1. INTRODUCTION
In recent times, business owners often prefer to establish corporate groups to operate in multiple sectors through individual companies rather than functioning in various sectors under a single entity. The Turkish Commercial Code No. 6102 (“TCC”) introduced important innovations to regulate the relations between companies and to make corporate structures more transparent and accountable; one of them is the concept of “group of companies”, which envisages a hierarchical structure between subsidiary and parent companies.
The provisions on corporate groups are regulated between articles195 to 209 of the TCC addressing the powers of parent companies over subsidiary companies and the limits of these powers. In this article, the concept of a group of companies, the role of trust within the group and the responsibilities arising from the trust will be discussed.
2. CONCEPT OF GROUP OF COMPANIES
According to TCC 195, a group of companies occurs when one company establishes direct or indirect control over another company. This domination can be achieved in various ways, usually through capital or management relationships.
The parent company makes strategic decisions and shapes the activities of the subsidiary company by using this control over the subsidiary company. This relationship limits the independent decision-making of the subsidiaries within the group. This relationship of control contributes to the centralised management of all commercial activities of the community and thus to the formation of a more strategic decision-making mechanism.
Pursuant to Article 198 of the TCC, “A controlling relationship is established when one company owns more than 50% of the capital of another company, is able to determine the majority of the members of the board of directors or has effective control over its financial resources.” Control over subsidiaries can generally be achieved through shareholding, control over the members of the board of directors or access to financial resources.
The group of companies structure is particularly common in the management structure of large conglomerates and multinational companies. These structures allow all subsidiaries to operate in line with a single strategy through a centralised management model. However, for this model to work effectively, the parent company should also consider the interests of the subsidiaries. Abuse of dominance may give rise to cases of liability arising from trust within the group.
3. LIABILITY OF THE PARENT COMPANY ARISING FROM ITS CONTROL OVER THE AFFILIATED COMPANY
The control of the parent company over the subsidiary company in a group of companies and the legal problems that may arise from controlling are addressed under Article 202 of the TCC. Pursuant to this article, the legislator, while exercising the control of the controlling company over the subsidiary company, has considered the economic interests of the subsidiary company and determined the limits of this relationship.
A. Use of Dominance
Article 202/1 of the TCC clearly states that the parent company is obliged to observe the interests of the subsidiary company while exercising its control. The provision stipulates that ‘The parent company may not use its dominance in such a way to cause loss to the subsisidary company' sets the limits of the economic and managerial power of the parent company, while preventing the abuse of the dominance relationship. Otherwise, if the parent company makes strategic decisions and gives binding instructions in the management of the subsidiary company, this may damage the independent decision-making mechanism, and this may have negative economic consequences..
In particular, if the parent company takes steps contrary to the long-term interests of the subsidiary company in its decision-making processes, these decisions may adversely affect the commercial future and reputation of the subsidiary company. In this context, as can be understood from Article 202/2 of the TCC, decisions, mergers, spin-offs, change of type, dissolution and other similar transactions that jeopardise the economic existence of the subsidiary company are under the responsibility of the parent company. When the parent company acts in a way to harm the interests of the subsidiary company, it is under the obligation to indemnify these damages. This indemnification obligation aims to compensate the damages arising from the unlawful actions of the parent company.
B. Lawsuits Against the Parent Company and Their Conditions
In order to compensate for the damage incurred by the subsidiary company due to the aforementioned circumstances to the parent company, an indemnification lawsuit or an equalization claim is regulated. Equalisation is the compensation of the loss incurred by the subsidiary company as a result of the acts and transactions performed or refrained from performing, or the measures taken or refrained from being taken by the subsidiary company as a result of the domination of the parent company As for the indemnification, if the equalisation is not actually performed within the activity year, each shareholder of the subsidiary company may request the parent company and its members of the board of directors, who caused the loss, to compensate the company for the loss. In order to file this lawsuit, certain conditions must be met. The first of these is the existence of a subsidiary and parent company relationship within the scope of the TCC. Another condition is that there must be a breach of law, as understood in accordance with Article 201 of the TCC. The illegality implies that the parent company has caused damage to the subsidiary company as a result of the use of its dominance relationship within the scope of the group of companies, and that this damage has not been compensated within the time limit. Only in the presence of these conditions, an equalisation claim may be arised. Those who entitled to file a lawsuit include the board of directors of the affiliate company, creditors and shareholders. In the decision of the 11th Civil Chamber of the Supreme Court, dated 11.09.2023 with the case number E.2023/3867 K.2023/4856, , it was stated that the subsidiary company became insolvent due to the guarantee of the loans used by the parent company, and that the parent company cannot use its dominance in a way to cause loss to the subsidiary company, and cannot impose responsibilities such as surety, guarantee and avalanche, and ruled for the compensation of the damage.
Another lawsuit concerns the shareholders. Pursuant to Article 202/2 of the TCC, this lawsuit may be filed by “the shareholders who have voted against the general assembly resolution and recorded it in the minutes, or who have objected in writing to the decisions of the board of directors on this and similar matters”, and the shareholders may request from the court the compensation of their damages from the parent company, or the purchase of their shares at least at the stock exchange value, or if the stock exchange value is not in question, at the real value or at a value to be determined according to a generally accepted method.
In addition to such lawsuits, if there is an agreement between the managers of the subsidiary company and the parent company, pursuant to Article 202/5 of the TCC, “The managers of the subsidiary company may request the parent company to undertake all legal consequences of the liabilities that may arise against the shareholders and creditors due to the provisions of this article.', the subsidiary company may be secured by an agreement between the two companies.
4. CONCLUSION
In Turkish law, the concept of group of companies was introduced to the TCC to gather several companies under a single structure and to enable them to operate in multiple sectors. In this context, the parent company is required to consider the economic interests of the subsidiary company while exercising its control and management powers over the subsidiary company. Abuse of dominance may undermine the independence of the subsidiary and lead to economic losses. In such cases, Article 202 of the TCC determines the liability of the controlling company and provides for the compensation of damages.
In situations where the parent company makes decisions or gives binding instructions that are contrary to the interests of the subsidiary company, an equalisation action may be filed, and shareholders entitled to file a lawsuit to protect their rights. In addition, the interests of the subsidiary company can be secured through agreements between the parent company and the managers of the subsidiary company.
In these processes, it is of great importance to obtain legal support to protect the interests of the parent and subsidiary companies and to manage their legal responsibilities effectively.
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.
