A limited companies is managed by the person or persons holding the title of director. As the managing body of the company, the directors hold the authority to manage the legal entity of the company, to take the actions binding the company on behalf of the company, to conduct the company’s affairs and represent the company. For this reason, directors must seek for the interests of the company, perform their duties with due diligence, and avoid actions and transactions that may harm the company. In cases where the directors do not show this care as managers, fail to fulfil their duties intentionally or by negligence, or cause damage to the company, just causes arise for the dismissal of the managers. In the event of such negative situations occur, it is possible for the directors to be dismissed with just cause.
Regardless of the existence of just causes, the directors can be dismissed at any time by the General Board resolution. According to the Turkish Commercial Code, the company’s General Board is the main executive to dismiss the managers.
In this bulletin, the dismissal of directors by the General Board resolution or at the request of a partner is explained in the light of judicial decisions.
İçindekiler
1. Dismissal of Directors by the General Board Resolution
Directors who have management and representation authority in limited companies can be set out in the Articles of Association of the company, or they can be appointed by the General Board resolution. Furthermore, in article 616/1-b of the Turkish Commercial Code, it has been accepted that the authority to appoint managers is among the inalienable powers of the General Board. In the same paragraph of the same article, it is stated that the authority to dismiss the directors belongs to the General Board. Since the dismissal of directors is considered among the inalienable powers of the General Board, it is understood that the General Board is the main authority on dismissal.
It is always possible for the directors to be dismissed by the decision of the General Board resolution. General Board is also authorised to limit the right to manage and the representation power of the directors in a limited company. Managers can be dismissed by the General Board resolution, regardless of whether they are partners or a third person who is not a partner in the company (TCC article 630). This issue must also be notified to the trade registry.
2. Dismissal of Directors by Court Order
Apart from the General Board resolution, it is possible to dismiss the directors by a court decision. This case is possible as a result of filing a lawsuit in court with a request for dismissal of the director or directors. The legislator grants the shareholders of the company the right to file a lawsuit in cases where the General Board does not take a resolution on the dismissal of the directors. However, the shareholders of the company do not have the right to file a lawsuit for the dismissal of the directors for no reason. There must have been just causes for the director’s dismissal. The just causes in question are regulated in article 630/3 of the Turkish Commercial Code. The article is as follows;
“Each partner may request from the court to abolish or limit the management right and representation powers of the directors in the presence of just causes. The director’s gross violation of its duty of care and loyalty, its obligations arising from other laws and the company contract, or losing the necessary ability for the good management of the company is accepted as a just cause.”
In the case filed regarding the dismissal of the director at the instigation of the company partner, the court will reach a conclusion by evaluating whether there is a just reason for the dismissal.
According to Article 626, which regulates the duty of loyalty and care of the directors; “Directors and people in charge of management are obliged to perform their duties with all due care and to seek for the interests of the company within the framework of the good faith.”
It should be noted that the cases listed as just cause in Article 630 are not limited. In cases where the directors do not fulfill their other obligations arising from the law, cause damage or loss of rights to the company or its partners, do not seek for the interests of the company, violate the obligations imposed on the director in the company agreement, and these violations can be considered as severe, the condition of just cause is considered to be met. In this regard, the Court especially takes into account the events that would make it impossible to maintain the relations within the company and cause the trust relationship to be damaged.
3. Dismissal Case of the Director
Company partners have the right to file a case for the dismissal of limited company directors. Being a partner of the company is a condition of having an active capacity to sue in terms of this act. The case filed by any person other than the partner of the company shall be rejected due to the absence of cause of action. It is necessary and sufficient to present the director, whose dismissal is requested, as the opponent (defendant), as the opposite party in the case. In addition, there is no need to show the legal entity of the company as a defendant. The Supreme Court decides on this matter as follows;
“It is obligatory for the plaintiff to have the title of partner of the company in order to request the dismissal of the director of the defendant limited company. Since the plaintiff is not a partner of the company and therefore does not have an active capacity to sue, the case shall be dismissed. The legal entity of the company also does not have the passive hostility capacity in this case. Therefore, the case must also be rejected by the defendant company.”[1]
The court in charge of the dismissal case is the Commercial Court.
In the proceedings to be held, the court shall evaluate whether there are just cases for the dismissal of the director, specific to each concrete case. The plaintiff is the party that needs to furnish proof to prove the existence of just causes. It may also be requested to appoint a trustee to represent the legal entity of the company during the course of the case. In cases where delay is inconvenient, it is possible for the court to abolish the director’s power of attorney as a precaution and transfer it to a trustee. The decision is a kind of Interlocutory injunction. The current Supreme Court decision shared below constitutes an example on the subject;
The attorney of the plaintiff states that they are partners of the defendant company together with the other defendant named …, that the defendant named… “represents and binds the company” with the latest decision of the board of partners, for 10 years, but the director of the company, the defendant … and does not observe the rights and interests of the company and its partners, and does not pay even the company’s tax debts and executive debts despite the money deposited in the company’s account, does not fulfill its rights and obligations regarding the company in accordance with both the company contract and the relevant legislation, the $470,000.00 deposited was first transferred to the other defendant’s wife’s account, and then to the other defendant’s daughter’s named …’s account to, on the other hand, while the defendant named….. was making the undue money transfer transaction, the vehicle with a license plate numbered……. belonging to him as a partner of the company was seized by the tax office due to the debt of the company and was taken to the parking lot by the tax office…; first of all, upon the acceptance of the request for an injunction, it has demanded and sued for the appointment of a trustee while removing the authority to represent and sign in name of the company as a precautionary measure during the trial process, Pursuant to Article 630/2 of the TCC, for the annulment of the powers of the director of the company, for appointing the plaintiff as a management trustee as a result of the case, and for the refund of the money transferred to … and … to the company, and for compensation of the amount received from the defendant …, … and … if it is not possible to return it.
