Ercüment Erdem Att. Alper Uzun

Seizure And Transfer Of Limited Liability Company Shares

January 2015

Limited Liability Companies are regulated under the Turkish Commercial Code (“TCC”) numbered 6102 Art. 573 ff. Limited companies have a predetermined capital comprised of the sum of capital shares, established by one or more real persons or legal entities under one trade name. Shareholders of a limited liability company are not responsible for the company’s debts; their only liability is towards the payment of the capital shares and fulfillment of the additional payment and auxiliary obligations set forth under the articles of association.

A shareholder’s share of a limited liability company is counted among seizable properties and rights since it is also an asset with a financial value. The personal creditors of a shareholder may initiate enforcement by seizure or by foreclosure of the pledged property; if the shareholder is subject to bankruptcy, they may initiate bankruptcy proceedings and request seizure and liquidation of a shareholder’s limited liability company share.

Art. 133 titled “Personal Creditors of Shareholders” of the TCC that stipulates seizure of a company share is as follows:

(1) Personal creditor of one of the shareholders of a partnership company shall take his payment from the dividends that belong to that shareholder in accordance with the financial statements of that company, or from the liquidation profit, if the company is liquidated. If the financial statements are not yet drawn up, the creditor may seize the dividend or the liquidation profit that would fall to the shareholder’s portion after the financial statements have been drawn up.

(2) Along with the opportunity to retrieve their receivables from the dividend or liquidation profit, the creditors of a stock company may request the documented or undocumented shares to be seized and liquidated in accordance with the provisions relating to the movables under the Bankruptcy and Enforcement Law dated 09.06.1932 and numbered 2004. The seizure is registered in the share ledger upon request.

(3) Furthermore, in all commercial companies, the creditors shall have the power to retrieve their receivables from the company’s shareholder’s receivables and seize the aforesaid.

(4) The provisions above shall not prevent the creditors from taking action on the properties of the debtor shareholders outside of the company.

In the preamble of the provision, by using the phrase “stock company,” the provision is regulated to include limited liability companies. Thus, this provision eliminated ambiguities arising from the abolished Turkish Commercial Code numbered 6762, and clearly stipulated the conditions through which the seizure and liquidation shall be carried out.

In respect thereof, the Decision of the Court of Cassation 12th Civil Chamber 2013/7955 E. 2013/17423 K. is as follows:

“In accordance with Art. 145 of the TCC, a personal creditor of a limited liability company shareholder shall take his payment from the personal property of the shareholder, from the dividends that belong to that shareholder in accordance with the financial statements of that company, or from the liquidation profit, if the company is liquidated. TCC numbered 6762 regulates the enforcement conditions in limited liability companies under Art. 522 and 523. In the face of such regulations, it is clear that the shares are not directly seizable due to the personal debt of a shareholder, only the dividend, and for pecuniary claims if the company is liquidated, the liquidation profit of the shareholder is seizable. Pursuant to Art. 522 of the TCC numbered 6762, the right of the creditor to seize the limited liability company share of a shareholder does not include the right to request liquidation, because, as a rule, a share shall not be divided in limited liability companies. However, an exception to this rule is in the transfer of shares and for inheritance, where the share is initially divided and then transferred or inherited. Moreover, the concept of a share represents all of the rights and obligations of a company.

Art. 133 of the Turkish Commercial Code numbered 6102 regulated this differently from Art. 145 of the TCC numbered 6762. In accordance with this provision, along with the opportunity to retrieve their receivables from the dividend or liquidation profit, the creditors of a stock company may request the documented or undocumented shares to be seized and liquidated in accordance with the provisions relating to movables under the Bankruptcy and Enforcement Law dated 09.06.1932 and numbered 2004. The seizure is registered in the share ledger upon request.

Apart from the above, in all commercial companies, the creditors shall have the power to retrieve their receivables from the receivables of the company’s shareholder and seize the aforesaid.

After such amendment, contrary to Art. 145 of the TCC numbered 6762, the right to seize and liquidate a shareholder’s share in a limited company is granted to the personal creditor of a limited liability company shareholder.

The preamble provision explains the reasoning behind the amendment as “The second paragraph, which is dedicated to companies with share capital and joint stock companies and share certificates includes the phrase “stock companies;” thus, the scope is broadened to include limited liability companies and undocumented shares. Whether the seized or liquidated share belongs to a joint stock, limited liability or commandite company, or whether it is documented or undocumented, makes no difference in terms of the implementation of the provision.

