Transfer of Seized Shares
Introduction
The questions as to whether shares are subject to seizure and, if they are, how the powers of disposition on those shares can be exercised, as well as the results of seizure on shares, are frequently discussed in both the doctrine and in the decisions of the Court of Cassation. In the examination of these subjects, different legal disciplines, such as the Turkish Commercial Code ("TCC"), the Enforcement and Bankruptcy Law (“EBL"), and the Turkish Civil Code (“Civil Code”) should be evaluated, together.
Article 133 (2) of the TCC regulates that creditors, whether the debtors’ shares of the creditors in stock corporations are issued as certificates or not, may request seizure and conversion into money in accordance with the provisions of the EBL on movables, and that the seizure shall be recorded in the stock ledger upon request. The stock corporations mentioned here are general partnerships, commandite, joint stock, limited liability, and cooperative companies, pursuant to Article 124 of the TCC. In this context, important distinctions must be taken into consideration in order to take the necessary steps for the seizure process, and the process must be carried out by performing the correct procedures. Firstly, the type of stock corporation whose shares will be subject to seizure should be determined, and then it should be determined whether the shares have been issued as certificates.
If we consider the issue in the case of joint stock companies, the most important distinction to be determined is whether the shares that are subject to seizure are issued as certificates. While the certified share is in the form of movables, an uncertified share has the characteristics of a right to claim.[1] Therefore, in accordance with Article 133/2 of the TCC, while the shares that may be seized in accordance with the provisions of the EBL on movables may be seized in accordance with Articles 85 and 88 of the EBL when they are certified, uncertified shares may be seized in accordance with Article 94 of the EBL.
Let us consider the seizure of the uncertified share which has not been issued as a share certificate or a provisional certificate. Article 94 of the EBL clearly regulates this issue. According to the said Article: “…If no share certificates or provisional certificates are issued for the shares in joint stock companies, the share of the debtor in the company is seized through the enforcement office"s notification to the company. It is mandatory for this seizure to be recorded in the company stock ledger; however, the seizure shall be deemed that it has been made on the date of notification to the company even if it has not been recorded in the company stock ledger. The Trade Registry shall be notified of the seizure which, in turn, will be registered by the enforcement office. In this case, the transfer of the seized shares is void to the extent that it violates the rights of the creditor. The sale of the seized shares is subject to the procedure of the sale of movable goods. In other movables, the enforcement office shall take measures in order to prevent transfer to others.”
As is clear from the text of this Article, the enforcement office"s notification to the company is required to establish seizure on the company"s uncertified shares that have not been issued as share certificates or provisional certificates. In this case, the enforcement director, who decides on the seizure of the uncertified share, does not have to go to the headquarters of the joint stock company in order to affect the protection measure related to this seizure.[2] The enforcement director may also be content to send a notice to the joint stock company pursuant to Article 94 of the EBL.[3] In this notice, the company is notified that the related number of shares of the debtor in the joint stock company is seized, and this seizure is recorded in the stock ledger. In the event of issuance of a share certificate or provisional share certificate in the future, the share certificates or provisional certificates of the debtor shall be delivered to enforcement office instead of to the debtor. All notifications regarding the share of the debtor must be made to the enforcement office. The approval of the executive office should be obtained for all of the common dispositions and decisions that the debtor"s approval should be obtained for, and the payment of the interest, profit share or liquidation share is to be made to the enforcement office instead of to the debtor.[4] Therefore, the company is notified that the power of disposition as to the debtor" seized uncertified share is restricted, and the necessary measures are taken.
The company that receives the notification of the enforcement office regarding the seizure, is obliged to record in the company stock ledger that the uncertified share of the debtor has been seized. However, as stipulated in Article 94 of the EBL, the seizure of the uncertified share, even though it is not recorded in the company stock ledger, is deemed to have been made on the date of the company"s receiving the seizure notification made by the enforcement office. As the Regulation provides, recording the seizure of the uncertified share in the stock ledger is not a requirement of validity for the seizure; it is a protection measure[5].
According to the regulation of the same Article, the seizure of the uncertified share shall be notified to the trade registry at the company’s headquarters to be registered by the enforcement office. Also, this notification and registration made to the trade registry is not a requirement of validity for the seizure of uncertified shares, and is a protection measure[6]. Even if the uncertified share seizure is only notified to the trade registry and is postponed, the uncertified share will not be considered as seized, since the company has also not been notified[7].
Article 94 of the EBL also states that "In this case, the transfer of seized shares is void to the extent that it violates the rights of the creditor." From this regulation, it is understood that although the debtor"s power of disposition as to uncertified shares is restricted, the transfer is possible without creating any loss to the creditors.
In addition, and pursuant to Articles 489 and 490 of the TCC, bearer share certificates or registered share certificates may be issued for the shares of a joint stock company. Both types of share certificates are negotiable instruments and endorsable.
Shares embodied in share certificates with the nature of negotiable instruments shall not be seized separate from share certificates.[8] However, it is possible to seize the shares through seizure of share certificates. Since share certificates are movables, they are subject to the provisions of seizure and conversion into money of movables in accordance with Article 88/1 of the EBL.