In the lawsuit regarding the claim of the dismissal of the limited company director by virtue of just causes and filed pursuant to Article 630/2 of the TCC No. 6102, it is required and sufficient to address the hostility to the director whose dismissal is claimed; also Trial Court has judged to partially accept the case on the grounds of the non-obligatory suing of the limited partnerships, violation of his/her obligations arising from the company’s articles of association by the defendant, ….. company manager who cannot prove the reason for the transfer of the money with legal and credible evidence, despite the fact that he/she transfers some of the money received from the company account to the account of his/her spouse named … and keeps the balance to him/herself, violation of the duty of care and loyalty, causing the loss to other partners; and dismiss the case against the defendant …..Co. Ltd. On the grounds of the lack of the passive hostility capacity; Dismiss the …… appointed to …….. registered to the …….. Directorate for Trade with No. …………. as director by the Shareholder’s Board resolution dated….., in pursuance of the Article 630 of TCC; appoint a financial consultant named….. as trustee to the management of the company from the finalization of the decision until the new director election by the Shareholder’s Board resolution.[2]
In another decision of the Supreme Court, the fact that the director, whose dismissal is claimed, has not fulfilled his duty to call the General Meeting for a long time has been accepted as a just cause for dismissal; “In Article 630/3 of the Law, it is regulated that the manager’s gross violation of his duty of care will be considered a just cause for his dismissal. The fact that the minority shareholders can request the general assembly to be called for a meeting by applying to the court does not remove the responsibility and gross fault of the defendant director, who has not called for a meeting for many years. The same issues are also seen in the case of constant violation of the shareholders’ right to demand information from the company management. In that case, while it should have been judged to dismiss the defendant director, who did not fulfil his duty of calling the General Meeting, which was one of his most basic duties during his 7-year period in office, and whose carelessness and negligence in this matter had become permanent, it was not considered just to dismiss the case by a written justification, and it was necessary to reverse the case.”[3]
In another decision of the Supreme Court; it has been judged to dismiss the case in terms of the annulment of the Shareholder’s Board resolution of the defendant company numbered….. and dated ….. on the grounds of not keeping the company records duly, irregular records, debting the company without receiving any goods and service, treating the company money from the defendant director’s account, emptying the company, not performing management duties and powers duly, neglecting and abusing her/his duty, putting his/her own interests above the interests of the company, existence of just causes for the dismissal; to dismiss the case in terms of the dismissal of the defendant ….. from the management of the company on the grounds of the non-existence of the passive hostility capacity of the case in terms of the defendant company; to accept the case in terms of the defendant ……; and to dismiss the defendant from ……… Co. Ltd. management. [4]
Finally, it should be stated that in order for the company partner to file a case for the dismissal of the director, it is not necessary to apply to the General Board and request a resolution on the dismissal of the director. It is possible that the partner shall file a case directly in court.
Conclusion
In limited companies, it is possible to dismiss the directors with the decision of the General Board resolution or court decision. It is possible for the partners of the company to file an action for dismissal for just cases such as the managers’ misconduct or negligence. It is crucial for the plaintiff to prove the existence of just cases in the cases to be filed for the dismissal of the director. Likewise, in the case of dismissal, the defendant must also be able to confute the just cases shown in the petition. All of these are matters that require special knowledge and information, and it is recommended to get professional legal support in filing and executing the case.
You can contact our team for more comprehensive information and consultancy services regarding the dismissal case.
Best Regards.
Solmaz Law and Consultancy Team.
References
ALTAŞ, Soner, (2016), Türk Ticaret Kanunu’na Göre Limited Şirketler, Seçkin Yayıncılık, p.143-151.
11th Civil Chamber of the Supreme Court, 2014/8985 E., 2014/12926 K.
11th Civil Chamber of the Supreme Court, 2018/3681 E., 2019/5099 K.
11th Civil Chamber of the Supreme Court, 2020/1552 E., 2021/1980 K.
11th Civil Chamber of the Supreme Court, 2020/457 E., 2020/4823 K.
11th Civil Chamber of the Supreme Court, 2018/365 E., 2019/3074 K.
[1] 11th Civil Chamber of the Supreme Court, 2014/8985 E., 2014/12926 K., 11th Civil Chamber of the Supreme Court 2018/3681 E., 2019/5099 K.
[2]11th Civil Chamber of the Supreme Court, 2020/1552 E., 2021/1980 K.
[3]11th Civil Chamber of the Supreme Court, 2020/457 E., 2020/4823 K.
[4]11th Civil Chamber of the Supreme Court, 2020/457 E., 2020/4823 K.
