Ercüment Erdem Prof. Dr. H. Ercüment Erdem

New Lawsuits Regarding Mergers, Spin-Offs And Conversions

October 2013


The Turkish Commercial Code No. 6102[1] (“TCC”) introduces detailed provisions regarding merger transactions, regulates for the first time spin-off transactions and materially broadens the scope of conversion of type transactions. Both Swiss legislation and the acquis communautaire were taken into consideration in the drafting of these provisions.

The TCC introduces new concepts such as squeeze-out and sell-out rights, a consideration to be paid to the shareholder, and regulates new shareholder rights. The system of protection of creditors is amended and the old mechanism which prevented the realization of restructuring transactions is abandoned. A simplified procedure is envisaged based on the scale of the companies involved in the transaction. Thereby, the TCC addresses restructuring transactions in detail. Statutory provisions aim at facilitating these transactions.

Restructuring transactions may cause conflicts of interest between various stakeholders. For this reason, the TCC regulates new types of lawsuits in its aim to strike a balance between various interests while establishing the framework for restructuring transactions. The first lawsuit is in relation to preserving the continuity of the shares and rights of a shareholder. The second lawsuit is regarding the annulment of restructuring decisions. The third lawsuit is a special liability lawsuit for damages caused (due to negligence or fault) by persons participating in the restructuring transactions.

Lawsuit Examining the Company Shares and Rights

In General

The TCC accepts the principle of continuity of a shareholder’s shares and rights in merger, spin-off and conversion transactions. Articles 140, 161 and 183 TCC regulate the main principles in relation to preserving shareholders’ rights depending on the specificities of each transaction. In principle, a shareholder’s existing rights should remain in place, and should be adapted to the new merged, spun-off or converted company.

The lawsuit regulated under Art. 191 TCC serves to assess whether shareholders’ rights are duly preserved, and the provisions of the TCC on preserving shares and rights are duly applied.

Parties to the Lawsuit, Subject Matter and Jurisdiction

Any shareholder who alleges a violation of their rights may initiate a lawsuit to examine their shares and rights. The code did not restrict the right to file this type of lawsuit to the shareholders of the acquired or spun-off company. It is argued that the shareholders of the acquired, spun-off or acquiring companies may all initiate this lawsuit. With this lawsuit, the claimant may allege that their rights to continue shareholding are violated, that their shares or rights in the company were not duly preserved or that the consideration paid was not adequate.

The defendant to the lawsuit will depend on the restructuring transaction. In a merger transaction, the acquiring or the newly established company shall be the defendant to such a lawsuit. In the event of a partial spin-off, a shareholder may file the lawsuit against the company that has acquired the assets allocated to said shareholder, and in the event of a full spin-off to one or all companies. The converted company will be the defendant in the event of conversion.

Art. 191 TCC regulates that the claimant may request an equalization (offset) payment. Nevertheless this is different from the offset payment made under Art. 141/2 TCC to shareholders in a merger transaction. An offset payment may be made to a shareholder, provided that it does not exceed 10% of the actual value of its shares, in order to avoid fractions while determining the exchange rate of the merger transaction. The offset payment to be made under Art. 191 TCC on the other hand is a payment made on the grounds that the shares, rights or consideration given to the shareholder are not adequate.

The authorized jurisdiction for this lawsuit is the commercial court of first instance where the headquarters of one of the companies engaging in the restructuring transaction is located.

Prescription Period

The lawsuit should be initiated within two months following the publication of the relevant merger, spin-off or conversion decision in the Turkish Trade Registry Gazette (“TTRG”).

It is regulated under the TCC that the merger and conversion decisions will be published on the TTRG (Art. 154 and 198/2 TCC), but the provisions governing the spin-off transaction only foresee a registration, and not a publication. Even though it is not explicitly regulated in the provisions governing spin-offs, pursuant to Art. 35/3 TCC, unless regulated otherwise, all matters which shall be registered are subject to publication; and accordingly it should be accepted that the spin-off decision will also be published in the TTRG.

