| Berru Ceren ZİYAGİL, Lawyer | Deniz DAĞDEVİREN, Legal Intern |
ABSTRACT
In joint stock companies, the wholesale sale of fundamental assets of the company may create significant effects on the company’s continuity, shareholders’ interests, and the company’s economic value. Article 408, paragraph 2, subsection (f) and Article 538, paragraph 2 of the Turkish Commercial Code No. 6102 (“TCC”) have made such transactions subject to general assembly resolution. However, as the TCC does not make concrete determinations regarding matters such as important asset, wholesale sale, decision quorum, transaction procedure, and invalidity conditions, debates continue in legal doctrine and practice. In this article, first the history, purpose, and scope of these provisions will be examined; subsequently, conceptual issues, general assembly decision procedure, legal consequences, Court of Cassation decisions, and doctrinal opinions will be analyzed; finally, recommendations and conclusions will be presented.
Keywords: Joint Stock Company, Important Asset Sale, General Assembly, TCC, Wholesale Sale, Shareholders.
INTRODUCTION
Joint stock companies are capital partnerships and partners have limited liability for company debts. In this structure, the company’s assets constitute an important guarantee for creditors. In terms of the company’s operation and protection of shareholders, uncontrolled transfer or sale of critical company assets may conflict with principles of legal security, asset balance, and equality among shareholders. Therefore, in our legal system, wholesale sale transactions of important assets of joint stock companies have been subjected to special supervision. This examination aims to understand this supervision regime in light of the regulations in the TCC, case law, and approaches in legal doctrine.
I. HISTORY AND PURPOSES OF THE REGULATION
a. Previous Regulations
During the period of the former Turkish Commercial Code No. 6762, “wholesale sale of assets” was limited to general assembly resolution for joint stock companies in the liquidation phase. However, wholesale sale of asset elements in active (operating) joint stock companies was not contemplated.
b. Innovation Introduced by TCC No. 6102
With the new TCC, the legislature included the wholesale sale transaction of important assets of the company among the non-transferable authorities of the general assembly, so as to cover active joint stock companies as well. A similar regulation for companies in liquidation has been preserved in Article 538, paragraph 2 of the TCC.¹ This regulation aims to strengthen shareholders’ participation in decision-making processes by limiting the board of directors’ authority in transactions that will affect the whole or significant part of the company.
c. Purpose and Principles
The fundamental purpose of this regulation is to prevent major asset transfers that would jeopardize the company’s continuity from being made without shareholders’ knowledge and approval. Additionally, it is possible to observe that this regulation aims to protect minority shareholders from majority pressure and arbitrariness of board of directors’ decisions in a manner compatible with the general application of the TCC; to ensure legal security in commercial life; and consequently to strengthen transparency and corporate governance principles. At the same time, this regulation aims to clarify power sharing among organs, because the board of directors’ authority to unilaterally sell essential company asset elements has been limited.
II. CONCEPTS AND SCOPE OF APPLICATION
a. Concepts of “Company Asset” and “Company Active”
In the provision of Article 408, paragraph 2 of the TCC, the concept “company asset” is used; whereas in the provision of Article 538, paragraph 2, the concept “actives” is employed. The prevalent view in legal doctrine asserts that there is no difference in meaning between these two concepts, and that the entirety of the company’s active-assets is intended. However, according to some opinions, “company asset” is a broader and more holistic concept; it may encompass not only balance sheet actives but also tangible and intangible elements such as business right, goodwill, and customer portfolio.² Company asset is expressed as monetary value with all tangible and intangible elements of the company. Moreover, what is meant by the term asset is not circulating assets, and for this reason, circulating assets should not be taken into account in determining company assets; company assets should be accepted as fixed assets such as real estates, facilities-machinery and equipment, vehicles, and fixtures.³
b. Concept of “Important Amount”
The expression “important amount” is not defined in the TCC; therefore, general principles of law, practice, and judicial discretion come into play.⁴ Some opinions suggest basing importance on quantitative criteria. For example, applying ratios based on objective numerical data such as 30%, 50% of total actives will be ensured; and the principle of faithful image within the scope of Article 515 of the TCC will also be protected. Some other opinions advocate determining the concept of important amount with qualitative criteria. This qualitative criterion focuses on whether the sale transaction will render the company unable to continue its activities. Court of Cassation decisions also adopt this qualitative criterion.⁵ For instance, it has been emphasized that transfer transactions of the company’s single major asset are of a liquidation nature and that liquidation decision can only be taken by the general assembly. Indeed, in other first instance court decisions⁶ as well, considering that the value of the company’s assets not subject to sale is much higher than the value of the asset subject to sale, and its place within the total size of the company, it is possible to state the opinion that it does not constitute an important asset, and in this case the board of directors is solely authorized. Additionally, it should be emphasized that it is possible to regulate and stipulate the scope of the concept “important amount” in the articles of association. Of course, these regulations must be made in compliance with the general principles of the TCC and the rule of honesty. Regulations that restrict the authority of the general assembly should be avoided.
