General Assembly Summons Lawsuits

August 2021 Ceren Eke
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Introduction

Pursuant to Turkish commercial law legislation, the ordinary general assembly in joint stock companies shall be held within three months following the end of each fiscal year.[1] According to Turkish Commercial Code numbered 6102 (“TCC”), the authority (Article 410 of the TCC) and duty (Article 375 of the TCC) to convene the general assembly essentially belong to the board of directors. Such that, even if the term of the board of directors has expired, the general assembly can be summoned to a meeting.[2]

On the other hand, in some instances, the general assembly may be convened by other bodies and persons authorized by law. In this framework, i) an individual shareholder or, in some cases, ii) a group of minority shareholders, have the opportunity to apply to the court in order to convene the general assembly. In this article, the right of an individual shareholder to convene the general assembly with the permission of the court as per Article 410/2 of TCC, and the right of minority shareholder(s) to apply to the court to convene the general assembly as per Article 412 of TCC, are both explained.

An Individual Shareholder’s Right to Convene the General Assembly Pursuant to Article 410/2 of the TCC

Pursuant to Article 410/2 of the TCC, in cases where the board of directors cannot convene consistently, the meeting quorum does not exist, or cannot possibly exist, an individual shareholder may summon the general assembly for a meeting with the permission of the court.

A similar regulation is stipulated in Article 9/2 of the Regulation on the Procedures and Principles of General Assembly Meetings of Joint Stock Companies and Representatives of the Ministry of Customs and Trade to be Present at These Meetings, published in the Official Gazette dated 28.11.2012 and numbered 28481 (“General Assembly Regulation”). Accordingly, “In case the board of directors is not present or cannot convene consistently or there is not possibility of a quorum, a shareholder, who has obtained permission from the court, may summon the general assembly for a meeting, in accordance with the second paragraph of Article 410 of the Law.[3]

The purpose of the aforementioned provisions is to ensure the continuation of the operation of the company and to prevent the absence of bodies in the company within the meaning of Article 530 of TCC.[4] This provision was added to the draft of TCC in the Justice Commission in order to enable the general assembly to be convened in certain extraordinary circumstances.[5] The provision is especially important to find a way out for a company that has become deadlocked, in cases where the board of directors cannot convene, and that the quorums are not met due to disagreements and conflicts between different groups.

During the period that the repealed section of the Turkish Commercial Code numbered 6762 was in force, it was the practice of the Ministry that all shareholders were able to summon the general assembly to meet through a declaration at a notary public. However, this method did not work properly, especially in the presence of conflicts of interest within the company.[6]

Pursuant to the TCC, it is sufficient to have a individual shareholder in order to exercise the right of action within the meaning of Article 410/2. As clearly stated in the wording of the law and the regulation, in order for a court to grant permission to a shareholder to call the general assembly meeting, it is essential that the board of directors i) cannot convene consistently, ii) it is not possible to constitute a quorum, or, iii) a quorum cannot be constituted.[7] However, in order for the shareholder to exercise this right, an additional court decision is required. In this context, it is understood that the legislature deems it appropriate for shareholders to make this invitation by means of a court decision in order to prevent abuses.

Pursuant to Article 410/2 of the TCC, the court decision regarding the summons of a shareholder to the general assembly to meeting is final. There is no possibility of an appeal. As mentioned below, opposing to the explicit regulation of the legislature in terms of Article 412 of the TCC; there is no regulation as to whether the court shall decide over file or with a hearing in terms of the right regulated under Article 410/2 of the TCC.

Summons of the General Assembly to Meeting Upon the Application of the Minority Shareholder to the Court Pursuant to Article 412 of the TCC

Shareholders constituting at least one tenth of the share capital in non-public companies -- in other words minority shareholders -- may request the board of directors to convene the general assembly by stating their necessary reasons and the proposed agenda in writing (Article 411 of TCC). Moreover, as explained below, Article 412[8] of the TCC stipulates the right of the minority to apply to the court in cases where an affirmative response is not given within seven work days.

The General Assembly Regulation also incorporates explanations on the subject. Accordingly, 

“(3) Minority shareholders constituting at least one-tenth of the capital of a non-public company, one-twentieth of a publicly traded companies or, if stipulated in the articles of association, a smaller share, may request the board of directors to summon the general assembly to a meeting, or, if the general assembly is already to be convened, to put the issues they want to be settled on the agenda, by stating the necessary reasons and the agenda, in writing, through a notary. The request to put an item on the agenda must reach the board of directors before the payment of the announcement fee of the publication of the summons in the Turkish Trade Registry Gazette.

(4) If, despite acceptance of the application made by the minority shareholders to the board of directors to convene the general assembly meeting, the meeting invitation is not made by the board of directors within forty-five days, the minority shareholders themselves shall invite the general assembly for a meeting.

(5) If the request of the minority shareholders to convene the general assembly meeting is rejected by the board of directors, or if an affirmative response is not given within seven workdays, the general assembly shall be invited to the meeting by the trustee appointed by the court in accordance with Article 412 of the Law.[9]

The shares required to exercise this right of action may belong to an individual shareholder, or the required minority share can be achieved through gathering shares of a number of shareholders. In addition, a convocation right may be granted to the shareholders having a smaller share if stated in the articles of association of the company. Such that, by putting a provision to the articles of association of a non-public joint stock company, the shareholders constituting at least 6% of the capital may call the general assembly to convene. On the other hand, the quorums stipulated by the law cannot be increased by adding a provision in the articles of association.[10]

The invitation request is made through notary public. The fact that such a form requirement is stipulated by the law is important in terms of determining the beginning of the periods in the summons process.[11] The preamble for the article includes the following:

“In practice, the issues of whether or not the board of directors is applied to for summons, and the date of application, can both create problems that pose trouble with regard to the court"s permission. This is because the remedies provided by the board of directors must be exhausted for the court to give permission. In addition, any delay of the board of directors in responding is also important in terms of the court"s permission. For this reason, it has been introduced in the Draft that the summons and the request to put an item on the agenda must be made through a notary public.”

