ABSTRACT
Article 531 of the Turkish Commercial Code No. 6102 regulates the right to dissolute a joint stock company on just cause, allowing minority shareholders to leave the company when the partnership relationship becomes unbearable.
I. INTRODUCTION
Article 531 of the Turkish Commercial Code No. 6102 (“TCC”) regulates the dissolution of joint stock companies on just cause for the first time in our law, and is one of the forms of dissolution in the law of incorporation, which allows for the termination of the partnership agreement early in case of the existence of circumstances that make the continuation of the partnership difficult1. In joint stock companies, which are capital companies, the only way for the shareholder to leave the company is to transfer his/her shares, and the aforementioned provision is an important alternative to share transfer for the shareholder to leave the company2. The dissolution, which is one of the resolutive formative rights, provides for the cessation of a continuous debt relationship with future effect (ex nunc)3. The right to dissolute on just cause is an exception to the principle of sanctity of contract, which is one of the fundamental principles of private law4. Rightful dissolution is the right of the parties to terminate the relationship in continuous debt relations that impose obligations on both parties, as stipulated in the Turkish Code of Obligations numbered 6098 and the TCC5. This right of the parties in a continuous debt relationship has been adapted to the shareholding established by the partnership agreements of joint stock companies under Article 531 of the TCC. With the rightful dissolution lawsuit, the minority shareholder is provided with the opportunity to be freed from existing continuous debt relationship6. In our article, first, the concept of just cause will be mentioned; the ways of filing for a rightful dissolution lawsuit of a joint stock company will be mentioned, and then the dismissal of the shareholders from the company and alternative remedies will be explained.
II. RIGHTFUL DISSOLUTION
Pursuant to Article 531 of the TCC, in order to dissolve joint stock companies on just cause, shareholders holding shares representing one tenth of the share capital (one twentieth in public companies) must apply to the commercial court of first instance in the place where the company’s head office is located. Consequently, shareholders may exercise this right through litigation. If the shares representing one tenth of the capital belong to more than one shareholder, these shareholders must act together. The requirement of representation of one tenth of the capital shows that the law-maker has regulated this right as a minority right pursuant to Article 411 of the TCC. As a matter of fact, pursuant to Article 411/1 of the TCC, minority is defined as the shareholders constituting at least one tenth of the Company’s capital in closed joint stock companies. Thus, with this provision, minority shareholders are protected against majority shareholders in joint stock companies where decisions are made by the majority principle.
The right to rightful dissolution can be defined as the right to request the termination of the debt relationship to the party who is adversely affected by the reasons that arise in the subsequent process of a continuous debt relationship and for whom the relationship has become unbearable7. However, there is no consensus on the concept of just cause in our legislation and doctrine8. In adapting the concept of rightful dissolution under the law of obligations to joint stock companies pursuant to the TCC, it can be stated that rightful dissolution is a right granted to minority shareholders in cases where it becomes unbearable for the minority shareholders to remain in the company against the majority shareholders. One of the accepted views in the doctrine defines the concept of just cause in joint stock companies as events and circumstances that eliminate the benefits minority shareholders justly and objectively expect from the partnership, making the continuation of the partnership unbearable for the shareholder9. Therefore, pursuant to Article 2 of the Turkish Civil Code numbered 4721 (“TCiC”), just cause shall be deemed to have occurred in cases where the shareholder cannot be expected to continue the shareholding if the continuation of the partnership becomes unbearable for the shareholder, and the shareholder may exercise this right10.
