Illegal control and liability under the Commercial Code
Contributed by Ozgun Law
TheCommercial Code (Law 6102) - accepted by the Turkish Grand National Assembly on January13 2011 and published in the Official Gazette on February 14 2011 - will enter intoforce on July 1 2012. Unlike the existing code, the new code includes arrangementsfor the regulation of corporate groups, with discussion focused on regulationof illegal control within such groups. Illegal control is regulated in thefirst and secondclauses of Article 202 of the code, which involve:
l compensation for a subsidiary's losses; and
l compensation for its shareholders' losses and acquisition ofshares thereof.
Under the first clause of Article 202, if a parent company exercises control in a manner thatresults in losses for the subsidiary and the former cannot offset those losses,a case canbe filed for compensation for the subsidiary's losses. Such a case is filed by the subsidiary's shareholders or creditors against the parent company or its board members.However, there is no regulation on whether the subsidiary company has the status ofclaimant and board members the status of defendant. Requested compensationis paid to the subsidiary, not to its board members. The court may rule that thesubsidiary's shares be purchased instead of compensation being paid - or mayissueanother resolution appropriate to the given situation. If the losses derive from behaviour that can be approved within the framework of the board's obligation due diligence,no compensation decree will be made (under Article 202 (1)(d)).
Under thesecond clause of Article 202, any of the subsidiary's shareholders who object to are solution of the parent company's general assembly or board by which excessive control isexercised, may request compensation for its losses or request the purchase of its shares.