| Berru Ceren ZİYAGİL, Lawyer | Serhat Çağan OZAN, Summer Intern (Law School Student) |
ABSTRACT Within the scope of Law No. 6102 Turkish Commercial Code (“TCC”), the right to obtain information and examine documents in joint-stock companies has been regulated through independent provisions for both shareholders and board members. The right of board members to obtain information and examine documents has been codified in Article 392 of the TCC, and this article corresponds to Article 331 of the Abrogated Commercial Code No. 6762 (“ACC”) entitled “Rights of Members”. Although the rationale of Article 392 of the TCC refers to this provision as its source, the primary inspiration for both legal articles is Paragraph (a) of Article 715 of the Swiss Code of Obligations (“SCO”). The main purpose of establishing a legal basis for the board members’ right to obtain information and examine documents is to ensure that the heavy and comprehensive obligations imposed on members are duly fulfilled. In terms of fulfilling these obligations, the right to obtain information and examine documents is considered indispensable (“sine qua non”)¹. This is because board members must possess sufficient information about the company’s affairs and transactions in order to make correct and timely decisions that will affect the company’s future. Within this scope, the subject of this article consists of our evaluations regarding the scope, limits, and methods of use in practice of the board members’ right to obtain information and examine documents regulated under Article 392 of the TCC.
Keywords: Right to Obtain Information and Examine Documents, Company Books and Documents, Duty of Loyalty, Liability of Board Members, Restriction, Business Judgement Rule.
INTRODUCTION The TCC has a structure that is more transparent, considers corporate requirements, and is compatible with international commercial standards compared to the ACC. In this direction, significant changes have been made in the law to strengthen this understanding. One of the most important of these changes is the expansion of the scope of board members’ right to obtain information and examine documents and its placement within a more detailed regulatory framework¹². This is a conscious and significant regulation made to emphasize the principle of transparency in corporate management. Within this scope, our article will first examine the current legislation regulated in the TCC, and then make certain evaluations regarding the purpose and function of the right, the exercise and limits of the right, and the situation where information requests are rejected.
I. LEGAL CONCEPT
a. Framework Within the Turkish Commercial Code
Article 392 of the TCC, which concerns the right of board members to obtain information and examine documents, has regulated the aforementioned right in seven paragraphs. In the first paragraph, the framework of the right has been established and a sort of definition has been made. It has been stipulated that every board member may request information about all affairs and transactions of the company, ask questions, and conduct examinations. In this paragraph, we see that the exercise of the right is diversified as requesting information, asking questions, and conducting examinations. Of course, it is not possible to say that these types of exercise are limited to these three actions. It would not be wrong to say that this right can be exercised in different ways within the framework of corporate governance processes. For the full realization of the exercise of this right, it is important that any book, book record, contract, correspondence, or document requested by a member be brought to the board of directors, examined and discussed by the board or members, or that information be obtained from any manager or employee regarding any subject. Indeed, in the rationale of the TCC, it is also emphasized that this right is simultaneously a requirement of the management duty left to the reliability and diligence of board members and of the relationship between the company and the member. In case of rejection of an information request, ultimately the fourth paragraph of the same article is applied. This paragraph regulates the mechanisms to which a board member whose information request is rejected by the chairman may apply. The second paragraph regulates those obliged to provide information, the third paragraph regulates the right of board members to obtain information outside meetings, the fourth paragraph regulates the legal remedies to be pursued in case the information request is rejected by the board chairman, and the fifth paragraph regulates the consequences of the rejection of the board chairman’s request. Finally, in the sixth paragraph, emphasis is placed on the non-restrictable nature of the scope of the right and that the right can be expanded through contract, and in the seventh paragraph, the procedure for board members to call the board chairman to a meeting has been established.
b. Legal Nature and Scope of the Right
The right of board members to obtain information has been regulated as a personal, non-transferable, and independent right. Although its subject matter is economic, it is classified as an administrative right due to its connection with the board member’s authorities in the administrative field³. When determining the scope of the right, it is essential to establish a balance between the company’s interest and the board members’ ability to duly fulfill their duties. For this reason, determining the scope of the right requires considerable care and diligence. However, the legislature has considerably expanded the scope of the right by including the expression “all affairs and transactions of the company” in the first paragraph of Article 392⁴. It is emphasized that the member may request to examine the company’s books and documents only if necessary for performing their duty in accordance with the principle of accountability⁵.