Article 531 of the TCC has deliberately refrained from defining and exemplifying just cause. As a matter of fact, in the preamble of the relevant article, it is stated that “...showing and defining the qualifications of this concept has been left to judicial decisions and doctrine (...)”11 and that just causes are deliberately left to precedents and doctrine. Pursuant to Article 4 of the TCiC, titled “Discretionary Power of the Judge,” in cases where the law intentionally leaves a gap and grants the judge discretionary authority, the judge shall decide in accordance with the applicable legislation and principles of equity, considering the specific circumstances of the case. The court will determine the existence of just cause in accordance with the concrete case by using precedents and doctrine. Themanifestation of just causes on dissolution of joint stock companies include but are not limited to, (i) reasons related to the abuse of majority power, such as violation of the fundamental principles of minority shareholder protection, violation of the shareholder’s material rights, violation of the shareholder’s rights to participate in the management of the company, violation of minority rights, (ii) personal reasons, such as personal disputes and reasons arising on the shareholder’s individual circumstances and (iii) reasons related to the company’s partnership, such as mismanagement of the company, loss of the decision-making function of the company’s board of directors and general assembly, significant difficulty in achieving the company’s partnership purpose, unpaid capital of the company, certain structural changes in the company, etc12.
In the event that a rightful dissolution lawsuit is filed, the judge will decide on the justification of the reasons to be put forward by the shareholders. In the lawsuit filed by the shareholders to decide on the justification of the reasons to be put forward by the shareholders, the judge is not obliged to decide on the dissolution of the company even if he/ she finds the reasons put forward are justified. Hence, pursuant to Article 531 of the TCC, instead of a dissolution decision, the court may decide on the dismissal of the plaintiff shareholder(s) from the company by paying the real value of their shares, or on any other solution he/she deems appropriate.
Pursuant to Article 447 of the TCC, since the right of filing a rightful dissolution lawsuit is recognized as one of the inalienable rights, this right cannot be eliminated by the decision of the majority without the consent of the minority shareholders13.
A. The Nature of the Lawsuit on Rightful Dissolution on Just Cause under Turkish Law
Since the judge may decide on a remedy other than the termination decision at the end of the rightful dissolution lawsuit, this lawsuit is a formative lawsuit for performance with alternative remedies14. This lawsuit may be filed directly by the shareholders independently from other lawsuits that may be brought against the company. The judge has been granted wide authority to apply an alternative solution instead of a dissolution decision. The ability of the judge to award an alternative remedy independently from the claimant’s claim is an exception to the principle of non-ultra petita15.
The rightful dissolution lawsuit is filed by the minority shareholders. This lawsuit must be filed against the legal entity of the company before the commercial court of first instance where the headquarters of the company is located. Pursuant to Article 5/4 of the TCC, if the headquarters of the joint stock company is located in a jurisdiction where there is no commercial court of first instance, the court in charge of this lawsuit is the civil courts of first instance. In this case, in a jurisdiction where there is no commercial court of first instance, the rightful dissolution lawsuit must be filed before the civil court of first instance.
III. OTHER REMEDIES
Since the continuity and the ongoing operations of joint stock companies are essential, the judge should consider alternative remedies instead of dissolution of the company, especially in cases where the company can continue its activities financially. Since the main purpose of the legislator is to keep the company alive and to ensure the continuity of the company’s activities, if the dispute in the concrete case can be resolved in another way other than the dissolution of the company, the dissolution of the company should not be decided16. Hence, the Court of Cassation, in its 11th CC C. 2015/8119 D. 2016/2586 decision dated 09.03.2016, found the court’s decision that it is not necessary to dissolve the company on the grounds that it would be a fairer solution for the plaintiff shareholder to leave the company instead of dissolving the company17. Therefore, in the event that the company is able to realize its purpose and activities with its assets and has the economic power to pay the plaintiff shareholder the real value of its shares, alternative remedies will be ruled by the judge. Resorting to the dissolution and liquidation of the company as an ultima ratio has been the will of the legislator who prioritizes the continuity of companies18. In order for the judge to rule on alternative remedies, the existence of just causes must be proven, just as in the case of ruling for the dissolution of the company. The broad authority granted to the judges to decide on alternative remedies shows that the continuity of the company should be considered and respected as much as possible19. Pursuant to the principle of proportionality, the judge shall ensure that the interests of the minority shareholders, the majority shareholders and the company are balanced through the alternative remedies to be applied to the concrete case20.
