The Draft Turkish Commercial Code (hereinafter referred to as the "New TCC") replacing the current Turkish Commercial Code (herein after referred to as the "TCC"), which went into force in 1957 and which has been in use for more than fifty years without a structural change, was accepted by Grand National Assembly of Turkey on January 14, 2011. The New TCC will enter into force on July 1, 2012. Therefore, a transition period of approximately one year and a half has been granted to enterprises and merchants in order to become familiar with the important amendments made to the TCC.
Why was a new Turkish Commercial Code needed? The reasons may be gathered under some main headings:
- Necessity of integration with the European Union, with which we continue membership talks and the need to transfer acquis communitaire into Turkish Law;
- Insufficiency of the present TCC with regard to the transparency, institutionalization, auditing, and accountability of companies, the provisions regarding maritime commerce, which do not reflect international conventions and which do not satisfy current requirements, deficiencies and defects of the provisions regarding insurance law, which have been observed since the effective date of the TCC;
- Necessity to reflect the changes which are observed in the IT industry and company structures during the last fifty years (participation in general meetings through the internet, publication of company information on the internet, corporation sole, professional boards of directors, group companies, consolidated and uniform accounting, external audits, etc.);
- Necessity of harmonization with new laws (Turkish Civil Code, Turkish Penal Code, certain clauses of Execution and Bankruptcy Law, Misdemeanors Code, etc.);
Needless to say, the preparation of a new Turkish Commercial Code was a controversial process. Some people objected to scrapping the existing code for practical reasons, others out of doctrinal concerns. They suggested amending the present code. However the Commission nominated by the Ministry of Justice took a more radical course of action and decided to prepare a reformed code, just as in 1957.
The Science Commission which prepared the New TCC was organized by the Ministry of Justice and consisted of university academics, judges of appeal courts, representatives of non-governmental organizations, and members from several public institutions. The Commission, which held its first meeting on February 10, 2000, selected Prof. Ünal Tekinalp as its president. A total of 631 meetings were held during its working period of more than five years. The Draft was shared with the public in February 2005, and opinions from all relevant institutions and organizations were taken and discussed.
The Draft has submitted to the Prime Ministry in 2005 and conveyed from there to the Presidency of the Turkish Grand National Assembly. After being discussed by the Commission of Justice of the Assembly and after some minor amendments were made, the Draft was accepted by Grand National Assembly of Turkey on January 14, 2011.
The TCC consists of five sections, titled Commercial Enterprise, Commercial Companies, Negotiable Instruments, Maritime Commerce, and Insurance Law. The New TCC brings fundamental changes and innovations to all of these sections. Here are some of these changes and innovations:
The term commercial enterprise is defined and concretized. The term continues to be the center of the Commercial Enterprise Section.
Commercial Registration became more transparent and central; the establishment of a data bank is foreseen. The responsibility of the State for the registers is accepted, and the positive function of the register is regulated in a more detailed way.
The provisions with regard to unfair competition have been fundamentally modified by using Swiss Law. The list of the acts which constitute unfair competition was expanded, and standardized terms of contract were covered. The responsibility stemming from unfair competition was aligned with intellectual property law.
Goodwill compensation was regulated for the first time.
The use of commercial books as proof, which is common under Turkish Law but which is incompatible with general practice in the world, was removed. However, their use as discretionary evidence continues.
Out-of-date commercial brokerage, which had lost its relevance, was entirely removed from the Code since it is already regulated in the Draft Code of Obligations which was accepted by Grand National Assembly of Turkey on January 11, 2011.
The most fundamental changes were made in this area of law. Regarding general provisions, the principle of "ultra vires" (the invalidity of transactions that companies perform which are out of their scope of activities) was abandoned by taking into account the directive of the European Economic Community (EEC). New assets (electronic forms, domains, names, brands) were adopted as capital to be invested for commercial companies.
Merger and the change of form of companies were regulated in a detailed way in accordance with the directives of the European Community (EC). The procedures were rendered more transparent and secure by way of simplification, and creditors and other rightful persons were protected.
The law of subsidiary enterprises was regulated under the caption of multicorporate enterprises. The relations between the subsidiary company and parent company were based upon the transparency, accountability, and balance of interests for the first time.
No fundamental changes were made with regard to general partnerships and limited partnerships.
The provisions regarding joint stock companies were drastically changed. Changes with regard to procedure, institutions, and the contents of the clauses have been made. The main innovations pertaining to the system and the institutions are as follows:
- Incorporation of joint stock companies was realigned, and gradual incorporation was removed. An effective and transparent auditing requirement was adopted, and actions for annulment were realigned.
