This article provides a comprehensive analysis of the rights granted to shareholders under Article 555 of the Turkish Commercial Code (TCC) to file a lawsuit against a board member. It covers the conditions for filing a lawsuit, possible legal remedies, the impact of court decisions, and relevant case law.
1. Conditions and Procedure for Filing a Lawsuit
1.1. Shareholders’ Right to Sue Board Members
According to TCC Article 553, board members and other company officials may be held liable for damages if they violate the law or the company’s articles of association.
In this context, TCC Article 555 explicitly grants each shareholder the right to sue even if the company itself does not initiate legal action.
TCC Article 555(1) states:
“The company and each shareholder may request compensation for the damage suffered by the company. Shareholders may only demand that the compensation be paid to the company.”
This provision ensures that shareholders have the right to demand compensation for the company’s loss. However, any awarded compensation must be paid directly to the company, not the shareholder, because the primary goal is to restore the company’s assets rather than to compensate individual shareholders.
1.2. Is a General Assembly Decision Required?
TCC 555 allows both the company and individual shareholders to seek damages.
• Shareholders do not need approval from the company or other shareholders to file a lawsuit.
• No requirement exists for the company’s general assembly to take prior action.
• A single shareholder can file the lawsuit independently.
1.3. Competent Court and Legal Procedure
- Competent Court: The Commercial Court of First Instance where the company’s headquarters is located.
- Plaintiff: The shareholder (either an individual or a legal entity).
- Defendant: The board member(s) accused of causing the company’s financial loss.
- Statute of Limitations:
- 2 years from the date the damage and responsible party are discovered.
- Maximum of 5 years from the date the act causing the damage occurred.
- If the act constitutes a criminal offense, the longer criminal statute of limitations applies (e.g., 10-15 years in cases like fraud or embezzlement).
1.4. Where is the Compensation Paid?
If the shareholder wins the lawsuit, the awarded compensation is paid directly to the company, not the shareholder. The goal is to restore the company’s assets and ensure corporate accountability.
2. Possible Legal Remedies
2.1. Compensation for Damages
The primary legal remedy in a lawsuit under TCC 555 is the compensation of financial damages incurred by the company due to the wrongful actions of board members.
- The court assesses the damage and determines the amount to be compensated.
- If the board member is found liable, they must compensate the company.
2.2. Interest and Litigation Costs
The awarded compensation can include interest, starting from the date the damage occurred.
- Court and attorney fees are generally imposed on the losing party (the defendant).
- If the defendant cannot pay, the court may order the company to cover part of the costs (TCC 555/2).
3. Impact of Court Decisions
3.1. Effects on the Company and Shareholders
- The company’s financial damage is compensated, improving its financial health.
- Shareholders indirectly benefit from the restoration of corporate value.
- The lawsuit reinforces corporate accountability and discourages further misconduct.
3.2. Consequences for the Board Member
- Financial liability arises, and the board member must pay compensation to the company.
- If they fail to pay, enforcement measures (such as asset seizure) may be initiated.
- The ruling may lead to the board member’s resignation or removal.
3.3. Enforcement of the Decision Without Waiting for Finalization
A key point is that the court decision can be enforced immediately, without waiting for finalization.
- In Turkish law, court rulings on compensation can be enforced without requiring finalization (Enforcement and Bankruptcy Law, Article 32).
- This means that even if the defendant appeals, the enforcement process can begin.
- However, the defendant may request a suspension of enforcement by providing security during the appeal process.
This rule ensures that once the shareholder wins the lawsuit, the company’s losses can be recovered without delay.
Turkish Court of Cassation precedents confirm that court rulings under TCC 555 can be enforced immediately, without waiting for the appeal process to conclude.
4. Relevant Case Law and Judicial Applications
4.1. Turkish Court of Cassation 11th Civil Chamber, Decision No. 2014/3664 E., 2015/1626 K. (Dated 10.02.2015)
- Confirmed that shareholders have an independent right to sue board members under TCC 555.
4.2. Turkish Court of Cassation 12th Civil Chamber, Decision No. 2023/3847 K.
- Ruled that decisions under TCC 555 can be enforced without finalization.
- Affirmed that the shareholder can initiate enforcement proceedings.
4.3. Turkish Court of Cassation 11th Civil Chamber, Decision No. 2023/3049 E., 2024/5796 K. (Dated 10.07.2024)
- Clarified that legal entity shareholders also have the right to file lawsuits under TCC 555.
Conclusion
TCC 555 is a crucial legal mechanism that strengthens corporate governance by holding board members accountable for financial mismanagement.
- Shareholders can file lawsuits against board members who harm the company.
- Any awarded compensation is paid to the company, not the shareholder.
- The court decision can be enforced immediately, without waiting for finalization.
This right ensures corporate transparency, financial accountability, and legal recourse against board members who act unlawfully.