Turkey: What Legal Obligation Does Treasury Have In Relation To Public Economic Enterprises' (PEEs) Contractual Commitments And What Liability Would The Turkish Government Have In Relation To The Insolvency Of These PEEs?

Last Updated: 22 August 2018
Article by Mehmet Taş and Püren Berik

As a principle, the liability of PEEs are limited to their capital, although, according to Decree Law No. 233, the Council of Ministers can assign duties to PEEs, their institutions and subsidiaries and consequently covers liability exceeding their capital; or assign these entities, their institutions and subsidiaries to perform public services in their field of activity.

PEEs may freely determine the prices of goods and services which are generated in PEEs. Upon request of the Minister, the Council of Ministers may determine the goods and service prices. In the event that Council of Ministers determines the goods and service prices below the market price, duty losses shall be paid from the funds created within the budget of Undersecretariat of Treasury. For that reason, a damage can be classified as duty loss, if this duty loss is originated from 1) an assignment of duty by the Council of Ministers or 2) determination of the goods and service prices below the market price.

The Government has to fulfill some public service under the Turkish Constitution. To provide electricity is deemed as a public service and the Government fulfills this obligation through SEEs whose shares are owned by the government yet who are subject to private law provisions.

According to the Article 9/5 of the Law of the Union of Chambers and Commodity Exchanges of Turkey, and the Chambers and Commodity Exchanges numbered 5174, enterprises established by PEEs has been deemed as commercial enterprises.

According to Article 11/1 of the Turkish Commercial Code ("TCC") numbered 6102, commercial enterprise is a corporation which run its operations continuously and independently and aims to generate an income which exceeds estimated limit for craftsman enterprise. Pursuant to article 16 of TCC, entities which were established by the government for operating business to achieve its objective, being managed according to private law provisions or being operated commercially shall be deemed as merchant.

"Institutions and organizations" herein contain the PEEs which are stated on the Decree Law No. 233. Although law of establishment is mentioned under this article, the article in question shall be understood as "operating commercially or established for the purpose of being managed according to private law as stated in their main statues", which is identically stated in Court of Cassation decisions.

Accordingly, being managed according to the provisions of private law or being operated in a commercial manner is sufficient for a SEE to be considered as a merchant.

According to justification of decision of joint chambers of Court of Cassation numbered 1/6 dated March 28, 1945, "SEE are the entities which were established to be subject to private law regulations. The difference of these entities from others is that 1) their capital belongs to the State and 2) their managing bodies assignment procedures is different than other entities. Indeed, duties of these entities are related to the economic policy of the government. However, these regulations cannot make the PEEs subject to administration law." By these explanation, decision of joint chambers emphasized that Pees are legal entities which are subject to private law. (Official Gazette. 09.02.1946 no. 6228).

In Article 1 of the Decree Law No. 233, it is emphasized that SEEs will work in line with the principles of productivity and profitability like commercial trading companies. In the following provisions, it is stated that Enterprises shall be organized as a corporation and they shall register and publish the statutes and titles and these statutes shall be subject to the provisions of private law and the responsibilities of the Enterprises are limited to their capital, they also are not subject to General Accounting Law and Public Procurement Law and they are not audited by Court of Accounts. It is understood that the law maker deemed these Entities as trading companies or merchants by adopting to the provisions of private law.

The provision stated in the Article 57/2 of the Decree Law No. 233 that all movable and immovable property of these Entities cannot be distrained was annulled by the Law numbered 4011/1 dated 14.9.1994 and it has been made legally permissible to distrain all movable and immovable property of these Entities (T.R. Court of Cassation Assembly of Civil Chamber E. 2006/4-12 K. 2006/95) On the other hand, it is accepted in the Tax Procedural Code that SEE shall keep books as merchants and their incomes are subject to corporation tax.

Court of Cassation has stated in its decision dated 29.5.19951 "The Article 57/2 of the Decree Law No.233 was abolished by the Law No.4011 on 14.9.1994. Since the Directorate General of Highways was not privatized, all movable and immovable properties can be subject to the distraint."

Another decision of Court of Cassation "Dispute arises on the grounds of whether TEDAS is subject to the Law No.3533 or not. Current legislation which TEDAS is liable to and legal status of TEDAS shall be examined for clarifying the situation. It is obvious that TEDAS is in the scope of the Decree Law No. 233... Immovable and movable properties of State Economic Enterprises can be distrained in line with the Article 57/2 of the Decree Law No.233 was abolished by the Law No.4011 on 14.9.1994."2

Under Article 18 of the Turkish Commercial Code, the merchants are subject to the bankruptcy for all kinds of debts. In this respect, as we have explained above, the SEEs which are deemed to be merchants are also subject to the bankruptcy and there is no regulation on contrary in the legislation.

Under Article 4 sub-section 1 of the Decree Law No. 233, the responsibilities of the PEEs are limited to their capital. For this reason, the Treasury is only responsible for the debts of the SEEs up to the capital sum and the Treasury cannot be held responsible for the exceeding amounts. In this regard, as a rule without prejudice to the provisions which we explain below, Government's responsibility regarding bankruptcy of PEEs is limited only with the unpaid part of the capital.

The Treasury will not be subject to any liability neither in theory nor because its shareholder status, if Treasury has paid all of the capital shares which was committed.

Although there is no legal obstacle to the bankruptcy of SEEs, there has not been a bankruptcy seen in practice until now. In such cases, the SEEs which are in a difficulty are generally recovered by capital increase through Treasury support, privatized, transferred free of charge or liquidated.

This situation is also stated in Court of Cassation decisions "It should be particularly stated that, although PEEs, according to their legislation, are independent legal entities under the provisions of private law, they have been standing for years with the support and protection of the Government. Owing to the mentioned support, unemployment in Turkey has been also minimized and many job opportunities have been created across the country. It is obvious from case content that the Government intends to maintain this protection, despite the extraordinary economic measures it has taken, by intending to pay the collective bargaining wage increases, even if delayed, in a plan and in full payment. It is also a fact that if the state withdraws this protective attitude from the PEEs and if they are left alone with their liabilities, these entities will be unable to perform their obligations, many will close, some will go bankrupt, and thousands of workers will become unemployed.'' (Court of Cassation 9. Civil Chamber E. 1994/16730 K. 1995/1307 T. 31.1.1995) Pursuant to the Article 38 of the Decree Law No 233: "The decision to grant the liquidation, transfer, sale and operating right of the undertakings, subsidiaries, enterprises, business units and affiliates within the scope of Decree shall be taken by the High Planning Council and the granting of the right of liquidation, transfer, sale or operating right shall be carried out by the High Planning Council according to the principles indicated by the Law No 2983" and some general issues are enacted.

As an example, Sanayi Nakliyat Joint-Stock Company which is a subsidiary of Sumer Holding Joint-Stock Company has gone bankruptcy and Doyasan Dogu Yag San. Tic. Joint-Stock Company and KİDAŞ Kızıltepe Iplik ve Dokuma Sanayi ve Ticaret Joint-Stock Company was liquidated.

Footnotes

1 Court of Cassation for the 12. Civil Chamber, E. 1995/7526, K. 1995/7743, T.29.5.1995

2 Court of Cassation Assembly of Civil Chamber, E. 2005/3-560, K. 2005/587, T.19.10.2005

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