In our article titled "Capital increase in joint-stock companies", we have briefly mentioned the procedures envisaged in Article 456 et al. of the Turkish Commercial Code. In this article, we will examine the invalid and cancelled increase of capital decisions.
Invalid Increase of Capital Decision not Registered within a Statutory Period
The capital increase decision shall be registered within 3 months (TCC Art. 456/3). The increase decision shall not be applicable to third parties before its registration. If the capital increase decision is not registered to the trade registry within 3 months from the date of its adoption, the decision of the general assembly and the board decision will automatically become invalid. The registration of the capital increase to the trade registry has a constituent effect.
Filing an Action for Cancellation/Annulment of Capital Increase
Due to the reference in the capital increase of the joint-stock companies made to the provisions regarding the establishment (TCC Art. 456/4), termination of the capital increase can be requested according to Article 353 of the TCC against the capital increase. In order to file this action, it is necessary to act in violation of the provisions of the law regards to capital increase and in this way, the interests of the creditors, shareholders, or the public should be significantly endangered.
In means of Article 353 of the TCC, violation of rights is not required for the existence of a ground for annulment. In case the interests of the company's creditors, shareholders, or the public are endangered, the capital increase may be terminated if non-compliance with the laws is material. In addition, actual damage is not sought in order to decide a termination, it is sufficient that the interest has been endangered.
The annulment action shall be filed within a three-month limitation period starting from the registration and publication of the capital increase.
Only the Board of Directors, the Ministry of Customs and Trade, the relevant creditor, and the shareholder are entitled to file an annulment action within 3 months. The action shall be filed before the commercial court of the first instance in the place where the headquarters of the company is located.
When the annulment action is filed for the capital increase, the court should take the necessary measures. When the action is filed, the court is not obliged to immediately annul the capital increase; if possible, it may also give time to the board of directors in order to correct the deficiencies and to correct the issues contrary to the articles of association and the law.
After the capital increase becomes binding upon its registration to the trade registry, it is not possible to rescind the increase. The principle imposing that the registration to the trade registry restores all kinds of defects is also applicable to the capital increase, and after the registration of the capital increase, its nullity or absence shall not be ruled.
In addition, if the conditions exist, nullity of the general assembly decision can be claimed or, as the case may be, nullity of the board decision regarding the capital increase can be claimed, or the cancellation of these decisions can be requested.
In summary; A capital increase transaction may become entirely invalid upon annulment action pursuant to Art. 353 of the TCC. On the other hand, the general assembly decision regarding the capital increase can be cancelled in accordance with Art. 445 and Article 446 of the TCC or voided in accordance with Article 447. Likewise, in the registered capital system, the board decision regarding the capital increase can be ruled null in accordance with Art. 391 of the TCC or it can be cancelled according to Article 445 and Article 460/5 of the TCC. In all these cases, capital increase ceases to exist with all its consequences. However, there are various differences between the aforementioned actions in terms of the limitation period, the ground for the action, and the persons who can file an action.
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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.