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Partners of the incorporated companies exercise their rights by attending the shareholders' meeting. In the shareholders' meeting, partners may express their considerations regarding the company's administration or may ask questions to the managers.

Other than that, shareholders' meetings are essentially important for the partners since they may perform the right to cast a vote through shareholders' meetings.

Therefore regulations are set forth in the TCC regarding the procedures and forms of the shareholders' meeting.

In case the violation of these procedures and formats, and other contrarieties against the law (presented below) may lead to the cancellation of the resolutions taken by the general assembly.

As we will cover the details, it is provided in article 445 and the following articles of the Turkish Commercial Code (Law Numbered 6102) that resolutions of the shareholders' meeting may be canceled by filing a suit against the company.

2) Grounds For Cancellation

Cancellation claims are may be filed in case the determined reasons in article 445 of the TCC are present. According to this, the decisions made by the general assembly may not be against the law, articles of association or honesty principle included in the Turkish Civil Code.

We need to indicate that "the law" expression in the article should be comprehended as a general term that encompasses all laws including regulations, by-laws, general clauses, etc. [1]

Shareholders may cast a positive or negative vote as they wish on the decisions regarding the administration of the company. However, this right of discretion is limited by the honesty principle.

Appeal Court clearly expressed that disapproval of the members of the board is against the honesty principle without a justified reason in the read and deliberated financial reports.  This decision was later upheld by the Supreme Court. [2]

Other than this, it is indicated in article 447 of the TCC that claims for nullity also would be subject to the cancellation lawsuit.

In fact reasons for nullity are taken into consideration ex officio by the court unlike the reasons for cancellation. Parties may put forward reasons for nullity as an objection in every stage of the trial. On the contrary, the grounds for cancellation must be submitted to the court along with the petition otherwise the judge would not be entitled to hear these reasons.[3]

Any existing legal reason may constitute the legal basis of the nullity claim, nonetheless, some of these reasons have been specifically mentioned by the legislator due to their importance.

According to this :

a) General assembly resolutions that limit or terminate the shareholders' right to attend the general assembly, to vote, and to the inalienable rights of the shareholders arising from the law are invalid.

b) General assembly resolutions that inappropriately limit the shareholders' rights to examine, audit, and obtain information are invalid.

c) General assembly resolutions that violate the foundational structure of the incorporated company or are contrary to the protection of the capital provisions.

2) Legal Standing In The Cancellation Lawsuit

Persons who have a right to file a cancellation lawsuit are explicitly determined in article 446 of the TCC. According to this, persons who may file the lawsuit have been limitedly listed and divided into 3 groups as follows :

a) Shareholders who attended the meeting voted against the proposal and declared their objection by recording the objection in the minutes of the meeting.

b) Regardless of attendance Shareholders who claim that the summon for the meeting has not been duly made, the agenda was not announced as procedures envisaged in the law or they and their proxy holder were prevented from using the right of attendance to the general assembly without justified reason, may file the suit for cancellation by proving the presence of causal relation.

It is also emphasized by the high court of appeal that the mere existence of the unduly proceeding is not enough for the cancellation decision. The high court of appeal expressed that even though the members of the board are prohibited from voting on the acquittal of themselves the acquittal decision may be valid if the required vote is met without the vote of the member whose acquittal is proposed. [4]

c) Board of directors may file a lawsuit as an organ of the company.  Along with that each one of the members of the board of directors has a right to file a lawsuit if the implementation of the decision would give rise to their liabilities.

The abovementioned persons may file the annulment lawsuit against to Legal personality of the incorporated company. The Legal Personality of the incorporated company would be represented by the Board Of Directors.

If the annulment suit has been filed by the board of directors in that case The court must appoint a corporate trustee to represent the legal personality of the incorporated company.

3) Competent Court to Hear The Dispute

According to article 445 of the TCC, the competent court to hear the dispute is The Commercial Court of First Instance where the registered headquarter of the company is present.

In case the commercial court is not present where the company headquarter is located then The Civil Court of First Instance in that location would be the competent court to hear the dispute as it is provided in the Turkish Civil Code.

