Action for Rescission of Limited Company General Board Resolutions

Limited company General Board resolutions may be rescinded if they violate the rules stipulated in the law or the company’s Articles of Association or the rules of good faith. In order for such decisions to be rescinded, those who have the right of action must file a suit by fulfilling the necessary conditions. By whom, when and how should be filed these actions, known as the action for rescission of the General Board resolution, are among the frequently asked questions.

In this bulletin, we have explained the details of the action for rescission to be filed due to the rescission of the General Board resolutions.

1)      Reasons for Rescission of General Board Resolutions

It is also possible that the General Board resolutions of limited companies are subject to annulment, apart from non-existence and nullity. The difference between non-existence and nullity, which are regulated as different invalidity cases in the law, is that, in nullity, while a null and void General Board resolution does not bear any consequences and is not effective from the beginning, defeasible General Board resolutions have the qualities of being a valid decision until they are abrogated by the court. Action for nullity can always be filed by anyone concerned, while the action for rescission can be filed by certain persons who meet certain conditions and within a 3-month period of prescription.

The general grounds for rescission stipulated in article 445 of the Turkish Commercial Code for the rescission of the General Board resolutions are as follows;

• Rescission of General Board resolutions that are against the law,
• The Company’s Articles of Association
• and the good faith can be demanded from the court.

Being against the law refers to the resolutions that are against all the provisions of the legislation and the principle of equality between the shareholders. However, the point to be noted is that in case of violation of the mandatory rules of the law, a null and void resolution is made because of nullity. Defeasible decisions are against the provisions of the law other than the mandatory rules. For example, if the meeting place and date are not included in the call text or in the announcement, or if an irregular call is made in violation of the format rules stipulated in the law, the General Board resolution may be rescinded.

A breach of the Articles of Association arises when a General Board resolution is taken in violation of any provision in the company’s Articles of Association. For example, in matters that are envisaged to be adopted with a majority of votes greater than the quorum for meetings and resolutions stipulated in the law, decisions taken without this majority are subject to rescission sanction as they will be against the Articles of Association of the company. If the majority stipulated in the law cannot be met, the Supreme Court decides that the resolution is null and void.

While the General Board resolution does not seem to be against the law and the Articles of Association, it should also be rescinded if it violates the interests of the minority and individual partners by abusing the rights of the shareholders holding the majority in the company. Because in this case, the resolution violates the objective rules of goodwill, that is, good faith, and it is impossible for the legal order to protect it. Similarly, resolutions that violate minority rights or the rights of shareholders, even though they are beneficial and appropriate for the company, may also be rescinded because they are against good faith. For example, taking a General Board resolution stipulating that the capital will be increased every 3 months, will violate the rights of the minority and individual partners.

2)      Persons Authorized to File a Suit for Rescission of General Assembly Resolutions

The persons authorized to file a suit for the rescission of General Assembly Resolutions are listed below;

• Director or Board of Directors, if any,
• Each of the partners,
• Each of the directors, if the execution of the resolutions will lead to their personal responsibilities.

However, we should point out right away that it is not possible for the partners to request the rescission of the General Assembly resolution under all circumstances. This issue should be analyzed under two subtopics.

2.1) Cases where the partners can file a suit for the rescission of the General Assembly resolution directly, without the need to attend the General Board and cast negative votes.

• In cases where; the call is made unlawfully; The fact that the call was not duly made is not considered by the Supreme Court as a sufficient ground for the rescission of the decision on its own. According to the Supreme Court, the General Board resolution must also be against the law, the Articles of Association, or good faith.
• The agenda has not been duly announced,
• Unjustly prevention of partners to attend the General Board and vote,
• Persons or representatives who are not authorized to attend the General Board have attended the meeting and cast their votes, the partners claiming that these issues are effective in making the General Board resolutions have a right to file a suit for the annulment of the General Board resolution. However, the point to be considered here is that even if unauthorized persons participate in the voting, their votes do not affect the decision, that is, if a general assembly decision could be taken without their votes, this will no longer be a ground for rescission.

In order for an action for rescission to be filed for the grounds listed here, the shareholders are not required to attend the meeting or the voting, nor are they required to have voted in a certain direction. Each company partner can file an action for rescission based on these grounds, due to its partnership title.

