In the intricate landscape of Turkish corporate law, the General Assembly stands as the decision-making body of a company, and the resolutions passed within it may be subject to cancellation under certain conditions stipulated by law.
These conditions primarily pertain to violations of statutes, articles of association, and the principle of good faith. Shareholders, the Board of Directors, or individual Board members may bring forth claims for the annulment of a General Assembly decision that runs afoul of the law.
Within three months from the date of the General Assembly decision, shareholders may initiate an annulment lawsuit before the Commercial Court of First Instance where the company is headquartered.
Furthermore, the initiation of such a lawsuit and its hearing date shall be duly announced in the Turkish Trade Registry Gazette and, if applicable, on the company's official website. It is worth noting that individuals who file a malicious annulment lawsuit pertaining to a General Assembly decision shall be held jointly liable for any damages incurred by the company.
General Assembly in Joint Stock Companies
The rules governing Joint Stock Companies in Turkey are outlined in the Turkish Commercial Code, specifically in Part 4. Part 4, Section 4 of the Turkish Commercial Code regulates the General Assembly of Joint Stock Companies. The General Assembly, where shareholders exercise their rights related to the company, convenes under circumstances explicitly prescribed in the law and the company's articles of association. The General Assembly, a statutory body with non-delegable duties and powers as per TCC Article 408/2, may convene both regularly and extraordinarily. The convening, agenda, notification procedures, meeting, and quorum requirements of the General Assembly are meticulously detailed in the law.
Grounds for Annulment of General Assembly Decisions
The Turkish Commercial Code, in Article 445, outlines the grounds for the annulment of General Assembly decisions:
"Persons mentioned in Article 446 can file a lawsuit with the Commercial Court of First Instance where the company is headquartered, within three months from the date of the decision, against General Assembly decisions that contravene the law, the articles of association, and especially the principle of good faith."
Consequently, lawsuits can be filed seeking the annulment of General Assembly decisions that violate the law, articles of association, or the principle of good faith.
Contravention of the Law
General Assembly decisions that are taken in violation of the law can be subject to annulment. For example, decisions taken without due consideration of the voting rights that could significantly affect the outcome of the decision may be annulled.
Contravention of the Articles of Association
Decisions taken in contravention of the Articles of Association are also subject to annulment. To request the annulment on these grounds, a valid contract must exist, and that contract should not fully comply with the statutory provisions. Otherwise, the annulment may be requested not due to a violation of the articles of association but rather due to a violation of the law.
It is also worth understanding what can be regulated through a shareholders' agreement rather than the articles of association in Türkiye.
Contravention of the Principle of Good Faith
As stipulated in Article 2 of the Turkish Commercial Code, General Assembly decisions of joint-stock companies must be made in accordance with the principle of good faith. If a decision is found to be contrary to this principle by the judge, it can be annulled. For example, a General Assembly decision not to distribute profits despite the company consistently generating profits could be annulled on the grounds of contravening the principle of good faith.
Parties Eligible to Seek Annulment of General Assembly Decisions
The Turkish Commercial Code limits the individuals who can file a lawsuit to seek the annulment of General Assembly decisions in a joint-stock company. These include shareholders, members of the Board of Directors, and each individual Board member.
Shareholders
- Shareholders who were present at the meeting and voted against the decision, provided that they record their dissent in the minutes, may have the status of plaintiffs.
- Regardless of their presence at the meeting or their voting stance, shareholders can file a lawsuit when the General Assembly was not properly convened, or the agenda was not adequately announced, and these circumstances affected the decision.
- If individuals without the authority to participate in the General Assembly or their representatives attended the meeting and cast votes, an annulment claim can be raised in such cases.
- Shareholders who claim that they were unfairly denied participation and voting rights at the General Assembly and that this had an impact on the decision can also request annulment.
Disputes of this kind frequently overlap with questions around share transfers and approval rights, as well as the non-compete obligations of board members and shareholders.
Board of Directors
As the Board of Directors is a mandatory organ of a joint-stock company, if there are grounds for requesting the annulment of a General Assembly decision, the lawsuit may be initiated by the Board of Directors.
Each Individual Board Member
If the execution of decisions could lead to personal liability for a Board member, each individual member may request the annulment of the decision. In practice, annulment lawsuits are often filed against decisions where the Board of Directors is not discharged.
However, it should be noted that if a liability lawsuit has already been initiated against a Board member, the annulment lawsuit for the same decision will be rejected since the lack of discharge will be assessed in the context of the ongoing liability lawsuit. Should the matter proceed up the appellate ladder, our overview of why Court of Cassation decisions matter in Türkiye explains how higher-court rulings shape these disputes.