4) Statute Of Limitations

According to TCC annulment case must be filed to the court within the 3 months starting from the date of the decision has been taken. The Judge is entitled to take consider this determined prescription period ex-officio.

Registration of the General Assembly decisions to the trade registry is not initially necessary for decisions to be considered valid and create legal consequences.

Therefore we should express that the prescription period starts with the submission of the decision to the trade registry. [5]

5) Legal Consequences Of The Cancellation Judgment

Cancellation or Nullity decisions of the Shareholders' meeting become effective on all shareholders after the judgment is finalized.

The Board of directors is obliged to submit one duplicate of the annulment decision to the trade registry and announce the decision from the company website.

In Turkish law by referring to both the code of obligations and civil code we can say that principally cancellation or nullity decisions are accepted as manifesting their effects from the beginning on the canceled decision or transaction.

It is also accepted in the doctrine that the cancellation decision has a retrospective effect on the general assembly resolutions as a rule.

However, applying the cancellation decision in this manner may be inconvenient to protect the rights of the third person in certain cases. Third persons who enter into an agreement with the company by trusting the validity of the general assembly decisions may be exempted from the retrospective effect of the cancellation decision.

As it is explained in the doctrine the cancellation judgment has a retrospective effect only on the decisions regarding interior relations of the partnership. [6]

On the contrary retrospective effect of the cancellation is not practicable for the external relations of the company. For instance, if a company transfers real estate to a third person with the authority provided by the general assembly decision, this agreement would remain valid even if the transaction is canceled.

This legal solution is also adopted by the practitioners. The high court of appeal resolves similar disputes by applying the distinction mentioned above. It is indicated by the high court of appeal that general assembly decisions remain valid create legal consequences and legal actions taken upon these resolutions are valid until the cancellation of the decision is finalized.   [7]

To further explain the subject We need to mention that the General assembly of civil chambers made a similar legal analysis by stating the following :

"According to the TCC, decisions to be canceled are mostly related to the violation of regulations that protect the interests of the shareholders rather than imperative provisions of the law. Therefore canceled decisions are not deemed to be invalid from the beginning." [8]

The plaintiffs who maliciously filed a cancellation case are jointly and severally liable for the losses of the company. (TCC. Art. 451)

6) Procedural Provisions Regarding The Annulment Lawsuit.

Article 448 and 449 of the TCC determined certain general provisions to regulate diverse procedural issues regarding the annulment lawsuit.

Accordingly, the board of directors is obliged to duly announce the filed cancellation or nullity lawsuit, the date of trial, and add information to the company website.

Before starting to examination, the court needs to wait for the expiration of the 3 months prescription period determined to file an annulment lawsuit.

The "ratio legis" of this provision is to serve "the judicial economy" principle. Because as it is indicated in the following provision if more than one lawsuit has been filed against the decisions of the shareholders' meeting, the court merges the lawsuits.

The court may decide that the plaintiffs submit an indemnity bond for the possible damages upon the request of the company. The quality and amount of the indemnity bond are determined by the court.

When the cancellation or nullity case is filed against the Shareholders' meeting resolutions, the court may decide to postpone the execution of the resolution requested to be canceled after taking the views of the board of directors members.

-----------------------

[1] - BOZKURT Tamer, Şirketler Hukuku,Yetkin Yayınları, 2021, 13. Bası, p.379

[2] - 11. Civil Chamber of the High Court No: 2019/3720 E. 2019/6800 K.

[3] - KAYIHAN Şaban, Corporate Law, Seçkin Yayıncılık Haziran 2021, 4. Bası p.336

[4] - 11. Civil Chamber of the High Court No: 2019/1366 E. 2020/4391 K.

[5] - BOZKURT Tamer, Şirketler Hukuku,Yetkin Yayınları, 2021, 13. Bası, p.385

[6] - Bahtiyar Mehmet, Ortaklıklar Hukuku,Beta Basım, Nisan 2017, 12. Bası, s.214

[7] - 11. Civil Chamber of the High Court No: 2020/1553 E. 2021/1981 K.

[8] - General Assembly Of Civil Chambers No: 2013 / 1048 E. 2014 / 430 K.

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