In order to seize the debtor"s share certificates of a joint stock company, it is not sufficient that the enforcement director has made a decision of seizure. In addition, it is necessary that the enforcement office take the share certificates under protection through confiscation, and remove them from the debtor"s area of disposition; thusly, they are prevented to have been endorsed.
While the seizure of the debtor"s goods and rights upon the request of the creditor"s request to issue enforcement proceedings does not prejudice the debtor"s right of ownership on these goods and rights, it causes changes in its powers of disposition. (EBL Art. 86, 91, Civil Code Art. 1010/I, subparagraph 2, 1010/II)[9].
The provision stating that “The debtor may not dispose of seized movable without the prior consent of the creditor and approval of the enforcement officer. The officer who seized the movable warns the debtor that acting against this provision brings with it criminal liability.” In the first paragraph of Article 86 of the EBL, the consequences of seizure on movables with regard to the debtor are regulated, and how the power of disposition will be changed as a result of seizure.
“In the first paragraph of the said provision of the EBL, the debtor"s power of disposition on the seized movable is only possible if prior consent of the creditor and approval of the enforcement officer are taken. In the provision, actually the debtor’s power of disposition is not removed; it is only restricted in favor of its creditors. The debtor can make disposition at any time if the consent of the creditor and approval of the enforcement officer are taken. The issue as to what sanction the debtor will face if he makes disposition without obtaining these permissions is discussed in the second sentence of the first paragraph. Accordingly, when the debtor transfers a seized movable to a third party without obtaining the consent of the creditor and the permission of the enforcement director, it faces criminal liability (EBL Art 86/I, s.2). Apart from this, provided that the possibility to acquire in good faith is preserved, the rights acquired by the person who take over the seized property, shall be deemed void to the extent that it harms the creditor’s rights over the acquired property (EBL Art. 86/III). More precisely, although the debtor has transferred the seized property to a third party, the possibility of acquiring the rights for the creditor who has stipulated the seizure still remains reserved.”[10]
However, for the debtor to make disposition on its seized movables, it is necessary that the said movables must be left to him. Actually, it is also not possible for the debtor to make disposition as to the seized movable if it has been handed over to a trust or is kept by the enforcement office[11].
Considering that share certificates may be seized according to the provisions as to seizure of movables, as per Articles 88/1 and 86 of the EBL, and as regulated in Article 133/2 of the TCC, the seized share certificates are transferrable if the prior consent of the creditor and approval of the enforcement officer are taken pursuant to Article 86 of the EBL.
Conclusion
If any debtor cannot pay its debts, its creditors may initiate enforcement proceedings through seizure. However, as a result of the seizure of property, the seized assets would not be taken out of the debtor"s property; only the debtor"s power of disposition on these goods is restricted. As a result of this power of disposition restriction, if there is a seizure on a debtor’s movable, the debtor cannot dispose of these assets without obtaining the consent of the creditor and approval of the enforcement officer, and the opposite action of the debtor leads to its criminal liability (EBL Art. 86/I). Apart from this criminal liability, the outcome of the transaction of the debtor who disposes the seized movables is also significant. The result of such a procedure foreseen by the legislator is relative invalidity. More clearly, the rights acquired by the ones who made a transaction on the seized movable, are not enforceable against the creditors who stipulated the seizure to the extent that they cause damage to them. Therefore, the right of third parties acquired after the seizure comes after the creditors who stipulated the seizure take their receivables. However, it is possible that those who do not know, and do not have to know, of the seizure; in other words, bonafide third parties, acquire rights on the property based on the provisions of possession (EBL Art. 86/II).”[12]
In light of these explanations, it can be concluded that both the seized uncertified shares pursuant to Article 94 of the EBL, and the certified shares as per Article 86 of the EBL, may be transferred in accordance with the provisions in the related articles.
[1] Tekinalp, Ünal: Sermaye Ortaklıklarının Yeni Hukuku, Vedat Kitapçılık, 4. ed, İstanbul, 2015, p. 98 - 99.
[2] Kuru, Baki: İstinaf Sistemine Göre Yazılmış İcra ve İflas Hukuku, Legal Yayınevi, 2016, p. 220.
[3] Kuru, p. 220.
[4] Kuru, p. 221.
[5] Kuru, Baki: İcra ve İflas Hukuku, Rewritten and extended 2nd edition, Adalet Yayınevi, 2013, p. 449.
[6] Kuru, İcra ve İflas Hukuku, p. 448.
[7] Kuru, İcra ve İflas Hukuku, p. 448.
[8] Muşul, Timuçin: İcra ve İflas Hukuku Esasları, reviewed and extended 5th edition, Adalet Yayınevi, 2015, p. 333.
[9] Yüksel Orhun, Mercan: Prof. Dr. Cevdet Yavuz’a Armağan, V. 2, Marmara Üniversitesi Hukuk Fakültesi Hukuk Araştırmaları Dergisi, 2016, p. 2080.
[10] Yüksel Orhun, p. 2080.
[11] Yüksel Orhun, p. 2081.
[12] Yüksel Orhun, p. 2081.
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