Court Expenses

The TCC provides that the court expenses arising under such lawsuits shall be borne by the defendant company. The legislator has accepted the principle that a shareholder, whose rights have potentially been violated, should not bear the financial burden of the lawsuit.

The TCC also provides that under special circumstances that justify such a distribution, the claimant may be forced to partially or fully pay the court expenses. In the event it is apparent that shareholders have maliciously initiated a lawsuit or the lawsuit is denied, it is possible to charge the court expenses to the claimant shareholder.

The Effects of the Ruling

The ruling to be adopted at the end of the proceedings shall bear effect on all shareholders who are in the same situation with the claimant. Nevertheless the code gives no explanation on how this ruling may be enforced regarding other shareholders, whether it is necessary to give notice of the lawsuit to other shareholders, and how separate lawsuits filed by different shareholders who are in the same situation will be heard.

Art. 191/4 TCC regulates that this lawsuit shall not affect the validity of the relevant merger, spin-off or conversion transaction. Nonetheless, it is argued by scholars that this lawsuit should be filed together with the annulment lawsuit. Pursuant to this opinion, Art. 191 TCC introduces an innovative lawsuit. In order for this lawsuit to give rise to its innovative effects, it should be filed together with an annulment lawsuit. Nonetheless, the decision in favor of merging, spinning-off or conversion need not be annulled for there to be a ruling for an offset payment under this lawsuit. In fact, in the event the relevant decision is annulled, as the annulment will retroactively apply, there will no longer be a violation of a right or consideration which needs to be offset. Therefore, I do not agree with this opinion.

I am of the opinion that the claimant shareholder is not obliged to cast a negative vote against the merger, spin-off or conversion decision, nor ensure that his opposition is recorded.

Annulment Lawsuit

In General

The annulment of joint stock companies’ general assembly resolutions are regulated under Art. 445 et seq. TCC. These articles foresee three grounds for annulment: the contravention of law, articles of association and the good faith principle. Similar provisions may be found in Art. 622 for limited liability companies and Art. 53 of the Cooperatives Act for cooperative companies.

Nonetheless, Art. 192 TCC specifically regulates the annulment lawsuit when filed against restructuring transactions. Thereby, the contravention of provisions applicable to the restructuring process is subject to a separate and special annulment regime. Moreover, this special provision provides a legal remedy to collective and commandite companies in the event of transactions which contravene the law. Furthermore, restructuring decisions do not always require a general assembly resolution, as is the case with a facilitated merger whereby the decision can be taken by the managing body and not the general assembly, and a special provision is therefore necessary in order for such decisions to be annulled in the event of contravention of the law.

The annulment lawsuit filed based on the contravention of provisions regulating restructuring transactions is regulated under a specific provision. It is disputed whether, regardless of this provision, annulment lawsuits may be filed based on general provisions in the event of contravention of Art. 134 to 190 TCC.

Parties to the Lawsuit and the Subject Matter

Art. 192 TCC regulates the annulment of the merger, spin-off or conversion decision.

The shareholder of a company engaging in the restructuring transaction, who did not vote in favor of the decision for which it seeks the annulment, and who recorded their objection in the minutes may file this lawsuit. Nevertheless, in the event the managing body adopts the restructuring decision, and not the general assembly, this prerequisite does not need to be met. Contrary to the general annulment lawsuit, shareholders that did not participate in the meeting, the board of directors and board members are not authorized to file a lawsuit based on these provisions.

The lawsuit must be filed against the company whose decision is to be annulled. In the event that said company is dissolved and deleted from the trade registry, as in the case of a complete spin-off or a merger, the lawsuit will be initiated against the acquiring company.

Prescription Period

The annulment lawsuit should be filed within two months of the publication of the relevant decision in the TTRG, as is the case for lawsuits regarding the protection of shares and rights of shareholders. Nevertheless, the prescription period for the general annulment lawsuit is three months, which therefore results in a lack of coherence between the two provisions.