11th Civil Chamber of the Supreme Court, E.2020/1583 E. In its resolution numbered K.2021/1898, the resolution was rescinded because those who did not have the right to vote in the General Board participated in the voting. According to this;

 “….whereas; there was no legal barrier to hold a new General Meeting, even if it was irregular in the previous General Meetings, the General Meeting can be held again for the same year instead of the canceled General Meetings, the plaintiff’s attorney’s request for appeal in this regard is not appropriate, In terms of the appeal request for the acquittal of the Board of Directors; none of the members of the Board of Directors participated in the voting regarding the acquittal of the Board of Directors, ……there are not enough affirmative votes for the acquittal of the members of the Board of Directors, since the reject votes are more than the affirmative votes in the voting held with the shareholders who have the right to participate in the voting for the acquittal of the members of the Board of Directors who participated in the voting it is decided to cancel the ordinary General
 Meeting of the defendant company held on 24.10.2016 for the years 2014 and 2015, and the decision is approved as there was no violation of procedure and law in the decision. ”

11th Civil Chamber of the Supreme Court, In its decision numbered E.2019/2492, K.2021/780, Civil Chamber “…has decided to uphold the decisions regarding the rescission of the relevant decisions on the grounds that the quorum did not comply within the decision that the prevention of the representative’s participation in the meeting is against the good faith, the representative trustee was not appointed for 9.8% of the shares and was not represented at the meeting, and to transform the limited company into a joint-stock company”

 2.2) Cases in which the partner who attended the General Board and voted against the resolution and also recorded its opposition to the resolution in the meeting records, can file a suit

As a rule, it is not always possible for a limited company partner to file an action for the recission of the General Board resolutions. The partner shall complete some procedures in order to establish that he has the capacity to file an action for rescission of a General Board resolution, and shall prove this in court. First of all, the partner who wishes to file a suit for the rescission of a General Board resolution must have attended the said General Meeting and voted against the resolution taken. The partner who voted affirmatively at the meeting does not have the right to file a suit for the rescission of this resolution. The prohibition of inconsistent behavior obliges such an act.

It is not enough to attend the meeting and vote negatively for the decision and also it is necessary to prove this in the case by stating that the partner is opposed to this decision and that she/he has an objection to the meeting records as a dissenting opinion. The opposition must be made during the voting or in relation to the voting result. All of these are a condition of litigation since they concern the right to sue, and in case of contradiction, the case will be rejected.

The 11th Civil Chamber of the Supreme Court of Appeals  has included the following phrases in its decision numbered E. 2014/1119, K. 2014/11670;

“According to the allegation, defense and evidence gathered by the court, although the plaintiffs demanded the rescission of the capital increase resolution taken at the General Meeting of the defendant company dated…., It has been unanimously decided to approve the rescission of the suit on the grounds that both plaintiffs attended the meeting and the resolution on the capital increase was taken unanimously, therefore the conditions for filing a suit were not met.

2.3) Filing a Suit by the Director or the Board of Directors

The directors or the Board of Directors can also file an action for the General Board resolution rescission. In this case, if the manager is the only person, this person files a suit singly; If there is more than one director, the board of directors files a suit as an organ. In addition to filing a suit as a board, each manager has the right of litigation against the resolutions that may cause the responsibility of the managers alone.

3)      Competent Court for Rescission Action

The rescission action for the General Board resolution must be filed at the Commercial Court of First Instance where the company headquarters is located.

4)      The Period for Filing a Rescission Action

Filing a rescission action for the General Board resolution is bound to the period of prescription. Accordingly, the action must be filed within 3 months from the date of the General Board resolution to be rescinded. If this period expires, the right of litigation forfeits.

5)      The Defendant Party in the Rescission Action

In the rescissions of General Board resolutions, the respondent party is the legal entity of the company. For this reason, the director or the board of directors represents the company during the action. However, if the rescission action is filed by the Board of Directors, the legal entity of the company is represented by the trustee to be appointed by the court. Because the Board of Directors emerges as both the plaintiff and the defendant.

Conclusion

The right of litigation in cases of the rescissions of General Board resolutions should be evaluated carefully. Because, the fact that right of litigation for the rescission of the General Board resolutions is subject to special rules, that the case is subject to a 3-month period of prescription,  It is recommended to seek professional legal assistance in matters related to the subject.

Best Regards.

Solmaz Law and Consultancy Team.

References

ALTAŞ, Soner, (2016), Türk Ticaret Kanununa Göre Limited Şirketler, Seçkin Yayıncılık, Ankara.

BİLGİLİ, Fatih/DEMİRKAPI, Ertan, (2013), Şirketler Hukuku Dersleri, Dora Yayıncılık, Bursa.

11th Civil Chamber of the Supreme Court,  E.2020/1583 E. K.2021/1898.

11th Civil Chamber of the Supreme Court,  E. 2014/1119, K. 2014/11670.

11th Civil Chamber of the Supreme Court, E.2019/2492, K.2021/780

Turkish Code of Commerce

Turkish Code of Obligation