c. Concept of “Wholesale Sale”
Wholesale sale is interpreted in the sense of sale of a large mass of actives in a single instance.⁷ However, other opinions, by interpreting the will of the legislature, argue that gradual transfer of all assets of a company should also be evaluated as wholesale sale. In any case, it would be appropriate to emphasize that there is no consensus in practice and doctrine on this matter either. Some opinions in doctrine advocate that the concept of wholesale sale should be narrowly interpreted so as to encompass only sale transactions. In our opinion, the principle of legal security lies at the foundation of this view. Broad interpretation of the concept of sale so as to encompass other legal transactions will subject all legal transactions regarding every kind of important asset of joint stock companies to general assembly approval, and at this point the balance of authority between board of directors-general assembly organs will be disrupted in a manner contrary to the spirit of the TCC. However, other opinions argue that the concept of sale should encompass not only sale transactions but also other transactions such as transfer, donation, barter, surety, guarantee, loan, which may result in transfer of ownership or significantly restrict the use of ownership right. What this view intends to emphasize is that the concept of “sale” should be broadly interpreted for transactions leading to significant changes or restrictions regarding ownership. Because these transactions, like sale, affect the essential elements of the company and are of considerable importance regarding the company’s continuity.
III. GENERAL ASSEMBLY DECISION PROCEDURE
a. Decision Quorum and Meeting Procedure
Paragraph (f) of Article 408, paragraph 2 of the TCC does not regulate with which quorum the general assembly decision will be taken. Due to this gap, there are debates in legal doctrine. Some opinions advocate that ordinary meeting and decision quorums regulated in Article 418 of the TCC (for example, majority of shares present at the meeting and majority of votes) should be applied. However, some authors suggest that qualified quorums in Article 538, paragraph 2 of the TCC should be applied by analogy. In paragraph 12 of Article 22 of the Regulation on Procedures and Principles of General Assembly Meetings of Joint Stock Companies (“Regulation”), it is stipulated that the decision of wholesale sale of actives in important amount will be taken with affirmative votes of shares representing 75% of the company capital.⁸ However, as this regulation is not explicitly stated in the law, it is criticized in terms of hierarchy of norms. The Court of Cassation’s decision dated 08.12.2021 on the subject⁹ accepted that general assembly decisions should be taken with ordinary majority in accordance with Article 418 of the TCC for active companies; and refused to apply the 75% aggravated quorum in the regulation to active companies.
b. Nature and Effect of the Decision
General assembly decision may be taken before the sale transaction is made, or may be given subsequently through ratification. However, ratification does not substitute for prior general assembly approval. In the general assembly decision, it must be shown that approval was given knowingly and by evaluating the essential conditions of the transaction. Even if general assembly approval is given for a sale containing different provisions, in a sale made with different conditions, re-approval will be required.
IV. LEGAL CONSEQUENCES AND INVALIDITY
The question of what the legal status of a wholesale sale transaction made without obtaining general assembly decision will be is also a matter not regulated within the scope of the law. To clarify this matter, different opinions are put forward in doctrine and practice.
a. Absolute Nullity View
Some opinions argue that important asset sales made without general assembly decision are vitiated by absolute nullity, meaning they produce no legal effect whatsoever. This approach shows strict adherence to the principle of division of labor among organs.
b. Voidability View
The other view argues that these transactions should be accepted as valid but may be subject to cancellation subsequently. According to this view, the transaction is not unlawful but may be sued by shareholders.
c. Pending Invalidity / Situation Awaiting Ratification
Sale transaction made with unauthorized board of directors decision is accepted as pending invalidity until ratification is given by general assembly decision (does not produce effect and consequences). If general assembly gives ratification, the transaction becomes valid; if not, the transaction encounters nullity.
d. Protection of Third Parties in Good Faith
According to some opinions, Article 371, paragraph 4 of the TCC (protection of third party in good faith) may be applied by analogy; third parties in good faith may be protected even if the transaction is contrary to procedure.
e. Validity in External Relations and Consequences in Internal Relations
Sale transaction not made in accordance with procedure may not be asserted against third party (may be deemed valid in external relations) but in internal relations, right to claim arises against shareholders and company.
