Liability Of Legal Representatives Of Joint Stock Companies From Public Debts
The liability of legal persons from public debts, and the determination of the scope of this liability are of great importance in practice, since it is possible that the public debts that cannot be collected from joint stock companies may be collected from the legal representatives of the company. This issue is analyzed in this article, in light of the relevant provision of Law no. 6183 on Collection Procedure of Public Receivables.
General
Reiterated Art. 35 of Law no. 6183 on Collection Procedure of Public Receivables (“Law no. 6183”) regulates the collection of public debts of legal persons. Pursuant to this article, public receivables that may not be wholly or partially collected from the assets of legal persons, or that possibly may not be collectable from the assets of legal persons, shall be collected from the personal assets of legal representatives of legal persons, or of those who administer those unincorporated organizations, pursuant to the provisions of the relevant law.
Pursuant to this article, in the event public receivables cannot be collected from joint stock companies, legal representatives of such companies would be liable for these uncollectable debts with their personal assets.
Notion of “Legal Representative”
Initially, with the analysis of liability of legal representatives of joint stock companies, the scope of the term “legal representative” must be determined.
Pursuant to Art. 365 of Turkish Commercial Code no. 6102 (“TCC”), joint stock companies shall be directed and represented by the board of directors (“BoD”). In other words, the BoD is authorized by law to direct and represent the company. This article also sets forth that the provisions of the TCC regulating exceptions for this rule are reserved. Within this context, pursuant to Art. 367/1 of the TCC, the BoD may be authorized to transfer the direction of the company pursuant to an internal directive, in whole or in part, to one or more directors, or to third persons, with a provision to be put in the articles of association. Therefore, the BoD may, wholly or partially, transfer the direction of the company.
As the BoD is the organ that is competent for the direction and representation of the company pursuant to the TCC, the BoD members are “legal representatives” within the meaning of Reiterated Art. 35 of Law no. 6183. The Court of Cassation has rendered many decisions on this issue[1]. The Court of Cassation emphasizes that the person to be held liable shall be competent to represent and bind the company. The BoD members may transfer their representation authority to executive members (murahhas üye) or to executive directors (murahhas müdür) pursuant to Art. 370/2 of the TCC. However, in this case, at least one member of the BoD must have the authority to represent the company. Unless they transfer their authority to represent the company, the BoD members shall be liable pursuant to this provision.
If the authority to represent the company is transferred to executive members, or to executive directors, the liability shall be on those to whom the authority has been transferred. If the representation authority has been transferred, the public receivables shall be collected from these persons, and the other BoD members will not be subject to any debt collection proceedings. The Council of State has stated in one of its decisions that the payment order with regard to collection of the receivables from other BoD members is to be cancelled, if the authority to represent the company has been transferred to the specified executive members within the BoD[2]. The Court of Cassation has decided that if the authority to bind the company has been transferred to one or some of the BoD members, the other directors shall be exonerated from liability, and the BoD members to whom the authority to bind has been transferred, shall be severally liable[3].
In light of the decisions referred to above, both the Court of Cassation and the Council of State are of the opinion that the executive directors or executive members shall be liable for public debts, if the authority to represent the company has been entrusted to these directors or members.
The Communique (Serial: A Item No: 5) pertaining to Amendment of General Communique of Collection (Serial: A Item No: 1) published in the Official Gazette dated 11.09.2013 and numbered 28762, contains provisions on the determination of the legal representatives of joint stock companies. Under the title “VIII. Liability of Legal Representatives” of the Communique, it states that “The representatives are BoD members appointed through the articles of association of the company, pursuant to Law no. 6102, or elected by the general assembly, or third persons elected as directors by the BoD, under condition that at least one of the BoD members shall have the authority to represent the company.”
Liability of Commercial Agents
The persons who have been granted the authority to represent without having the title of executive member or executive director shall be distinguished from the legal representatives. Pursuant to Art. 368 of the TCC, the BoD may appoint commercial agents. The commercial agent is not a legal representative, but is a representative voluntarily appointed pursuant to Art. 551 of Code of Obligations no. 6098. The representation authority of the commercial agent does not arise from legal provisions, but from the contractual relationship between the agent and the company.
As the commercial agent has been voluntarily appointed through a proxy, it cannot be considered as “legal representative” within the meaning of Reiterated Art. 35 of Law no. 6183. If the opposite of this statement is accepted, each person who has been granted a voluntary representation authority, such as customs brokers who have been granted an authority to pursue customs operations, these persons will be liable pursuant to this article; however, it is clear that Reiterated Art. 35 of Law no. 6183 has no such intention.
Pursuant to the explanations under the title “VIII. Liability of Legal Representatives” of the Communique (Serial: A Item No: 5) pertaining to Amendment of General Communique of Collection (Serial: A Item No: 1), the “Legal representative pursuant to Reiterated Art. 35 of Law no. 6183 shall be;
- Pursuant to Law no. 6762 (abrogated), a person or persons who have been authorized to represent the company by the articles of association, or who have been granted representation authority by the BoD or general assembly, with the authority that arises from the articles of association,
- Pursuant to Law no. 6102, BoD members who have been appointed pursuant to the articles of association or elected by the general assembly, or under the condition to have at least one BoD member, third persons who have been appointed as director by the BoD.”
