Contact: Att. Nilay Celebi; Erdem & Erdem (Turkey)
This article will briefly explain whether holding the ordinary general assembly within 3 months from the end of fiscal year under Art. 409(1) of the Turkish Commercial Code No. 6102 (“TCC No. 6102”) is compulsory, the outcomes of its not being held and the disclosure of financial statements within the scope of the capital markets legislation.
Holding the Ordinary General Assembly
As per Art. 409(1) of the TCC No. 6102, ordinary general assembly meetings are held “within three months as of the end of each activity period”. The same provision is stipulated under Article 7 of the Regulation on Procedures and Principles of General Assembly Meetings of Joint Stock Companies and Customs and Trade Ministry Representatives Attending Such Meetings, published in the Official Gazette dated 28.11.2012 and numbered 28481. Pursuant to said article: “The ordinary general assembly meeting shall be held within three months as of the end of each activity period. Therefore, for the companies whose accounting period is based on the calendar year, meetings shall be held within the first three months of the year; for companies whose accounting period is based on a specific accounting period, meetings shall be held within the first three months following the last day of the accounting period”.
There is no specific provision in the capital markets legislation related to when ordinary general assembly meetings should be held by public companies subject to the Capital Markets Law No. 6362 (“CML”). Therefore, public companies should also convene their ordinary general assembly meetings within 3 months as of the end of each activity period in accordance with the TCC No. 6102.
Nature of the Period
Art. 409 of the TCC No. 6102 is the same as Art. 364 of the Turkish Commercial Code No. 6762 (“TCC numbered 6762”). Academics accept this provision as regulatory and do not find holding ordinary general assembly meetings within a 3 month-period to be compulsory. Art. 409(1) of the TCC No. 6102 is a regulatory provision. Regulatory provisions do not have an impact on the nature of the transaction; such provisions may result in being deprived of another right or advantage or result in administrative/pecuniary fines.
There are some examples of decisions by the Supreme Court of Appeals stating that ordinary general assembly meetings that are not held within the 3-month timeframe shall not be regarded as annullable.
Sanctions For Disregarding the Period of Time
Art. 553(1) of the TCC No. 6102 regulates liabilities of the board of directors. As per said article, the board of directors’ liabilities may arise if they breach the law and articles of association with negligence. In such a case, the board of directors shall be held responsible materially for the damages incurred by shareholders and creditors of the company. Therefore, the board of directors has a reimbursement liability. Reimbursement liability arises when there is damage and a causal connection between the damage and the negligent act.
If the general assembly is not held within 3 months as of the end of the activity period, the board of directors’ members may be held liable only if they are in negligence. Also, damage must occur as a result of the faulty act of the board of directors.
Concept of Expressing the Financial Statements
Pursuant to the statement of the İstanbul Stock Exchange Chairmanship, consolidated financial statements as of December 31, 2012 should be announced to the public by April 12, 2013 at the latest. Announcement of financial statements to the public is an independent issue from the ordinary general assembly meeting. Announcement of financial statements to the public is an announcement stemming from the transparency principle and should be considered independently from convening the general assembly and its approval.
Communiqué on the Principles of Financial Reporting in Capital Markets (Serial: XI, No: 29) and Communiqué on Principles and Rules Pertaining to the Financial Statements and Reports in Capital Markets (Serial: XI, No: 1):
Enterprises are entitled to regulate their financial statements as of the annual and quarterly periods and announce them to the public within certain periods of time pursuant to the communiqué numbered Serial: XI, No: 29.
As per Art. 15 of the related communiqué (Art. 49/1 of the communiqué numbered Serial: XI, No: 1 also has a similar provision):
“1) Annual financial statements of enterprises prepared in compliance with this Communiqué must be published within 30 days following ordinary general assembly meetings in the Turkish Trade Registry Gazette. This announcement shall be made at the end of the 6th month, at the latest, following the end of the annual accounting period, notwithstanding the holding of the general assembly.
(2) The enterprises who send their financial statements to the Board and the related stock exchange before their ordinary general assemblies shall make the necessary disclosures in the event there are discrepancies between statements already sent and financial statements discussed in the general assembly…”
The abovementioned Communiqué specifies that financial statements must be announced to the public and ties this announcement to the condition of convening the general assembly meeting. If financial statements are sent before the general assembly convenes and if the general assembly does not approve those statements, this issue shall be expressed in the announcements and any discrepancies shall be clearly specified. Failure to make the necessary announcement may result in the board of directors being held liable. (Art. 9 of the Communiqué numbered Serial: XI, No: 29).
Nonetheless, this situation does not prevent public companies subject to the CML and who prepare consolidated financial statements from holding ordinary general assembly meetings within 3 months as of the end of their activity period, as per Art. 409(1) of the TCC.
Conclusion
Disclosing financial statements to the public is an independent issue from convening the ordinary general assembly. Even if the ordinary general assembly meeting is not held, financial statements should be published in compliance with the capital markets legislation and within the specified period of time.
Pursuant to Art. 409(1) of the TCC No. 6102, companies should hold their ordinary general assembly meetings within 3 months as of the end of their activity period. The doctrine holds that Art. 409(1) of the TCC No. 6102 is a regulatory provision and not holding the ordinary general assembly within 3 months as of the end of the activity period does not render the general assembly meeting which is held after said period to be invalid.
The board of directors may be held liable if the general assembly meeting is not held within 3 months after the end of the company activity period. However, for the board of directors to be held liable, a direct causal link between the board’s negligence and damage incurred by the shareholders and/or company creditors must be proven.