Pursuant to Article 531 of the TCC, the condition of “being appropriate to the situation” for the judge to award an alternative remedy means that there is an alternative remedy that resolves the problem giving rise to the concrete case that is the subject of the lawsuit, eliminates the conflict of interest between the shareholders in the company, protects the justified expectations of the plaintiff shareholder(s) and satisfies the plaintiff shareholder(s). As another condition for the award of an alternative remedy, the term “acceptable” means that the alternative remedy, which is awarded without the approval of the litigants, is appropriate to the concrete case and resolves the problem in the concrete case21, meets the requests of the plaintiff shareholder(s) and is feasible22.
A. Dismiss of the Shareholders from the Company
Pursuant to Article 531 of the TCC, even though the shareholders in joint stock companies are not granted with the right to directly exit from the company, the court may also decide to dismiss the shareholder(s) from the company by paying to the plaintiff shareholder(s) the actual value of their shares as of the date closest to the date of the decision, instead of the decision to dissolve the company. This decision of the court shall be implemented through the purchase of the shares of the plaintiff shareholder by the defendant company23. Due to the gap in the law, whether the plaintiff shareholder(s)’ shares can be temporarily acquired by the company and who will pay the amount corresponding to these shares, as well as how it will be paid, shall be determined according to precedents and doctrine. The judge is required to calculate the real share value of the company and award this price. In order for this method to be applied, the company must have the economic power to pay the real share value to the plaintiff.
In practice, in rightful dissolution proceedings, the court mainly decides to dismiss the plaintiff from the company instead of a dissolution decision24.
B. Alternative Remedies
Pursuant to Article 531 of the TCC, the judge may decide on another acceptable remedy in accordance with the concrete case, instead of a dissolution decision. The judge may decide not to dissolve the company in the presence of justified reasons, on the grounds that it is economically and objectively more appropriate to preserve the existence of the company. In this regard, the legislator appreciated the court’s initiative. In the Swiss doctrine, it is stated that as an alternative solution, the court may decide on the obligation of the company to distribute dividends, may approve the admission of a new shareholder to the company, and may even order the partial liquidation of the company in such a way that the company will be able to continue its activities25. However, there is no exemplary case law of the Court of Cassation ruling on these alternative remedies.
The judge, prioritizing the preservation and continuity of the company when conditions supporting its viability are present, will resort to alternative solutions instead of dissolution. The judge may investigate alternative remedies instead of dissolution without any limitation in terms of subject matter26.
In the doctrine, the division of the company’s business among the shareholders, partial liquidation of the company, conversion of the company into a single shareholder company, granting veto rights to the minority in some board of directors and general assembly resolutions, dismissal of the members of the board of directors, reduction of the capital are given as examples of alternative remedies27.
IV. CONCLUSION
Article 531 of the TCC regulates the right to wind up a joint stock company on just cause, allowing minority shareholders to leave the company. This provision aims to protect minority shareholders against majority shareholders. Dissolution for just cause is a right granted to minority shareholders in cases where circumstances arise in continuous contractual relationships that render the relationship unbearable. When the court determines the existence of just cause, it may offer alternative remedies instead of a dissolution decision. As such, dissolution of the company may be decided as a last resort in the event that there is no other remedy. Alternative solutions, which are not defined by the legislator, give the judge a wide power of discretion in order to ensure the continuity of the company and protect the rights of minority shareholders. In this regard, the judge will benefit from the doctrine and precedents in deciding on the existence of just cause. In conclusion, the rightful dissolution lawsuit has an important place in the legal structure of joint stock companies and functions to protect the rights of minority shareholders in the company.
BIBLIOGRAPHY
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FOOTNOTE
1 Ayşe Şahin, Anonim Ortaklığın Haklı Sebeple Feshi, Vedat Kitapçılık, İstanbul, 2013, p. 2.
2 Özlem İlbasmış Hızlısoy, “Anonim Şirketin Haklı Sebeple Feshi”, (Doktora Tezi), Ankara Üniversitesi, Ankara, 2015, p. 2.
