Article 408(2)(f) of the Turkish Commercial Code numbered 6102 ("TCC") lists the wholesale sale of a significant portion of company assets among the non-transferable duties and powers of the general assembly. With this authority granted to the general assembly under the TCC, the management and representation powers of the board of directors, another governing body of the joint stock company, are limited. According to Article 365 of TCC, a joint stock company is managed and represented by the board of directors. Additionally, Article 374 of TCC states that the board of directors is authorized to make decisions regarding all types of business and transactions necessary for achieving the company's business purpose, except for those matters left to the authority of the general assembly by law or the articles of association. However, by assigning the authority to sell a significant portion of company assets to the general assembly under Article 408, the powers of the board of directors have been restricted.
Although Article 408(2)(f) of TCC stipulates that the wholesale sale of a significant portion of company assets is subject to the approval of the general assembly, it does not provide an explicit regulation regarding other legal transactions that may result in the transfer of company assets. Even though there is no explicit provision in TCC in this regard, it should be accepted that other legal transactions related to the sale of a significant portion of company assets shall also be subject to the same rule. In this context, the type of transaction creating the obligation does not make a substantial difference; it is argued in the doctrine that, in addition to sales contracts, agreements involving obligations such as surety, pledge, and guarantee also require the approval of the general assembly. Accordingly, transactions of this nature carried out by the board of directors without a general assembly resolution will be deemed invalid pursuant to Article 391(1)(d) of TCC. Article 391 of the TCC lists the null decisions of the board of directors. Among these null decisions are those that fall within the non-transferable powers of other governing bodies and resolutions regarding the transfer of such powers.
A similar provision to the one in Article 408(2)(f) of the TCC has been introduced for the liquidation process. Article 538(2) of the TCC requires a resolution of the general assembly for the wholesale sale of a significant portion of the assets. However, unlike Article 408, this provision uses the term significant portion of the assets instead of significant portion of the company's assets.
The allocation of the authority to decide on the wholesale sale of a significant portion of company assets to the general assembly, along with the requirement of an increased quorum for such a resolution, aims to protect the company's assets and safeguard the economic interests of shareholders. This provision serves as a safeguard against the risk of the board of directors determining the sale price at an unfairly low level or unjustly reducing the company's assets for personal gain. By making the approval of the general assembly mandatory, shareholders are ensured to be informed, thereby allowing potential conflicts of interest between the directors and shareholders to be identified. Additionally, this regulation provides shareholders with the opportunity to monitor whether the board of directors has acted in the best interests of the company in the transaction and grants dissenting shareholders the right to file an annulment action against the general assembly resolution.
It should be noted that Article 408(2)(f) of TCC does not provide any explicit regulation regarding what should be understood by significant portion, what constitutes company assets, or how the wholesale sale of such assets can be carried out.
Under Article 408 of the Turkish Commercial Code TCC, the decision regarding the wholesale sale of a significant portion of company assets is listed among the non-transferable powers of the general assembly. However, the provision does not set out a clear criterion for determining which assets should be considered significant. Although numerical or percentage-based criteria have been proposed in the doctrine, it is acknowledged that such an approach may not yield equitable results in every specific case. Limitations based on the nature or amount of the assets are also not universally applicable to all companies and may pose risks of unnecessarily restricting the board of directors' decision-making powers, especially depending on the nature of the company's business activities. Therefore, determining the significance criterion requires a case-by-case assessment, and it would be appropriate for the judge to evaluate the dispute based on objective criteria. While the economic value of the assets can serve as a starting point for this assessment, the potential impact of the transaction on the company's future shall also be considered. If it is concluded that the company will not be able to continue its operations without the relevant assets, such transactions must be subject to a general assembly resolution. Additionally, in cases where the sale of assets leads to a change in the company's business scope, both matters must be separately submitted for the approval of the general assembly. In German law, the post-transfer situation criterion is adopted, whereby if the remaining assets after the transfer are insufficient for the company to continue its operations, the sale shall be approved by the general assembly. Considering the wording of Article 408(2)(f) of TCC, the same approach should be adopted under Turkish law. It is also observed that the Court of Cassation holds that transactions involving the transfer of essential elements necessary for the continuation of a joint stock company's operations will result in nullity if carried out without a general assembly resolution.
The term wholesale as stated in Article 408(2)(f) of TCC refers to situations where multiple company assets are subject to a single sales agreement at once. However, although the wording of the provision suggests this interpretation, transactions involving individual sales carried out systematically within a short period such as within a single fiscal year and intended to circumvent the provision should also be considered within the scope of Article 408(2)(f) of TCC. Otherwise, the wholesale sale of company assets could be effectively achieved through multiple separate transactions aimed at bypassing the relevant provision, thereby undermining its purpose.
The general assembly exercises its decision-making authority based on the provisions of the law and the articles of association. The articles of association cannot grant powers to the general assembly in a manner that would violate the statutory distribution of authority among the governing bodies of the joint stock company. The board of directors cannot transfer its legally non-transferable duties and powers to the general assembly or submit them for the general assembly's approval. Similarly, the general assembly cannot assume non-transferable powers belonging to other governing bodies, and the board of directors cannot exercise the powers of the general assembly. The will of the general assembly is manifested only through resolutions adopted at meetings held in accordance with the procedures stipulated by the law and the articles of association.
The second paragraph of Article 408 of TCC contains mandatory provisions, and transactions that contravene this provision are deemed void in accordance with Article 391(d) of the TCC.
Regarding the quorum for meetings and decision-making, TCC does not provide a special heightened quorum. However, according to Article 22(12) of the Regulation on the Procedures and Principles for General Assembly Meetings of Joint Stock Companies and the Representatives of the Ministry, the wholesale sale of a significant portion of company assets can be carried out with the affirmative votes of shareholders representing at least 75% of the company's capital. If this quorum is not met at the first meeting, the same quorum is required for the second meeting.
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.
