In the event that the decisions rendered by the general assembly of a joint stock company violate the company's articles of association, the laws and, especially, the principle of honesty (objective good faith), an action for the annulment of such decisions may be brought.
Actions for the annulment of general assembly decisions prevent unlawful use of controlling power held by majority shareholders and such power's use in violation of the principle of honesty and, thus, may serve, from the perspective of corporate governance, as an essential instrument in terms of securing democracy in favor of the minority shareholders within the company.
ANNULMENT OF GENERAL ASSEMBLY DECISIONS IN JOINT STOCK COMPANIES
Procedure in Actions for AnnulmentA company's shareholders, board of directors and board members are, under certain conditions, entitled to bring actions for annulment of general assembly decisions. Such an action for annulment must be filed against the company with the commercial court of first instance located where the company's headquarters is located within three months from the date of the relevant decision. The board of directors represents the joint stock company in such actions whereas if the board of directors is the body which brought the action, an administrator must be appointed for the company.
Persons Entitled to Bring Actions for Annulment
1 ShareholdersThe Turkish Commercial Code divides the shareholders who are entitled to bring actions for annulment into two groups: (i) the shareholders who were present at the general assembly meeting and cast negative votes and (ii) regardless of their attendance at the meeting, all shareholders. Shareholders who bring an action for annulment must maintain their status as “shareholders” until the finalization of the court's decision.* Indeed, the practice shows that the Court of Cassation decisions uphold this principle. Therefore, the shareholders who wish to bring an action for the annulment of a general assembly decision must take into consideration that they should not fully transfer their shares within the course of the action until the court renders a final decision and that, otherwise, they would lose their statuses as a party to the action for annulment.
1.1 Shareholders who were present at the general assembly meetingShareholders who were present at the general assembly meeting may bring an action for annulment provided that they cast negative votes and have their dissent recorded in the minutes. Such dissent may relate to a certain part of the decisions or to all the relevant decisions rendered at the meeting. On this point, regard must be had to the fact that in the absence of a proper minute of dissent, the court may dismiss the action for annulment brought by the shareholder due to lack of prerequisites.† In other words, a minute of dissent would be deemed to be proper if the shareholders submit their letters containing their reasons of dissent relating to the decisions for which they cast negative votes, and the action for annulment that they will bring accordingly will be heard by the court. Furthermore, with respect to the minute of dissent, it is also worth noting that a dissent submitted in advance before the general assembly renders a decision is likely to be regarded as improper. In accordance with the settled practice of the Court of Cassation, such a dissent submitted in advance would likely prevent the relevant shareholder's filing of an action for annulment later on Therefore, in order to be able to secure the availability of the option to file an action for annulment in respect of the relevant decision later on, it is important for the shareholders to cast negative votes and record their dissent in relation to the relevant decision, or if an action for annulment will be brought in relation to more than one decision, record their dissents for each of such decisions individually.
1.2 In any event, all shareholdersRegardless of whether the shareholders attended the general assembly meeting and whether they cast negative votes in the meeting, the shareholders who claim that i) the meeting was not duly called for, ii) the agenda of the meeting was not duly announced, iii) persons or representatives who do not have the authority to attend the general assembly meeting attended the meeting and cast votes at such meeting, iv) the relevant shareholder, unrightfully, was not allowed to attend the meeting and to cast votes at such meeting, and in any case, all such irregularities affected the making of the general assembly decision may bring an action for annulment against the decision rendered.
Rule of EffectIn an action for annulment to be filed by a shareholder who cast a negative vote and recorded his/ her dissent with respect to a general assembly decision, the fact that the claimed irregularity affected the making of the relevant decision must be proven. In other words, in accordance with the rule of effect, in cases where, if the claimed irregularity had not existed, the relevant decision could not have been made by the general assembly, the annulment of such decision may be requested. Turkish courts, in accordance with the prevailing precedents to date, apply the rule of effect in regard to the meeting and decision quorums. For example, the court would consider the decision to have been affected in a case where a shareholder was restrained from attending a meeting and such shareholder holds voting rights sufficient to change the decision which was requested to be annulled. However, if the number or percentage of the votes owned by the shareholder does not suffice to change the relevant decision, the court would decide that the absence of such shareholder from the meeting does not have any effect on the decision. The Court of Cassation, in one of its rulings, decided to accept the action on the ground that the shareholders, whose shares represented 50% of the company's capital, would have been able to affect the decisions to be made if they had attended the meeting and the irregularity in the call for meeting violates the principle of honesty.§ Accordingly, it is important that consideration be made, on a case-by-case basis, in the light of the rule of effect by taking account the voting rights of the relevant shareholders and the required quorums of decision. In practice, more than one shareholders who individually have low share percentages filing the aforementioned action by acting in concert may be an alternative solution to be particularly considered by a shareholder who, alone, does not have the chance to succeed due to the rule of effect. Limitation by Turkish courts of the rule of effect to an evaluation carried out based on the number of shares, as set forth above, is an approach which is criticized in the doctrine. The possibility that the information and documents to be submitted by the minority shareholders who are considered not to have any effect on the voting due the small number of shares they hold could affect the votes cast by the other shareholders at the meeting must not be ruled out.
2. Board of DirectorsThe board of directors, in its capacity as the management and representative body, may bring actions for annulment of general assembly decisions without being subject to any condition.
3. Board MembersIf execution of a decision rendered at a general assembly meeting would give rise to the personal liability of the board members, each board member may bring an action for annulment of the relevant decision.
ConclusionConsequently, grounds for actions for annulment of general assembly decisions to be brought by joint stock company shareholders are limited in number. In this respect, for the purpose of succeeding in an action for annulment, it is crucial that the shareholder's dissent be duly recorded in the minutes of the meeting and, in any event, the plaintiff must prove that the irregularity which is the subject of the claim affected the making of the decision. In the event that the shareholders succeed in the action that they brought, the court's decision annulling the general assembly decision will take effect in respect of all shareholders after the finalization thereof and the general assembly decision will retroactively cease to be effective as of the date of the court's decision. In respect of such actions, which are essential instruments for purposes of safeguarding the shareholders' interests within the company, attending the general assembly meetings and doing the necessary planning beforehand in accordance with the aforementioned principles and decisions of the Court of Cassation would play a critical role in succeeding in such actions.