3 Rona Serozan, Sözleşmeden Dönme, İstanbul Üniversitesi Hukuk Fakültesi Yayınları, İstanbul 1975, p. 121; İlhan Ulusan, İyiniyetli Sebepsiz Zenginleşenin İade Borcunun Sınırlandırılması Sorunu, Kazancı Hukuk Yayınları, İstanbul, 1984, p. 74.
4 Şahin, p. 10.
5 Ayşe Sümer, Anonim Ortaklıkların Haklı Nedenle Feshi, Marmara Üniversitesi Hukuk Fakültesi Hukuk Araştırmaları Dergisi, V. 18 Iss. 2, 2012, p. 840.
6 Osman Can Başdemir, Anonim Şirketin Haklı Sebeple Feshi, Atılım Üniversitesi (Yüksek Lisans Tezi), Ankara, 2019, p. 11
7 Kemal Oğuzman/ Nami Barlas, Medeni Hukuk, Giriş, Kaynaklar, Temel Kavramlar, On İki Levha Yayıncılık, İstanbul, 2023, p. 296.
8 See also Article 219 of the TCC “Incompetence, gross negligence or impotence in management in the performance of the duty shall be considered as just cause.”; Article 245 of the TCC “The just cause is the disappearance of the actual or personal reasons that led to the establishment of the company in such a way as to make it impossible or difficult to achieve the company’s business subject…”; Article 255 of the TCC “In cases where a shareholder may request the dissolution of the company due to reasons caused by the shareholder himself, all other shareholders may decide to exclude that shareholder from the company and to continue the company…”.
9 Mehmet Bahtiyar, Ortaklıklar Hukuku, Beta Yayın, İstanbul, 2023, p. 379.
10 Oruç Hami Şener, Teorik ve Uygulamalı Ortaklıklar Hukuku Ders Kitabı, Seçkin Yayıncılık, Ankara, 2022, p. 700.
11 Grounds for Article 531 of the TCC: https://www.ticaretkanunu.net/ ttk-madde-531/ .
12 Şahin, p. 137 et al.
13 Evin Emine Demir, “TTK m.531: Anonim ortaklığın Haklı Sebeplerle Feshi Davası”, Legal Hukuk Dergisi, 2011, Year 9, Iss. 102, p.7.
14 Ünal Tekinalp, “Türk Ticaret Kanunundaki Boşluk: Anonim Ortaklığın Feshi, Çoğunluk Gücünün Kötüye Kullanılmasına Karşı Etkili Bir Araç”, İktisat ve Maliye Dergisi, 1974, V.XXI, Iss. 8, p. 215.
15 Abuzer Kendigelen, Yeni Türk Ticaret Kanunu, Değişiklikler, Yenilikler ve İlk Tespitler, On İki Levha Yayıncılık, İstanbul, 2016, p. 24, 378.
16 Osman Can Başdemir, Anonim Şirketin Haklı Sebeple Feshi, Atılım Üniversitesi (Yüksek Lisans Tezi), Ankara, 2019, p. 13.
17 Kendigelen/ F. Pelin Tokcan/ İbrahim Çağrı Zengin/ Numan S. Sönmez/ Zehra Güney, Yargıtay 11. Hukuk Dairesinin Türk Ticaret Kanunu’na İlişkin Kararları (2015-2016), On İki Levha Yayıncılık, İstanbul, p. 357.
18 Cengiz Erten, “Anonim Şirketlerde Haklı Sebeple Fesih Hakkının Yargıtay İçtihatları Çerçevesinde Değerlendirilmesi”, Uyuşmazlık Mahkemesi Dergisi, Iss. 13, June 2019, p. 198, 199.
19 Erten, p. 188.
20 Tekinalp, p. 214.
21 Tekinalp, p. 214.
22 Erten, p. 199.
23 Füsun Nomer Ertan, “Anonim Ortaklığın Haklı Sebeple Feshi Davası – TTK m. 531 Üzerine Düşünceler”, İÜHFM, V. LXXIII, Iss.1, p. 431.
24 Erten, p. 20
25 Grounds for Article 531 of the TCC: https://www.ticaretkanunu.net/ ttk-madde-531/.
26 Erten, p. 199.
27 Bahtiyar, p. 381.