V. COURT OF CASSATION DECISIONS
• Court of Cassation 11th Civil Chamber, 23.02.2021: Transfer of the real estate which is the single active element of the company was deemed wholesale sale as it would lead to the company being unable to continue its activities; general assembly decision was deemed mandatory.¹⁰
• Court of Cassation 11th Civil Chamber, 08.12.2021¹¹: Rejected the 75% regulation quorum in active companies; stated that decision can be taken with ordinary majority according to Article 418 of the TCC.
• Regional Court of Justice Decision: It was evaluated that the share sale amounted to wholesale transfer of the company’s actives, therefore reference was made to Article 538/2 of the TCC and it was concluded that 75% quorum should be valid.¹²
These decisions have largely guided legal practitioners, particularly drawing boundaries regarding decision quorum and important amount criterion.
CONCLUSION
Wholesale sale of important assets in joint stock companies is a transaction that directly affects the company’s economic future, shareholders’ interests, and corporate structure. Therefore, the legislature’s making general assembly approval mandatory both for operating joint stock companies (TCC Art. 408/2-f) and those in liquidation (TCC Art. 538/2) is an appropriate preference. However, the undefined nature of the concept of important amount, uncertainties regarding decision quorums, and legal consequences of transactions made without general assembly approval cause serious problems in practice. Court of Cassation decisions take into account as criterion whether the transaction terminates the company’s activities or not, which is somewhat guiding. However, nevertheless, in order to eliminate gaps in practice and ensure legal security, clear ratio ranges should be determined in the TCC for the concept of important amount; regarding decision quorum, qualified majority regulation should be elevated to law level also for companies in operation; the regulation provision should be made compatible with the law, or should be re-regulated in accordance with hierarchy of norms. Additionally, for the protection of shareholders, strengthening cancellation and dissolution rights, making independent audit mechanisms mandatory, and clarifying board of directors’ liability will provide significant benefits in terms of third parties in good faith, minority shareholders, and continuity of the joint stock company. Consequently, the purpose of this regulation is not only a procedural obligation but also to strengthen corporate governance and investor confidence. With clearer provisions and effective supervision mechanisms, wholesale sale transactions of assets in joint stock companies can be placed on a predictable, supervisable, and fair basis.
¹ Esin Bilge MAHMUTOĞLU, Wholesale Sale of Company Assets in Important Amount in Joint Stock Companies and Special Situations Regarding Sale (Master’s Thesis, Istanbul Bilgi University 2025).
² Ersin ÇAMOĞLU, “Important Amount Asset Sale in Joint Stock Corporation” within Festschrift for Prof. Dr. Hamdi Yasaman (On İki Levha 2017) p.227.
³ Decision of Bakırköy 3rd Court of First Instance Commercial Court dated 30.12.2021 and numbered E.2020/401, K.2021/1252.
⁴ Hakan Arslan DURAL, ‘Content and Scope of General Assembly Decision Regarding Sale of Important Amount Asset of Joint Stock Company’ within Festschrift for Prof. Dr. Hamdi Yasaman (On İki Levha 2017) 251.
⁵ Decision of Court of Cassation 11th Civil Chamber, dated 23.02.2021 and numbered E.2019/3029, K. 2021/1581.
⁶ Decision of Bakırköy 3rd Court of First Instance Commercial Court dated 30.12.2021 and numbered E.2020/401, K.2021/1252.
⁷ Attorney Duygu TURGUT, “Dispositions on Company Assets in Important Amount in Joint Stock Companies” (TOKKDER Journal, 26 May 2021).
⁸ Capital Markets Board, Communiqué on Significant Transactions (II-23.3), OG 28871, 23 January 2014.
⁹ Decision of Court of Cassation 11th Civil Chamber dated 08.12.2021 numbered E.2020/4459, K.2021/7620.
¹⁰ Decision of Court of Cassation 11th Civil Chamber, dated 23.02.2021 and numbered E 2019/3029, K 2021/1581.
¹¹ Decision of Court of Cassation 11th Civil Chamber dated 8.12.2021 and numbered E. 2020/306, K. 2021/6945.
¹² Decision of Antalya Regional Court of Justice 11th Civil Chamber dated 1.10.2019 and numbered E. 2019/184, K. 2019/2072.