Litigation and Alternative Dispute Resolution

Author: Duygu Oner Aycicek

Introduction

In the decision dated 14.06.2022 and numbered 2019/149 E. 2022/894 K., the Court of Cassation General Assembly (“CCGA”) evaluated the theory of piercing the corporate veil in the context of the relationship between the guarantor and the borrowing company in a dispute arising from a loan agreement. The CCGA ruled that the party requesting the piercing of the corporate veil must be a third party, and that the person who is a shareholder and a member of the board of directors of the relevant company cannot make a request based on this theory.

Dispute Subject to the Decision

The dispute arises from a loan agreement signed by the plaintiff as a guarantor. Upon the failure of the limited liability company to fulfill its payment obligation, the debt was paid by the guarantor. The plaintiff claimed that the loan agreement was signed by the limited liability company, but the loan was utilized by the sister joint stock company, that although the legal entities of the two companies are different, they are sister companies, that there is an organic bond between them, that the defendant joint stock company will be revealed to be among the principal debtors by piercing the corporate veil, and that both companies are jointly and severally liable for the debt arising from the collusive transactions they made, and claimed that both companies are jointly and severally liable for the debt arising from the collusive transactions they made, and exercised the right of recourse pursuant to Article 596 of the Turkish Code of Obligation and initiated enforcement proceedings against both companies, and filed a lawsuit for annulment of the objection upon the suspension of the enforcement proceedings due to objection. During the period when the loan was utilized, the plaintiff was also a shareholder and a member of the board of directors of the defendant joint stock company.

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