In limited companies, after the General Board resolution, the will of the company in important matters related to the company is subject to certain conditions in terms of form and procedures. If a General Meeting has been held in violation of the provisions of the Law (Turkish Commercial Code and the Turkish Code of Obligations to the extent relevant) or the Articles of Association of the company, and if resolutions are taken at this meeting in violation of the provisions of the Law or the Articles of Association, these resolutions will be invalid.
The invalidity of the General Board resolutions is based on various reasons and issues. Not all cases of invalidity are subject to the same sanction. Some of them are subject to non-existence and nullity sanctions, which required the decision to be disregarded from the beginning, and some are subject to annulment sanctions, which required the decision to be disregarded from the date of its annulment by the court.
In this bulletin, we have explained in which cases the General Board resolutions are invalid and how the partners can claim the invalidity of these resolutions through litigation. It should be noted that the Law has not been regulated on the invalidity of the General Board resolutions of limited companies, and it has been regulated that the provisions regarding joint-stock companies will be valid in this regard. The explanations below are based on the examinations made on this issue and in the light of judicial decisions.
İçindekiler
1) Invalidity of General Board Resolutions of Limited Companies
The invalidity of the General Board resolutions are seen differently. Some of these are the invalidity cases envisaged in the Law, and some of them are the invalidity cases accepted by the Supreme Court with the case-law. Accordingly, we can list the invalidity cases as follows;
- Non-existence
- Nullity
- Cancellability
- Suspended declaration of invalidity
Non-existence and nullity mean that a legal act is invalid from the beginning and it is not possible to make this act valid later. The results of both invalidity cases are similar to each other and require the decision to be disregarded retroactively. However, the reasons and subjects of these invalidity cases are different from each other.
In the sanction of annulability, on the other hand, the General Board is a part of this process and this decision is the decision that can be annulled if a lawsuit is filed due to violation of the law, the Articles of Association, or the good faith.
Suspended declaration of invalidity may occur in cases where the general assembly resolution is conditional. Before the condition is fulfilled, the General Board resolution is deemed to have the qualities of a suspended declaration of invalidity. When the condition is fulfilled, the General Board resolution becomes valid.
The cases where the General Board resolutions are invalid due to non-existence and nullity and their differences from each other are explained in detail below. General Board resolutions that can be annulled and filing an action for annulment are also discussed in our bulletin titled “ACTION FOR RESCISSION OF GENERAL BOARD RESOLUTIONS IN LIMITED COMPANIES”. You can access the newsletter on our website.
2) Limited Company General Board Resolutions Being Subject to Non-existence Sanctions
The deficiency in the constituent elements of a legal act is called “non-existence” in law. Since the General Board resolutions are also a kind of legal act, if the founding elements of the General Board resolution are not present in the resolution, this resolution encounters the sanction of non-existence. Fundamentally, there is no regulation in the Turkish Commercial Code regarding the non-existance of General Board resolutions. However, in accordance with the general provisions of the law of obligations, it has been accepted that the non-existence of the doctrine and the decisions of the Supreme Court as well as the decisions of the General Board can be claimed.
Two founding elements are required for a General Board resolution. These are;
- Holding a General Meeting
- Making a decision in this meeting.
A General Board resolution taken without one of these elements is subject to non-existence sanction.
A null and void legal act means that the said legal act never existed in the legal world, simply never took place. Therefore, a General Board resolution subjected to the non-existence sanction means that the said decision is recognized as if it had never been taken, and that it is not effective and does not bear consequences. All other actions made on the basis of this decision will likewise be null and void.
2.1) Cases in which the General Board Resolutions are null and void
Some examples of the cases that necessitate the nullity of the General Board resolution because of the non-existence in the case-law of the Supreme Court are given below;
- A bogus decision taken by some partners among themselves without a meeting
- Acting like a decision is taken in the meeting although that is not the case
- Not signed meeting record
- Taking the decision without the minimum quorum specified in the Law (there are also authors who think that it will be subject to nullity sanction)
The Supreme Court tries to keep the non-existance sanction cases as rare as possible. For this reason, if there is a General Meeting and a resolution taken at this meeting, the possibility of nullity sanction is more elaborated than the non-existence sanction. For this reason, we can say that the non-existence cases are valid for the above-mentioned and similar situations.
2.2) Who Can Claim the Non-existence of General Board Resolutions and How?
If the General Board resolutions are null and void due to non-existence, this situation should be asserted by filing a declaratory action in the competent court. Any relevant person can file this suit. For example, company partners, company creditors, board of directors or one of the managers can sue for the non-existence of the resolution, and the judge may decide that the resolution is null and void. A decision that is null and void because of the non-existence does not become null and void with a court decision; the decision is already null and void from the very beginning, it “does not exist legally”. The court only declares that the decision is null and void in this case and takes no further actions.
