Turkey: Liabilities Of The Board Of Directors Members And Sanctions In Light Of The Entire Amendments To The New Turkish Commercial Code

Last Updated: 21 January 2013
Article by Nilgün Serdar Simsek

With the last minute amendments to the Turkish Commercial Code No. 6102 ("New TCC") that entered into force on 1 July 2012, the penalties foreseen under the New TCC for the members of the board of directors have been moderated with respect to the principle of proportionality between crime and punishment. On this basis, a new text was published regarding the criminal liability of the board of directors members which classifies the type of penalties under the following headings: administrative fines, judicial fines and prison sentence. On the other hand, there have been no amendments to the legal liabilities of the board members except for the change in the burden of proof.

With the introduction of the New TCC, it has been observed that liability of diligence for the board members is introduced and the concept of prudent businessman included in the previous Turkish Commercial Code was replaced by the concept of cautious executive based on the business judgment rule and the limits of the liabilities of the board of directors members are designated more explicitly by the lawmaker. It is inferred from the New TCC that the members of the board of directors must evaluate the entire crisis and market conditions, determine the changes as soon as possible and take the necessary precautions as cautious executives. Within this respect, it may be stated that the new regulation set out and expanded the non-delegable duties and liabilities of the board of directors and their liability areas.

Within this scope, the non-delegable authorities of the board of directors members include the establishment of the necessary system for the accounting and financial audit and the financial planning to the extent that is necessitated by the management of the company; appointment and release of the managers, signatories and the persons bearing the same functions with them; superior audit of the persons in charge of management regarding their compliance with the laws, articles of association, internal directives and the written instructions of the board of directors; notifying the court in case of becoming insolvent. As there are specific regulations regarding the duties and liabilities of the board of directors in the New TCC, insuring the board of directors members for the damages they may give to the company is regulated as a separate subject.

With the provision in the New TCC regarding the circumstances of legal liability, it is foreseen, as different from the previous Turkish Commercial Code, that the persons who may file liability lawsuits against a board of directors member are determined separately. These relevant legal liability circumstances which are stipulated in the New TCC and which concern many company executives contain the illegality of the documents and declarations, false declarations regarding the capital and being aware of the payment inadequacy, liability in the valuation, collecting money from the public without permission and the general liabilities of the founders, board of directors members, managers and liquidation officers.

As the most important reform made to the legal liabilities which are explicitly stipulated, the company, its shareholders and creditors may file a lawsuit in order to compensate the damages. In this case, the party wishing to file a lawsuit against the board of directors member must prove the fault of that board of directors member. In line with the latest amendments, the sentence "unless they prove that they are not at fault" which was included in the previous version of Article 553 of the New TCC was removed. Thus, in case it is alleged that the founders, board of directors members, managers and liquidation officers breached their liabilities arising from the law and articles of association, they shall not be obliged to prove their faults and the party who alleges such faults shall be entitled to prove the fault.

From the perspective of the criminal liability circumstances, as we have mentioned above in the introduction section, the regulations that received many negative reactions in the business sector were removed due to their heavy provisions. Accordingly, discounts were applied in the crimes; most of the crimes that required punitive fines were converted into administrative fines, while most of the crimes that required prison sentence was converted into punitive fines.

In light of the above explanations and with the new regulations, the management functions of the companies are intended to be leveraged with the new amendments made in the New TCC. Especially, the professional executive mechanism implemented successfully in the USA and European countries for years is expected to become widespread in our country as well with the New TCC. The Board of Directors is not considered as an organ on the surface, but has a functional quality. Through these steps the decisions to be taken by the board of directors regarding the company will be more transparent. As a result, we are of the opinion that the civil and criminal liabilities brought by the New TCC regarding the liabilities of the board of directors shall ensure more carefulness and efficiency in their works.

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.

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