c. Comparative Law
In German Law, the dualist system has been adopted where the management function is carried out by two bodies: the management board and the supervisory board. For this reason, although it differs from Turkish and Swiss law in many respects, Article 90 of the German Stock Corporation Act, which regulates the right to obtain information, has essentially been the source of inspiration for Article 392 of the TCC⁶. In Article 715 of the source SCO, the restriction prohibition found in Article 392 of the TCC does not exist. Another difference is that the time limit and procedure for a member whose information request is rejected to apply to the board of directors and the court are regulated in the TCC but not in the SCO. However, the most important points where Turkish law deviates from Swiss law in the context of the right in question are the matters of board chairman’s permission and the contractual nature of the right. In Turkish law, the right to obtain information outside meetings has been made subject to the board chairman’s permission pursuant to Article 392, but in Switzerland, this right can be exercised without permission. Finally, while the TCC states that the right can be expanded through provisions to be placed in the articles of association, in Swiss law it has been accepted as a principle that expansion can only be made through board decisions. Considering the differences within the scope of the right to obtain information and examine documents and the fundamental structures of two separate legal environments, it can be said that the Swiss Commercial Law system shows more parallelism with corporate governance principles. These principles are shaped around four main principles: fairness, transparency, accountability, and responsibility⁷.
II. PURPOSE AND FUNCTION OF THE RIGHT TO OBTAIN INFORMATION AND EXAMINE DOCUMENTS
a. Relationship with Duty of Loyalty
Article 369 of the TCC has established the general framework of board members’ duty of loyalty to the company. This obligation is also a reflection of the rule of honesty based on Article 2 of Law No. 4721 Turkish Civil Code (“TCC”) since the duty of loyalty is closely related to board members’ compliance with the responsibilities imposed on them by the contract. The “Prohibition of Participation in Deliberations” regulated in Article 393 of the TCC, the “Prohibition of Transacting with the Company, Prohibition of Borrowing from the Company” regulated in Article 395, and the “Prohibition of Competition” regulated in Article 396 are special manifestations of the board member’s duty of loyalty regulated in the TCC. Additionally, the duty of loyalty also includes the “Duty of Confidentiality” accepted in doctrine, although not stated in the TCC. The duty of loyalty is closely related to the obligation to act “with the diligence of a prudent manager” stated in Article 369. This obligation is the reflection of the “Business Judgement Rule” principle found in American law in Turkish law, and it is not possible to comply with this principle without exercising the right to obtain information and examine documents⁸.
b. Principles of Equal Treatment and Public Disclosure
The right to obtain information and examine documents is a right that all board members can exercise individually, but during the provision of information, a situation such as discrimination among board members without a justified reason cannot occur. Such a board decision will constitute a violation of the principle of equal treatment and will be deemed null and void⁹. A board member can only direct shareholders and concerned parties correctly if they can exercise the right to obtain information and examine documents without obstruction. Even if Article 392 did not exist, board members would be able to request information based on the principle of public disclosure because public interest has an undeniable place in this field¹⁰.
III. EXERCISE OF THE RIGHT TO OBTAIN INFORMATION AND EXAMINE DOCUMENTS
a. Holders of the Right
Within the context of Article 392 of the TCC, the right to obtain information has been regulated as belonging only to board members. Ordinary board members can exercise the aforementioned right without any limitation related to their status. Prospective board members, that is, persons approved by the general assembly but not yet appointed to the board of directors, can obtain information on matters requiring decisions when their duties commence. Similarly, board members whose duties have ended can only obtain information on matters related to management activities they carried out during their term of office. Non-executive and independent board members have the right to obtain information to the extent of necessity regarding their participation in management activities and matters related to this participation. As can be seen, status-based limitations are made in terms of the time of membership and what the fulfillment of duties related to membership requires. Whether members of committees and commissions established according to the second paragraph of Article 366 of the TCC will benefit from this right is one of the questions that arise. Only committee and commission members who serve as board members will benefit from the provision of Article 392. Members who do not have this qualification can also exercise this right; however, they can do so not based on Article 392 but based on fidelity to contract arising from their relationship with the company and the nature of their duties.
b. Those Obliged to Provide Information
Board members and the board chairman are the main persons who have the obligation to provide information. Additionally, it is accepted that persons who are not board members but are assigned with management duties also have this obligation. Persons to whom the company’s management has been transferred can be determined by looking at the internal directive and the actual practice within the company. These persons are burdened with the obligation to provide information both during and outside meetings, just like board members. The question of whether de facto bodies have the obligation to provide information is controversial. It is appropriate to evaluate these structures within the scope of provisions on negotiorum gestio and accept that they have the obligation to account to the board of directors.
