Turkey: Illegal Use Of Dominance In Corporate Groups

The New Turkish Commercial Code ("TCC") which is in force since July 1st, 2012 introduced a comprehensive reform in company law. Provisions on corporate groups are important part of the novelties presented with the TCC, as the relationship between the parent company and the subsidiaries as well as the results arising out of the transactions with each other are explicitly regulated in the Turkish law system for the first time. This article deals with parent companies' illegal use of dominance over its subsidiaries and its legal consequences as set forth in the TCC.

The TCC makes the definition of a parent company and subsidiary under Article 195. Accordingly;

  1. If a commercial company directly or indirectly, (i) holds the majority of the voting rights of another commercial company, or (ii) has the right to ensure the appointment of members forming a decision quorum in the management body of another commercial company in accordance with articles of association, or (iii) has the majority of the voting rights of another commercial company by itself or with other shareholders based on a contract, in addition to its own votes;
  2. If a commercial company is able to hold another commercial company under its control via contract or through other means;

the former company shall be identified as the parent company whereas the latter shall be identified as the subsidiary.

Companies affiliated to the parent company directly or indirectly are also part of the corporate group and therefore regulations on corporate groups in the TCC are applicable to such companies.

According to Article 202 of the TCC, parent company shall not exercise its control in a way that would cause a loss for the subsidiary. The article stipulates some examples for the illegal use of the dominance. In this sense, a parent company shall not direct or force its subsidiary to;

  • carry out legal transactions such as the transfer of business, assets, funds, staff, debts and receivables;
  • decrease or transfer its profit;
  • implement restrictions over its assets with real or personal rights;
  • assume liabilities such as providing guarantee or surety;
  • make payments;
  • adopt decisions or take measures which affect its activities negatively such as avoiding the renovation of its facilities, limiting or suspending its investments without any reasonable ground;
  • refrain from taking measures that would ensure its development.

The above list is not numerous clausus, hence the cases of illegal use of dominance can be extended to other several acts and transactions. However, it is important to emphasize that the parent company shall be discharged from the liability for damages, if the loss of the subsidiary company is compensated within that financial year, or a right to claim of equivalent value is granted to the subsidiary no later than the end of that financial year, with a specific explanation of how and when such loss will be recovered.

i. Loss

The concept of "loss" that subsidiary company suffers should be interpreted differently from but also broadly so as to cover the concept of "damages". A decrease in the assets or preventing its increase, losing a business opportunity, having a detrimental effect on the subsidiary, losing a source of income or a chance to generate income shall be considered as "loss" as well.

ii. Settlement of Loss

The concept of "settlement of loss" according to the TCC is an actual recovery of a loss, which is incurred by the subsidiary as a result of the parent company's illegal use of dominance and control, by way of providing opportunities, rights or claims that are equivalent to the loss.

Such recovery should be made, whether as an actual settlement or entitlement of a claim, within the same financial year that the loss is incurred.

iii. Shareholders' right to file a lawsuit in case of subsidiary's loss

In the event that the parent company causes loss on the subsidiary due to the illegal use of its dominance and control, each shareholder of the subsidiary is entitled to claim for damages of the subsidiary against the parent company and its board members who caused the loss, if the loss has not been settled within the relevant financial year or if a right to claim of equivalent value to the loss has not been granted to the subsidiary until the end of that financial year.

The settlement of such dispute is subject to alternative remedies. Hence, instead of indemnification of losses, the judge may rule for the purchase of the claimant shareholder's shares by the parent company or decide on an alternative solution which is appropriate to the concerned case. The judge gives such ruling either ex officio or shareholders may ask for the sale of their shares to the parent company over their stock-exchange value at minimum. If such value does not exist, shareholders may ask for the sale of their shares at their real value or at a value determined with a generally acceptable principle or else they may also claim a solution acceptable and appropriate to the concerned case. If the parent company and the members of its board of directors are ruled to pay damages, such amount will be paid to the subsidiary rather than the claimant shareholders.

iv. Affiliation Report

Finally, it is worth to mention the obligation of the subsidiary company to prepare an affiliation report. Pursuant to Article 199/1, within the first quarter of the activity year, the board of directors of the subsidiary company shall prepare a report concerning its relations with the parent company and other subsidiaries. The transactions conducted, the losses and benefits incurred as a result of the transactions made within the corporate group, the decisions made and the measures taken or refrained from being taken with the guidance of the parent company and the settlements should be included into such report.

The conclusion part of the affiliation report should also be included into the annual activity report of the board of directors, so that all shareholders can be aware of the existing situation in the annual general meeting of shareholders. In its annual activity report, the board of directors shall explain the benefits and losses incurred by the (subsidiary) company and the settlement of losses, if any, considering all legal transactions and measures taken or refrained from being taken in such financial year. This report will play an important role in the abovementioned lawsuit that could be filed to claim the indemnification of losses.

As a final remark, it should be considered that, along with the civil liability, failure in preparing the affiliation report as required in the TCC would also cause criminal liability of the persons who are responsible for requesting the preparation of and/or preparing the report.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Seza Ceren Aktaş
Similar Articles
Relevancy Powered by MondaqAI
Oncel, Aydın, Duman & Uygun Attorney Partnership
Erdem & Erdem Law
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Oncel, Aydın, Duman & Uygun Attorney Partnership
Erdem & Erdem Law
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions