Termination of Joint Stock Company for Just Cause
Turkish Commercial Code No. 6762 (“Former TCC”) did not contain a provision on the termination of a joint stock company for just cause, which led to debates as to whether it was possible to terminate a joint stock company for just cause. In this context, the Turkish Commercial Code No. 6102 (“TCC”) regulated the termination of a joint stock company for just cause under Article 531, which put an end to these debates.
According to this provision, minority shareholders may file a lawsuit for the termination of the joint stock company for just cause. The main purpose of the legislator is to protect the rights of minority shareholders as well as the continuity of the company. For this reason, the court may decide on another alternative solution that is acceptable and appropriate to the situation despite the request for termination for just cause.
Against whom should a lawsuit for dissolution of a joint stock company be filed?
As stated in Article 531 of the TCC, the lawsuit for the dissolution of a joint stock company may be filed by “shareholders representing at least one tenth of the capital, and in publicly traded companies, one twentieth of the capital”. Pursuant to this provision, it is not possible for the company itself, its organs or company creditors to be the plaintiff. Again, the shareholders stated in the provision must file the lawsuit against the joint stock company itself. It does not seem possible to file the lawsuit against the shareholders or the board of directors. The practice of the Court of Cassation regarding the title of defendant is in this direction.
Competent and Mandated Court for the Dissolution of a Joint Stock Company
Pursuant to Article 531 of the TCC, the competent court for termination for just cause is the court “where the head office of the company is located”. According to Article 14 of the CCP, which is regulated under the title of jurisdiction in cases related to branches and legal entities, the jurisdiction is final. On the other hand, the court in charge of the termination case is the commercial court of first instance, and the case is subject to simple trial procedure.
Duration for the Dissolution of a Joint Stock Company
Article 531 of the TCC does not stipulate any time limit for filing a rightful termination action. This is because the imposition of a time requirement for the termination action limits the right of the minority to get rid of the company relationship, the continuation of which has become unbearable. On the other hand, even though no time requirement is stipulated in the termination for just cause action, the minority must file a termination for just cause action within an appropriate period of time after learning the just cause pursuant to Article 2 of the TCC.
What are the circumstances that may constitute a just cause for the dissolution of a joint stock company?
Article 531 of the TCC does not clearly define the concept of just cause and does not limit the termination of a joint stock company for just cause. Examples of just cause for the dissolution of a joint stock company are as follows
- Abuse of Power by the Majority
- Impossibility of Achieving the Company’s Purpose
- Change of Business Subject
- Dysfunction of the General Assembly or Board of Directors
- Bad Management
- Personal Causes (Incapacity and Personal Disputes between Shareholders)
The main issue that may constitute just cause is the abuse of power by the majority. The abuse of power by the majority may be seen as a violation of the financial rights of the minority shareholders, as well as a violation of their rights other than their financial rights. The main purpose of the termination for just cause lawsuit is to secure the protection of the minority. An example of the abuse of the power of the majority is the behavior of the majority shareholder preventing the minority shareholders from making decisions for the benefit of the company and preventing the operation of the company.
In addition, the impossibility of achieving the purpose of the company, change of the subject of business, dysfunction of the general assembly and the board of directors, and mismanagement of the company may also constitute just cause. Personal reasons such as incapacity for work, personal disputes between shareholders and breach of shareholders’ agreements may also constitute just cause under Art. 531 TCC.
What are the Possible Decisions of the Court in the Case of Dissolution of Joint Stock Company for Just Cause?
First of all, it should be noted that the court will examine whether there is a just cause in the termination for just cause lawsuit filed by the minority shareholders. If the court concludes that there are just grounds, then the court should examine whether the violations constituting just cause can be eliminated by a solution other than dissolution. Thus, in the case of dissolution of a joint stock company, dissolution is a secondary remedy, and the court will decide on dissolution if it is of the opinion that a remedy other than dissolution is not appropriate in the concrete case.
In Article 531 of the TCC, the legislator has introduced the possibility for the judge to award an alternative solution other than termination by stating “… may decide on another solution that is appropriate and acceptable to the situation.” The alternative solution to be awarded must be “appropriate and acceptable”. Accordingly, the alternative solution should be in the interests of both the shareholders and the creditors of the company. In addition, the judge’s ruling on the dissolution of the company without examining the alternative remedies appropriate to the concrete case constitutes a ground for reversal.
Article 531 of the TCC provides that “payment to the plaintiff shareholders of the real value of their shares as of the date closest to the date of the decision and the dismissal of the plaintiff shareholders from the company” is an example of an alternative solution that the judge may decide on.
In addition, alternative solutions that require amendment of the articles of association, such as profit distribution, exercise of voting rights or representation of shareholder groups in the company’s board of directors and participation in management, may be decided.
The court may also resort to alternative solutions that require a decision by the board of directors, such as the replacement of board members, the appointment of auditors and the amendment of board resolutions. Finally, the court may also decide for the dissolution of the partnership in addition to dissolution. It should be noted that the alternative remedies are not limited to the above-mentioned ones, and the judge may make any decision that is different from the above-mentioned remedies and that is appropriate to the concrete case.
If the justified grounds for termination are not deemed sufficient by the court, the termination for just cause lawsuit shall be dismissed. Accordingly, it is not possible for the minority shareholders who filed the lawsuit to file a rightful termination lawsuit again based on the same grounds.