ABSTRACT
The legislator that felt the need to protect the independent rights and interests, arising from having independent personality from shareholders and executives, of the joint stock companies, resort to develop mechanisms to separate company interests from the personal interests of the members of the board of directors. One of such mechanisms is the prohibition of board members to participate in negotiations regulated in article 393 of the Turkish Commercial Code. In our article, the prohibition of board members to participate in negotiations has been examined, application of this rule and results of its violation have been scrutinized.
I. INTRODUCTION
Joint-stock companies are represented and managed by the board of directors which is one of the mandatory bodies of company. While the members of the board of the directors have rights as management, representation, honorarium, and obligations as supervision and care, they are also subject to prohibitions such as going into debt against company, competing with the company, making transaction with the company or participating in certain meetings. All these rights, obligations and prohibitions are provided for the ones who constitute the company’s governing body in order to increase the different interests of the company and/or to protect the company from damages.
In this context, in order to perfectly protect the interests of the company, the board of directors, which is the managing and representative body of the company, should aim to protect and develop the interests of the joint-stock company’s legal entity objectively. Personality of the joint stock company is independent from the personality of the company’s shareholders and managers. The matter that needs to be taken into consideration in process of decision-making mechanism of the company is not the interests of the shareholders or the managers, but the interests of the joint stock company’s legal entity. This obligation arises from the care and adherence liability of the members of the board of directors which is regulated in Article 369 of the Turkish Commercial Code. The relevant provision puts the members of the board of directors and third persons who are responsible for management as general manager under an obligation of doing their duty with the care of a prudent manager and looking out for the interests of the company in compliance with the good faith. In this study, only the prohibition on participation in the negotiations is discussed among the prohibitions imposed on the board members. In this context, firstly the purpose and the nature of the prohibition is mentioned below and then the application of the prohibition and the results of the violation are discussed.
II. PURPOSE AND NATURE OF THE PROHIBITION TO PARTICIPATE IN THE NEGOTIATION
The prohibition of members of board of directors to participate in negotiations is also a view of the responsibility of care and adherence which is regulated in Article 369 of the Turkish Commercial Code. However, the legislator has foreseen that there may be situations in which the member of the board of directors cannot maintain its impartiality and fulfill its obligation of care and adherence. Accordingly, the legislator had to take measures in order to satisfy the need to protect the interests of company and rights of the shareholders who could not prevent the decision that contradicts with the interests of the company. The prohibition of the members of the board of directors to participate in negotiations is an institution regulated in Article 393 of the Turkish Commercial Code and organized in line with the need to prevent shareholders from taking decisions against the company’s interest, in situation where impartiality of the members is suspected.
Prohibition to participate in the negotiation protects the members of the board of directors, as well as the interests of the company and therefore the shareholders. Because the decisions of the board member to be contrary to the interests of the company may cause the individual responsibility of this person1.
According to Article 393 of the Turkish Commercial Code, the board member cannot participate in the negotiations where his/her personal and external interest or the personal and external interests of his/her lineal kin or husband/wife or kin by marriage and relatives up to the third degree blood including third degree contradict with the interests of company2.
The “personal” interest referred to in the article does not include all kinds of personal benefits as shown in the preamble of this provision. What the legislation intends here is an interest towards and about the relevant member or a relative of this member or pertinent to them. Any gain or benefit, an advantage, and the prevention of a loss due to the membership or his / her relative to a community are not considered personal3.
In the article, the legislator stated that the relevant ban shall also be applied in cases where it is the requirement of the rule of good faith in case of hesitation, the board of directors shall make the decision. However, it is stated that the related member cannot participate in this vote. Even if the conflict of interest is not known by the board of directors, the relevant member must disclose it and comply with the prohibition.4
The prohibition of participation held under this provision shall be used in not only the cases where a member of the board of directors or relatives and kin of the member article have external interests conflicting with the company’s interests but also in the situations where the good faith rule requires him/her not to participate in negotiation. Therefore, in such a case, even if the concerned person is not one of the relatives and kin which stated in the article, the members of the board of directors will decide whether the participation of the relevant board member in the negotiation is in accordance with the good faith rule. In our opinion, the relations of the legal person shareholders’ with other persons should be evaluated within the scope of the prohibition in the perspective of good faith which mentioned in provision. Because the legislator shows by referring to principle of good faith that it did not want to limit the prohibition on the issues related to pertinent and relatives of natural persons who are listed in the article. Therefore, as well as it is accepted that there is a reservation when a decision is given with respect to the relatives related to the real person, it should be accepted that the same applies when a decision is being given about the group companies or other real or legal persons closely related to legal person which is a member of the board of directors.
