Dismissal of the board

members of a joint stock company is regulated under the Turkish Commercial Code

numbered 6102. According to Article 408/2 of the TCC, general

assembly of shareholders is granted with the sole power to appoint and dismiss

board members.

Dismissal of Board Members in

Turkey

I. Introduction

Dismissal of the board members

of a joint stock company is regulated under the Turkish Commercial Code numbered

6102 ("TCC"). According to Article 408/2 of the TCC, general

assembly of shareholders is granted with the sole power to appoint and dismiss

board members. The scope and implementation of such power is defined under

Article 364 of the TCC. Pursuant to such article, board members can be

dismissed through including an item in the agenda of the general assembly

meeting of shareholders for dismissal or with just cause even if the dismissal

is not in the agenda of the general assembly meeting of shareholders.

While the former Turkish

Commercial Code numbered 6762 contained provisions regarding dismissal, it did

not grant board members the right to claim damages and caused ambiguity in

implementation of the dismissal rules. Article 364 of the TCC tried to clear

such ambiguity by providing different options for dismissal and granted

indemnification rights to the dismissed board members.

II. Dismissal of

Board Members Through General Assembly of Shareholders Resolution

Article 364 of the TCC provides

two options for the dismissal of board members: (i) including an item in the meeting

agenda regarding dismissal, and (ii) dismissing with "just cause" even if no

such item is provided in the agenda for discussion.

Before explaining Article 364

of the TCC, it is important to describe the general rules which will be

applicable to the general assembly of shareholders meetings. Firstly, in order

to discuss dismissal of a board member and to have a valid general assembly

resolution, meeting and decision quorums of a general assembly meeting should

be met. In this respect, unless a heavier quorum has been provided in the

articles of association of a joint stock company, general assembly will convene

with the shareholders representing at least 25% of the share capital and the

resolution will be taken by a simple majority as per Article 418 of the TCC.

Secondly, the agenda will have

a binding effect for the general assembly resolution. Article 413/2 of the TCC

states that only the items specified in the agenda can be discussed during the

general assembly meeting. In other words, the general assembly will not be able

to resolve on a matter unless such an item is included in the agenda. However, the

TCC provides several exceptions to such rule. For instance, Article 364/1 of

the TCC requires an item relating to dismissal of a board member to be included

in the agenda; but also allows dismissal if there is a just cause without

including any item in the agenda.

Another example can be

inferred from interpreting Article 416 and Article 364 of the TCC together. In

principle, an item can be included in the agenda if all shareholders are

present and agree to do so when the general assembly has convened without

invitation as per Article 416 of the TCC. Likewise, if there is just cause as

per Article 364 of the TCC it would not be necessary to include an item in the

agenda for dismissal since the general assembly can dismiss the board members

without including any item in the agenda in such case.[1]

Lastly, Article 360 of the TCC

grants certain share groups and minorities the right to be represented in the

board of directors, provided that it is stated in the articles of association.

If such right is granted, general assembly's right to dismiss the board members

is restricted; meaning that "the general assembly will be able to dismiss the board

members representing such shareholders only if there is just cause".[2]

a. Procedure if the Dismissal is included in the Agenda

Article 364/1 of the TCC stipulates

that board members can be dismissed if there is an item related to dismissal in

the agenda; a specific wording is not required. Article 413/3 of the TCC gives

an example to an agenda item which can be related to dismissal. According to

such article, discussion of year-end financial tables is related to dismissal

of board members. In another words, the general assembly will be able to

dismiss a board member if there is an item in the agenda regarding discussions

of the year-end financial tables.

11th Civil Chamber

of Court of Appeals (the "Court")

with its decision dated December 12, 2016 with merit no. 2016/2098 and decision

no. 2016/9484, further emphasized the relationship between the discussion of

year-end financial tables and dismissal of board members. In the case, the

agenda contained discussion of the year-end financial tables but the

shareholders decided to postpone the discussions. Nevertheless, the majority

shareholders voted for dismissal of some board members. The minority

shareholders filed a lawsuit arguing that it is not possible to dismiss board

members when the discussions of financial documents have been postponed. The Court

concurred with the minority shareholders and stated that discussions of

financial tables are related to dismissal of board members and thus, the general

assembly cannot resolve on dismissal when discussions about financial documents

have been postponed.

There is no consensus between

the scholars and the Turkish courts with respect to the requirement of just

cause when there is an item in the agenda regarding dismissal. For example,

some scholars argue that if discussion of year-end financial tables is included

in the agenda and the shareholders are not pleased with the results of the

financial tables, such reason itself will be sufficient to dismiss a board

member.[3] On the other hand, others argue that it is not necessary to have a just cause since

the wording of Article 413/3 of the TCC is clear, and once discussion of

year-end financial tables is in the agenda it is possible to dismiss a board

member.[4]

b. Procedure if there is a Just Cause

The second option is to

dismiss the board members based on just cause. While Article 364 of the TCC

does not provide a definition of just cause, its preamble sets some examples. According

to the preamble of Article 364 of the TCC, corruption, inadequacy, violation of

duty of loyalty, inability to perform duties due to being a board member in

multiple companies, discord, and abuse of power could be deemed as just cause. In

addition, the preamble notes that dismissing a board member who is beneficial

to the company solely for political reasons may not be deemed as just cause.

Furthermore, the Court gives

an example to just cause in its decision dated 30.10.2017 with merit no.

2015/14781 and decision no. 2017/5821, stating that ongoing disputes between a

joint stock company and a real person representative of a legal entity board

member constitutes just cause since the board member and the company is unable

to work harmoniously due to such disputes.

c. Effect of Dismissal of the Board Members

While there are many different

legal opinions with respect to the legal nature of the relationship between a

joint stock company and a board member, the Court tends to rule that the

relationship is governed by a mandate contract.[5] According to Article 512 of

the Turkish Code of Obligations numbered 6098 ("TCO"), which regulates the mandate contracts, a mandate contract

can be terminated with the unilateral declaration of either party. In this

respect, general assembly resolution regarding dismissal of a board member can

be considered as the unilateral declaration of a party.

