Latest Amendments to the Turkish Commercial Code and the Law on Cheques
Introduction
Comprehensive amendments were made to several laws including Turkish Commercial Code numbered 6102[1] (“TCC”), Law on Cheques numbered 5941[2] (“Law on Cheques”) and various tax laws under Law numbered 6728 on the Amendment of Several Laws for the Improvement of Investment Environment, published in the Official Gazette dated 9 August 2016 and numbered 29796[3] (“Law No. 6728”). According to the general preamble[4] of Law No. 6728, the purpose of the amendments to the TCC is to facilitate the incorporation and liquidation procedures of companies, and to contribute to the development of the economy through encouraging local and foreign real persons and legal entities to do business in Turkey. On the other hand, the amendments made to the Law on Cheques aim to increase the trust in cheques, which constitute a significant payment method in business life, and to prevent dishonored cheques.
Provisions regarding Companies Law
Amendments made to the TCC with respect to companies law entered into force on the date of publication of Law No. 6728. These amendments intend to limit the number of bureaucratic transactions in company incorporations, as well as incorporations costs.
- Notarial Certification: With the amendment made to Article 40 of the TCC, the obligation for signature declarations to be certified by a public notary is eliminated. Real person merchants and authorized signatories of legal entity merchants may also give written declarations on their trade names and signatures in the presence of the trade registry manager or deputy manager. Accordingly, although a formal certification requirement is still reserved, an option for this certification to be performed either before the notary or the trade registry is provided to the merchants so that they may have their signatures certified directly by the trade registry instead of the notarial procedure, and without incurring additional costs. Similarly, by making amendments to Articles 212, 215, 335, 339, 345, 566, 575, 585 and 587, execution of the articles of association of joint stock and limited liability companies, as well as the limited partnerships divided into shares, and companies with unlimited liability in the presence of the trade registry manager or deputy manager is made possible without notarial certification.
- Valuable Paper Cost: As per the additions made to Articles 212, 335, 556 and 575, valuable paper costs shall not be charged on papers constituting the articles of association at the incorporation stage of joint stock and limited liability companies, as well as limited partnerships divided into shares, and companies with unlimited liability.
- Conversion of Type: Article 184 of the TCC regarding the conversion of type used to regulate that the provisions regarding the incorporation of the new type would be applied in the event of conversion of type; whereas, for capital companies, the provisions regarding the minimum number of shareholders and subscription of capital in kind would not be applied. With Law No. 6728, it is regulated that as well as these provisions, provisions regarding the execution of the article of association by the founders shall not apply, as well.
According to the preamble of the article, while the decision of conversion of type may be adopted with two-thirds majority in joint stock companies, and three-quarters majority in limited liability companies, the requirement of execution of the articles of association of the new type by all of the shareholders used to result in the possibility of failure of execution of the articles of association of the new type, in the event of existence of shareholders who could not be reached, or who objected to the decision for the conversion of type and, thus, precluding the conversion of type in practice[5]. With the amendment aiming to eliminate such a situation, the requirement of execution of the articles of association of the new type by all the shareholders is eliminated. Instead, pursuant to amended Article 189, the management body shall submit the articles of association of the new type to the general assembly, together with the conversion of type plan, and the articles of association of the company shall be approved by the general assembly.
- Founders’ Declaration: The founders’ declaration is removed from the scope of company incorporation documentation; such document is no longer required for company incorporations. According to the preamble, this is due because the founders unconditionally undertake to make the capital payment under the articles of association and, therefore, the benefit expected from the founders’ declaration is already met through the execution of the articles of association[6]. Although it is stated in the first preamble of Article 349 of the TCC that the inclusion of certain matters under the articles of association does not eliminate the requirement to make explanations on such matters under the founders’ declaration[7]; at the time such preamble was drafted, the TCC used to regulate the requirement of preparation of a transaction auditor report on the company incorporation, and review of the compliance of the founders’ declaration by such auditor. With the elimination of transaction auditor with an amendment made prior to the entry into force of the TCC, the only person to review the declaration became the trade registry manager who also reviews the articles of association. Therefore, in our opinion, the commentary in the preamble of Law No. 6728 as to the fulfillment of the benefit expected from the founders’ declaration through the execution of the articles of association is appropriate. Moreover, some of the explanations required to be made under the founders’ declaration regarding the capital in kind are already to be included in the valuation report prepared as per Article 343 of the TCC.