Another reform provided by the article, as set forth in the preamble of the article, is that it clarified the relevant provisions to be applied for seizure and liquidation. Pursuant to Art. 133/2 of the TCC numbered 6102, shares of the limited liability company’s debtor shareholder shall be seized in accordance with the provisions on seizure of the movable properties of the Bankruptcy and Enforcement Law. Accordingly, in the event where a creditor requests the seizure of the debtor’s shares of the third party limited liability company, the debtor’s rights arising from the shares shall be seizure by notifying the company of such seizure, or by notifying the company of the seizure through the physical presence of the enforcement officer at the registered office, recording the seizure in writing in the company’s share ledger in order to conclude the bare seizure, and drafting a report.

Another issue to be examined is that:

In accordance with the reforms adopted in Art. 593/2 of the TCC numbered 6102, bills with may be issued for purposes of evidence, or they may be registered as representing the share capital of the limited liability company. The preamble sets forth that issuance of the registered bills representing the share capital shall not be negotiable, and the share of a limited liability company shall not be deemed as a share of a joint stock company. This only provides certain possibilities regarding evidencing issues, and the transfer of the share in accordance with the provision on joint stock companies.

In this instance, share certificates of limited liability companies shall constitute legal proof, the shareholding rights shall not be transferred and assigned through delivery of share certificates and again, by virtue of the same reason, such rights shall not be seized and pledged. The capital share shall not be deemed to be acquired via acquisition of the share certificates. The transfer of the capital share can only be performed in accordance with Art. 595 and Art. 596 of the TCC.

Accordingly, due to the fact that the delivery of the share certificate shall not procure the transfer of shareholding rights, the seizure of the share certificate shall not result in the seizure of debtor’s shares in the limited liability company. As stated above, shares can be seized either by notifying the limited liability company via a notification of seizure, or by execution officer, in person, attending at the company headquarters, notifying the company of the seizure, thereby allowing the company to record this seizure in the share ledger and minutes.

In light of the foregoing and legal provisions thereof;

The creditor requested a warrant of seizure regarding the seizure of the debtor’s shares in ____ Ltd. Şti company to be written and delivered to Adana Trade Registry on 25.07.2012. In response, the trade registry informed the creditor that the seizure had been recorded in the registry’s records.

Additionally, the warrant of seizure dated 28.08.2012 was sent to the third person company together with the first notice of seizure dated 03.08.2012.

As mentioned above, in accordance with Art. 133/2 of the TCC numbered 6102, which was in force on the date of the mentioned seizure, the seizure of a debtor’s shares of a limited liability company may be made, and the court rendered a judgment to approve the complaint, instead of rendering a judgment regarding dismissal of the complaint as being inappropriate.”

After the creditors initiated enforcement actions through seizure, and after the finalization of the enforcement, they may request seizure of other pecuniary rights of the shareholder other than its shares. These pecuniary rights may be exemplified as dividends, pecuniary claims, and his/her right to be included in the liquidation profit.

Art. 596 paragraph 1 of the TCC reads “If the capital share has been transferred as a result of enforcement actions, all rights and obligations shall be transferred to the acquiring person without the approval of the general assembly.” This legal provision emphasizes that the shares will be transferred not by a legal transaction, but by operation of law or upon judicial decision.

The TCC provision that stipulates share seizures directly refers to the Bankruptcy and Enforcement Law (“BEL”). In this regard, Art. 94 of the BEL must be taken into consideration. The said provision is as follows:

“If a usufruct right, or an undivided inheritance, or a company or co-owned property share is seized, the enforcement office shall notify the relevant third parties whose resident addresses are known. In this way, if the debtor’s shares in a specific immovable are seized, the enforcement office shall be able to inform the title deeds registry to record the seizure restriction on the title deed. If no share certificate or interim certificate is issued, the share shall be sezied by notification of the seizure to the company by the enforcement office. It is mandatory that this seizure is registered in the share ledger; however, the seizure shall be considered as completed on the notification date to the company even if it is not registered in the share ledger. The seizure shall be notified to the Trade Registry for registration by the enforcement office. In this instance, the transfer of the seized shares shall be null and void insomuch as it violates the rights of the creditors. The liquidation of the seized shares shall be subject to the liquidation of movable property. For other movables, the enforcement office shall take the necessary measures to prevent transfer to third parties.

The legal costs incurred by creditors for this reason are collected from the debtor by the enforcement office without any enforcement action or judicial decision.”

The seizure and transfer of the shares are subject to the provisions that govern the liquidation of movables. In this case, when a creditor requests the seizure of a limited liability company share, the enforcement office notifies the company by drawing up a writ of seizure. Moreover, the company’s trade registry is also notified through a writ of seizure that the shares are seized. Furthermore, the enforcement officer is entitled to notify the company of the seizure and have the seizure registered in the share ledger in the company headquarters. The seizure officer records these actions by filing an official report.

Together with the request for liquidation, and for the assessment of the real value of the shares, valuation of the shares is concluded by experts. Afterwards, the liquidation is completed in accordance with the liquidation provisions of the BEL.