Special Committee Of Preference Shareholders
Introduction
Turkish Commercial Code No. 6102 (the “TCC”) provides a number of provisions for the protection of preference shareholders. In this regard, the general assembly’s right to amend the articles of association is restricted by the rights of the preference shareholders. In accordance with Art. 454 of the TCC entitled “Special Committee of Preference Shareholders,” resolutions of the general assembly pertaining to amending the articles of association, authorizing the board of directors with respect to increasing the share capital, and the decision of the board of directors with respect to increasing the share capital that may potentially violate the rights of the preference shareholders shall result the convening of preference shareholders to meeting, and their subsequent approval.
TCC Art. 454 regulates the circumstances where the approval of the special committee of preference shareholders is required, the convocation procedure, the decision-making method, and the lawsuit to be filed against the special committee of preference shareholders by the board of directors.
Circumstances that Require Approval of Special Committee of Preference Shareholders
TCC Art. 454/1 stipulates the circumstances where the approval of the special committee of preference shareholders is necessary. These circumstances are listed in the relevant article; therefore, the implementation of the resolutions other than those listed in the article do not require the approval of the special committee of preference shareholders.
The first circumstance rises when the amendment of the articles of association by the general assembly violates the rights of the preference shareholders. This circumstance may occur as removal or restriction of the privilege by the amendment of the articles of association. For instance, if the articles of association withdraw the voting preference of the preference shareholders by the amendment of the articles of association, in order for this amendment to be implemented, the special committee of preference shareholders must grant its approval of such amendment. The circumstances regarding violation are not limited to this situation, and other circumstances where the rights of the preference shareholders are violated are considered to be within this scope.
Another circumstance is the general assembly’s resolution concerning the authorization of the board of directors to increase the capital. In such a case, even though the board of directors has not yet adopted a resolution based upon the general assembly resolution, the possibility of adoption of a resolution is sufficient to convene the special committee of preference shareholders. If the authorization resolution of the general assembly enables the board of directors to issue preference shares, then it is probable that the rights of the preference shareholders may be violated[1].
The final circumstance that Art. 454/1 sets forth is the case where the board of directors’ resolution to increase the capital infringes upon the rights of the preference shareholders. This infringement may occur when the registered capital system is in question.
In such cases, if the rights of the preference shareholders are violated, the resolution cannot be implemented unless the approval of the special committee of preference shareholders is obtained. The special committee of preference shareholders is comprised only of the preference shareholders whose rights have been infringed. Preference shareholders whose preferences are not infringed cannot attend the committee meeting.
More importantly, in order for the special committee of preference shareholders to be convened, the law specifically requires that the rights of the preference shareholders have been violated. The fact that the resolution of the general assembly or the board of directors was unlawful shall not suffice for the convening of the special committee.
Convening the Special Committee of Preference Shareholders
TCC Art. 454/2 stipulates that the special committee of preference shareholders shall be convened by the board of directors. In accordance with the relevant article, the board of directors shall convene the special committee of preference shareholders no later than one month following the announcement of the general assembly resolution. This authority of the board of directors is unassignable. Unless the special committee of preference shareholders is convened by the board of directors within this period, each preference shareholder is entitled to apply to the commercial court of first instance to convene the meeting within fifteen days following the last day of the convening period set forth for the board of directors. Therefore, the law entitles the preference shareholders to convene the meeting. The aim of this provision is to enable the court to make an unbiased decision in order to balance the conflicts of interest.
Meeting of the Special Committee of Preference Shareholders
Pursuant to Art. 454/3 of the TCC, the special committee of preference shareholders convenes with the presence of 60% or more of the share capital representing the preference shares, and the decision by the majority of the shares represented at the meeting. In addition, if the preference shareholders cast affirmative votes at the general assembly for the resolution in question, there will be no convening of a special committee meeting.
Moreover, TCC Art. 454/3 sets forth certain steps to be performed where the special committee decides that a violation has occurred with respect to the rights of the preference shareholders. Accordingly, the decision is confirmed with justified minutes, and the meeting minutes are delivered to the board of directors within ten days following the date of the decision. Therefore, if the preference shareholders decide that their rights have been infringed, they must provide sufficient reasoning with respect to the infringement. Additionally, the list of a minimum number of signatures of the preference shareholders who cast negative votes regarding the general assembly resolution, and a notification address suitable for the lawsuit that may be filed shall be delivered to the board of directors. TCC Art. 454/3 stipulates that the special committee decision shall be deemed non-existent unless the aforesaid conditions are met. Thus, these conditions laid out by the TCC shall be respected when adopting a decision.
If the special committee does not convene despite the call to convene, the general assembly resolution shall be deemed as approved.
Annulment of the Special Committee of Preference Shareholders’ Decisions
The special committee of preference shareholders has the authority not to approve the general assembly resolution on the grounds that their rights have been infringed. In this case, if the board of directors finds the justification provided by the special committee to be unsatisfactory, it may file an action for annulment, and demand the registration of the general assembly resolution from the commercial court of first instance located at the headquarters of the company. The action shall be brought before the court within one month following the decision date of the special committee.
The annulment action shall be initiated against the preference shareholders who voted against the approval of the general assembly resolution. The purpose of this provision is to prevent unnecessary lawsuits to be filed against the preference shareholders who had cast affirmative votes.[2]
Conclusion
The provision rearding the special committee of preference shareholders provides for certain guarantees for the protection of the rights of the privileged shareholders. TCC Art. 454 regulates the special committee of preference shareholders and, since this includes detailed provisions regarding the committee and the action for annulment of the decisions of the committee, it must be considered as an important provision.
[1] Ünal Tekinalp, Sermaye Ortaklıklarının Yeni Hukuku, p. 98.
[2] Hasan Pulaşlı, Yeni Şirketler Hukuk Genel Esaslar, p. 754.
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...