- Corporation sole for joint stock companies (and for limited liability companies) was adopted. In this way, an important need in practice was fulfilled.
- Certain basic principles adopted by the doctrine with regard to joint stock companies (to be subject to equal treatment, prohibition against shareholders' becoming indebted to the company) were covered by the Code for the first time.
- The buy-back of its own shares by a company itself was based upon a more flexible, liberal system which gives to publicly-traded companies the possibility to be "market makers",
- A more transparent system was regulated for boards of directors, a distinction between executive and non-executive members was adopted, an organization regulation and partial or entire abandonment of management to professionals in accordance with the regulation was foreseen.
- The committee of early determination and management of risks was foreseen for the first time in accordance with the principles of corporate governance and made obligatory for publicly-traded companies.
- A more transparent and effective auditing system was established. Internal auditors were removed. The auditing of companies has been delegated to independent auditing companies, to chartered accountants, or to independent accountants for small joint stock companies. Furthermore, a transaction auditor system was foreseen for certain transactions (Increase / reduction of capital, spin-offs, mergers, changes of form, issuing securities, etc.).
- With regard to financial reporting, compliance with the Turkish Financial Reporting Standards, which are identical to the International Financial Reporting Standards (IFRS) was adopted.
- The position of shareholders was strengthened (shareholder rights were expanded, new rights of action were recognized, the use of rights was rendered easier and more effective, importance was given to transparency, privilege of vote was limited, the restriction on the transferability of registered shares was released from arbitrariness, notification obligations were foreseen, an obligation to give reports to boards of directors regarding certain matters was adopted, etc.).
- Minority rights were developed (exceptions for the principle of preservation of order of business were adopted, special auditor system was strengthened, new minority rights - for instance, to demand the annulment of a company - were regulated).
- Squeeze-outs were given a legal basis for the first time.
Innovations made with regard to the limited liability companies, which are common in Turkish practice, are more limited, but no less important:
- One shareholder is allowed to have more than one share, and attaching shares to registered stocks was adopted.
- System regarding share transfers was simplified and rendered more effective.
- To be out or to squeeze out from a company was regulated on the basis of the ability of the company to survive.
- Difference between general assemblies and boards of directors with respect to functions and powers was sharpened, and the principal of chosen management was adopted.
- Regulations foreseen for joint stock companies with respect to auditing were adopted.
No fundamental modifications were made with the exception of the correction of simple mistakes in translation and contradictions. However, the prohibition against payment of checks, which was frequently abused, was removed.
Clauses regarding carriage, which were previously regulated under Negotiable Instruments in the TCC, were regulated in a separate section in the New TCC. The provisions regarding carriage were drafted by taking CMR into account.
Maritime commerce law is the other domain which was fundamentally modified like Company Law. In this context, the present institutions and provisions were innovated, some new institutions and provisions were added, and out-of-date provisions were removed. Basic principles may be summarized as follows:
- In order to reach a harmonization with a lot of international conventions to which Turkey is a party, the provisions of these conventions were reflected in the New TCC.
- Deficiencies in the system in the current regulations were corrected, and the new provisions were attached to a scientific systematic.
- Quite a few superannuated and out-of-date provisions were removed. Provisions regarding overseas sales, which had been inspired by the Incoterms of the 1940s and which do not meet current needs, were also removed.
The other section subjected to fundamental changes is Insurance Law because the present provisions of insurance law are far from meeting the needs of international practice and doctrine.
- All provisions were attached to a scientific system.
- General provisions regarding insurance agreements were expanded in a manner that covers all sorts of insurance, and the terms were defined.
- An obligation to inform and enlighten insurance holders before the execution of and during the agreement was imposed upon insurers and their agencies.
- Certain kinds of insurance, such as fire, agriculture, or burglary insurance were not separately regulated by taking into account the dynamic and developing structure of insurance law, and general clauses suitable for each sort of insurance were adopted.
- Liability insurance, which does not exist in the current code, is quite common in practice, and is of great importance for today's insurance business, was regulated.
- Life insurance was realigned in accordance with the new products developed in the area and with the needs in practice.
It is certain that the New TCC makes fundamental differences in Turkish commercial law. The knowledge of company law, maritime law, and insurance law that experts know by heart, is essentially amended and renewed. As in any law, the New TCC may have its own deficiencies and parts that need to be developed. These must be tolerated; eventually, the deficiencies will be removed by taking into consideration the future needs in practice. Furthermore, the adoption and implementation of the new provisions, which are designed to be in effect for at least the next 50 years, will take some time. It is not easy to change old habits. However, the lengthy period of transition provides those active in commerce with the opportunity to make the necessary preparations. Consequently, I believe that we must persistently and insistently defend and follow the New TCC.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.