing of a liability lawsuit.
Shareholders and creditors may file a lawsuit against the members of the board of directors in order to claim compensation for the damages they havedirectly suffered. In this case, the compensation awarded as a result of the lawsuit is paid to the claimant.
- PERSONS WHO CAN SUE FOR INDIRECT DAMAGE OTHER THAN THE BANKRUPTCY OF THE COMPANY
If the company is not bankrupt, Article 555 of the TCC authorises the company and the shareholders to file a lawsuit for indirect damage. However, in the liability lawsuit to be filed by the shareholder against the member of the board of directors due to indirect damage, the shareholder may file a lawsuit by demanding that the compensation be paid to the company, not to himself. Therefore, the shareholder must be a partner at the time the lawsuit is filed. (5)
- PERSONS WHO CAN FILE A LAWSUIT IN CASE OF COMPANY BANKRUPTCY
- PERSONS WHO MAY SUE FOR DIRECT DAMAGES IN CASE OF COMPANY BANKRUPTCY
In case of bankruptcy of the company, the right to file a lawsuit belongs to the bankruptcy administration on behalf of the company. As for the shareholders and creditors, as a rule, the shareholders and creditors who directly suffer damages, regardless of the bankruptcy of the company, may always file a liability lawsuit against the member of the board of directors. This is because there is no provision in the TCC preventing this. However, it is accepted in the doctrine that the right of the shareholders and creditors to file a lawsuit in the event of the bankruptcy of the company is limited, as it will compete with the liability lawsuit filed by the bankruptcy administration on behalf of the company. Therefore, in the event of the bankruptcy of the company, shareholders and creditors may file a liability lawsuit based on indirect loss pursuant to Article 556 of the TCC.
- PERSONS WHO MAY FILE A LAWSUIT FOR INDIRECT DAMAGE IN CASE OF BANKRUPTCY OF THE COMPANY
Pursuant to Article 556 of the TCC, in the event of the bankruptcy of the company, the right to file a lawsuit for indirect damages is granted to the joint stock company, shareholders and creditors. However, these claim rights of the shareholders and creditors must first be asserted by the bankruptcy administration. Pursuant to Article 556/2 of the TCC, if the bankruptcy administration does not approve the filing of the lawsuit at the second meeting of creditors, the shareholder or the creditor may file the lawsuit. (6)
TIME LIMIT
Article 560 of the TCC: “The right to claim compensation against those responsible shall be time-barred after two years from the date the plaintiff learns of the damage and the responsible party, and in any case after five years from the day the act giving rise to the damage occurred. Provided that, if this act requires a penalty and is subject to a longer statute of limitations according to the Turkish Penal Code, this statute of limitations shall also apply to the action for compensation.”
provision of the relevant article. However, there is a point to be considered at the beginning of the 2-year period specified in the relevant article. If the liability lawsuit is to be filed against the members in office or the only member of the single-member board of directors; if the plaintiff requests the appointment of a representative trustee pursuant to Article 426/3 of the Turkish Civil Code No. 4721, in this case, the two-year period in question starts from the date the appointed trustee takes office and learns about the damage and the responsible person.
COMPETENT AND AUTHORISED COURT
Pursuant to Article 561 of the TCC, a lawsuit may be filed against the responsible parties before the commercial court of first instance where the head office of the company is located.
CONCLUSION
Article 553 of the TCC regulates the liability of the members of the board of directors. Pursuant to this provision, the members of the board of directors have obligations to protect the joint stock company and shareholders arising from “the law or the articles of association”, and the breach of these obligations by the members of the board of directors gives rise to their liability. In order for the court to decide on the liability of the member of the board of directors due to the breach of the obligations of the member, the conditions of damage, illegality, causal link and fault must be present. In liability cases, the damage is divided into direct and indirect damage, and at the same time, whether the company is bankrupt or not is also important in terms of determining the persons who have the capacity to sue in the liability case in addition to the damage element. Pursuant to the provisions of the law mentioned in our article, the company, shareholders and creditors of the company may file a liability lawsuit against the members of the board of directors who are liable before the commercial court of first instance where the head office of the company is located within two years from the date they learnt about the damage and the responsible person, and in any case within five years from the day the act giving rise to the damage occurred.
SOURCE
- KARAHAN, SAMİ,Company Law, Mimoza Publications, Updated Second Edition, Istanbul, December 2013, p. 795
- BOZKURT, TAMER, Company Law and Co-operatives Law, On İki Levha Publishing,
Updated 8th Edition, Istanbul, July 2013, p. 358
- GÜNEY, DOÇ. DR. NECLA AKDAĞ, Board of Directors of Joint Stock Company, Vedat Kitapçılık, Istanbul, 2012, p.187, 188, 189, 190, 191, 192, 193
- Watter/Roth Pellanda, BSK-OR-II, Art 717, Anm. 5.
- GÜNEY, ASSOCIATE PROFESSOR DR. NECLA AKDAĞ, Joint Stock Company Board of Directors, Vedat Kitapçılık, Istanbul, 2012, p.226.
- KARAHAN, SAMİ,Company Law, Mimoza Publications, Updated Second Edition, Istanbul, December 2013, p. 803