Acceptance of the Request by the Board of Directors

If the board of directors accepts the request made by the minority, the general assembly is invited for a meeting to be held within forty-five days at the latest. It is stated in the preamble of the article that during the period when the old law was in force, the expected benefit from the meeting had become unobtainable since the board of directors often accepted the request, but the meeting was not held for months. For this reason, the TCC now requires meetings to be held within forty-five days from the date of acceptance.

The beginning of the forty-five-day period is the date of the decision of the board of directors to accept the minority"s request. This is clarified in the preamble, which states: “Determination of the beginning of the period should not be a problem. The decision date of the board of directors is the start date of the period.”

Despite the acceptance of the minority"s request, if the board of directors does not make the invitation itself within forty-five days, the right to invitation passes to the minority shareholder who made the request. In other words, in this case, the invitation shall be made directly by the claimants (minority). In this case, there is no need to get permission from the court (Article 411/4 of TCC).[12] Since the law does not contain provisions on the minority"s authority to directly convene the general assembly, shall be conducted, there are various opinions on how to overcome the problems that may arise.[13]

Rejection of a Request by the Board of Directors or Failure to Give an Affirmative Response Within the Seven-Day Period

If, on the other hand, the shareholders" invitation request is rejected by the board of directors, or if the request is not answered affirmatively within seven work days, the commercial court of first instance may decide to convene the general assembly upon the application by the same shareholders. In the article, "application by the same shareholders" is obligatory, and therefore it should be emphasized that the persons applying to the board of directors and those applying to the court must be the same.[14]

The lawsuit regarding the convocation of the general assembly meeting is directed to the company. In other words, the plaintiffs of the lawsuit are the minority shareholders and the defendant are the legal entity of the company. The court authorized to hear the case is the commercial court of first instance where the company’s registered office is located. Moreover, the requested agenda must be stated in the lawsuit petition.[15]  

As a rule, the court examines the request is examined over file. However, as stated in the preamble of the article, the court may hold a hearing in case of necessity. If the court decides to hold a hearing, it should explain why it is necessary to hold a hearing.[16]

If the court deems that the general assembly meeting is necessary, it shall appoint a trustee to set the agenda and make the invitation in accordance with the provisions of the law. In its decision, the court indicates the duties of the trustee and the authority to prepare the necessary documents for the meeting. Unlike the case of meetings convened under Article 410/2 of the TCC, the invitation to the general assembly is not made by a right holder (a minority shareholder) but by the court (through its trustee). Pursuant to Article 412 of the TCC, the court"s decision is final.

Conclusion

Article 410/2 of the TCC and Article 412 of the TCC are lawsuits for shareholders (for individual shareholders in Article 410/2 and for groups of minority shareholders under Article 412) that provide the opportunity to convene the general assembly. However, in terms of both kinds of lawsuits, it is important that both the formal and material conditions expressed in the law are fulfilled. In both cases, the right holder does not have the authority to summon the general assembly directly, and it is possible to convene the general assembly only after certain conditions are met and certain stages are exhausted.

[1] See Article 409/1 of TCC; Article 7/1(a) of the General Assembly Resolution

[2] This issue, which was controversial during the period of the former Turkish Commercial Code, has been clarified in the TCC. See the preamble of Article 410.

[3] Translated by the author.

[4] Karahan, Sami: Şirketler Hukuku, 2012, Aralık, p. 503

[5] Pulaşlı, Hasan: 6102 Sayılı Türk Ticaret Kanununa Göre Şirketler Hukuku Şerhi, Cilt 1, 2011, Ankara, p. 714

[6] Karahan, p. 503

[7] Üçışık, Güzin / Çelik, Aydın: Anonim Ortaklıklar Hukuku, Cilt 1, 2013, Ankara, p. 245. The author states that in practice, failure to convene the board of directors due to disagreements and conflicts between groups, to achieve a meeting quorum due to lack of members or abuse of minority rights, and the absence of the board of directors due to reasons such as wholesale resignation or accident, is frequently encountered.

[8] Although this is not the subject of this article, pursuant to these provisions, if the general assembly is to convene, these shareholders may request the issues they want settled to be put on the agenda.

[9] Translated by the author.

[10] Altaş, Soner: Türk Ticaret Kanununa Göre Anonim Şirketler, 2021, Ankara, p. 133

[11] Poroy, Reha / Tekinalp, Ünal / Çamoğlu, Ersin: Ortaklıklar Hukuku, Cilt 1, 2014, İstanbul, p. 483. The author states that the provision of making the request through a notary public, introduced by the new law, is mandatory in terms of determining the beginning of the deadlines in the invitation process.

[12] Karahan, p. 505

[13] Poroy / Tekinalp / Çamoğlu, p. 485-485. The author states that, if needed, the minority may request help from court in parallel with Article 412 of the TCC and ask the judge to appoint a trustee.

[14] Altaş, p. 134

[15] Karahan, p. 505

[16] Poroy / Tekinalp / Çamoğlu, p. 486

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