Pursuant to Article 365 of the Turkish Commercial Code No. 6102 («TCC»), joint stock companies are managed and represented by the board of directors [“Board”]. In fact, management and representation of joint stock companies are both a right and a responsibility for the Board members. Duties of Board members under TCC or under the articles of association can be summarized as follows: the management of the company, drawing up a budget, preparing an annual report, carrying out accounting and financial duties, keeping the company books, convening the general assembly in case the company loses its capital or becomes insolvent, calling for the bankruptcy of the company if necessary and taking the measures required. Board members shall fulfill their duties with the care of a diligent executive, that is to say, with the care of a benchmark person who represents an objective and ideal value.
Article 553/1 of the TCC sets forth the main rule regarding the liability of Board members. According to the aforementioned article, Board members shall be held liable for the damages incurred by the company, the shareholders, or creditors in cases where they fault fully breach their obligations arising from the law or the articles of association. Due to these damages, the company, the shareholders, or the creditors may file a liability case.
Since the duty of management and representation lies with the entire members of the Board, the liability also belongs to all of the members of the Board. At this point, it is irrespective of whether the members of the Board hold shares in the company or not. Similarly, if there is an executive director in the company, these are also subject to the same provisions regarding the liability of the Board members.
Based on the law and the articles of association, Board may transfer certain of its duties and authorities over others. In the event of such delegation, the members of the Board shall not be held liable for the acts and decisions of such persons, unless it is proven that they did not exercise reasonable care in the selection of the persons to whom they transferred such duties and authorities.
For the liability of Board members, there must be a (i) breach, (ii) fault, (iii) damage, and (iv) causal link.
Pursuant to Article 557 of the TCC, where there is more than one Board member in a joint stock company, each of them shall be jointly and severally liable with others for the loss to that extent the loss can be personally attributed to them according to their fault and the particulars of the claim.
In a joint stock company, two more main concepts must be mentioned in terms of relieving the members of the Board from liability. One of these is the statutory limitations and the other is the release.
Article 560 of the TCC introduces the main rule in terms of statutory limitations. Pursuant to the mentioned article, the right to claim compensation against the responsible parties shall be time-barred after two years from the date the plaintiff becomes aware of the damage and the responsible party, and in any case, after five years from the day the act giving rise to the loss occurred. The exception to this is when the act which causes civil liability also causes a criminal liability and this act is subject to a longer statutory limitation under the Turkish Criminal Code. In this case, the statutory limitations under the Turkish Criminal Code shall apply to the action for compensation. The statutory limitations may be raised as a plea by the members of the Board as being the defendants.
Release, on the other hand, means the approval by the general assembly of the compliance of the Board members’ transactions with the law and the articles of association in the last term. In other words, a release is the waiver of the possible claims of the company against the Board members. In this context, it may be stated that release is a negative acknowledgment of debt by the company. The release, which may be executed explicitly or implicitly, is valid only in the internal relationship. For this reason, it has no effect on the liability cases to be filed by the creditors of the company. On the other hand, the release, as a rule, eliminates the liability cases to be filed by the company. In terms of the liability cases to be filed by the shareholders due to consequential losses, it must be accepted that the shareholders who voted in favor of the release and the ones who acquired the shares within the knowledge of the release decision are deemed to have waived from their right of action. The right of action of the other shareholders shall be forfeited upon the expiry of the prescriptive period, which is six months from the date of the release.
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