Use of dominance in unlawful way in holding companies has been set forth in article 202 of Turkish Commercial Code numbered 6102 ("TCC"). According to this article, holding company cannot use its dominance in a manner to cause the loss of its subsidiary company.
According to the article mentioned above, use of dominance has been stipulated in two different categories. First category consists of the legal transactions which affect the subsidiary company as transfer of claims, business, asset, fund, receivable, debt and the acts as restriction of production, closure of facilities. The second category contains the resolutions which have been decided by holding company for the subsidiary company as resolutions of merger, demerger, issuance of securities etc.
I-) The possibility of using dominance in unlawful way
The holding company may only use its dominance as mentioned above according to the Article 202/1-a of TCC, if the loss is balanced in that activity year or an equivalent right to demand is given to the subsidiary company by mentioning how and when loss will be balanced until the end of activity year at the latest. In the same manner, the equalization may be made by providing an achievement which has equivalent amount of loss. But according to TCC, the "loss" concept should be interpreted in broad terms. In other words, the "loss" may be a loss of asset or blocking increase of asset.
II-) The right to claim of loss by creditors and shareholders of subsidiary company
According to the Article 202/1-b of TCC, if equalization is not performed in activity year or an equivalent right to demand is not given in due of time, each shareholder of subsidiary company may request holding company and its board of directors' ("BoD") members who have caused loss, to compensate the loss of company. Upon the request or ipso facto, judge may decide for the purchase of the shares of shareholder by holding company or another appropriate and acceptable solution for this situation. Also, creditors may request the compensation of the loss of company according to the article mentioned above.
III-) Right to claim of equalization or compensation by shareholders opposed to subsidiary company resolution
In Article 202/2 of TCC, the shareholders who voted against the transactions which have been made in subsidiary company may request the elimination of the loss which have been occurred by the transaction mentioned above or may file a lawsuit for the purchase of their share by the holding company. Thereby the shareholders who are minority against the holding company have the right to sell their own shares in subsidiary company thanks to this clause. The condition of filing this lawsuit is the nonexistence of justified reason of opposed decision of subsidiary company.
When the lawsuit mentioned above is filed, it is decided that the amount equivalent to possible losses of claimants or purchase value of shares to be deposited as a security deposit to a bank account to be determined by court. As long as security deposit is not deposited, no transaction in relation to the decision of general assembly or BoD is performed.
IV-) Undertaking of responsibilities of subsidiary company BoD members
BoD members of subsidiary company are obliged to act according to the instructions of holding company. But this situation does not remove the responsibilities of BoD members. For this reason, according to Article 202/5, the managers of subsidiary company may request from holding company to undertake all legal results arising possibly against shareholders and creditors with an agreement. As the phrase goes, the BoD members of subsidiary company transfer their responsibilities to the holding company. This article shows that the agreements related to undertaking responsibilities are legal and valid according to TCC.
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