Organ lack lawsuit in joint stock companies (TCC art. 530)

This study examines the case of lack of organs in joint stock companies. The minimum content of the joint stock company organization, is structured by mandatory provisions. The board of directors and the general assembly are the legally mandatory organs of the joint stock company. In the absence of legally mandatory organs, the shareholder, the creditor of the partnership and the Ministry of Trade may file a lawsuit against the partnership under Article 530 of the TCC. At the beginning of the study, it is emphasized why there is a need for mandatory organization provisions in the Law for joint stock companies. Then, the concept of organ, which is a conceptual element of joint stock companies like other legal entities, is explained. In order to express the different meanings of the concept of organ, the study prefers to analyze the concept of organ under three headings. On the basis of the allocation of functions, it is understood that the functions specific to the organ such as decision-making and management supervision, are allocated to the units within the joint stock company by law and, to the extent permitted by law, by the articles of association. This meaning of organ does not refer to the individuals who individually occupy the units created within the joint stock company, but to the committees that have the characteristics of organs specific to the organization of the joint stock company. Organs may put the legal entity under debt not only by their lawful acts but also by their unlawful acts. The acts of the organs are attributed to the legal entity directly and unmediatedly. In this sense, the concept of organ refers to the boards and individuals that can make the legal entity directly liable for all kinds of acts. In another sense, organ is used to refer to the persons subject to the liability regime specific to the law of joint stock companies. In this sense, Article 553 et seq. of the TCC determines the persons who may be subject to individual liability. The scope of application of Article 530 of the TCC should be determined. In this respect, the mandatory bodies should be determined. As a matter of fact, the preamble of article 530 of the TCC states that the compulsory organs shall be determined by doctrine and practice. In the TCC system, the mandatory organs of a joint stock company are the board of directors and the general assembly. The concept of lack of organs should be delimited. It is clear that the non- existence of the organ would fall within the scope of application of Art. 530 TCC. Article 530 of the TCC does not provide a clear answer as to whether the organ's violation of the mandatory organizational provisions of the law can be considered as a lack of organ. In accordance with the opinion adopted by the study, Art. 530 of the TCC should be interpreted narrowly and the situations that may constitute a lack of organ should not be expanded. Another issue that needs to be discussed is whether the formation of the organ in violation of the articles of association would constitute a lack of organ. The wording of Article 530 of the TCC, which excludes the articles of association, suggests that the protection purpose of the provision on lack of organs may be limited to the legally mandatory organization of the joint stock company. Indeed, if it is argued that only the breach of the articles of association would fall within the scope of application of the provision on lack of organs, the scope of application of Article 530 of the TCC may expand beyond what the legislator envisaged. Nevertheless, it can be said that, in some specific cases, a breach of the articles of association may lead to a lack of organs. Violation of the provisions of the articles of association that complement or limit the mandatory provisions of the law regarding the formation of the organs may be considered as a lack of organs. It is observed that the purpose and subject matter of Art. 530 TCC have not been analyzed with sufficient focus in the doctrine and practice. As a matter of fact, although the preamble of Article 530 of the TCC mentions the conditions of application of the provision, there is no explanation as to why this provision is included in the Law. In this respect, this study endeavors to determine the ratio legis of Art. 530 TCC. Indeed, without determining the interests that the provision aims to protect, there is a risk that the application of the provision may become mechanical. In the second part of the study, the constitutive provisions regarding the formation of the mandatory organs of the joint stock company will be mentioned, and the conditions under which the organ will be deemed to be formally incomplete will be explained. The existence of the board of directors is related to the presence of a sufficient number of members in the board. In this respect, it is important to determine the minimum number of members required for the formal existence of the board of directors. According to the view we defend in this study, falling below the minimum number of board members stipulated in the articles of association does not, by itself, lead to the lack of a board of directors. If the meeting quorum required by Article 390 of the TCC, which determines the conditions for the board of directors to convene and take decisions, is not met, it should be concluded that the board of directors does not exist. Vacancies occurring in the board of directors may also terminate the organ nature of the board of directors. For many years, Turkish doctrine and practice have been occupied with the issue of what should be done if the members of the board of directors continue their managerial activities despite the expiration of their terms of office. It would not be convincing to conclude that the nature of the body is lost or preserved only upon the expiration of the term of office. Any opinion to be defended without focusing on the legal status of the board of directors and the outcome of its transactions following the expiration of the term of office would be unconvincing. The acceptance of the member who remains in office despite the expiration of his/her term of office as a de facto body will serve to protect the security of law and transactions, and it will be possible to remedy the unlawful situation of the board of directors pursuant to Art. 530 TCC. The general assembly is the compulsory organ of the joint stock company that is reconstituted with each agenda. Before discussing the functionality or material lack of this body, it is necessary to formally constitute the body, in other words, to