In the second paragraph of the article, it is regulated that, the members of the board of directors who act against the provision and the members who did not object to participation of the relevant member while the conflict of interest is objectively exists and known and making decision for the participation of the him/her are obliged to compensate the damages accrued by the company due to this. It is not sufficient for conflicting interest to be personal. The conflicting interest should also be an external interest. For instance, as assigning, dismissal, determination of wages of the member of the board of directors or his/ her sibling, spouse or other relative are not external, the respective board member can participate in negotiations regarding these issues.
III. APPLICATION OF THE PROHIBITION
This prohibition is applies to participation in the negotiations, not in the meetings. If there is a conflict of interest in the manner referred to in the article, the prohibited person will not be able to participate only in the section where the issue of conflict of interest is discussed. The member of the board who is present in the meeting and in the voting of other matters shall leave the meeting area only at the time of the negotiation of the related matter if one of the reasons of the prohibition required by the provision exists. As a natural consequence of not participating in the negotiation, the prohibited board member will not be able to vote on the issue of which he/she is prohibited from participating in the negotiation5. It is not clearly regulated in legislation whether the relevant board member can participate in the voting. The relevant provision presents that member shall not have the right to participate when we consider the situation with the purpose of legislator6.
The fact that the board member can be banned from negotiation in accordance with the rule of good faith extends the field of provision’s application considerably. For example, the member’s cousin is not counted in the article among the persons who will result in the prohibition of participation of the member in the negotiations when his/her interests conflict with the company. However, with taking into account the person’s close relationship with his/her cousin or the commercial relationship with his/her cousin, it may be necessary for the member not to participate in the negotiation, in case of hesitation, it can be discussed and decided by board members whether the relevant member may participate in the negotiation or not. Likewise, if the subject of the negotiation concerns the partner of a member, partnership company in which he/she is a partner of or his/her former spouse, the prohibition shall be valid7. It should be accepted even if just one member is in doubt, it is enough for the existence of hesitation. Because not only the prohibited member’s, but also other members’ responsibility arise. Moreover, when explaining the operation of this system in the doctrine, it was stated that when upon a member’s statement of his doubt, a discussion and voting would be held on whether the member of the board of directors would be banned from the negotiation or not8.
Since the relevant member is not prohibited yet, he/she will be able to participate in the negotiation in which it is discussed whether it will be prohibited to participate in the negotiation but will not vote in this negotiation according to the first paragraph of Article 393 of Turkish Commercial Code. In addition, it is clearly regulated that relevant member of the board of directors cannot attend to voting for deciding whether the respective member can attend to negotiation or not in case of any hesitation.
IV. RESULTS OF THE VIOLATION OF PROHIBITION OF PARTICIPATION IN NEGOTIATIONS
The consequences of the violation are set out in the second paragraph of the article 393 of Turkish Commercial Code. Whilst the which responsibilities are brought to whom in which conditions by the infringement had been clearly regulated, the legislator has not made any regulations regarding the effect of the violation on the validity of the decision.
First of all, it is not important whether or not the board of directors knows the prohibition of the member. In any case, the relevant member is obliged to inform the board of directors of his/her status and comply with the decision of the board of directors. Because, even if he/she does not declare it at the meeting, his/her obligation of compensating the damages incurred by the company arises due to the decision taken. However, as stated in the article, the obligation to compensate the loss accrued by the company due to the decision taken does not only applicable for the member, but also on the member who votes for the member to participate in the negotiation or on the member who knows that the relevant member should be banned9.
It should not be forgotten that the responsibility mentioned here is a defect liability and arises only in case of loss exist. In other words, the member’s participation in the negotiation or contribution to the decision will not directly cause responsibility on the person or persons concerned, firstly the decision will have to cause the company to suffer a loss10.
While the responsibility to be arisen by the breach is clear, the legislator has been silent about the effect of violation on the validity of the violation. Therefore, there are different opinions about the validity of decisions in the doctrine. Teoman states that the prohibition of participation in the negotiations does not affect the validity of the board of directors’ decision by justifying that the result of the violation of the prohibition is regulated by the law and the result is the responsibility to compensate damages.11 Teoman stated in his article published in the time of the former law that deeming the decision invalid would make the loss compensation, which is linked to the result of the decision by legislator, meaningless and subjectless, because the debt does not arise from the invalid decision. Çamoğlu stated that since the legislation does not explicitly regulate the cancellation way for this situation, a cancellation procedure cannot be directly operated, but if the relevant board member participates in the negotiations and affects other members in such negotiations, and indicated general provisions as the solution method through stating that deception provisions pursuant to Article 36 and threat provisions pursuant to Article 37 of Turkish Code of Obligations can be applied12.İsmail Kırca argues that only the vote should be deemed invalid and the quorum of decision should be checked again13.
