Liabilities of Board of Directors in Turkey

An Expert's View about Liability Law in Turkey

Posted on: 9 Feb 2012

Civil and criminal liabilities of board of directors have been examined.

CİVİL AND CRIMINAL LIABILITIES OF BOARD OF DIRECTORS IN TURKEY The board of directors is all responsible for the internal management of a company, and it also represents the company with regard to third parties. The board has the power to carry out all legal acts on behalf of the corporation that are consistent with the objects of the company. In practice, the board of directors is just as important as the general assembly. The board of directors carries two types of liabilities such as civil and criminal. THE NEW TURKISH COMMERCIAL CODE Company Law in Turkey was governed primarily by the Turkish Commercial Code (TCC) of 29.6.1956. The New Turkish Commercial Law (New Law) was adopted by the Turkish Parliament on 13 January 2011 and promulgated in the Official Gazette on 14 February 2011. Most provisions of the New Law will become effective on 1 July 2012, but some provisions will be applicable as of 1 July 2013. The articles of the New Law which will be in force by July 2012 not only introduces modernization in the company structures but also brings obligations for the corporate governance of the companies and company executives. The articles of the New Code which will be in force by January 2013 aims the financial transperancy of the companies and brings financial auditing obligations to all companies. The main changes in the New Law related to the Board of Directors (BoD) are as follows: • The possibility of forming a BoD with the presence of just one person is introduced. However, at least one member of the BoD who is authorised for representation should have his/her domicile in Turkey and should be a Turkish citizen. • The necessity that the BoD member has to be a shareholder of the company has been abolished. • Legal entities are granted the authorisation to become BoD members. • The professional BoD concept has been introduced. • The legal infrastructure that enables shareholder groups to be represented in the BoD has been established. • The system that identifies the difference between the BoD and the management has been legally defined. • One-quarter of BoD members is required to be university graduates. LIABILITY Board members may not be held liable for damages that were out of their control. However, the New Law regulates liabilities that arise from several situations. There are two types of liability: • civil • criminal Çetin Emeç Bulvarı, 1322. Cadde, No: 62/3 A. Öveçler/Çankaya, Ankara/Turkey Phone: 00 90 312 473 39 60 Fax: 00 90 312 473 39 62 www.bicakhukuk.com contact@bicakhukuk.com The New Law separates civil liability into six categories as follows; • Liability arising from non-compliance of documents and declarations • False declarations regarding capital and knowledge as to insolvency • Liability originating from valuation • Liability originating from collection of money from the public • Failing to fulfil obligations originating from the law articles of company • liability arising from breach confidentiality As far as criminal liability ise concerned, the legal principles that a corporation acts through the individuals who act on its behalf cannot escape individual criminal liability for violations of the law, even though the corporate entity may also be a defendant, are well established. However, law does not say that every member of a board of directors will be vicariously liable for another director's acts or culpable inaction, or for the failure to act by a party, such as the cooperative's managing agent, to whom responsibility for compliance with the law has been properly delegated. There must be some affirmative conduct on behalf of the director or a finding that the director did not carry out his responsibility with respect to window guard installation before criminal liability may be imposed. Directors face exposure to criminal liability if they violate the Criminal Code of Turkey or other quasi-criminal Acts. Turkish law establishes a number of offences relating to corruption including bribery and fraud. FRAUD DURING A TENDER Any person who acts fraudulently on behalf of a public institution or corporation, in the course of a tender that relates to construction, rent, purchase or sale of goods or services, may be sentenced to a penalty of imprisonment for a term of five to twelve years. The following acts are presumed to constitute a fraudulent tender: • By engaging in deception and: o Preventing a person from participating in the process of the tender or the tender itself, who is capable of participation in such or who has met the criteria for such; o Securing the participation of a person in the tender who lacks the capability to participate in such or who fails to meet the criteria required for such; o Eliminating from consideration such offered goods which conform to the tender specifications by stating that such goods do not so conform; o Placing in the evaluation goods which do not conform to the tender specifications by stating that such goods do so conform; • Enabling the access of another to information which relates to any offers, which is to be kept confidential according to Tender Law or the tender specifications. • Prevention of a person, who is capable of participating in a tender or having met the criteria for such, from participating in the process of tender or the tender itself, by the use of force, threats, or any other acts contrary to law. • Concluding an open, or secret, agreement with others, in order to influence the conditions of a tender, particularly the price, for those who are willing to participate in the tender or those who have already participated in the tender. Çetin Emeç Bulvarı, 1322. Cadde, No: 62/3 A. Öveçler/Çankaya, Ankara/Turkey Phone: 00 90 312 473 39 60 Fax: 00 90 312 473 39 62 www.bicakhukuk.com contact@bicakhukuk.com Where loss is suffered by a public institution or corporation as a result of a fraudulent tender, the punishment to be imposed may be increased by one half. Where it is clear that there is a loss, but the amount is unquantified, this provision still applies. FRAUD DURING THE DISCHARGE OF CONTRACTUAL OBLIGATIONS Any person who acts fraudulently during the discharge of contractual obligations with a public institution, public corporation, professional institution, a company (incorporated by the aforementioned professional institution, or a public institution or a public corporations or a foundation operating within the framework of such institutions or corporation), an association acting in the public interest; or a co-operative may be sentenced to a penalty of imprisonment for a term of three to seven years. The following acts are presumed to constitute fraud during the discharge of a contractual obligation: • Delivery, or accepting delivery, of goods other than those described within the contract; • Delivery, or accepting delivery, of fewer goods than described within the contract; • Accepting goods outside the time limit specified in the contract, or the conclusion of the tender, for their delivery. • In construction tenders, accepting the completed construction, or material used in such, which does not comply with the conditions, quantity or quality as described within the contract or in the detailed specification of tender; • Accepting an obligation of service as having been completely discharged although the service rendered was deficient or contrary to the terms described within the contract or in the detailed specification of tender. DISCLOSURE OF CONFIDENTIAL DOCUMENTS OR INFORMATION RELATING TO COMMERCE, BANKING OR PRIVATE CUSTOMERS Any person who discloses confidential information, or documents, relating to commerce, banking or private customers, which he holds by virtue of his title, duty, profession or trade, to an unauthorized person may be subject to a penalty of imprisonment for a term of one to three years and a judicial fine up to five thousand days. CONFISCATION OF ASSETS OF COMPANY Security measures specific to companies has also been adopted in Turkish law. The license may be canceled where there has been a conviction in relation to an intentional offence committed for the benefit of a legal entity, which is subject to civil law and operating under the license granted by a public institution, by misusing the permission conferred by such license and through the participation of the organs or representatives of the legal entity. Confiscation of assets and gains is possible in ceses where offences are committed for the benefit of legal entities. Çetin Emeç Bulvarı, 1322. Cadde, No: 62/3 A. Öveçler/Çankaya, Ankara/Turkey Phone: 00 90 312 473 39 60 Fax: 00 90 312 473 39 62 www.bicakhukuk.com contact@bicakhukuk.com
Posted: 09 February 2012

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