1. General
Minority shareholders of joint-stock companies ("JSC") are granted various favorable rights under the Turkish Commercial Code No. 6102 ("TCC") in order to protect them against majority shareholders. The right to request postponement of balance sheet discussions (specified in Article 420 of the TCC), the right to appoint an independent auditor (Article 438 of the TCC), the right to request the convention of a general assembly meeting and the addition of items to the meeting agenda (Article 411 of the TCC), the right to request issuance of shares (Article 486 of the TCC), and the right to be represented on the Board of Directors (Article 360 of the TCC) are among the said minority rights. Minority shareholders, who represent at least 10% of share capital in private companies and at least 5% of share capital in publicly held companies, may benefit from such minority rights.
The right to request the dissolution of the JSC (Article 531 of the TCC) is also set forth as a right under the TCC for the minority shareholders, since there is no direct provision in the TCC that would enable the minority shareholders to exit from the JSC.
2. Right to Request the Dissolution of the JSC
As per Article 531 of the TCC, if a just cause exists, shareholders representing at least one tenth of the share capital of the JSC may submit a request to the commercial court of first instance, which has jurisdiction over the geographical area in which the JSC headquarters is located, for the dissolution of the JSC by filing a lawsuit. The court may, instead of ruling in favor of dissolution, decide that the plaintiff shareholders must be compensated for their shares at the actual price of their shares on a date that is close to the date of the court decision, and thereby exclude the plaintiff shareholders from the JSC or find any other appropriate and satisfactory solution.
It is important to note that, in order to meet or exceed the minimum share capital percentage requirement under Article 531 of the TCC, the minority shareholders may act jointly and together initiate a lawsuit which should be filed against the JSC.
Legislators have not defined "just cause" or specified under which circumstances the minority shareholders may request the dissolution of the JSC. It is understood from the reasoning of Article 531 that legislators have intentionally refrained from defining the concept of "just cause," and have deliberately left that to be decided by the courts and doctrine. However, several grounds are listed under the reasoning of Article 531 of the TCC as examples of "just cause" under Swiss law. For example, the unlawful invitation of the general assembly to the meeting on several occasions, the violation of the minority shareholders' and individuals' rights, the obstruction or hindrance of the right to demand information and examination, continuous losses incurred by the JSC, and a constant decline in profit distributions are among possible just causes as per Swiss and Turkish doctrine.
Accordingly, the 11th Civil Chamber of the Court of Appeals ruled for the dissolution of the JSC (with the decision dated July 4, 2017, and numbered 2017/4079) in the case of a dissolution lawsuit, because (i) there were significant disagreements between the shareholders of the defendant company as to the management of the company and other business matters, (ii) the defendant group had not fulfilled its obligations, (iii) the JSC had incurred losses continuously due to the fact that the shareholders did not act collectively in line with the objectives determined and set forth in the articles of association of the JSC, (iv) the employees' remunerations had not been paid, (v) the defendant group operated an alternative sales office instead of an ordinary sales office, (vi) arguments had arisen when the shareholders convened in order to resolve earlier disputes, (vii) the realization of the common objectives of the JSC were no longer possible, (viii) the plaintiff shareholder did not contribute in any way or cause the events that constituted just causes, and (ix) the conditions for the dissolution of the JSC for just cause were satisfied as per Article 531 of the TCC.
3. Squeeze Out of the Plaintiff Shareholders
In such cases, the court is entitled to determine whether or not the asserted reasons constitute a valid just cause. On the other hand, although the court is empowered to decide that the asserted reasons constitute just cause, it is not therefore obliged to order the dissolution of the JSC.
The continuation of the JSC is essential as per the general principles of Turkish laws and therefore, the termination of the JSC should be perceived and treated by courts as the last resort for resolving such disputes. If the court is convinced that the continuation of the JSC is more appropriate or beneficial in terms of the economic and business prospects of the company than its termination, it may choose to resolve the matter by ordering the minority shareholders who requested the dissolution of the JSC to be forced out of the JSC in return for the payment of the actual price of their shares on the date nearest to the court decision, or by ruling for any other solution or resolution that is appropriate and satisfactory. Such other solutions and resolutions should be determined by the courts. For example, the court may decide and order the distribution of profits if the dispute arises from undistributed profits. In any case, as per the views in the doctrine and court of appeal decisions, the decision of the court should aim to balance the interests of the plaintiff minority shareholders and the JSC, while satisfying the demands of the plaintiff minority shareholders.
Accordingly, the 11th Civil Chamber of the Court of Appeals ruled in favor of the "squeezing out" of the plaintiff shareholders with the decision dated March 3, 2016, and numbered 2016/2352, as to a lawsuit in which it considered either the dissolution of the JSC or the squeezing out of the minority shareholders from the JSC, due to the following reasoning: (i) the continuation of the JSC is often essential for its business operations and the court should first consider other solutions instead of the dissolution of the JSC, which has an economic value, as per the relevant legislation, (ii) the JSC could continue to perform its operations with its assets and it may realize its objectives under its articles of association, even though it was inactive as of 2006 and had disposed part of its assets, (iii) the objectives of the JSC could be realized by amending the articles of association following the exit of the plaintiff shareholders, and (iv) the plaintiff shareholders also claimed to wish to leave the partnership; however, the shareholders had been unable to agree on the sale price for their shares.
The courts and doctrine should also determine who will pay the actual price of the shares held by the minority shareholders requesting the dissolution of the JSC, how this payment is to be made, and whether such shares will temporarily be acquired by the JSC.
This article was first published in Legal Insights Quarterly by ELIG, Attorneys-at-Law in March 2018. A link to the full Legal Insight Quarterly may be found here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