Detection of the non-existence of a General Board resolutions may be requested from the court at any time, without being limited to a prescription period or a period of limitation.
3) Limited Company General Board Resolutions Being Subject to Nullity Sanctions
Nullity means that although the founding elements of a legal act exist, this act does not bear any consequences or is not effective from the beginning since it does not meet the validity conditions stipulated by the legal order. When the General Board resolutions are subject to nullity sanction, there is a General Board resolution legally, but this decision is null and void due to reasons such as violation of the mandatory rules of the law and public order. General Board resolutions subject to nullity sanction are legally null and void and have no validity from the beginning and cannot be made valid later on.
3.1) Cases in which General Board Resolutions are Subject to Nullity Sanctions
Which of the General Board resolutions are subject to nullity sanctions is regulated in Article 447 of The Turkish Commercial Code. Especially the following the General Board resolutions are null and void.
- Resolutions that limit or abolish the shareholders’ inalienable rights arising from participation in the General Board, minimum votes, lawsuits and laws.
- Resolutions that limit the shareholder’s right to obtain information, review and audit, except to the extent stipulated in law.
- Resolutions that distort the basic structure of the company or are contrary to the provisions of the capital maintenance.
As can be seen, the General Board resolutions subject to nullity sanction are the ones that violate the indispensable rights of the partners or are contrary to the basic structure of the company arising from the Law. Yet, the null and void General Board resolutions with nullity are not limited to these, but it has been regulated that other reasons may cause the decision to be deemed null and void since the expression “especially” is seen in the Law.
Examples of General Board resolutions that may be subject to nullity sanctions are given below;
- Invitation of only a part of the shareholders to the General Meeting,
- Participation of other persons than shareholders in the meeting,
- Having the partners voted by force and violence,
- Failure to admit partners at the General Meeting place,
- Preventing the partners from voting at the meeting,
- Making resolutions prohibiting the exercise of the right to vote through a representative or amending to the contract on this topic,
- Making a resolution to prevent the partners’ right to file an annulment action against the resolution,
- Making resolutions preventing the shareholders’ right to obtain information, review and audit without any reason other than company secret,
- Making a General Board resolution stating that the partners will be liable for the partnership debt,
- Granting the rights granted to shareholders to a person who gives loans to the company (such as profit share, right to attend the General Board),
- Making a profit distribution resolution without allocating a reserve fund,
- Making a resolution on showing and distributing a fictitious profit even though the company does not actually make a profit,
- Making resolutions that impose additional payment obligations on the partners without due process of law.
3.1) Who can claim the nullity of the General Board Resolutions and How?
The nullity of the General Board Resolutions can be claimed by filing a declaratory action, just like in non-existence. Because in this case too, the General Board resolutions does not bear any consequences and are not effective from the very beginning. Anyone concerned can always claim that a decision is subject to nullity sanction. Even if no one makes a claim, the judge may automatically decide that the decision is null and void. The effect of the court’s declaratory judgment is only to “explain” that the decision is null and void. Otherwise, the decision is already null and void from the beginning.
1) Examples from Supreme Court Decisions
In the decision of the Supreme Court Assembly of Civil Chambers, dated 12.03.2008 and numbered E.2008/11-246, K.2008/239, it has been established that the General Board resolutions taken with a majority below the quorum envisaged in the law are null and void because of non-existence. The details of the decision are below;
“The attorney of the plaintiff is the shareholder of the defendant company of his client, and demands and sues for the disregard of the General Meeting and the resolutions taken, claiming that the Extraordinary General Meeting of the defendant company held on ….. is against the procedure and the law, that the voting regarding the acquaintance is made illegally, that the capital increase resolution should have been taken unanimously and they violate this issue, and that the rights granted to minority votes are violated as a result of not taking into account the claims and requests of the client and partner İ..A.. for the postponement of the General Board.
Article 12/d of the Articles of Association states that the General Meetings and the decision quorum at these meetings are subject to the provisions of the TCC, and in article 21, it is stated that the provisions of the TCC pertaining to joint-stock companies will be applied in matters not regulated in the Articles of Association. In this case, since it is understood that the defendant company’s Articles of Association is registered before the legal amendment, the provisions of the TCC before the amendment will be applied in the decisions taken regarding the amendment to the Articles of Association. Accordingly, as a result of the evaluation made pursuant to the provisions of the TCC before the amendment to Article 388 with Law numbered 3585, the resolutions regarding the capital increase and the transfer of the shares taken at the General Meeting subject matter of the case have the qualities of the amendments to the 6th and 7th articles of the Articles of Association, and these resolutions must be taken with the majority of two-thirds (2/3) of the attendees. However, since it is understood that these amendments have been made with 40,000 affirmative votes against 39,560 negative votes in the General Board, the amendments to the Articles of Association made below the legal decision quorum, which is 2/3, are needed to be deemed as legally null and void and to be invalidated by non-existence.