c. Place and Time of Exercise of the Right
The right to obtain information can be exercised before the board meeting, during the meeting, and outside the meeting. Obtaining information before the meeting should be distinguished from obtaining information outside the meeting because the expression “before” refers to a very short time before the meeting. Information to be provided before the meeting should primarily cover each agenda item. At a more advanced stage, a report should be prepared by those obliged to provide information on each deliberation subject. The participation of board members in meetings is of critical importance in terms of fulfilling the duty of diligence. It can be mentioned that a board member who does not regularly attend meetings has not fulfilled their duty of diligence since board meetings are a primary place and opportunity for members to exercise their right to obtain information and examine documents by the legislature. It is important for a board member to obtain information outside meetings in terms of keeping their information up-to-date and preparing for future meetings. Paragraph 3 of Article 392 of the TCC is as follows: “Each board member, outside board meetings, with the permission of the board chairman, may obtain information from persons assigned with company management regarding the course of business and certain individual matters, and if necessary for the performance of their duty, may request from the board chairman that company books and files be made available for examination.” According to this provision, in order to obtain information outside meetings, the chairman’s permission is additionally required and the subject matter to be informed about must concern the course of business and certain individual matters.
d. Content and Form of Information
The information needed by the board member may include the following subjects: The organization of the company, the legal and administrative structure of the company, the company’s articles of association, the personnel composition in company units, national or international participation structures, reports submitted to the board of directors, balance sheets, plans related to the administration of the company, etc. This information can be provided to board members orally or in writing. In written form, company books and external commercial documents, books may be provided. Information regarding company affairs and transactions can also be presented as regular and detailed reports¹¹. Additionally, in line with the growing organizational structure of commercial companies and technological developments today, keeping company records in digital environments has become quite common. Companies are establishing digital infrastructures within this scope, digitizing their records either by receiving services from external sources or by emphasizing the establishment of internal mechanisms. Although this situation appears as an advantage in terms of transparency and ease of information access, it contains certain concerns such as cybersecurity. In practice, companies usually address this problem by making the requested digital documents available for examination through company computers in electronic form. This situation requires separate evaluation regarding whether it constitutes a limit of the right to examine.
IV. LIMITS OF THE RIGHT TO OBTAIN INFORMATION AND EXAMINE DOCUMENTS
a. Limits Within the Scope of Article 392 of the TCC
The expression “all affairs and transactions of the company” in the first paragraph of Article 392 of the TCC is interpreted as a provision regarding information requests during meetings. This interpretation is made based on expressions in the same paragraph such as “bringing to the board of directors”, “examination by the board or members”. In this context, the TCC has not imposed any limitation on information requests during meetings. However, there are two limitations regarding information requests outside meetings. These are, as stated in paragraph 3 of the article, that the request must only concern the course of business and individual matters, and that the board chairman’s permission is required.
b. Other Limits
The prohibition of abuse of rights, which is one of the fundamental principles of civil law, is regulated by Article 2 of the TCC. Since the abuse of the right to obtain information and examine documents does not exist in Turkish legislation as an individual regulation, the aforementioned article is accepted as a natural limitation regarding this right. Whether trade secrets constitute a natural limitation is open to debate. For this reason, if such a limitation is to be imposed, it would be beneficial to concretize this limitation in the company’s articles of association. The question of what to do in a case where board members’ interests conflict with those of the company is also controversial. Doctrine is in agreement that in such a case, the dismissal or resignation of the board member or members in case of conflict of interest with the company should be ensured. The need for the information to be reached and the functionality of the information may also constitute a limitation on the right to obtain information in some cases. However, for this, the non-functionality and unnecessary nature of the information must be proven definitively. Regarding limitations to be imposed on the right to obtain information during meetings, five different concepts that can be accepted as limitations have been discussed in both Swiss and Turkish doctrine, and these are stated as functionality, proportionality, conflict of interest, abuse of rights, and protection of business and trade secrets¹². The crime of “Insider Trading” has been regulated in Article 106 of Law No. 6362 Capital Markets Law. Information sharing that may give rise to this type of crime that harms shareholders, the national economy, and company interests will naturally constitute a limitation for the right to obtain information¹³.
c. Regulation Through Internal Directive, Articles of Association, and Board Decision
There is a possibility to expand and limit the right to obtain information and examine documents through articles of association provisions, internal directives issued by the board of directors, and decisions taken. For example, a heavier quorum for rejection of information requests in the board of directors can be foreseen through the articles of association or internal directive. As is known, preparing the board of directors internal directive is also among the duties and powers exclusively given to the board of directors¹⁴. The internal directive is important in terms of specifying the persons assigned and authorized in company management and representation, defining the duties and powers, their scope, and regulating their position¹⁵. In this case, it would be appropriate to use the internal directive in determining the limits of a board member’s right to obtain information. Considering that one of the legal interests this right tries to protect is the liability of the board member, it is natural that this limitation also remains limited to the areas where the member is authorized and assigned.