Liability Pursuant to Tax Procedure Law
Art. 10 of Tax Procedure Law No. 213 (“TPL”) regulates the liability of legal representatives. Pursuant to this Article, in the event that the legal persons or minors and wards, and institutions which do not have legal personality, such as foundations or communities, are taxpayers or are tax responsible, their obligations shall be performed by their legal representatives, by those who direct the institutions that do not have a legal personality, and by their representatives, if any. Tax receivables, and other receivables related to tax receivables that could not be collected from taxpayers or tax responsibles because of the failure of those persons to perform their obligations, will be collected from the personal assets of the persons who did not perform their legal obligations.
Art. 1 of the TPL defines the scope of the relevant law. Pursuant to this article, the TPL shall be applied to taxes, duties and charges within the general budget, and taxes, duties and charges that belong to special provincial administrations and municipalities.
At this point, if public debts are classified as tax debts, it is important to define which provisions shall be applied. Pursuant to the decision of the 7th Chamber of the Council of State dated 09.06.2003 and numbered 2002/4619 E., 2003/3476 K., for those receivables that fall within the scope of Art. 10 of the TPL, and related receivables, Reiterated Art. 35 of Law no. 6183 shall not be applied.
With regard to the scope of “legal representative” in terms of the TPL, in a decision of the General Assembly of Tax Chambers of the Council of State[4], it ruled on the fact that a person having the title of vice general manager who has the signing authority of 2nd Degree and 2nd Group does not grant him the title of legal representative. The jurisprudence within TPL is in parallel with our explanations with regard to Law no. 6183.
Conclusion
The liability of legal representatives of joint stock companies from public debts is set forth by the reiterated Art. 35 of Law no. 6183. Pursuant to this article, the receivables that cannot be collected from these companies, may be collected from the legal representatives of such companies. The decisions of the Court of Cassation and Council of State emphasize that the term ‘legal representative’ shall be construed as a person or persons having the authority to direct and bind the company. If the public debt is classified as a tax debt, Art. 10 of the TPL shall be applied. In the jurisprudence regarding this article, it is emphasized that the granting of a specific signature authority is not sufficient for liability.
[1] Decision dated 09.11.2005 and numbered 2005/9158 E., 2005/11380 K. of the 10th Civil Chamber of the Court of Cassation, Decision dated 08.03.2011 and numbered 2010/379 E., 2011/2028 K. of the 21st Civil Chamber of the Court of Cassation. Source: www.kazanci.com.tr.
[2] Decision dated 24.02.2000 and numbered 1998/4697 E., 2000/745 K. of the 11th Chamber of the Council of State.
[3] Decision dated 14.06.2011 and numbered 2011/4753 E., 2011/7389 K. of the 21st Civil Chamber of the Court of Cassation.
[4] Decision dated 13.11.2013 and numbered 2013/353 E., 2013/546 K. of the General Assembly of Tax Chambers of the Council of State.
All rights of this article are reserved. This article may not be used, reproduced, copied, published, distributed, or otherwise disseminated without quotation or Erdem & Erdem Law Firm's written consent. Any content created without citing the resource or Erdem & Erdem Law Firm’s written consent is regularly tracked, and legal action will be taken in case of violation.
Other Contents
The Turkish automobile and light commercial vehicle market left the 2000s behind with steadily rising sales figures and the 2010s with high and stable sales figures as well. In this period, the growth of the market was driven not only by high purchase power but also by easy access to credit and product diversity...
Turkish Commercial Code No. 6102 ("TCC") provides the right to exit from the company to the shareholders of limited liability companies and the right to squeeze out the shareholder from the company, unlike the structure of joint stock companies, with the exit and squeeze out institutions specially regulated for...
Turkish Commercial Code No. 6102 (“TCC”) preserves the rule that the board of directors shall manage and represent joint stock companies. The TCC regulates how the power of representation shall be exercised, the registration and announcement of the persons authorized to represent, the transfer of the...
Ordinary partnerships are regulated under Turkish Law between Articles 620 and 645 of the Turkish Code of Obligations No. 6098 (“TCO” or the “Code”). The Law defines an ordinary partnership contract as a contract where two or more persons undertake to combine their labour or property to achieve a common...
Merger and acquisition processes are one of the legal processes that most seriously affect the identities and legal status of companies. After the completion of legal, tax, financial and operational due diligence reports, the parties initiate the negotiation process in case they reach an agreement on proceeding with the...
A popular business model for expanding market reach and brand recognition worldwide is franchising. Despite being less common than distribution agreements in the form of mono-brand store agreements, franchising is another significant method for extending luxury brands' distribution networks. Luxury brands use...
In the decision dated 14.06.2022 and numbered 2019/149 E. 2022/894 K., the Court of Cassation General Assembly (“CCGA”) evaluated the theory of piercing the corporate veil in the context of the relationship between the guarantor and the borrowing company in a dispute arising from a loan agreement...
