Contact: Att. Selen Ozturk; Erdem & Erdem (Turkey)
Introduction
Turkish Commercial Code No. 6102 (the "TCC") provides a number of provisions for the protection of preference shareholders. In this regard, the general assembly's right to amend the articles of association is restricted by the rights of the preference shareholders. In accordance with Art. 454 of the TCC entitled "Special Committee of Preference Shareholders," resolutions of the general assembly pertaining to amending the articles of association, authorizing the board of directors with respect to increasing the share capital, and the decision of the board of directors with respect to increasing the share capital that may potentially violate the rights of the preference shareholders shall result the convening of preference shareholders to meeting, and their subsequent approval.
TCC Art. 454 regulates the circumstances where the approval of the special committee of preference shareholders is required, the convocation procedure, the decision-making method, and the lawsuit to be filed against the special committee of preference shareholders by the board of directors.
Circumstances that Require Approval of Special Committee of Preference Shareholders
TCC Art. 454/1 stipulates the circumstances where the approval of the special committee of preference shareholders is necessary. These circumstances are listed in the relevant article; therefore, the implementation of the resolutions other than those listed in the article do not require the approval of the special committee of preference shareholders.
The first circumstance rises when the amendment of the articles of association by the general assembly violates the rights of the preference shareholders. This circumstance may occur as removal or restriction of the privilege by the amendment of the articles of association. For instance, if the articles of association withdraw the voting preference of the preference shareholders by the amendment of the articles of association, in order for this amendment to be implemented, the special committee of preference shareholders must grant its approval of such amendment. The circumstances regarding violation are not limited to this situation, and other circumstances where the rights of the preference shareholders are violated are considered to be within this scope.
Another circumstance is the general assembly's resolution concerning the authorization of the board of directors to increase the capital. In such a case, even though the board of directors has not yet adopted a resolution based upon the general assembly resolution, the possibility of adoption of a resolution is sufficient to convene the special committee of preference shareholders. If the authorization resolution of the general assembly enables the board of directors to issue preference shares, then it is probable that the rights of the preference shareholders may be violated[1].
The final circumstance that Art. 454/1 sets forth is the case where the board of directors' resolution to increase the capital infringes upon the rights of the preference shareholders. This infringement may occur when the registered capital system is in question.
In such cases, if the rights of the preference shareholders are violated, the resolution cannot be implemented unless the approval of the special committee of preference shareholders is obtained. The special committee of preference shareholders is comprised only of the preference shareholders whose rights have been infringed. Preference shareholders whose preferences are not infringed cannot attend the committee meeting.
More importantly, in order for the special committee of preference shareholders to be convened, the law specifically requires that the rights of the preference shareholders have been violated. The fact that the resolution of the general assembly or the board of directors was unlawful shall not suffice for the convening of the special committee.