Even though Art. 192 TCC states that if the announcement is not required the prescription period shall commence as of the registration, I am of the opinion that this provision is not necessary. The TCC explicitly states that merger and conversion decisions will be announced in the TTRG. As I stated above in relation to the lawsuit regarding the protection of shares and rights of shareholders, even though the provisions governing spin-offs do not have such an explicit requirement, the spin-off decision should also be announced, and therefore it should be accepted that the two-year period commences as of the announcement. Nonetheless, there are dissenting opinions on this issue among scholars.

A facilitated merger does not require a general assembly resolution, as the decision may be adopted by the managing body. However even in this case, pursuant to Art. 126/3, the decision of the managing body must also be registered and announced. Thus, the prescription period should commence as of the announcement.

The Effects of the Ruling

In the event the courts decide that the relevant merger, spin-off or conversion decision should be annulled, this decision will retroactively apply. Therefore, all consequences of the restructuring transaction will be removed as if the transaction were not realized at all. Given both the dissolution of companies and the continuation of the activities of the merged, spun-off or converted company for the duration of the lawsuit, it is apparent that the annulment will result in severe consequences. Therefore, the TCC sustains the principle of preserving the validity of the merger, spin-off and conversion transaction.

Pursuant to the TCC, if the contravention which forms the basis of the annulment claim is due to a deficiency in the restructuring transaction, the judge shall grant a cure period for the deficiency to be overcome. In the event the deficiency is not or cannot be overcome in this time period, then the judge may decide to annul the relevant decision. It is also stated in the code that the courts shall adapt the necessary precautions. These precautions shall serve to overcome the problems which may be caused by the retroactive effect of the annulment decision.

Liability Lawsuit

In General

Art. 193 TCC specifically regulates the liability arising from not executing restructuring transactions in accordance with the law. Pursuant to this provision, persons participating in the restructuring transaction in any way shall be liable to the companies, shareholders and creditors of the companies involved for the damages they cause due to negligence or fault.

Parties to the Lawsuit

Contrary to the first two lawsuits I assessed above in relation to restructuring transactions, not only the shareholders, but also the company itself or its creditors may initiate a liability lawsuit.

The defendants to this lawsuit are defined with a broad scope in the TCC. Accordingly, persons who participated in the merger, spin-off or conversion transactions in any manner may be the defendants to this lawsuit. In the event of a broad interpretation of this provision, in addition to the company managers who engaged in the transaction, all auditors, financial institutions as well as other consultants who engaged in the transaction may become defendants. Nevertheless, pursuant to the strict interpretation, which should prevail, the responsibility of the bodies should be enforced rather than the responsibility of the persons who provide consultation services under an agreement executed with the company. Accordingly, the board of directors, managers, liquidation officers and directors may be held liable and become the defendants to this lawsuit. I am of the opinion that shareholders who participated in the general assembly meeting should also be kept out of the scope of this lawsuit.

Subject Matter of the Lawsuit

The claimants may request compensation for direct damages caused (due to negligence or fault) by the persons who participated in the transaction. Nevertheless, the indirect damages suffered by shareholders are subject to the general liability regime. The company may file a liability lawsuit based on Art. 193 TCC and be the claimant for its own damages incurred as a result of the restructuring transaction. However, in the event the company incurs damages, the shareholder may file a lawsuit based on Art. 555 TCC for its indirect damages, and request compensation to be paid to the company. In such a case, in the event the court expenses and proxy fees are not charged to the defendant, they will be distributed between the claimant and the company (Art. 555/2).

Art. 193 TCC does not eliminate the general liability regime. Art. 553 and 664 regarding the liability of founders, and provisions such as Art. 549 regarding liability arising from untrue documents or statements shall continue to apply. The liabilities related to abuse of control, regulated among the provisions governing group companies (Art. 202/2 TCC) are also preserved.


The TCC regulates new lawsuits aiming to protect the conflicting interests of various parties affected by merger, spin-off and conversion transactions.

The enacted provisions show that the TCC favors the realization of restructuring transactions. Nonetheless, damaged parties are protected through the right to file lawsuits. Accordingly, a balance is sought between the realization of the restructuring transaction and the protection of the stakeholders.

[1] Official Gazette, 14 February 2011, No. 27846.