Turkey: Are Independent Board Members Of Joint Stock Companies Liable For Insurance Premium Payables?

Last Updated: 10 July 2013
Article by Celal Özcan

Within the scope of Turkish Commercial Code No. 6102 with the general enforcement date of 01 July 2012, many revisions and amendments regarding joint stock companies and the role of the Board of Directors have been introduced.

Function, structure, operation, roles and responsibilities, etc. of the Board of Directors have been regulated in general by the new TCC. Furthermore, new regulations have been introduced regarding the Board of Directors of the joint stock companies whose shares are listed in ISE within the scope of the Capital Markets Board's Communiqué on Determination and Implementation of Corporate Governance Principles (Serial IV No: 56 and 57).

Board membership and independent members:

As regards independent BoD membership, TCC includes only one statement, which is found in Article 360, "Representation of certain groups at the Board of Directors": "The regulations regarding independent BoD members are reserved."

On the other hand, there are detailed regulations under the titles of function, operation principles and structure of BoD, method of meetings, committees and financial rights provided to members and executives in CMB communiqués in connection with independent BoD membership.

These regulations point out the necessary matters to be taken into consideration regarding independent board members such as exclusion from executive activities, special procedures applied in election of these members and the independence criteria sought, maximum term of office, the circumstances under which their affirmative vote is required, which committees are compulsory for them to attend, and the financial rights to be provided.

In addition, the abovementioned CMB communiqués state that the independent Board of Directors' members are expected to perform their duties without the influence of others, to contribute to the company's operations, to remain unbiased during any possible conflict between company's shareholders and to make any decision freely by considering the rights of beneficiaries.

Notwithstanding these expectations, legal liabilities of "independent" members of the Board of Directors are not different from those of the other members of the board.

Roles and responsibilities of the BoD:

Article 365 of TCC states that "Joint stock company shall be managed and represented by the Board of Directors," which emphasises two major functions of the BoD, "management" and "representation".

Management authority belongs to all members of the Board of Directors unless it is transferred wholly or partially to one or more board members or a third party according to an internal regulation to be issued based on a provision added to the articles of association. (Article 367)

Representation authority belongs to the Board of Directors provided that it is applied through two signatures unless ruled otherwise in the articles of association or in the case that the Board of Directors consists of one member. Provided that at least one board member has representation authority, the Board of Directors may transfer its authority to represent to one or more executive directors or to the third parties, who are managers. (Article 370)

Liability of due care and loyalty; With articles 203 to 205 of TCC to be reserved, the Board members and the third parties assigned in the Board bear the liability to perform their duties with the due care of a prudent director and to consider in good faith the interests of the company.

Duties and authorities; The Board of Directors has the authority to make decisions about all types of business and transactions in order to perform the company's scope of activity, excluding those subject to the authority of the General Assembly by law and the articles of association. (Article 374)

On the other hand, Article 375 of TCC specifies in detail indispensable and non-delegable duties and authorities of the Board of Directors of joint stock companies.

In addition to the abovementioned items stated in TCC related to the Board of Directors of joint stock companies, the said CMB communiqués also regulate that "the Board of Directors shall carry out the operations in line with the principles of transparency, fairness, accountability and responsibility; shall manage and represent the company by safeguarding long term interests of the company and by keeping the company's risk, growth and return balance at the optimal level with a rational and prudent risk management approach and with its strategic decisions; shall identify the company's strategic objectives; shall determine the manpower and financial resources to be required by the company; shall audit the management's performance; and ensure that the company's operations are in line with the legislation, articles of association, internal regulations and the policies."

As can be understood from the statements above, both TCC and CMB communiqués cover the functions, roles and responsibilities of the Board of Directors as a whole instead of on the basis of each member; TCC rules that delegation of management and representation functions depends on some conditions and that the liabilities of "independent" members of the Board of Directors are not different from those of the other members of the board.

Board members' liability regarding insurance premium payables:

The primary source of funds for the social security institution consists of the premiums paid by the insured and by employers.

So, timely payment of these premiums is highly critical.

Social Insurance and Universal Health Insurance Law No. 5510 enforced in October, 2008 contains several provisions in order to facilitate and guarantee collection of premiums.

One of these is the regulation in the new law that the board members of the employers that are legal entities shall be liable for the premium payables, which was not included in the former Social Security Law No. 506.

Accordingly, employers must pay the Social Security Institution (SSI) the premium share of the insured calculated at the rate of the total earnings which is taken as a basis for the premium of the insured for a month as well as the premium share of employer by the end of the following month at the latest.

The premiums to be calculated on the basis of the earned but unpaid wages shall be subject to the same procedures.

In the event that the insurance premiums are not paid in a timely fashion or paid late, SSI shall accrue late payment penalty and interest.

In addition, SSI shall apply all articles except for article 51, 102 and 106 of Law No. 6183 on the Procedure for Collecting the Public Claims in the collection procedures of the unpaid premiums and other receivables by using the authorisations given to the Ministry of Finance and other public bodies and institutions in application of Law No. 6183.

Furthermore, Article 88 of Law No. 5510 contains a special regulation that "If the insurance premiums and other claims of the Institution are not paid in the terms laid down in this Law, then public servants of public administrations charged with duty on accrual and payment shall be responsible, collectively and jointly with the highest level managers or authorities and legal representatives, including the company Board of Directors members of other employers with the capacity of legal entity, to the Institution."

In addition to the foregoing, the Regulation regarding the Powers to be Used by the Social Security Institution based on Law No. 6183 on the Procedure for Collecting the Public Claims, which regulates the procedures and principles regarding implementation of the said article, states that the employers with the capacity of a legal entity shall be followed directly in line with the provisions of Law No. 6183 in order to ensure collection of the unpaid premiums and other receivables related to executives or authorities and legal representatives including the company's board members.

As is the case in TCC and CMB communiqués, social security legislation does not include a regulation regarding the responsibilities of independent board members of the joint stock companies which differentiates them from the other members of the board.

Consequently; the company's executives or authorities and legal representatives including all board members and independent board members as well as their employers (those with the capacity of a legal entity) shall be collectively and jointly liable for the joint stock company's SSI insurance premiums, general health insurance premiums, unemployment insurance premiums, administrative fines, late payment penalty and interest payables due to the Social Security Institution in line with the social security legislation.

Naturally, this liability of the joint stock companies' board members shall be limited to the payables which have been accrued but not paid within their term of office.

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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