Requirement to include explanations in relation to this matter in the declaration to be prepared by the board of directors in capital increases is also eliminated. With such purposes, Article 336 and 457 of the TCC were amended, and Articles 349, 562/5-a and 586/1-b were abrogated.
- Distribution at the End of Liquidation: Article 543 of the TCC regulates the distribution at the end of liquidation. Whereas, prior to the amendment made with Law No. 6728, the remaining assets could not be distributed to the shareholders until the expiry of the one year term following the third invitation to the creditors, such term is changed to be six months, and the liquidation process is shortened. If no danger exists for the creditors, the court may authorize distribution prior to the expiry of the six months term.
- Declaration of Property at the End of Liquidation: With the new sub-clause added to Article 545 of the TCC, it is regulated that the provisions of Articles 44 and 337/a of the Execution and Bankruptcy Law numbered 2004[8] (“EBL”) shall not apply to the companies that are liquidated in accordance with the TCC. Article 44 of the EBL regulates the requirement of a merchant who ceases commercial activities to notify the trade registry within 15 days, and to make a declaration of property indicating all of the assets and liabilities, as well as the names and addresses of the creditors; whereas, Article 337/a sets forth the criminal consequences of the failure thereof.
In our opinion, this amendment is appropriate, and eliminates the incompatibility between the ceasing of commercial activities and liquidation procedures of capital companies[9]. According to the preamble of the article, in practice, such a declaration of property is requested only from real person merchants who cease commercial activities, but not from capital companies and other legal entity merchants. As per the relevant provisions of the TCC, liquidators are already required to prepare an inventory regarding the company assets, together with a balance sheet, and to submit such for the approval of the general assembly, and a call is required to be made to the creditors. In such a case, making a declaration of property in accordance with the EBL means making the same transaction twice. Moreover, since the ceasing of commercial activities by capital companies occurs with the deletion of the trade name from the trade registry, and such company does not legally exist after the completion of the liquidation process in accordance with the TCC, it is impossible for it to make a declaration of property setting forth its assets and liabilities after such stage[10].
Provisions regarding Cheques
The most significant amendment made to the Law on Cheques under Law No. 6728 is the criminal liability introduced again for the drawers of dishonored cheques. As well, regulations are made with respect to the components of cheques, and third parties are allowed to access the data regarding the cheque, chequing account holder, and the drawers of such cheques through an information sharing system. Provisions regarding cheques entered into force on the date of publication of Law No. 6728 except for the amendment to Article 3 of the Law on Cheques, which will enter into force on 31.12.2017.
- Components of Cheques and Information Sharing System: With the sub-clauses and paragraphs added to Article 780 of the TCC, serial numbers given by the bank and the barcode are included in the mandatory components of cheques. Accordingly, payees of cheques shall have access to the data regarding the cheque, chequing account holder, and the drawers of such cheque through the barcode. Barcode scanning and information sharing system shall be formed by the Banks Association of Turkey Risk Center. Principles and procedures of these new regulations shall be determined by a communiqué to be issued jointly by the Ministry of Customs and Trade and the Undersecretariat of Treasury.
With the barcode, various information regarding the chequing account holder, such as identity information, number of banks in which s/he has the chequing account, number and amounts of cheques that were honored upon presentation within the last five years, number and amounts of dishonored cheques within the last five years, whether or not the check account owner is prohibited from opening a chequing account, whether or not the cheque owner has declared bankruptcy, etc. shall be made available to third persons without obtaining permission of the chequing account holder or the endorser.
As per amended Article 781 of the TCC, the lack of a serial number and/or barcode on the cheques issued by foreign banks shall not affect the validity of the paper as a cheque. According to Provisional Article 11, chequebooks without a barcode and serial number shall not be given by banks to chequing account holders after 31.12.2016, and such components shall not be sought in cheques printed prior to 31.12.2016.
- Liabilities of the Bank: As per amended Article 2 of the Law on Cheques, the drawee bank is required to identify whether or not the real persons and legal entities, as well as those in charge in the management body of the capital companies, and the authorized signatories thereof registered with the trade registry are prohibited from opening chequing account, and to keep the result of the investigation as to the lack of such a prohibition. With this provision, even if a person who is prohibited from opening a chequing account makes an application through a false statement, it is aimed to prevent the opening of a chequing account on behalf of such person[11]. A criminal record is also among the documents to be requested by the banks from those who wish to open a chequing account. The bank is also required to register the real persons and legal entities, as well as the authorized signatories of the legal entities notified as of the date of opening of the account to the barcode scanning and information sharing system. The relevant article also regulates the requirement to include on each page of the cheque book the Turkish ID number if the chequing account holder is a real person, and the MERSİS (Central Trade Registry System) number if the chequing account holder is a legal entity, and, in the event that the chequing account holder and the drawer are different persons, the Turkish ID number of the drawer is required.