The European Union continues to be an important investment center for foreign investors. According to data from the European Commission's "Second Annual Report on the monitoring of foreign direct investment in the European Union", the European Union received €117 billion worth of foreign direct investment in...
Transfer of shares is arguably the first legal transaction that comes to mind among the legal transactions regarding the shares of a capital company, and the most common transaction in practice. However, the shares of a capital company may also be subject to various transactions, other than share purchase...
Law No. 6563 on the Regulation of Electronic Commerce (E-commerce Law or Law) has recently undergone a radical change in order to regulate the behavior of the players in the rapidly growing and developing e-commerce sector. The new regulations that came into force as of January 1, 2023 envisage important...
On 11 June 2021, the German Federal Parliament approved the German Supply Chain Due Diligence Act (Lieferkettensorgfaltsgesetz) (“Act”) which affects not only German entities but also their suppliers in foreign countries (including Turkish entities). The main focus of the Act, which entered into force on...
On 21 December 2007, the Federal Council approved the draft revision of the Swiss Code of Obligations, which also includes amendments to company law. On 28 November 2014, the Federal Council referred the draft revision for consultation. Following extensive discussions and a long enactment process, the...
The Turkish Commercial Code No. 6102 ("TCC") regulates maritime trade contracts under the fourth part of the fifth book of the Code. Among the types of contracts regulated in this section, the most frequently used contract in international maritime transport practice is the freight contract regulated under...
Prohibition on hidden income shifting is one of the most important issues that is broadly regulated under Capital Markets Law No. 6362 (“CML”). In conjunction with CML Article 21, which has a broader context than Article 15 of the abrogated Capital Markets Law No. 2499, another significant step has been taken...
As a result of developing commercial activities and large-scale investments, especially concluded in the fields of construction, energy and mining, companies are seeking to participate in these investments by uniting their powers and expertise to take advantage of financial opportunities together. This tendency...
The Turkish Commercial Code (“TCC” or “Law”) has enabled companies to apply different structural models and to implement new legal formations by including spin-off provisions to its Article 159 et seq. In accordance with the provisions of the law, companies may transfer a certain element, or elements, of their...
The International Federation of Consulting Engineers is a professional association established in 1913, known as the FIDIC (Fédération Internationale Des Ingénieurs-Counseils). Its members are duly elected from consultant-engineer associations of various countries, and membership to the association is...
Incoterms are a set of rules introduced by the International Chamber of Commerce (ICC) to explain the commercial terms that are widely used in international trade. The purpose of Incoterms rules is to facilitate and expedite international trade in a safe and secure manner...
The regulation applicable to all Turkish ports prepared by the Ministry of Transport, Maritime Affairs and Communications that entered into force after being published in the official gazette on October 31, 2012 (˝the Regulation˝), consolidates all the bylaws, regulations and instructions in a single Regulation...
As a rule, rights and obligations arising from an agreement have legal consequences only between the creditor and the debtor which are parties to the agreement. This principle is referred to as "privity of contract." In general, contracts for the benefit of third parties, where the fulfillment of an...
The rules of e-commerce, which grow and develop with the digitalizing world, are changing. E-commerce has become the driving force of the digital economy. However, considering the growth rate of e-commerce and the transformation it has undergone in a short time, it is obvious that some...
The dissolution of a company is a specific type of dissolution, which results in the cancellation of the legal personality which was gained by registration at incorporation. The specific proceeding which leads to the dissolution, and thus, the termination of a company upon the constitutive decision...
Companies in which shares or authority to manage is held by members of a family are considered to be “family businesses”. Family members can hold shares that control the company, as well as retain management authority. Having a family business means opportunity, security and income for...
Turkey ratified the Convention on the Contract for International Carriage of Goods by Road (“CMR”) in accordance with Act No. 3939 dated 7 December 1993, and the CMR entered into force in Turkey on 31 October 1995. In accordance with Article 1 / 1 of the CMR, the carriage of goods by road...
Ordinary partnerships are governed by Article 620 et seq. of the Turkish Code of Obligations No. 6098 (“TCO”). An ordinary partnership agreement is defined as an agreement whereby two or more persons undertake to join efforts and/or goods to reach a common goal...
The concept of disguised profit transfer in joint stock companies, in its broadest meaning, covers the transfer of company assets to related parties and may occur in different ways. This concept is regulated in detail under capital markets legislation...
Share subscription agreements, which are commonly encountered in start-up investments, set out the terms and conditions of an investor’s participation in a company as a shareholder by subscribing the new shares issued in a capital increase...
The electronic signature, which has the same legal consequences as wet signatures if it meets certain conditions, has taken its place in many legal systems and has enhanced commercial life. Although there are various types and applications in different legal systems...
INCOTERMS are a set of rules introduced by the International Chamber of Commerce (ICC) to explain the commercial terms that are widely used in international trade. The purpose of the Incoterms rules is to contribute to and facilitate the safe and swift conduct of international trade...