convene it. For this body to convene, i.e., to emerge as an organ, strict formal rules must be observed. Article 409/f.1 of the TCC stipulates a time interval for the convening of the ordinary general assembly. The convening of the general assembly at the time stipulated by the law is a prerequisite for the exercise of shareholders' rights. In this respect, the study argues that requesting the convening of the ordinary general assembly on time is a shareholder right. The possibility of the formal lack of a general assembly is not only a guarantee for the organization of joint stock companies based on the separation of functions between organs in accordance with the law, but also a cornerstone of corporate governance, especially for closed companies. Although organ deficiency is primarily a formal issue, the broad concept of organ deficiency is interpreted broadly and the organ becoming dysfunctional is also evaluated under Art. 530 TCC. As argued in the study, the dysfunction of the organ is not considered as organ deficiency in all cases. Therefore, expressions such as inoperability, dysfunction, deadlock of the organ are not used in the same sense as organ deficiency in this study. In order to express the cases where the dysfunction of the organ is exceptionally equated with the absence of the organ, the study prefers the term "material deficiency", which is used in Swiss terminology as opposed to formal deficiency. To define the dysfunctionality of the organ; it is the inability of the organ to fulfill the duties arising from the law. In other words, although the body exists in form, the functions imposed on the body by the law are not fulfilled due to the failure or inability of the persons constituting the body to act in the required manner. In our opinion, the inability of the board of directors to take decisions in the internal relationship should not give the creditor of the company and the Ministry of Trade the right to file a lawsuit under Art. 530 TCC. Pursuant to Art. 410/f.2 TCC, the shareholder has the right to apply to the court in the event of the dysfunction of the board of directors due to the inability to take decisions. Therefore, in our opinion, as long as the consequences of the dysfunction of the board of directors are not reflected in the external relationship, the deficiency of the board of directors should not be mentioned. However, if the dysfunction of the board of directors renders the representation of the joint stock company impossible, a different interpretation should be made. In the event that the board of directors is incapable of managing and representing the joint stock company, the results are equivalent to the formal incompleteness of the board of directors. Pursuant to the view defended by the study, in this case, it should be possible to immediately file a lawsuit for lack of an organ against the joint stock company. With the addition of Art. 531 TCC, which regulates the termination for just cause action, in our opinion, the justifications for the broad interpretation of the lack of an organ during the eTCC period have, to a large extent, lost their validity. To the extent that this period, during which the general assembly was deprived of its decision- making ability, frustrated the objective expectations of the shareholders regarding the continuation of the joint stock company, it may be considered as a just cause within the meaning of Art. 531 TCC. Accordingly, the problems caused by the permanent inability of the general assembly to take decisions may be eliminated by the application of Art. 531 TCC instead of Art. 530 TCC. The study adopts a different approach from the established Turkish doctrine and practice in terms of the legal classification of the measures to eliminate the deficiencies regarding the capacity to act. The legal basis of these measures, which we believe should be taken ex officio by the judge during the trial, is in substantive law. In our opinion, it would be appropriate to characterize the measures to remedy organ deficiencies as temporary measures originating from the guardianship law. The judge has no discretionary power in terms of the consequences of the lack of organ lawsuit within the meaning of Article 4 of the TCC (TMK). However, a deadlock situation that may arise in a joint stock company may appear as both "just cause" and "lack of an organ". In the event that the joint stock company cannot operate due to a deadlock, the provisions of Articles 530 and 531 of the TCC should be applied together. The fact that one of the interests protected by both provisions individually is so indispensable that it is not preferable to the other constitutes the main justification for this view. Accordingly, when a termination for just cause action is filed on the grounds that the board of directors cannot be elected or the quorum for decisions/meetings is permanently absent, it would be appropriate for the court not to disregard the temporary measures of Article 530 of the TCC to remedy the lack of a quorum. In cases where the plaintiff bases its claims exclusively on Art. 530 TCC, the judge should ex officio apply Art. 531 TCC and evaluate alternative solutions other than termination. In this way, the principle of termination as a last resort under Art. 531 TCC should be rendered operational, and the threat of facilitated termination that may be obtained in a lack of organ case should be prevented. The court's decision should aim to finally resolve the lack of organs in the joint stock company. On the other hand, the lack of organs should not reappear when the judge withdraws from the case. In this respect, the appropriateness of alternative solutions that envisage radical changes in the shareholding structure, rather than solutions that interfere with the basic organization of the joint stock company, in other words, its organ functioning, can be discussed. The last part of the study focuses on the procedural characteristics of the lack of organ action. Some of the principles of procedural law do not respond appropriately to some of the characteristics of the lack of organs case. This is because the possible consequences of the lawsuit may affect the legal status of persons other than the parties to the lawsuit and the economic public order. In addition, the fact that the lack of the joint stock company's capacity to act may have a detrimental effect on public order creates the necessity to depart from some principles of civil procedural law. Accordingly, the study seeks a solution that reconciles the institutions of civil procedural law with the specific circumstances of the lack of organs case.