- Liabilities of the Payee: According to the 10th sub-clause added to Article 3 of the Law on Cheques, the payee of the cheque with a barcode is required to register the cheque received by him/her with the barcode scanning and information sharing system. Through this method, banks will be able to tell which cheque pages were drawn and put into circulation. Changes in the representatives of the legal entity drawers after the date of registration of the cheque to the system shall not eliminate the liability of the chequing account holder legal entity. With this provision, lawmakers aim to prevent the non-payment of the consideration of the cheque on the grounds that such cheque was drawn by unauthorized persons, in the event the representative of a legal entity changed, or his/her term expired on the date of presentation of post-dated cheques[12].
- Criminal Liability: As per the amendments made to Article 5 of the Law on Cheques, those who cause a cheque to be dishonored, upon the bearer’s complaint, shall be subject to a judicial fine up to one thousand and five hundred days for each dishonored cheque. Such monetary fine cannot be less than the total of the dishonored amount of the cheque, the accrued interest and litigation expenses. The court shall also rule to prohibit the drawing of cheques and opening chequing accounts, both through its judgment, and as a protection measure during the proceedings. Provisions regarding the prepayment, settlement or stay of judgment shall not apply. In the event of failure to pay the judicial fine, such fine shall be directly converted into imprisonment with no provision for community service.
The person responsible for the consideration of the cheque in the relevant bank account is the chequing account holder. In the event the chequing account holder is a legal entity, member of the management body responsible for the financial affairs of such legal entity, and if such a work allocation was not made, real person/s constituting the management body shall be responsible therefor. Those who are prohibited from drawing cheques and opening chequing accounts cannot serve in the management bodies of capital companies during the term of their prohibition. However, their existing memberships shall continue until the end of their term of office.
As per Article 6, if the amount of the dishonored cheque and the accrued interest are paid, the lawsuit shall be dropped during the proceedings, or the judgment shall be removed with all of its consequences after the finalization of the imprisonment judgment. The same shall apply in the event of withdrawal of the complaint. Following the expiry of three years as of the complete execution of the punishment, or, following the expiry of ten years as of the prohibition date under any circumstances, prohibited persons shall be entitled to request from the same court the cancellation of their prohibition.
Conclusion
Under Law No. 6728, amendments were made to the TCC that facilitate the incorporation and liquidation procedures of companies and decrease the transaction costs, and to the Law on Cheques that aim to increase the trust in cheques. Amendments made to the TCC include, among other things, the removal of the founders’ declaration from the scope of the incorporation documents, reducing the liquidation process from one year to six months, elimination of the obligation to make a declaration of property in accordance with the EBL at the end of liquidation, submission of the articles of association of the new type to the approval of the general assembly instead of execution thereof by all the shareholders in the event of conversion of type. The amendments regarding the cheques bring criminal liability for those who issue dishonored cheques and allow third parties to access the data regarding the cheque, chequing account holder, and the drawers of such cheque.
[1] The TCC (Official Gazette, 14.02.2011, No. 27846) entered into force on 01.07.2012.
[2] The Law on Cheques (Official Gazette, 20.12.2009, No. 27438) entered into force on the date of its publication.
[3] The full text of Law No. 6728 in the Turkish language may be accessed through the following link: http://www.resmigazete.gov.tr/main.aspx?home=http://www.resmigazete.gov.tr/eskiler/2016/08/20160809.htm&main=http://www.resmigazete.gov.tr/eskiler/2016/08/20160809.htm (access date: 18.08.2016).
[4] General Preamble of Law No. 6728
[5] Preamble of Article 68 Law No. 6728.
[6] Preamble of Article 73 Law No. 6728.
[7] Preamble of Article 349 TCC.
[8] Official Gazette, 19.06.1932, No 2128.
[9] See previous Newsletter article for a detailed review of the TCC and EBL provisions regarding the ceasing of commercial activities and liquidation of legal entities: Ceasing Commercial Activities versus Liquidation of Legal Entities http://www.erdem-erdem.com/en/articles/ceasing-commercial-activities-versus-liquidation-of-legal-entities/ (access date: 18.08.2016).
[10] Preamble of Article 69 Law No. 6728.
[11] Preamble of Article 61 Law No. 6728.
[12] Preamble of Article 62 Law No. 6728.
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