Annulment Of General Assembly Resolutions Of Joint Stock Companies And The Influence Rule
Introduction
The shareholders, board of directors, and each member of the board of directors are entitled to challenge the general assembly resolutions, subject to several conditions. Reasons for annulment are listed under Turkish Commercial Law No. 6012 (“TCC”) as the breach of the law, breach of the articles of association, and breach of especially good faith. This article focuses on annulment cases brought by especially the minority shareholders and the implementation of the influence rule. On the other hand, the rules of procedure have not been addressed.
Annulment of Resolutions
The right to claim for annulment of general assembly resolutions is the principal defense mechanism that the minority shareholders are entitled to against the abuse of the majority shareholders. It is neither possible to remove, nor limit, such right by the articles of association or a general assembly resolution, nor it is conditional upon whether or not the capital commitment has been paid by the claimant shareholder. Article 446 of the TCC regulates the shareholders who can challenge the resolutions in two separate groups: shareholders who attended the meeting but cast negative votes; and shareholders regardless of whether or not they attended the meeting.
Shareholders who attended the Meeting
Shareholders who attend a general assembly meeting have the right to challenge the general assembly meeting resolutions on the condition that they cast a negative vote, and had their dissenting opinions stated in the meeting minutes. It is possible either to state dissenting opinions against several decisions as a whole, or separately, for each decision made in a general assembly meeting.
Shareholders regardless of Attendance
Shareholders who allege that (i) the convocation of the meeting has not been duly made, (ii) the agenda of the meeting has not been duly announced, (iii) persons who do not have the authority to attend the general assembly meeting, or their representatives attended the meeting and cast votes, or (iv) they have been unjustly prevented from attending the meeting and casting votes can challenge the general assembly resolutions regardless of whether or not they attended the relevant meeting provided that, in any case, the aforementioned breaches had an influence on the resolution. The existence of one of these conditions is required for the consideration of an annulment case.
- Method of Convocation. Unduly convocation to the general assembly meeting is a reason for a shareholder who did not attend the meeting to challenge such resolution. However, the type of the breach should be also taken into consideration. For the existence of a convocation, it shall have been made to all shareholders; it shall have been made by the authorized bodies of the subject company; and shall allow the shareholders to be made aware that a meeting will be held at a specific given date and time. A convocation that does not bear such features is deemed to be non-existent; therefore, the general assembly meeting without a convocation will be considered as not having been held, as well, and it will not be annulled, since it does not, in law, exist. Other inconsistencies of the convocation will constitute the basis of the case for annulment. Notwithstanding these comments, the right to claim should be limited in terms of good faith. For example, the claim of a shareholder – who attended the meeting and cast affirmative vote – on the grounds that the convocation had not been duly made, should be considered as an abuse of right and rejected, even if such breach had an influence on the resolution.
- Announcement of the Agenda. An agenda that has been unduly announced, or has not been announced, is another reason for an annulment case. A duly announced agenda should be included within the convocation and in accordance with the procedure set forth under the TCC and articles of association. Moreover, agenda items should give shareholders a clear understanding of what is going to be discussed at the meeting. The important criterion is whether or not the claimant shareholder would have attended the meeting and have been able to change the resolution with his/her votes if the agenda had been duly announced.
- Attendance of Unauthorized Persons. Shareholders are entitled to challenge general assembly resolutions if persons or respective representatives who were not authorized to attend the meeting actually attended the meeting and cast votes. These unauthorized persons may well include the holders of pledges, liens, retentions or usufruct rights on the shares. It is unnecessary for the attendant shareholders to have cast negative votes and had their dissenting opinions stated under the meeting minutes.
- Unjust Prevention from Attendance. Prevention of shareholders, or holders of rights of usufruct, from attending the meeting and casting votes, either by threat, deceit, or physical intervention constitutes another ground for the annulment cases. Such prevention also includes instances where shareholders have been unduly removed from the meeting.
Scope and Implementation of Influence Rule
As mentioned above, for a shareholder to be able to challenge a general assembly resolution based on the above breaches, such shareholder is required to prove that the breach had an influence on the outcome of the resolution. This rule had not been regulated as broadly under the previous Turkish Commercial Code No. 6762, yet was implemented by the Court of Appeals.
The influence rule may be defined as the fact that the general assembly would not have taken a resolution had the subject breach not existed[1]. Turkish court practice implements the influence rule in terms of quora: Influence on the resolution is deemed to be existent where the claimant shareholder’s votes would have sufficed to change the resolution if the alleged breach had not been made, e.g. if the shareholder had been allowed to attend the meeting. If the shareholder’s number or percentage of votes is not high enough to change the outcome, it is considered that his/her absence from the meeting did not have any influence. Taking into consideration this practice, in cases where shareholders were prevented from attending a meeting, the possibility of the claimant shareholder to have provided information or documents that could influence other shareholders’ votes if he/she were allowed to attend the meeting, is disregarded by the Turkish courts. This approach certainly causes minimizing a shareholder’s right to voting, only, and interpreting the influence rule simply in numerical terms.
In parallel with the TCC, the Swiss Code of Obligations also includes the influence rule; however, limited to the cases where unauthorized persons attended the general assembly meeting. This causes the influence rule to be implemented in very limited cases, and allows shareholders in most cases claim for the annulment of the resolutions due to above-explained breaches regardless of the influence. Tekinalp explains the reason for the broad regulation of the influence rule under the TCC as the prevention of small minority shareholders from challenging resolutions due to small irregularities that only concern themselves[2], which is a tool against excessive litigation.
Consequences and Evaluation
Grounds for shareholders’ annulment cases against the general assembly resolutions of joint stock companies are listed under the TCC numerus clausus. Shareholders are obliged to rely on one of these reasons. The TCC subjects the annulment cases to the influence of the breach on the resolution considering the already settled case law regarding the subject. Shareholders are obliged to prove that the breach at hand influenced the general assembly resolution in order to have the resolution annulled. The TCC did not adopt the provisions of Swiss or German legislation concerning the annulment of the general assembly resolutions due to the fact that the excessive number of decisions of the Court of Appeals became the established practice in Turkey[3].
[1] Ersin Çamoğlu, Anonim Ortaklıklarda Genel Kurul Kararının İptalinde Etki Kuralı, Yaklaşım Dergisi, August 2014, p. 217.
[2] Ünal Tekinalp, Sermaye Ortaklıklarının Yeni Hukuku, p. 343.
[3] Ünal Tekinalp, Sermaye Ortaklıklarının Yeni Hukuku, p. 341.
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