V. CONCLUSION
Prohibition of members of the board of directors to participate in the negotiation is regulated in Article 393 of Turkish Commercial Code as an institution of which the otherwise cannot be decided by any organ of the joint stock company and which unambiguously separates legal personality and interests of the company and the personality and personal interests of board of directors who are shareholders or not and aims to protect company’s interest and protects it from harms.
In our opinion, such prohibition which brings the attendance of relevant board member to negotiations up for voting and discussion even in the slightest hesitation demonstrates the high sensitivity of the legislator in separating legal entity of company from the entity of persons in board of directors. In addition, we opine that the way that the mechanisms during the application of the prohibition is provided in a simple way that does not hinder the functioning of the prohibition increases the applicability of the prohibition as we have explained above. Finally, it should be noted that the divided opinions with respect to the consequences of the violation of the provision may be the subject of another study addressing only this issue. On the other hand, the majority opinion in the doctrine is that the decisions are not considered invalid as stated above, but that those who have contributed to the violation should be held responsible. We opine that approach from the perspective of the reliability of transactions in commercial life, majority opinion in the doctrine can be considered reasonable.
BIBLIOGRAPHY
GIZEM KILIÇ, “Anonim ortaklıklarda yönetim kurulunun toplanma ve karar alma esasları”, Yüksek Lisans Tezi, İzmir 2015
HALIL ARSLANLI, Anonim Şirketler, C.II, Fakülteler Matbaası, 1960
OĞUZ IMREGÜN, ‘’Anonim Ortaklıklarda Toplantı ve Karar Yeter Sayıları ve Yönetim Kurulu Kararlarına Karşı Başvuru Yolları’’, Prof. Dr. Hayri Domaniç’e 80. Yaş Günü Armağanı, C. 1, İstanbul 2001
ÖMER TEOMAN, ‘’Anonim Ortaklık Yönetim Kurulu Üyelerinin Müzakerelere Katılma Yasağına Aykırılığın Yaptırımı Nedir?’’, BATIDER Yıl 2010, C.26, S.4, (Müzakerelere Katılma Yasağına Aykırılık)
SERHAN DINÇ, 6102 Sayılı Türk Ticaret Kanunu’na Göre Anonim Şirketlerde Yönetim Kurulu Üyelerinin Hukuki Sorumluluk Hâlleri, Ankara Barosu Dergisi, Ankara 2016
HASAN PULAŞLI, Şirketler Hukuku Şerhi, Vol I, Ankara 2014
ISMAIL KIRCA, FEYZAN HAYAL ŞEHIRALI ÇELIK, ÇAĞLAR MANAVGAT, Anonim Şirketler Hukuku, Banka ve Ticaret Hukuku Araştırma Enstitüsü, Ankara, 2013
FOOTNOTE
1 Gizem Kılıç, “Anonim ortaklıklarda yönetim kurulunun toplanma ve karar alma esasları”, Master Thesis, İzmir 2015, p. 69.
2 Reha Poroy, Ünal Tekinalp, Ersin Çamoğlu, Ortaklıklar Hukuku I, İstanbul 2014, p. 377.
3 Kılıç, p.70.
4 Hasan Pulaşlı, Şirketler Hukuku Şerhi, Vol. 1, Ankara 2014, p. 1171.
5 Halil Arslanlı, Anonim Şirketler, Vol. 2, Fakülteler Matbaası, 1960 p.119; Oğuz İmregün, ‘’Anonim Ortaklıklarda Toplantı ve Karar Yeter Sayıları ve Yönetim Kurulu Kararlarına Karşı Başvuru Yolları’’, Prof. Dr. Hayri Domaniç’e 80. Yaş Günü Armağanı, Vol. 1, İstanbul 2001, p.287; Ömer Teoman, ‘’Anonim Ortaklık Yönetim Kurulu Üyelerinin Müzakerelere Katılma Yasağına Aykırılığın Yaptırımı Nedir?’’, BATIDER Yıl 2010, Vol..26, N..4, (Müzakerelere Katılma Yasağına Aykırılık),p.10.
6 Kılıç, p.69.
7 Serhan Dinç, 6102 Sayılı Türk Ticaret Kanunu’na Göre Anonim Şirketlerde Yönetim Kurulu Üyelerinin Hukuki Sorumluluk Hâlleri, Ankara Barosu Dergisi, Ankara 2016, p. 158
8 Pulaşlı, p. 1171.
9 Çamoğlu, p. 377.
10 Ismail Kırca, Feyzan Hayal, Şehirali Çelik, Çağlar Manavgat, Anonim Şirketler Hukuku, Vol.1, Banka ve Ticaret Hukuku Araştırma Enstitüsü, Ankara, 2013, p. 498.
11 Teoman, p. 11.
12 Çamoğlu, p. 377.
13 Kırca/Şehirali Çelik/Manavgat, p. 499.