V. REJECTION OF INFORMATION REQUEST
Rejection of an information request due to violation of limits determined by law and doctrine is accepted as rejection with justified cause. Opposite situations result in unjustified rejection. There are certain avenues available to a board member whose request is rejected. First, according to doctrine, acceptable methods include requesting the dismissal of the board members or board chairman who rejected the request or forcing them to resign, requesting rejection of their discharge, and having a note entered in the meeting minutes. Second, pursuant to paragraph 4 of Article 392 of the TCC, the rejection decision should first be presented to the board of directors and then the court should be approached¹⁶.
CONCLUSION
Article 369 of the TCC has obliged board members to perform their duties with the diligence of a prudent manager (“Business Judgement Rule”) and to show loyalty to company interests. In order for board members to fulfill their administrative responsibilities with this sensitivity and to form sound judgment, they need to be informed about company activities. To meet this need, the right of board members to obtain information and examine documents has been placed under legal protection and guarantee. This right finds its regulatory field in Article 392 of the TCC as an independent, personal, indispensable, and administrative right. In the TCC, the right to obtain information and examine documents has been regulated in more detail compared to the ACC, subject to different principles for during and outside meetings. The relevant article also includes legal remedies that can be pursued in case of violation of the right. When examining information requests outside meetings, the subject matter of the request is divided into two by doctrine as “course of business” and “individual matters”. In Turkish law practice and doctrine based on the TCC, the board chairman’s permission is required for both types of information. Turkish law differs from the source Swiss law in this and several different respects and is criticized for not being compatible with corporate governance principles (“Principles of Corporate Governance”). Although it is legally stated that the right cannot be restricted, doctrine agrees that there are some limitations arising from the essence of the right. During the exercise of the right, a balance must be established between the member’s duty of confidentiality and the right to legal defense, and the principle of equal treatment must be observed.
FOOTNOTES
1 Tuğçe GÜRSEL, The Right of Joint-Stock Company Board Members to Obtain Information and Examine Documents, Hacettepe University Institute of Social Sciences, Department of Private Law (Master’s Thesis), Ankara 2024, p.1
2 The aforementioned Article 331 of the ACC consists of only two paragraphs compared to the seven-paragraph regulation in the TCC.
3 GÜRSEL, op.cit., p.22
4 “Each board member may request information, ask questions, and conduct examinations regarding all affairs and transactions of the company. Any book, book record, contract, correspondence, or document requested by a member cannot be rejected from being brought to the board of directors, examined and discussed by the board or members, or obtaining information from any manager or employee regarding any subject. If rejected, the provision of the fourth paragraph shall be applied.”
5 Hediye Bahar SAYIN, “The Subject of the Right of Joint-Stock Company Board Members to Obtain Information Outside Meetings”, Union of Turkish Bar Associations Journal, 2016, p.485-496
6 Emre KALENDER, The Right of Joint-Stock Company Board Members to Obtain Information (TCC Art.392), Ankara University Institute of Social Sciences, Department of Private Law (Commercial Law) (Doctoral Thesis), Ankara 2016, p.4
7 GÜRSEL, op.cit., p.57
8 KALENDER, op.cit., p.73-77
9 GÜRSEL, op.cit., p.47
10 KALENDER, op.cit., p.98-100
11 KALENDER, op.cit., p.101-177
12 Jacek BAK, “Aktienrecht zwischen Markt und Staat”, Wiesbaden: Deutscher Universitätsverlag, 2003, p.205; Prof Dr. Hasan PULAŞLI, “The Right of Board Members to Obtain Information and Examine Documents According to the New Turkish Commercial Code,” p.591; Prof Dr. Savaş BOZBEL, “The Right of Joint-Stock Company Board Members to Obtain Information and Examine Documents,” p.79-96; Hasan KARSLIOĞLU, “The Right to Obtain Information Granted to Joint-Stock Company Board Members and Its Relationship with Members’ Duties and Responsibilities” Akdeniz University Faculty of Law Journal, 2021, p.377-398.
13 KALENDER, op.cit., p.201-225
14 SAYIN, op.cit., p.488; KARSLIOĞLU op.cit. p.387
15 Himmet KOÇ, “Transfer of Management and Representation Authority Through Internal Directive in Joint-Stock Companies” Gazi University Institute of Social Sciences (Unpublished master’s thesis), Ankara 2018, p.157
16 GÜRSEL, op.cit., p.42