Turkey: The New Regulation Reducing Representation Problems At Corporates

Last Updated: 26 November 2015
Article by İzzet Gürler, Işıl Özkeleş and Alper Pekcan

IT HAS ONCE AGAIN BECOME POSSIBLE TO ALLOCATE SIGNATORY RIGHTS TO COMPANY OFFICIALS OTHER THAN THE AUTHORIZED BOARD OF DIRECTORS MEMBERS

1- The new law that came into force on 11.09.2014 publicly known as "Torba Yasa" has implemented some considerable changes to the Turkish Commercial Code ("TCC") including an amendment to article 371 of the TCC, which has partially eased the representation restrictions of companies.

2- Within the framework of TCC Article 371/3 before this amendment; it was only possible to limit the signatory rights of authorized company representatives to the company center or a specific branch or diversify with regard to sole/joint signature. As a result of these limitations, it was no longer possible to group signature rights based on monetary limits or subject matter of the transactions, which caused serious difficulties to companies in practice. As a result of this former provision, companies were initially issuing a simple signature circular, only comprising of Board of Directors ("BoD") members and consecutively issuing additional documents such as Power of Attorney in order to authorize company officials for the day to day business activities within their specific requirements.

3- With an addition of a new paragraph 7 to TCC of 371, it has become possible for company BoD to appoint non-executive BoD members or company officials (that work based on an employment contract) as commercial representatives or other merchant assistants with limited representation rights.

4- Duties and rights of such appointees will be clearly defined with an internal directive that will be prepared in accordance with the article 367 of the TCC; and it will be possible to give limited representation rights to these people based on monetary limits or the subject matter of the transactions. As a result of this new provision, the internal directive has ceased to be an intra-company document and become a document that is obligatory to register and publish at the Trade Registry. This way, it is aimed to let third parties know the representation limits of these people and prevent any damage that may arise due to unauthorized representation. It is regulated that limits of representation rights, duty definitions, authorities and obligations of such non-executive BoD member and company officials should clearly be defined with these internal directives.

5- However, these internal directives will not explicitly name these commercial representatives and merchant assistants. In order to do this, Companies will have to assume a separate regulation and have it registered at the Trade Registry as well. Moreover, the company BoD's will continue to be jointly and severally responsible for any and all damage that can be rendered by these people to the company or third parties.

6- According to the amendment (regulated under article 132 of the new law) made to article 679 of the TCC, this new procedure will also be applicable for limited liability companies and they will also be able to appoint commercial representatives and merchant assistants and by following the same procedure.

HOW WILL GIVING REPRESENTATION RIGHT BY MEANS OF AN INTERNAL DIRECTIVE WORK IN PRACTICE?

1- The first condition for transferring management rights is presence of a relevant provision in the Company's Articles of Association ("AoA"). Without this, a company resolution to that effect would not be sufficient. Based on such an AoA provision, the BoD can transfer some of its rights by issuing an internal directive. The internal directive will define the company management, how it is divided and transferred, duties, duty definitions and their placement, who reports to whom, within the frame of accountability and responsibility principles.

2- According to the circular published by Istanbul Chamber of Commerce dated September 17, 2014 on Practice of the "Company Internal Directives (Article 367-371-629 of TCC) Regarding Limited Representation":

Notarized Internal Directives regulating limited authorities of company representatives to be issued by a BoD or General Assembly resolution in Joint-Stock Companies and General Assembly Resolution in Limited Liability Companies shall be registered and published in the Trade Registry.Internal Directive may comprise of signatory groups and their defined authorities, however no name of representatives shall be given.Names and Turkish ID numbers of representatives shall be stated on BoD or General Assembly resolutions referencing the date and the number of the Internal Directive.

3- Following the registry and publish of the Internal Directive, BoD resolution also needs to be registered and published in the Trade Registry.

4- Practitioners must keep in mind that the application of such procedures may differ in other trade registries.

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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Authors
İzzet Gürler
Alper Pekcan
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