In terms of the internal

affairs of a joint stock company, dismissal will become effective "once the

general assembly's dismissal declaration is received by the relevant board

member."[6] In case the board member is

present in the general assembly meeting, the board member will "immediately

receive the dismissal declaration and become informed on the matter."[7] If the board member is not present at the general assembly

meeting, "with the interpretation of Article 514 of the TCO, it is possible to

say that dismissal will become effective once the board member is informed."[8]

The TCC does not contain any

provision about the steps to be taken following the general assembly resolution

or its effect to the third parties. On the other hand, Article 373 of the TCC

stipulates that board of directors is obliged to submit the board of directors

resolution indicating the authorized signatories of the joint stock company to

the trade registry for its registration and announcement. In addition, any

change in matters that have been registered with the trade registry has to be

registered as per Article 31 of the TCC. Based on the foregoing provisions, it

can be inferred that "the board of directors has to register the dismissal of a

board member for such resolution to bind third parties."[9]

Once the dismissal decision

enters into force in accordance with the foregoing, the board member will no

longer have any rights (e.g. salary and attendance fee) and obligations. As a

result, the board member "will have to terminate his/her activities in the

company immediately."[10]

d. Rights of the Dismissed Board Members

Board members' rights can

arise when (i) there is an item in the agenda regarding dismissal but there is

no just cause, (ii) there is just cause but no item in the agenda regarding

dismissal, and (iii) there is neither an item in the agenda nor just cause. In

principle, the dismissed board member request cancellation of the general

assembly resolution and/or ask indemnification of the damages.

i. When there is an item in the

agenda regarding dismissal but there is no just cause: Under this option, it is likely that the board member's

claim for cancellation of the general assembly resolution will be rejected by

the courts if it is based on lack of just cause. The reasoning behind this

derives from Article 364 of the TCC, which grants the general assembly the

absolute power to decide on dismissal of board members and allows dismissal even

without a just cause. Nevertheless, the board member can request cancellation

of the general assembly resolution based on the grounds that the meeting and

decision quorums are not satisfied. Also, the board member can claim

indemnification of his/her damages.

ii. When there is just cause but no

item in the agenda regarding dismissal: Under this option, it is

unlikely that cancellation of the general assembly resolution will have a

positive outcome if it is based on the fact that the agenda does not contain

any item since Article 364 allows dismissal with just cause. Still, the board

member can claim that the dismissal was unjust and ask for damages. In such

case, the courts will look at the facts of each case to determine if there was

an unjust dismissal decision.

iii. When there is neither an item

in the agenda nor just cause: Under this option, the board

member can request cancellation of the general assembly resolution and claim damages,

since the general assembly decision is not based on any options provided by Article

364 of the TCC.

The Court in its decisions dated January

09, 2017 with merit no. 2015/12189 and decision

no. 2017/120, and dated November 30, 2017 with merit no. 2016/3773 and decision

no. 2017/6778, stated that the damages incurred by a board member should be

calculated in accordance with the provisions related to mandate contracts. The

Court then referred to Article 512 of the TCO, stating that the party who has

terminated the contract in an improper time (i.e. unjust termination) will be responsible

for the damages and the board member can claim wages until the end of his/her

term as a board member.

III. Conclusion

In

conclusion, the general assembly has broad powers to dismiss the board members

and the scope of such power is defined under Article 364 of the TCC. With

Article 364 of the TCC, the shareholders, through a general assembly

resolution, can use their right to dismiss board members by including an item

in the agenda or with just cause. In return, the same article granted board

members the right to claim damages under certain circumstances to provide

assurance to the board members, especially for the instances where the

dismissal is not based on just cause.

Authors: Gönenç Gürkaynak, Nazlı Nil Yukaruç and Defne Kahveci

of ELIG Gürkaynak Attorneys-at-Law

(First

published by Mondaq on December 6, 2019)

[1] Pulaşlı, Hasan, Şirketler Hukuku Şerhi, 3rd ed.,

Book I, January 2018, pg.944

[2] Pulaşlı, Hasan,

Şirketler Hukuku Şerhi, 3rd ed., Book II, January 2018, pg.1249-1250

[3] Pulaşlı, Hasan,

Şirketler Hukuku Şerhi, 3rd ed., Book I, January 2018, pg.942

[4] Kırca, İsmail/Şehirali Çelik,

Feyzan Hayal/Manavgat, Çağlar: Anonim Şirketler Hukuku Book I, Ankara, 2013,

pg.460

[5] Yargıtay 11.H.D.

, 9.1.2017, E.2015/12189, K.2017/120

[6] Erdem, Nuri, Anonim Ortaklık Genel

Kurul Toplantılarında Gündeme Bağlılık İlkesi Çerçevesinde Yönetim Kurulu

Üyesinin Azli, İstanbul Hukuk Mecmuası, 76/2, 2018, 503-528, 524

[7] Id.

[8] Id.

[9] Karaege, Özge, Anonim

Şirketlerde Genel Kurulun Yönetim Kurulu Üyelerini Görevden Alma (Azil) Yetkisi

(TTK m. 364), Ankara Barosu Dergisi, 2014/1, pg.104

[10] Erdem, Nuri,

Anonim Ortaklık Genel Kurul Toplantılarında Gündeme Bağlılık İlkesi

Çerçevesinde Yönetim Kurulu Üyesinin Azli, İstanbul Hukuk Mecmuası, 76/2, 2018,

503-528, 524