In the decision of the Supreme Court Assembly of Civil Chambers, dated 02.04.2014 and numbered E.2013/1048, K. 2014/430, the following evaluations have been made on the determination of the distinction between the resolutions that are subject to non-existence, nullity, and annulment sanctions;
General Assembly of Civil Chambers convenes to discuss whether the dispute is based on the grounds of invalidity (non-existence and nullity) against the General Board resolution of the joint-stock company, or on the grounds of annulment, and, depending on the outcome of this decision, whether the partner participating in the meeting must vote against the resolution and record its opposition in the records in order to file an action for annulment pursuant to Article 381 of the TCC.
Invalidity cases can be discussed in two sub-categories: non-existence and nullity.
As a concept, non-existence is a state of contravention of the mandatory rules having founding nature and stipulated for the emergence of a legal act. This unlawfulness leads to a deficiency in the elements of the act and makes the act invalid because of the “non-existence”. The disregarded transaction have not been even formed. Non-existence can always be claimed and determined by anyone who has a legal interest in asserting it and is taken into account by the judge ex officio. The declaratory judgment of the court has explanatory qualities.
According to the mandatory provisions in the Corporate Law, two founding elements are required for the General Board resolutions to be formed: The first is the holding of the General Meeting, and the second is the resolution at the meeting. In case of a deficiency in any of these, the procedure (resolution) is deemed to have never had consequences; that is, it is invalid from the beginning. For example, if the decision is presented as if it is taken even though that is not the case, or if the Ministry representative is not present at the meeting, the act will be invalid because of the non-existence.
On the other hand, nullity is the case in which an act is against the mandatory rules on its subject. In other words, if the subject of an act is against the law, ethics, morals, public order, personal rights or if it is impossible, this act is null and void. Just as in non-existence, there is absolute invalidity in nullity; The judge takes this into account ex officio and anyone can claim and have this invalidity determined, regardless of the three-month period stipulated in the annulment case. There is a difference between non-existence and nullity in terms of causes, not results. The provision of article 392 can be given as an example for an act to become invalid in the abrogated Turkish Commercial Code. In the aforementioned law, it is regulated that failure to comply with the capital increase conditions will render the decision null and void, and the second paragraph is exactly as follows: “If the increase in the main capital has not been carried out in accordance with the above provisions, the proceedings in this regard are null and void and therefore the members of the Administrative Board and the Auditors are jointly and severally liable to the company, individual partners and third parties.” In addition, the absence of meeting and decision quorum can be given as an example of the reasons for nullity.
In the case of defeasible decisions, the reason for the invalidity of the General Board resolution shall not bear the consequence of the invalidity of the act from the beginning. For example; Shareholders who claim that they are not unjustly allowed to use the vote in the General Board of the joint-stock company, that the call is made illegally, that the agenda is not announced or communicated properly, that people who are not authorized to participate in the meeting and to take decision are present, have the right to request the annulment of the decisions, alleging violations of the law, the Articles of Association and the rules of good faith.
In other words; Absolute nullity and null and void resolutions are those that are invalid from the beginning, cannot be valid later, that are against the mandatory rules, public order, ethics and morals, or whose subject is impossible. Such decisions are not null and void from the very beginning and the court should also focus on it ex officio. Voidable resolutions within the meaning of Article 381 of the TCC numbered 6762, on the other hand, are those that violate the regulations that protect the interests of the partners, and the interpretative and rules of form other than the mandatory rules. Decisions that need to be disregarded, as they are not null and void from the beginning, have the effects and consequences of a valid resolution until they are disregarded.
Conclusion
It is important for the validity of the General Board resolutions and the decisions taken at the meeting to comply with the rules stipulated in the Law and the Articles of Association. General Board resolutions that do not comply with the rules are subject to sanctions of non-existence, nullity or annulment. For this reason, there is a danger that the decisions will either be null and void from the beginning or be invalidated by a court decision.
It is possible to file a declaratory action for the non-existence and nullity of the General Board resolutions by anyone who has a legal interest. There is no time limit for filing a lawsuit. However, first of all, it is necessary to determine whether there is invalidity in the General Board resolution and, if so, what kind of invalidity there is. For more information, you can contact Solmaz Law and Consultancy Office.
Best Regards.
References
ALTAŞ, Soner, (2016), Türk Ticaret Kanununa Göre Limited Şirketler, Seçkin Yayıncılık, Ankara.
BİLGİLİ, Fatih/DEMİRKAPI, Ertan, (2013), Şirketler Hukuku Dersleri, Dora Yayıncılık, Bursa.
Decision of the Supreme Court Assembly of Civil Chambers, dated 02.04.2014 and numbered E.2013/1048, K.2014/430.
Decision of the Supreme Court Assembly of Civil Chambers dated 12.03.2008 and numbered E.2008/11-246, K.2008/239.
Turkish Code of Commerce
Turkish Code of Obligations
